<PAGE>
As filed with the Securities and Exchange Commission on November 17, 2000
Registration No. 333-48012
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
WorldCom, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Georgia 4813 58-1521612
<S> <C> <C>
(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, Chief Executive Officer
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 I. Townsend, III, Esq. Ralph J. Sutcliffe, Esq.
Cravath, Swaine & Moore Kronish Lieb Weiner & Hellman LLP
825 Eighth Avenue 1114 Avenue of the Americas
New York, New York 10019 New York, New York 10036
(212) 474-1000 (212) 479-6000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective in connection
with the merger of a subsidiary of Registrant with and into Intermedia
Communications Inc. ("Intermedia") pursuant to the Agreement and Plan of Merger
described in the proxy statement/prospectus forming a part of this Registration
Statement.
If any of the securities being registered on this Form are to be 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(c)
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>
<CAPTION>
Proposed
Title of each class of Maximum Proposed Maximum Amount of
securities to be Amount to be Offering Price Aggregate Registration
registered registered per Unit Offering Price Fee
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, par value
$0.01 per share, and
associated preferred
stock purchase
rights............... 108,753,276(1) N/A $2,494,582,645(5) $658,570(11)
---------------------------------------------------------------------------------------------
Common stock, par value
$0.01 per share, and
associated preferred
stock purchase rights
issuable as dividends
on the series D
preferred stock,
series E preferred
stock, series F
preferred stock and
series G preferred
stock................ 3,791,649(2)(6) N/A $100,715,677(6) $26,589(11)
---------------------------------------------------------------------------------------------
Series D preferred
stock, par value $0.01
per share, and
associated depositary
shares (4)........... 53,724(3) N/A $171,245,250(7) $45,209(11)
---------------------------------------------------------------------------------------------
Series E preferred
stock, par value $0.01
per share, and
associated depositary
shares (4)........... 64,047(3) N/A $140,903,400(8) $37,199(11)
---------------------------------------------------------------------------------------------
Series F preferred
stock, par value $0.01
per share, and
associated depositary
shares (4)........... 79,600(3) N/A $153,230,000(9) $40,453(11)
---------------------------------------------------------------------------------------------
Series G preferred
stock, par value $0.01
per share............ 200,000(3) N/A $66,667(10) $18(11)
---------------------------------------------------------------------------------------------
Total................................................................... $808,038(12)
</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 the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
(1) Based on (a) the maximum number of shares of WorldCom common stock
estimated to be issuable upon the completion of the merger, calculated as
the sum of (i) 66,918,475, the number of shares of Intermedia common stock
outstanding on September 30, 2000, or issuable pursuant to options
outstanding on that date, (ii) 6,905,411, the number of shares of
Intermedia common stock issuable upon conversion of the Intermedia series
D preferred stock, (iii) 5,295,758, the number of shares of Intermedia
common stock issuable upon conversion of the Intermedia series E preferred
stock, (iv) 4,729,649, the number of shares of Intermedia common stock
issuable upon conversion of the Intermedia series F preferred stock, (v)
5,555,556, the number of shares of Intermedia common stock issuable upon
conversion of the Intermedia series G preferred stock, and (vi) 2,200,000,
the number of shares of Intermedia common stock issuable pursuant to
outstanding warrants prior to the date the merger is expected to be
completed, multiplied by (b) 1.1872, the highest exchange ratio possible
in the merger.
(2) Pursuant to Rule 457(o), an indeterminate number of shares of WorldCom
common stock are registered hereunder that may be issued by WorldCom from
time to time in lieu of cash during the two-year period commencing on the
effective date of this Registration Statement as dividends on the WorldCom
series D preferred stock, WorldCom series E preferred stock, WorldCom
series F preferred stock and WorldCom series G preferred stock.
(3) Based upon the outstanding number of shares of the corresponding series of
Intermedia preferred stock.
(4) Each depositary share represents a 1/100 interest in a share of the
corresponding series of Intermedia preferred stock.
(5) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and 457(c) of the Securities Act of 1933, as
amended, based on (a) $22.938, the average of the high and low prices per
share of Intermedia common stock on October 12, 2000, as reported on The
Nasdaq National Market, multiplied by (b) the aggregate number of shares
of Intermedia common stock (i) to be exchanged for WorldCom common stock
in the merger or issuable pursuant to outstanding options or warrants and
(ii) issuable upon conversion of the Intermedia series D preferred stock,
Intermedia series E preferred stock, Intermedia series F preferred stock
and Intermedia series G preferred stock.
(6) Estimated solely for the purpose of calculating the registration fee and
based on the terms of the applicable Intermedia preferred stock to be
exchanged in the merger, (a) in the case of the WorldCom series D
preferred stock, WorldCom series E preferred stock and WorldCom series F
preferred stock, based on (i) 95% of an assumed 10-day average high and
low sales price of $26.5625 per share of WorldCom common stock as of
October 10, 2000, as reported on The Nasdaq National Market, multiplied by
(ii) the estimated dividend shares of WorldCom common stock issuable as
dividends from time to time in lieu of cash during the two-year period
commencing on the effective date of this Registration Statement and (b) in
the case of the WorldCom series G preferred stock, based on (i) 100% of an
assumed 10-day average high and low sales price of $26.5625 per share of
WorldCom common stock as of October 10, 2000, as reported on The Nasdaq
National Market, multiplied by (ii) the estimated dividend shares of
WorldCom common stock issuable as dividends from time to time in lieu of
cash during the two-year period commencing on the effective date of this
Registration Statement.
(7) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and 457(c) of the Securities Act of 1933, as
amended, based on the product of 53,724, the number of shares of
Intermedia series D preferred stock to be exchanged in the merger,
multiplied by 100 times $31.875, the average of the bid and asked prices
per depositary share of Intermedia series D preferred stock on October 10,
2000.
(8) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and 457(c) of the Securities Act of 1933, as
amended, based on the product of 64,047, the number of shares of
Intermedia series E preferred stock to be exchanged in the merger,
multiplied by 100 times $22.00, the average of the bid and asked prices
per depositary share of Intermedia series E preferred stock on October 10,
2000.
(9) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and 457(c) of the Securities Act of 1933, as
amended, based on the product of 79,600, the number of shares of
Intermedia series F preferred stock to be exchanged in the merger,
multiplied by 100 times $19.25, the average of the bid and asked prices
per depositary share of Intermedia series F preferred stock on October 10,
2000.
(10) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) of the Securities Act of 1933, as amended,
based on the product of 200,000, the number of shares of Intermedia series
G preferred stock to be exchanged in the merger, multiplied by one-third
of $1.00, the par value per share of Intermedia series G preferred stock.
(11) Calculated by multiplying the proposed maximum aggregate offering price by
0.000264.
(12) This amount was previously paid on October 16, 2000.
<PAGE>
Intermedia Logo
November 17, 2000
Dear Stockholder:
You are invited to attend a special meeting of stockholders of Intermedia
Communications Inc. The meeting will be held at 10:00 a.m., local time, on
Monday, December 18, 2000, at One Intermedia Way, Tampa, Florida. At the
meeting, you will be asked to vote on the adoption of a merger agreement
between Intermedia and WorldCom, Inc.
In the merger, Intermedia common stockholders will receive a minimum of
0.8904 and a maximum of 1.1872 shares of WorldCom common stock for each share
of Intermedia common stock they own. The actual number of shares of WorldCom
common stock will be determined by dividing $39.00 by the weighted average per
share trading price for the WorldCom common stock over a period of 15 trading
days randomly selected from the 30 consecutive trading days ending on the third
trading day prior to the completion of the merger. In addition, if the weighted
average per share trading price of WorldCom is less than $36.50, WorldCom will
have the option of issuing 1.0685 shares of WorldCom common stock for each
share of Intermedia common stock and paying the remainder of the consideration
in cash. WorldCom common stock is quoted on The Nasdaq National Market under
the symbol "WCOM".
Holders of Intermedia preferred stock, other than Intermedia series B
preferred stock, will receive newly issued WorldCom preferred stock for the
shares of Intermedia preferred stock they own. The new WorldCom preferred stock
will have substantially identical terms as the Intermedia preferred stock
except as described in this proxy statement/prospectus. Shares of Intermedia
series B preferred stock will remain outstanding as preferred stock of
Intermedia following the merger.
You should consider the matters discussed under "Risk Factors Relating to
the Merger" beginning on page 12 of this proxy statement/prospectus before
voting.
After careful consideration, the Intermedia board of directors has
unanimously approved the merger agreement and determined that the merger and
the merger agreement are advisable, fair to and in the best interests of
Intermedia and its stockholders. Accordingly, the Intermedia board recommends
that you vote FOR adoption of the merger agreement.
/s/ David C. Ruberg
David C. Ruberg
Chairman of the Board, 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 other securities
regulator has approved or disapproved the merger described in this proxy
statement/prospectus or the WorldCom capital stock to be issued in the merger
or determined that this proxy statement/prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated November 17, 2000, and is first
being mailed to stockholders on or about November 17, 2000.
<PAGE>
Intermedia Communications Inc.
One Intermedia Way
Tampa, Florida 33647
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 18, 2000
To the Stockholders of Intermedia Communications Inc.:
A special meeting of stockholders of Intermedia Communications Inc. will be
held on Monday, December 18, 2000, starting at 10:00 a.m., local time, at One
Intermedia Way, Tampa, Florida. The purpose of the special meeting is for you
to consider and vote upon a proposal to adopt the Agreement and Plan of Merger,
dated as of September 1, 2000, among Intermedia Communications Inc., WorldCom,
Inc. and Wildcat Acquisition Corp., as described in this proxy
statement/prospectus.
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 it by the Intermedia board of directors.
Only holders of record of Intermedia common stock and Intermedia series G
preferred stock at the close of business on November 1, 2000, will be entitled
to vote at the special meeting or any adjournment or postponement of the
special meeting.
We cannot complete the merger unless the holders of a majority of the voting
power of the outstanding common stock and series G preferred stock, voting
together as a single group, and the holders of a majority of the voting power
of the outstanding series G preferred stock, voting as a separate class, vote
to adopt the merger agreement.
For more information about the merger, please review the accompanying proxy
statement/prospectus and the merger agreement attached as Annex A.
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 merger agreement.
Please do not send any stock certificates at this time.
By Order of the Board of Directors
/s/ Robert M. Manning
Robert M. Manning
Senior Vice President, Chief
Financial Officer and Secretary
Tampa, Florida
November 17, 2000
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about WorldCom and Intermedia from documents that are not
included in or delivered with this document. This information is available to
you without charge upon either written or oral request. You can obtain
documents incorporated by reference in this document by requesting them in
writing or by telephone from the appropriate company at the following addresses
and telephone numbers:
WorldCom, Inc. Intermedia Communications Inc.
500 Clinton Center Drive One Intermedia Way
Clinton, Mississippi 39056 Tampa, Florida 33647
Attention: Investor Relations Attention: Investor Relations
Department Department
Telephone: (877) 624-9266 or Telephone: (888) 288-7658
(601) 460-5600
If you would like to request documents, please do so by December 11, 2000,
in order to receive them before the special meeting.
For additional sources of the documents incorporated by reference and other
information about WorldCom and Intermedia, see "Where You Can Find More
Information" beginning on page 107.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Questions and Answers about the Merger................................... 1
Summary.................................................................. 2
General.................................................................. 2
The Special Meeting...................................................... 4
The Merger............................................................... 5
The Companies............................................................ 7
Comparative Per Share Data............................................... 8
Selected Historical Financial Data....................................... 9
Risk Factors Relating to the Merger...................................... 12
Stock price fluctuations may negatively affect the value of the WorldCom
common stock that Intermedia common stockholders would receive in the
merger.................................................................. 12
Intermedia common stockholders may receive WorldCom common stock with an
initial value less than $39.00.......................................... 12
The exchange ratio could be significantly different from what it would be
if determined before the special meeting................................ 12
The price of WorldCom common stock may be affected by factors different
from those affecting the price of Intermedia common stock............... 13
There will be no public market for the WorldCom preferred stock to be
issued in connection with the merger, and its value may be affected by
factors different from those affecting the Intermedia preferred stock... 13
The merger is subject to the receipt of consents and approvals from
various government entities, which may jeopardize or delay completion of
the merger or reduce the anticipated benefits of the merger............. 13
This proxy statement/prospectus contains forward-looking statements that
may differ materially from future results of WorldCom and/or
Intermedia.............................................................. 13
The Special Meeting...................................................... 16
Date, Time and Place..................................................... 16
Purpose of the Special Meeting........................................... 16
Record Date; Stock Entitled to Vote; Quorum.............................. 16
Votes Required........................................................... 16
Voting by Intermedia Directors and Executive Officers.................... 17
Voting of Proxies........................................................ 17
Revocability of Proxies.................................................. 18
Solicitation of Proxies.................................................. 18
Adjournments............................................................. 18
The Companies............................................................ 19
WorldCom................................................................. 19
Intermedia............................................................... 22
Material Contracts Between WorldCom and Intermedia....................... 23
The Merger............................................................... 26
Background to the Merger................................................. 26
Intermedia's Reasons for the Merger and the Intermedia Board of
Directors' Recommendation............................................... 30
WorldCom's Reasons for the Merger........................................ 31
Opinion of Intermedia's Financial Advisor................................ 32
Interests of Intermedia Directors and Executive Officers in the Merger... 40
Form of the Merger....................................................... 45
Merger Consideration..................................................... 46
Conversion of Shares and Procedures for Exchange of Certificates......... 48
Effective Time of the Merger............................................. 49
Listing of WorldCom Capital Stock........................................ 49
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Delisting and Deregistration of Intermedia Common Stock............................. 49
Material U.S. Federal Income Tax Consequences....................................... 49
Regulatory Matters.................................................................. 52
Litigation.......................................................................... 52
Accounting Treatment................................................................ 54
Appraisal Rights.................................................................... 54
Intermedia Employee Benefits Matters................................................ 55
Effect on Awards Outstanding Under Intermedia Stock Plans; Warrants................. 55
Resale of WorldCom Capital Stock.................................................... 56
The Merger Agreement................................................................ 57
Conditions to the Completion of the Merger.......................................... 57
No Solicitation..................................................................... 58
Termination......................................................................... 60
Termination Fees.................................................................... 60
Conduct of Intermedia Business Pending the Merger................................... 60
Amendment and Waiver................................................................ 62
Expenses; Transfer Taxes............................................................ 63
Representations and Warranties...................................................... 63
Other Agreements.................................................................... 63
Certificate of Incorporation and Bylaws of Surviving Corporation.................... 65
The Stockholders Agreement.......................................................... 65
Comparative Stock Prices and Dividends.............................................. 67
Description of WorldCom Capital Stock............................................... 68
General............................................................................. 68
Common Stock........................................................................ 68
Preferred Stock..................................................................... 69
Listing............................................................................. 85
Transfer Agent...................................................................... 85
Anti-Takeover Considerations........................................................ 85
Comparison of Rights of WorldCom Shareholders and Intermedia Stockholders........... 86
Capitalization...................................................................... 86
Voting Rights....................................................................... 86
Number and Election of Directors.................................................... 87
Vacancies on the Board of Directors................................................. 88
Removal of Directors................................................................ 88
Amendments to Articles of Incorporation............................................. 89
Amendments to Bylaws................................................................ 90
Shareholder Action.................................................................. 91
Notice of Shareholder Action........................................................ 91
Special Shareholder Meetings........................................................ 92
Limitation of Personal Liability of Directors....................................... 92
Indemnification of Directors and Officers........................................... 93
Dividends........................................................................... 95
Appraisal Rights.................................................................... 96
Preemptive Rights................................................................... 98
Conversion.......................................................................... 98
Special Redemption Provisions....................................................... 98
Rights Plan......................................................................... 99
Shareholder Suits................................................................... 102
Liquidation Rights.................................................................. 102
Vote on Extraordinary Corporate Transactions........................................ 103
Business Combination Restrictions................................................... 103
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Legal Matters.............................................................. 106
Experts.................................................................... 106
Stockholder Proposals...................................................... 106
Other Matters.............................................................. 107
Where You Can Find More Information........................................ 107
Annexes
Annex A Agreement and Plan of Merger..................................... A-1
Annex B Stockholders Agreement........................................... B-1
Annex C Fairness Opinion of Bear, Stearns & Co. Inc...................... C-1
Annex D Section 262 of Delaware General Corporation Law--Appraisal
Rights.................................................................. D-1
</TABLE>
iii
<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 the 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 of the merger
agreement.
If you abstain from voting or do not vote, it will count as a vote against
the adoption of the merger agreement.
The special meeting will take place on Monday, December 18, 2000. You may
attend the special meeting and vote your shares in person rather than
voting by proxy.
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 the
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 Intermedia at the address on the inside front cover of this proxy
statement/prospectus. Third, you can attend the special meeting and vote in
person.
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 as to
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 of the merger agreement.
Q: Am I entitled to appraisal rights?
A: Holders of Intermedia common stock will not be entitled to appraisal rights
in connection with the merger, unless WorldCom exercises the right it may
have to pay part of the merger consideration in cash.
Holders of Intermedia series B preferred stock, Intermedia series D
preferred stock, Intermedia series E preferred stock, Intermedia series F
preferred stock and Intermedia series G preferred stock will have appraisal
rights in connection with the merger. We describe the procedures for
exercising appraisal rights in this proxy statement/prospectus and we have
attached the provisions of Delaware law that will govern appraisal rights
as Annex D.
Q: Should I send in my stock certificates now?
A: No. After the merger is completed, you will receive written instructions
for exchanging your stock certificates. Please do not send in your stock
certificates with your proxy.
Q: When do you expect the merger to be completed?
A: We expect to complete the merger in the first half of 2001. We are working
to complete the merger as quickly as possible and intend to do so as soon
as possible after the special meeting 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:
Georgeson Shareholder Communications Inc.
17 State Street
New York, New York 10004
Attention: Robert J. Carlson
Telephone: (800) 445-1790
Intermedia Communications Inc.
One Intermedia Way
Tampa, Florida 33647
Attention: Vice President-Investor Relations
Telephone: (888) 288-7658
1
<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 107.
We have included page references below to direct you to a more complete
description of the topics presented in this summary.
General
What Intermedia Stockholders Will Receive in the Merger (page 46)
Common Stockholders
Subject to the WorldCom cash election right described below, in the merger
Intermedia common stockholders will receive a number of shares of WorldCom
common stock for each share of Intermedia common stock that will be equal to
the exchange ratio described below. Each share of Intermedia common stock will
be exchanged in the merger for WorldCom common stock valued at $39.00 if the
average closing price of WorldCom common stock, calculated as described below,
is between $32.85 and $43.80. In addition, former Intermedia common
stockholders will receive new tracking stock issued by WorldCom proportionately
with current holders of WorldCom common stock. See "The Companies--WorldCom--
Recent Developments--Tracking Stock" beginning on page 19.
The exchange ratio will be determined shortly before we complete the merger.
It will equal $39.00 divided by the average closing price of WorldCom common
stock on The Nasdaq National Market for the 15 trading days randomly selected
by WorldCom and Intermedia from the 30 trading days ending on the third trading
day before we complete the merger, subject to the following adjustments:
. if the average closing price of WorldCom common stock, as calculated above,
equals or exceeds $43.80, the exchange ratio will be fixed at 0.8904; and
. if the average closing price of WorldCom common stock, as calculated above,
equals or falls below $32.85, the exchange ratio will be fixed at 1.1872.
If the average price of WorldCom common stock, as calculated above, falls below
$36.50, WorldCom may exercise a cash election right to cause the exchange ratio
to be fixed at 1.0685 and pay the value in cash of the difference between what
the exchange ratio otherwise would have been and 1.0685.
It is possible that each share of Intermedia common stock will be valued in
the merger at more or less than $39.00, since the number of shares of WorldCom
common stock received for each share of Intermedia common stock will not be
less than 0.8904 or more than 1.1872 regardless of what happens to the price of
WorldCom common stock before the merger. Under the merger agreement, neither
WorldCom nor Intermedia may terminate the merger agreement based solely on
fluctuations in the price of WorldCom common stock.
On November 16, 2000, the latest practicable date before the date of this
proxy statement/prospectus, WorldCom common stock closed at $16.00 per share on
The Nasdaq National Market. If this were the average closing price, as
calculated above, of WorldCom common stock before the merger, then because the
price is less than $32.85, an Intermedia stockholder would receive shares of
WorldCom common stock, or if WorldCom exercised its cash election right, a
combination of shares of WorldCom common stock and cash, initially valued at
$19.00 for each share of Intermedia common stock owned by that stockholder. The
actual number of shares issued by WorldCom may differ from this example and
will not be known at the special meeting because the merger will not be
completed until after the special meeting.
Intermedia common stockholders will receive an amount of cash for any
fractional shares that they would otherwise receive in the merger, based on the
closing price of WorldCom common stock on The Nasdaq National Market on the
trading day before the merger is completed.
2
<PAGE>
Set forth below is a table showing a range of prices of WorldCom common
stock, along with entries showing the corresponding exchange ratios and
corresponding valuations in the merger of a share of Intermedia common stock.
The table also highlights the average closing price of WorldCom common stock at
which:
. the minimum exchange ratio takes effect;
. the maximum exchange ratio takes effect; and
. the WorldCom cash election right is applicable.
<TABLE>
<CAPTION>
Average Value of a
closing price of share of
WorldCom common Exchange Intermedia
stock ratio common stock
---------------- -------- ------------
<S> <C> <C> <C>
$46.00 0.8904 40.96
44.00 0.8904 39.18
---------------------------------------
Exchange ratio- 43.80 0.8904 39.00
limitation ---------------------------------------
42.00 0.9286 39.00
40.00 0.9750 39.00
38.00 1.0263 39.00
-----------------------------------
WorldCom cash- 36.49 1.0688 39.00
election right 36.00 1.0833 39.00
applies 34.00 1.1471 39.00
-----------------------------------
Exchange ratio- 32.85 1.1872 39.00
limitation -----------------------------------
32.00 1.1872 37.99
30.00 1.1872 35.62
28.00 1.1872 33.24
26.00 1.1872 30.87
24.00 1.1872 28.49
22.00 1.1872 26.12
20.00 1.1872 23.74
18.00 1.1872 21.37
16.00 1.1872 19.00
14.00 1.1872 16.62
12.00 1.1872 14.25
10.00 1.1872 11.87
------------------------------------
</TABLE>
For a stockholder who owns 100 shares of Intermedia common stock, if the
exchange ratio were 1.1872, for example, this would translate into 118.72
shares of WorldCom common stock. Since cash will be paid instead of fractional
shares, that stockholder would receive 118 shares of WorldCom common stock and
a check in an amount equal to 0.72 multiplied by the closing market price of
WorldCom common stock on the trading day before completion of the merger.
Preferred Stockholders
Series B. Following the merger, each share of Intermedia series B preferred
stock will remain outstanding as Intermedia series B preferred stock with
identical terms, except that each share will entitle its holder to one-tenth of
one vote per share on all matters, voting together as a single group with the
common stock and other classes of voting securities of the corporation
surviving the merger.
Series D, Series E , Series F and Series G Holders of Intermedia series D
preferred stock, Intermedia series E preferred stock, Intermedia series F
preferred stock and Intermedia series G preferred stock will receive one share
of a corresponding series of WorldCom preferred stock for each share of
Intermedia preferred stock that stockholder owns. Each series of WorldCom
preferred stock issuable in the merger will be a new series of WorldCom
preferred stock and will have the same terms as the corresponding series of
Intermedia preferred stock, except for those differences described under "The
Merger--Merger Consideration--Preferred Stock" beginning on page 46. Similarly,
holders of depositary shares of Intermedia series D preferred stock, Intermedia
series E preferred stock and Intermedia series F preferred stock will receive
one depositary share of a corresponding series of WorldCom preferred stock for
each depositary share of Intermedia preferred stock that stockholder owns.
Ownership of WorldCom After the Merger
Based on the number of outstanding shares of Intermedia common stock, the
WorldCom common stock closing price and an assumed exchange ratio of 1.1872, in
each case on the record date, and assuming WorldCom does not exercise its cash
election right, Intermedia common stockholders would receive a total of
approximately 64,969,074 shares of WorldCom common stock in the merger.
Based on those numbers and on the number of outstanding shares of WorldCom
common stock on October 31, 2000, after the merger former Intermedia common
stockholders would own approximately 2% of the outstanding shares of WorldCom
common stock.
Material U.S. Federal Income Tax Consequences (page 49)
The merger is intended to qualify as a tax-free reorganization for U.S.
Federal income tax purposes, so that holders of Intermedia common and preferred
3
<PAGE>
stock would not recognize gain or loss for U.S. Federal income tax purposes as
a result of the exchange of their Intermedia stock for WorldCom stock in the
merger, except with respect to cash received instead of fractional shares of
WorldCom common stock, and except with respect to cash received as a result of
any election by WorldCom to pay a portion of the merger consideration in cash.
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 advisors for a full understanding of the tax consequences of the merger to
you.
Intermedia Board of Directors Recommendation (page 30)
The Intermedia board of directors has determined that the merger and the
merger agreement are advisable, fair to and in the best interests of Intermedia
and its stockholders and recommends that Intermedia stockholders vote FOR the
adoption of the merger agreement.
To review the background to and reasons for the merger in greater detail, as
well as risks related to the merger, see pages 12 through 15 and 26 through 32.
Opinion of Intermedia's Financial Advisor (page 32)
In deciding to approve the merger, the Intermedia board of directors
considered the opinion, dated September 1, 2000, of Intermedia's financial
advisor, Bear, Stearns & Co. Inc., as to the fairness, from a financial point
of view, of the consideration to be received by holders of Intermedia common
stock in the merger. The full text of the written opinion, which sets forth the
assumptions made, procedures followed and matters considered by Bear Stearns,
is attached as Annex C to this proxy statement/prospectus. We encourage you to
read this opinion carefully.
Interests of Intermedia Directors and Executive Officers in the Merger (page
40)
Some of the directors and executive officers of Intermedia have employment
or severance agreements, indemnification agreements, restricted shares and/or
stock options that provide them with interests in the merger that may be
different from, or in addition to, the interests of Intermedia stockholders
generally. These interests include the potential for additional payments under
employment agreements, accelerated vesting of stock options or restricted stock
as a result of the merger and the right to continued indemnification and
insurance coverage for acts or omissions occurring prior to the merger. You
should consider these interests in assessing the merger and the recommendation
of the Intermedia board of directors that Intermedia stockholders vote to adopt
the merger agreement.
The Special Meeting (page 16)
The special meeting of Intermedia stockholders will be held at One
Intermedia Way, at 10:00 a.m., local time, on Monday, December 18, 2000. The
sole purpose of the special meeting is for the Intermedia stockholders to
consider and vote on the adoption of the merger agreement.
Record Date; Voting Power (page 16)
Intermedia common stockholders and holders of Intermedia series G preferred
stock are entitled to vote at the special meeting if they owned shares as of
the close of business on November 1, 2000, the record date. Holders of
Intermedia common stock and Intermedia series G preferred stock will vote
together as a single group. In addition, holders of Intermedia series G
preferred stock will also vote as a separate class.
On the record date, there were 54,724,625 shares of Intermedia common stock
and 200,000 shares of Intermedia series G preferred stock outstanding.
A holder of Intermedia common stock will have one vote at the special
meeting for each share of Intermedia common stock that stockholder owned on the
record date.
When voting together with the holders of Intermedia common stock, each
holder of Intermedia series G preferred stock will have the number of votes per
share of Intermedia series G preferred stock equal to the number of shares of
Intermedia
4
<PAGE>
common stock that would have been issuable upon conversion of that
stockholder's shares of Intermedia series G preferred stock as of the record
date. When voting separately as a class, each holder of Intermedia series G
preferred stock will have one vote for each share of Intermedia series G
preferred stock that stockholder owned on the record date.
Holders of Intermedia series B preferred stock, Intermedia series D
preferred stock, Intermedia series E preferred stock and Intermedia series F
preferred stock will not be entitled to vote at the special meeting.
Votes Required (page 16)
The affirmative vote of the holders of a majority of the voting power
represented by the outstanding shares of Intermedia common stock and Intermedia
series G preferred stock entitled to vote at the special meeting, voting
together as a single group, is required to adopt the merger agreement.
In addition, the affirmative vote of the holders of shares of Intermedia
series G preferred stock representing a majority of all the Intermedia series G
preferred stock votes entitled to be cast at the special meeting, voting
separately as a class, is required to adopt the merger agreement.
The holder of 100% of the outstanding shares of Intermedia series G
preferred stock has agreed to vote its shares for the adoption of the merger
agreement pursuant to the stockholders agreement described beginning on page
65.
Voting by Intermedia Directors and Executive Officers (page 17)
On the record date, directors and executive officers of Intermedia and their
affiliates owned and were entitled to vote shares of Intermedia common stock
that represented approximately 9.9% of the total voting power of Intermedia
capital stock outstanding on that date. The directors of Intermedia have agreed
to vote the Intermedia common stock owned by them for adoption of the merger
agreement. The executive officers of Intermedia have indicated that they intend
to vote the Intermedia common stock owned by them for adoption of the merger
agreement.
The Merger (page 26)
The merger agreement is attached as Annex A 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 Merger (page 57)
WorldCom and Intermedia will complete the merger only if they satisfy or, in
some cases, waive, several conditions, including the following:
. holders of a majority of the voting power of the outstanding shares of
Intermedia common stock and Intermedia series G preferred stock, voting
together as a single group, must have adopted the merger agreement;
. holders of a majority of the voting power of the outstanding shares of
Intermedia series G preferred stock, voting as a separate class, must have
adopted the merger agreement, which they have agreed to do;
. legal restraints or prohibitions that prevent the completion of the merger
must not exist;
. shares of WorldCom common stock issuable to Intermedia stockholders must have
been approved for listing on The Nasdaq National Market;
. the waiting period required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 must have expired or been terminated;
. 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 these approvals would not, individually or in the
aggregate, be reasonably likely to have a material adverse effect on
Intermedia;
. the covenants of WorldCom and Intermedia in the merger agreement must be
satisfied in all material respects;
. the representations and warranties of WorldCom and Intermedia in the merger
agreement must be true and correct in all material respects; and
. Intermedia must receive an opinion from its counsel stating that the merger
(1) will be treated for U.S. Federal income tax purposes as a
5
<PAGE>
"reorganization" within the meaning of section 368 of the Internal Revenue
Code and (2) that WorldCom, Intermedia and Wildcat will each be a "party to
the reorganization" within the meaning of section 368(b) of the Internal
Revenue Code.
Termination of the Merger Agreement; Termination Fees (page 60)
The merger agreement contains provisions addressing the circumstances under
which WorldCom or Intermedia may terminate the merger agreement. In addition,
the merger agreement provides that, in several circumstances, Intermedia may be
required to pay WorldCom a termination fee of $135 million. For a more complete
discussion, see "The Merger Agreement--Termination" and "--Termination Fees".
Stockholders Agreement (page 65)
On the record date, ICI Ventures and the directors of Intermedia
collectively held approximately 0.5% of the outstanding Intermedia common
stock, and ICI Ventures held 100% of the outstanding Intermedia series G
preferred stock. The shares of capital stock held by ICI Ventures and the
directors of Intermedia represented approximately 9.8% of the total voting
power of Intermedia capital stock outstanding on that date. ICI Ventures and
each director of Intermedia have agreed with WorldCom to vote the shares of
Intermedia capital stock they hold in favor of the adoption of the merger
agreement and to vote these shares against any takeover proposal or other
action that would frustrate the merger.
Regulatory Matters (page 52)
Under the Communications Act of 1934, the Federal Communications Commission
must approve the transfer of control to WorldCom of Intermedia and those
subsidiaries of Intermedia that hold FCC licenses and authorizations. The FCC
must determine whether WorldCom is qualified to control such licenses and
authorizations and whether the transfer is consistent with the public interest,
convenience and necessity. On October 23, 2000, WorldCom and Intermedia filed
transfer of control applications with the FCC. On November 6, 2000, the FCC
requested public comments on the applications. The deadline for comments is
December 6, 2000, and reply comments are due December 21, 2000.
Under the Hart-Scott-Rodino Act, the merger may not be completed until
notifications have been given and 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. WorldCom and
Intermedia each filed notification and report forms with the FTC and the
Antitrust Division on September 21, 2000. On November 17, 2000, the companies
entered into a Hold Separate Stipulation and Order (the Stipulation) with the
Antitrust Division and consented to entry of a judgment by the U.S. District
Court for the District of Columbia to resolve the Division's concerns regarding
the merger. Pursuant to the Stipulation, WorldCom agrees to divest all of
Intermedia's assets, except for its Digex stock, within six months after the
merger (unless extended by the Antitrust Division) and, until the divestiture,
Intermedia and WorldCom agree to continue to operate Intermedia as an
independent competitive business. The proposed Final Judgment will be reviewed
by the district court pursuant to the provisions of the Antitrust Procedures
and Penalties Act, which allow for public comment before the judgment is
entered. However, the Stipulation provides that the merger may be consummated
once the Stipulation is entered by the district court. The companies anticipate
prompt resolution of pending issues.
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.
Intermedia and its subsidiaries hold licenses and service authorizations
issued by state public utility commissions. Approximately 24 state commissions
must review the transfer of control of these licenses and authorizations to
WorldCom. The vast majority of required state regulatory filings have been
made.
No foreign competition authority has asserted jurisdiction to review the
merger.
Accounting Treatment (page 54)
The merger will be accounted for using the purchase method of accounting
with WorldCom having acquired Intermedia.
Expenses (page 63)
Each of WorldCom and Intermedia will bear all expenses it incurs in
connection with the merger, except that Intermedia will pay all transfer taxes
in connection with the merger.
Market Price and Dividend Information (page 67)
Shares of common stock of WorldCom and shares of common stock of Intermedia
are quoted on
6
<PAGE>
The Nasdaq National Market. The following table presents:
. the last reported sale price of one share of WorldCom common stock, as
reported on The Nasdaq National Market;
. the last reported sale price of one share of Intermedia common stock, as
reported on The Nasdaq National Market; and
. the market value of one share of Intermedia common stock on an equivalent per
share basis,
on September 1, 2000, which was the last full trading day before the public
announcement of the proposed merger, and on November 16, 2000, which was the
last full trading day for which such information could be obtained before the
date of this proxy statement/prospectus. The equivalent price per share data
for Intermedia common stock has been determined by multiplying the last
reported sale price of one share of WorldCom common stock on (1) September 1,
2000, by an assumed exchange ratio of 1.0558, and (2) November 16, 2000, by an
assumed exchange ratio of 1.1872.
<TABLE>
<CAPTION>
Equivalent
price per
share of
WorldCom Intermedia Intermedia
common common common
Date stock stock stock
---- -------- ---------- ----------
<S> <C> <C> <C>
September 1, 2000................................ $36.94 $22.88 $39.00
November 16, 2000................................ $16.00 $15.50 $19.00
</TABLE>
Currently there are no outstanding shares of the WorldCom preferred stock
that will be issued to Intermedia preferred stockholders in the merger.
Accordingly, their market price and dividend information have not been included
in this document. The WorldCom preferred stock to be issued in the merger will
not be listed on any exchange or quotation system.
Neither WorldCom nor Intermedia has ever paid cash dividends on its common
stock.
The Companies (page 19)
WorldCom, Inc.
500 Clinton Center Drive
Clinton, Mississippi 39056
(877) 624-9266 or
(601) 460-5600
WorldCom is a global leader in "all-distance" communications services with
operations in more than 65 countries encompassing the Americas, Europe and the
Asia-Pacific region. Revenues in 1999 were $36 billion, with more than $15
billion from high-growth data, Internet and international services. WorldCom is
one of the first major 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.
Intermedia Communications Inc.
One Intermedia Way
Tampa, Florida 33647
(888) 288-7658
Intermedia provides integrated data and voice communications services,
including enterprise data solutions (frame relay and ATM), Internet
connectivity, private line data, managed Web site and application hosting,
local and long-distance, and integration services to approximately 90,000
business and government customers. Intermedia is a significant nationwide frame
relay provider in the United States, a leading Internet service provider, the
largest shared tenant telecommunications service provider in the United States,
and a leading domestic provider of systems integration services. Intermedia is
also a leading and rapidly growing provider of managed Web site and application
hosting services to large corporations and Internet companies through Digex,
Incorporated, its publicly traded subsidiary. As of the record date, Intermedia
owned shares of Digex representing approximately 62% of the outstanding Digex
common shares and approximately 94% of the voting power of the outstanding
Digex capital stock.
7
<PAGE>
Comparative Per Share Data
The following table sets forth for WorldCom common stock and Intermedia
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 assuming an exchange ratio of either 0.8904 or 1.1872
shares of WorldCom common stock per share of Intermedia common stock and giving
effect to the proposed merger. The actual 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
WorldCom and Intermedia, which are incorporated by reference into this proxy
statement/prospectus. See "Where You Can Find More Information" beginning on
page 107.
The following information should be read together with, and is qualified in
its entirety by reference to, the historical consolidated financial statements
of WorldCom and Intermedia and the notes to those statements. 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. Neither
WorldCom nor Intermedia has ever paid cash dividends on its common stock.
<TABLE>
<CAPTION>
Intermedia pro Intermedia pro
forma forma
WorldCom/ equivalent equivalent
Intermedia (assuming an (assuming an
WorldCom Intermedia pro forma exchange ratio exchange ratio
historical historical combined of 0.8904) of 1.1872)
---------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Book value (deficit) per
common share:
December 31, 1999..... $17.91 $(34.42) $18.59 $16.55 $22.07
September 30, 2000.... 19.21 (28.52) 19.92 17.74 23.65
Income (loss) per common
share from continuing
operations (after
preferred dividend
requirement and before
extraordinary item):
Basic:
Year ended December
31, 1999........... 1.40 (12.91) 1.08 0.96 1.28
Nine months ended
September 30,
2000............... 1.23 3.94 1.23 1.10 1.46
Diluted:
Year ended December
31, 1999........... 1.35 (12.91) 1.04 0.93 1.23
Nine months ended
September 30,
2000............... 1.20 3.18 1.21 1.08 1.44
</TABLE>
8
<PAGE>
Selected Historical Financial Data
WorldCom
The selected historical financial data of WorldCom set forth below have been
derived from the historical consolidated financial statements of WorldCom as
they appeared in WorldCom's Annual Reports on Form 10-K filed with the
Securities and Exchange Commission for each of the five fiscal years in the
period ended December 31, 1999, and WorldCom's Quarterly Reports on Form 10-Q
filed with the Securities and Exchange Commission for the quarters ended
September 30, 2000, and September 30, 1999. Results for the nine months ended
September 30, 2000, 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 107.
<TABLE>
<CAPTION>
At or for the
nine months
ended
September 30,
(unaudited) At or for the year ended December 31,
--------------- -----------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ------- ------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating results:
Revenues................ $29,483 $26,586 $35,908 $17,646 $ 7,643 $ 4,799 $3,882
Operating income
(loss)................. 6,727 5,491 7,888 (942) 982 (2,006) 609
Income (loss) before
cumulative effect of
accounting change and
extraordinary items.... 3,559 2,710 4,013 (2,560) 185 (2,354) 205
Cumulative effect of
accounting change...... -- -- -- (36) -- -- --
Extraordinary items..... -- -- -- (129) (3) (24) --
Net income (loss)
applicable to common
shareholders........... 3,510 2,656 3,941 (2,767) 143 (2,391) 164
Preferred dividend
requirement............ 1 7 9 24 39 13 41
Earnings (loss) per
common share:
Income (loss) before
cumulative effect of
accounting change and
extraordinary items
Basic................. 1.23 0.94 1.40 (1.35) 0.10 (3.44) 0.28
Diluted............... 1.20 0.91 1.35 (1.35) 0.10 (3.44) 0.27
Net income (loss)
Basic................. 1.23 0.94 1.40 (1.43) 0.10 (3.47) 0.28
Diluted............... 1.20 0.91 1.35 (1.43) 0.09 (3.47) 0.27
Number of weighted
average shares
Basic................. 2,864 2,815 2,821 1,933 1,470 689 595
Diluted............... 2,919 2,923 2,925 1,933 1,516 689 625
Financial position:
Total assets............ $99,893 $91,072 $91,072 $87,092 $24,400 $21,683 $7,642
Long-term debt.......... 18,700 13,128 13,128 16,448 7,811 5,758 2,657
Subsidiary trust and
other mandatorily
redeemable preferred
securities............. 798 798 798 798 -- -- --
Shareholders'
investment............. 55,277 51,238 51,238 45,241 14,087 13,616 2,718
Deficiency of earnings
to combined fixed
charges and preference
dividends.............. -- -- -- (1,901) -- (2,308) --
Ratio of earnings to
combined fixed charges
and preference
dividends.............. 5.60:1 4.68:1 5.32:1 -- 1.66:1 -- 1.85:1
Deficiency of earnings
to fixed charges....... -- -- -- (1,834) -- (2,288) --
Ratio of earnings to
fixed charges.......... 5.96:1 5.04:1 5.75:1 -- 1.84:1 -- 2.28:1
</TABLE>
9
<PAGE>
--------
. On September 14, 1998, 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.
. In 1998, 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. Such
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,
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 a merger with CompuServe and the acquisition of ANS
Communications from America Online, $3.1 billion in the third quarter of
1998 related to the merger with MCI Communications and $2.14 billion in the
fourth quarter of 1996 related to a merger with MFS Communications.
. 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 WorldCom's non-core
businesses. On a pre-tax basis, these charges totaled $600 million.
. In connection with various debt refinancings, 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 WorldCom recorded an extraordinary item of $20 million, net of taxes,
related to a write-off of deferred international costs.
. In 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities".
This accounting standard required all companies to expense, on or before
March 31, 1999, all start-up costs previously capitalized, and thereafter to
expense all costs of start-up activities as incurred. WorldCom adopted this
standard as of January 1, 1998. The cumulative effect of this change in
accounting principle resulted in a one-time, noncash expense of $36 million,
net of taxes. This expense represented start-up costs incurred primarily in
conjunction with the development and construction of WorldCom's Advanced
Messaging Network.
. In connection with the conversion of WorldCom series 1 $2.25 cumulative
senior perpetual convertible preferred stock, WorldCom made a nonrecurring
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 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).
. Results for the nine months ended September 30, 2000, include a pre-tax
charge of $93 million associated with the termination of the Sprint merger
agreement, including regulatory, legal, accounting and investment banking
fees and other costs, and a $685 million pre-tax charge associated with
specific domestic and international wholesale accounts that were no longer
deemed collectible due to bankruptcies, litigation and settlements of
contractual disputes that occurred in the third quarter of 2000.
. For the purpose of computing the ratio of earnings to combined fixed charges
and preference dividends, earnings consist of pre-tax income (loss) from
continuing operations, excluding minority interests in gains/losses of
consolidated subsidiaries, and fixed charges consist of pre-tax interest
(including capitalized interest) on all indebtedness, amortization of debt
discount and expense, that portion of rental expense that 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 pre-tax basis utilizing WorldCom's
effective tax rate.
. For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of pre-tax income (loss) from continuing operations,
excluding minority interests in gains/losses of consolidated subsidiaries,
and fixed charges consist of pre-tax interest (including capitalized
interest) on all indebtedness, amortization of debt discount and expense,
and that portion of rental expense that WorldCom believes to be
representative of interest.
. Revenues and line costs for prior periods reflect a classification change
for reciprocal compensation and COBRA (central office based remote access)
equipment sales which are now being treated as offsets to cost of sales.
Previously, WorldCom recorded these items on a gross basis as revenue.
Results for all periods have also been adjusted to reflect the elimination
of small business and consumer PICC (primary interexchange carrier charges)
from both revenues and line costs as a result of the Coalition for
Affordable Local and Long Distance Services (CALLS) legislation which
eliminated single line PICC as of July 1, 2000. Operating income, net income
available to common shareholders and the balance sheet are not affected by
these reclassifications.
10
<PAGE>
Intermedia
The selected historical financial data of Intermedia set forth below have
been derived from financial statements of Intermedia as they appeared in
Intermedia'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,
1999, and Intermedia's Quarterly Reports on Form 10-Q filed with the Securities
and Exchange Commission for the quarters ended September 30, 2000, and
September 30, 1999. Results for the nine months ended September 30, 2000, 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 107.
<TABLE>
<CAPTION>
At or for the
nine months
ended
September 30, At or for the year ended December
(unaudited) 31,
-------------- --------------------------------------
2000 1999 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------ ------
(In millions, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating results:
Revenues................ $ 768 $ 657 $ 906 $ 713 $ 248 $ 103 $ 39
Loss from
operations(1).......... (419) (204) (305) (317) (163) (34) (10)
Net income (loss) before
minority interest and
extraordinary item(2).. 262 (376) (565) (487) (197) (57) (19)
Minority interest in net
loss of subsidiary..... 37 3 7 -- -- -- --
Net income (loss) before
extraordinary item..... 299 (373) (558) (487) (197) (57) (19)
Extraordinary item(3)... 20 -- -- -- (44) -- (2)
Net income (loss)....... 319 (373) (558) (487) (241) (57) (21)
Preferred stock
dividends and
accretions............. (89) (69) (93) (91) (44) -- --
Net income (loss)
attributable to common
stockholders........... 230 (442) (651) (578) (285) (57) (21)
Earnings (loss) per
common share:
Income (loss) before
extraordinary item
Basic................. 3.94 (8.83) (12.91) (13.23) (7.23) (2.04) (0.95)
Diluted............... 3.18 (8.83) (12.91) (13.23) (7.23) (2.04) (0.95)
Net income (loss)
Basic................. 4.31 (8.83) (12.91) (13.23) (8.54) (2.04) (1.03)
Diluted............... 3.43 (8.83) (12.91) (13.23) (8.54) (2.04) (1.03)
Weighted average shares
Basic................. 53,355 50,039 50,431 43,645 33,340 28,035 20,072
Diluted............... 79,458 50,039 50,431 43,645 33,340 28,035 20,072
Financial position:
Total assets............ $3,696 $3,376 $3,296 $3,049 $1,875 $ 513 $ 216
Long-term obligations
and preferred stock
(including current
maturities)............ 3,691 3,817 3,938 3,235 1,941 359 166
Total stockholders'
equity (deficit)....... (382) (657) (853) (371) (140) 114 40
</TABLE>
--------
(1) Results from operations were decreased due to a reserve of approximately
$45 million against reciprocal compensation receivables recorded through
March 31, 2000, as a change in accounting estimate in the second quarter
of 2000.
(2) During 2000, Intermedia sold 10,650,000 shares of its investment in
Digex's Class B common stock which resulted in a gain on sale of
approximately $864 million.
(3) Intermedia incurred extraordinary losses in 1995 and 1997, and an
extraordinary gain in 2000 related to early retirement of debt.
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RISK FACTORS RELATING TO THE MERGER
In addition to the other information included and incorporated by reference
in this proxy statement/prospectus, you should consider carefully the matters
described below in determining whether to adopt the merger agreement.
Stock price fluctuations may negatively affect the value of the WorldCom
common stock that Intermedia common stockholders would receive in the merger.
The price of WorldCom common stock at the completion of the merger may vary
significantly from the price as of the date of the merger agreement, the date
of this document, the date of the special meeting or the date on which the
exchange ratio is determined. These variances may be due to a number of
factors, including:
. changes in the business, operations, results and prospects of WorldCom
or Intermedia;
. market assessments of the likelihood that the merger will be completed
and the timing of completion;
. the effect of any conditions or restrictions imposed on or proposed
with respect to the combined companies by regulatory agencies due to
the merger;
. general market and economic conditions; and
. the prospects of post-merger operations.
In addition, the stock market generally has experienced significant price
and volume fluctuations. These market fluctuations could have a material
adverse effect on the market price and liquidity of the WorldCom common stock.
Intermedia common stockholders may receive WorldCom common stock with an
initial value less than $39.00.
If the average trading price of WorldCom common stock used to calculate the
exchange ratio is less than $32.85, the exchange ratio will be fixed at
1.1872. If this occurs, and the price of WorldCom common stock at the
completion of the merger is less than $32.85, the initial value of the
WorldCom common stock, or common stock and cash if WorldCom exercises its cash
election right, to be received by Intermedia common stockholders will be less
than $39.00. On November 16, 2000, the latest practicable date before the date
of this proxy statement/prospectus, the closing price of WorldCom common stock
on The Nasdaq National Market was $16.00 per share. If this were the average
trading price used to determine the exchange ratio, an Intermedia common
stockholder would receive shares of WorldCom common stock, or if WorldCom
exercised its cash election right, a combination of shares of WorldCom common
stock and cash, initially valued at $19.00 for each share of Intermedia common
stock owned by that stockholder.
In addition, the price of WorldCom common stock at the completion of the
merger could be lower than the average trading price used to determine the
exchange ratio. Therefore, even if the average trading price used to determine
the exchange ratio is greater than $32.85, Intermedia common stockholders
could receive WorldCom common stock, or common stock and cash if WorldCom
exercises its cash election right, with an initial value of less than $39.00.
The exchange ratio could be significantly different from what it would be if
determined before the special meeting.
Because the exchange ratio will not be determined until the third trading
day before the completion of the merger, you must decide whether to adopt the
merger agreement before knowing the actual exchange ratio. Changes in the
price of WorldCom common stock before the completion of the merger may cause
the actual exchange ratio to differ significantly from the exchange ratio that
would have existed if it had been calculated on or before the special meeting.
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The price of WorldCom common stock may be affected by factors different from
those affecting the price of Intermedia common stock.
Upon completion of the merger, holders of Intermedia common stock will
become holders of WorldCom common stock. WorldCom's business differs from that
of Intermedia, and WorldCom's results of operations, as well as the price of
WorldCom common stock, may be affected by factors different from those
affecting Intermedia's results of operations and the price of Intermedia
common stock.
For a discussion of WorldCom's and Intermedia's businesses and other
factors to consider in connection with those businesses, please see WorldCom's
and Intermedia's Annual Reports on Form 10-K for the fiscal year ended
December 31, 1999, and Quarterly Reports on Form 10-Q for the quarters ended
March 31, 2000, June 30, 2000, and September 30, 2000, which are incorporated
by reference in this proxy statement/ prospectus. See "Where You Can Find More
Information" beginning on page 107.
There will be no public market for the WorldCom preferred stock to be issued
in connection with the merger, and its value may be affected by factors
different from those affecting the Intermedia preferred stock.
Upon completion of the merger, holders of Intermedia series D preferred
stock, Intermedia series E preferred stock, Intermedia series F preferred
stock and Intermedia series G preferred stock will become holders of a
corresponding series of WorldCom preferred stock. Because shares of this
WorldCom preferred stock may be converted into shares of WorldCom common
stock, those holders should consider the same factors as described above.
No public market is expected to exist for the shares of WorldCom preferred
stock to be issued in connection with the merger. As a result, the value of
those shares may fluctuate and the liquidity of those shares may be limited.
Because the value of the WorldCom preferred stock to be issued in the
merger will depend, in part, on the underlying value of the WorldCom common
stock, Intermedia preferred stockholders cannot be certain that the value of
the WorldCom preferred stock will be affected by the same factors as the
Intermedia preferred stock.
The merger is subject to the receipt of consents and approvals from various
government entities, which may jeopardize or delay completion of the merger
or reduce the anticipated benefits of the merger.
Completion of the merger is conditioned upon filings with, and the receipt
of required consents, orders, approvals or clearances from, various
governmental agencies, including the FTC, the Antitrust Division of the
Justice Department, the FCC and state public utility or service commissions.
These consents, orders, approvals and clearances may impose conditions on or
require divestitures relating to the divisions, operations or assets of
WorldCom or Intermedia. 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 WorldCom nor Intermedia is
required to agree to any such condition or divestiture of:
. assets or any part of the business of Intermedia that would have a
material adverse effect on Intermedia;
. assets or any part of WorldCom's business; or
. any assets of or any part of Intermedia's ownership in Digex.
This proxy statement/prospectus contains forward-looking statements that may
differ materially from future results of WorldCom and/or Intermedia.
The forward-looking statements concerning WorldCom and Intermedia within
the meaning of the Private Securities Litigation Reform Act of 1995 relate to:
. their financial condition;
. their results of operations;
. their business plans;
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. their business strategies, operating efficiencies or synergies,
competitive positions and growth opportunities for existing services
and products;
. the plans and objectives of their management;
. markets for stock of WorldCom and Intermedia;
. the financial and regulatory environments in which they operate;
. WorldCom's estimated costs to complete or possible future revenues from
in-process research and development programs;
. the likelihood of completion of those programs; and
. other matters.
Statements contained or incorporated by reference 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 Securities Exchange Act of 1934 and section 27A of the
Securities Act of 1933. These forward-looking statements, including those
relating to the future business prospects, revenues and income, in each case
relating to WorldCom and Intermedia, wherever they occur in this proxy
statement/prospectus, are necessarily estimates reflecting the best judgement
of the senior management of WorldCom and Intermedia and involve a number of
risks and uncertainties that could cause actual results to differ materially
from those suggested by the forward-looking statements. These forward-looking
statements should, therefore, be considered in light of various important
factors, including those set forth or incorporated by reference 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:
. the effects of the realignment of WorldCom's businesses in connection
with the proposed WorldCom and MCI tracking stocks;
. the ability to integrate the operations of WorldCom and Intermedia,
including their respective products and services;
. the effects of vigorous competition in the markets in which WorldCom
and Intermedia operate;
. the impact of technological change on WorldCom's and Intermedia'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
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 WorldCom's and
Intermedia's markets;
. risks associated with debt service requirements and interest rate
fluctuations;
. WorldCom's degree of financial leverage; and
. other risks referenced from time to time in WorldCom's and Intermedia's
filings with the Securities and Exchange Commission.
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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 documents incorporated by reference,
including the Annual Reports on Form 10-K for the year ended December 31, 1999,
of each of WorldCom and Intermedia, and Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2000, June 30, 2000, and September 30, 2000, 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.
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THE SPECIAL MEETING
We are furnishing this proxy statement/prospectus to stockholders of
Intermedia as part of the solicitation of proxies from Intermedia common
stockholders and holders of Intermedia series G preferred stock by the
Intermedia board of directors for use at the special meeting.
Date, Time and Place
We will hold the special meeting at 10:00 a.m., local time, on Monday,
December 18, 2000, at One Intermedia Way, Tampa, Florida.
Purpose of the Special Meeting
At the special meeting, we are asking Intermedia common stockholders and
holders of Intermedia series G preferred stock to adopt the merger agreement.
The Intermedia board of directors:
. has unanimously determined that the merger is fair to, and in the best
interests of, Intermedia and its stockholders;
. has unanimously approved the merger agreement; and
. unanimously recommends that Intermedia common stockholders and holders
of Intermedia series G preferred stock vote for adoption of the merger
agreement.
Record Date; Stock Entitled to Vote; Quorum
Only record holders of Intermedia common stock and Intermedia series G
preferred stock at the close of business on November 1, 2000, the record date,
are entitled to vote, together as a single group, at the special meeting.
Holders of Intermedia series G preferred stock will also have a separate class
vote at the special meeting. On the record date, 54,724,625 shares of
Intermedia common stock were issued and outstanding and held by approximately
150 holders of record, and 200,000 shares of Intermedia series G preferred
stock were issued and outstanding and held by one holder of record. Holders of
Intermedia common stock on the record date are entitled to one vote per share
at the special meeting. When voting together with Intermedia common
stockholders, a holder of Intermedia series G preferred stock will have 27.778
votes for each share of Intermedia series G preferred stock that that
stockholder owned on the record date (or an aggregate of 5,555,556 votes). In
addition, a holder of Intermedia series G preferred stock will have one vote
for each share of Intermedia series G preferred stock that that stockholder
owned on the record date for the purpose of the separate class vote of such
preferred stock at the special meeting.
A quorum is present at the special meeting if a majority of the outstanding
voting power represented in the aggregate by the shares of Intermedia common
stock and Intermedia series G preferred stock entitled to vote on the record
date is represented in person or by proxy. A quorum is necessary to hold the
special meeting. Any shares of Intermedia common stock or Intermedia series G
preferred stock held in treasury by Intermedia or any of its subsidiaries are
not considered to be outstanding for purposes of determining a quorum. In the
event that a quorum is not present at the special meeting, it is expected that
the special meeting will be adjourned or postponed to solicit additional
proxies. However, if a new record date is set for the adjourned meeting, then a
new quorum will have to be established.
Once a share of Intermedia common stock or Intermedia series G preferred
stock is represented at the special meeting, it will be counted for the purpose
of determining a quorum at the special meeting and any adjournment of the
special meeting unless the holder is present solely to object to the special
meeting.
Votes Required
The affirmative vote of (1) the holders of a majority of the voting power
represented by the outstanding shares of Intermedia common stock and Intermedia
series G preferred stock on the record date, voting together
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as a single group, and (2) the holders of a majority of the voting power
represented by the outstanding shares of Intermedia series G preferred stock on
the record date, voting as a separate class, are required to adopt the merger
agreement. If an Intermedia stockholder abstains from voting or does not vote,
either in person or by proxy, it will have the same effect as a vote against
the adoption of the merger agreement.
No other Intermedia preferred stockholders are entitled to vote at the
special meeting.
Voting by Intermedia Directors and Executive Officers
At the close of business on the record date, directors and executive
officers of Intermedia and their affiliates owned and were entitled to vote
5,973,838 shares of Intermedia common stock and 200,000 shares of Intermedia
series G preferred stock, or approximately 9.9% of the combined voting power
represented by shares of Intermedia common stock and Intermedia series G
preferred stock outstanding on that date. The directors of Intermedia have
agreed to vote the Intermedia common stock owned by them, and ICI Ventures, the
holder of all outstanding shares of Intermedia series G preferred stock, has
agreed to vote, for adoption of the merger agreement. The executive officers of
Intermedia have indicated that they intend to vote the Intermedia common stock
owned by them for adoption of the merger agreement.
Voting of Proxies
All shares of Intermedia common stock and Intermedia series G preferred
stock represented by properly submitted proxies received in time for the
special meeting will be voted at the 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 adoption of the merger agreement.
If you are a record holder of Intermedia common stock or Intermedia series G
preferred stock, in order for your shares of Intermedia common stock or
Intermedia series G preferred stock to be included in the vote, you must vote
your shares by one of the following means:
. in person; or
. by proxy by completing, signing and dating the enclosed proxy and
returning it in the enclosed postage-paid envelope.
If you hold your shares of Intermedia common stock or Intermedia series G
preferred stock in "street name", you must follow the instructions provided by
your broker regarding how to instruct your broker to vote your shares. Most
banks and brokers have provisions for telephone and Internet voting. Check the
material sent to you by them, or call your account representative for more
information.
Shares of Intermedia common stock and Intermedia series G preferred stock
represented at the special meeting but not voting will be treated as present at
the special meeting for determining whether or not a quorum exists for the
transaction of all business. This includes shares of Intermedia common stock
and Intermedia series G preferred stock for which proxies have been received
but for which the holders of shares have abstained from voting.
Only shares of Intermedia common stock and Intermedia series G preferred
stock voted for adoption of the merger agreement, including properly submitted
proxies that do not contain voting instructions, will be counted as favorable
votes. If an Intermedia stockholder abstains from voting or does not vote,
either in person or by proxy, it will effectively count as if that Intermedia
stockholder had voted against adoption of the merger agreement.
The persons named as proxies by an Intermedia stockholder may propose and
vote for one or more adjournments of the special meeting, including
adjournments to permit further solicitations of proxies. No
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proxy voted against the proposal to adopt the merger agreement will be voted in
favor of any adjournment or postponement.
Revocability of Proxies
Mailing the enclosed proxy does not preclude an Intermedia stockholder from
voting in person at the special meeting. An Intermedia stockholder may revoke a
proxy at any time prior to the vote at the special meeting by:
. notifying the Secretary of Intermedia by a duly executed revocation of
proxy;
. submitting a duly executed proxy to the Secretary of Intermedia bearing
a later date; or
. appearing at the special meeting and voting in person.
Simply attending the special meeting, without voting at the meeting, will
not constitute revocation of a proxy.
Solicitation of Proxies
WorldCom will bear the costs of preparing this document. Intermedia will
bear the cost of soliciting proxies from its stockholders. In addition to the
solicitation by mail, Intermedia directors, officers and employees may also
solicit proxies in person, by telephone or by other electronic means. These
persons will not be paid for doing this. Intermedia will have brokerage houses
and other custodians, nominees and fiduciaries forward solicitation materials
to the beneficial owners of outstanding shares of Intermedia common stock and
Intermedia series G preferred stock on the record date. Intermedia will
reimburse these persons for their reasonable out-of-pocket expenses in doing
so.
Intermedia will mail a copy of this proxy statement/prospectus to each
holder of record on the record date of Intermedia common stock or Intermedia
series G preferred stock.
Georgeson Shareholder Communications Inc. will assist in the solicitation of
proxies by Intermedia. Intermedia will pay Georgeson a fee of $8,500, plus
reimbursement of out-of-pocket expenses, and will indemnify Georgeson against
any losses arising out of its proxy soliciting services on behalf of
Intermedia.
Intermedia stockholders should not send stock certificates with their
proxies. Transmittal documents for the surrender of Intermedia stock
certificates will be mailed to Intermedia stockholders as soon as practicable
after completion of the merger.
Adjournments
The special meeting may be adjourned for the purpose of soliciting
additional proxies or for other reasons. Any adjournment may be made by
approval of a majority of the voting power represented in the aggregate by the
holders of the outstanding shares of Intermedia common stock and Intermedia
series G preferred stock present in person or represented by proxy at the
special meeting, whether or not a quorum exists, without notice other than by
an announcement made at the special meeting. At the time this document is first
being mailed to Intermedia stockholders, Intermedia does not intend to seek a
postponement or adjournment of the special meeting. However, if a quorum is not
obtained, or if fewer shares of Intermedia common stock and Intermedia series G
preferred stock than the number required are voted in favor of adopting the
merger agreement, the special meeting may be postponed or adjourned in order to
permit additional time for soliciting and obtaining additional proxies or
votes. Any postponement or adjournment of the special meeting for the purpose
of soliciting additional proxies will allow the Intermedia stockholders who
have already sent in their proxies to revoke them at any time prior to their
use.
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THE COMPANIES
WorldCom
WorldCom provides a broad range of communications, outsourcing and managed
network services to both U.S. and non-U.S. based corporations. WorldCom is a
global communications company utilizing a facilities-based, on-net strategy
throughout the world. The on-net approach allows WorldCom's customers to send
data streams or voice traffic across town, across the U.S., or to any of
WorldCom's facilities-based networks in Europe or Asia, without ever leaving
the confines of WorldCom's network. The on-net approach provides WorldCom's
customers with superior reliability and low operating costs.
WorldCom leverages its facilities-based networks to focus on data and the
Internet. WorldCom provides the building blocks or foundation for the new e-
conomy. Whether it is an emerging e-business or larger, more established
company that is embracing an e-business approach, WorldCom provides the
communications infrastructure to help make them successful. From private
networking--from relay and asynchronous transfer mode--to high capacity
Internet and related services, to hosting for complex, high-volume mega-sites,
to turn-key network management and outsourcing, WorldCom provides the broadest
range of Internet and traditional, private networking services available from
any provider.
WorldCom's core business is communications services, which includes voice,
data, Internet and international services. During each of the last three years,
more than 90% of WorldCom's operating revenues were derived from communications
services.
The current members of WorldCom's board of directors are: Clifford L.
Alexander, Jr., James C. Allen, Judith Areen, Carl J. Aycock, Max E. Bobbitt,
Bernard J. Ebbers, Francesco Galesi, Stiles A. Kellett, Jr., Gordon S. Macklin,
Bert C. Roberts, Jr., John W. Sidgmore and Scott D. Sullivan.
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 WorldCom is contained in WorldCom's filings
with the Securities and Exchange Commission. See "Where You Can Find More
Information" beginning on page 107.
Recent Developments
Tracking Stock. On November 1, 2000, WorldCom announced a realignment of its
businesses with the distinct customer bases they serve. While WorldCom, Inc.
will remain the name of the company it will create two separately traded
tracking stocks:
. WorldCom, which will reflect the performance of its core high-growth
data, Internet, hosting and international businesses and is expected to
be quoted on The Nasdaq National Market under the trading symbol "WCOM";
and
. MCI, which will reflect the performance of its high cash flow consumer,
small business, wholesale voice-based long-distance and dial-up Internet
access operations and is expected to be quoted on The Nasdaq National
Market under the trading symbol "MCIT".
A tracking stock is a separate class of a company's common stock designed to
provide a return to investors based upon the financial performance of a
distinct business unit of the company, sometimes referred to as the targeted
business. The ownership of the targeted business does not change, and while
each of the classes of stock trade separately, all shareholders are common
shareholders of the company.
Under the plan, which has been approved by WorldCom's board of directors,
WorldCom will make a tax-free distribution to its shareholders of tracking
stock representing a 100% interest in MCI, which is expected to be completed
during the first half of 2001. Following the distribution, the outstanding
shares of WorldCom, Inc. common stock will represent shares of the WorldCom
tracking stock.
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The completion of the merger is expected to occur prior to the WorldCom,
Inc. shareholder vote to approve the tracking stocks. Upon completion of the
merger, Intermedia stockholders will become shareholders of WorldCom, Inc.
Intermedia common stockholders that receive WorldCom common stock in the
merger and Intermedia option holders who exercise their options after
completion of the merger will receive the same combination of tracking stocks
as current shareholders of WorldCom, Inc., regardless of whether the merger
occurs before or after the distribution of the MCI tracking stock. Neither the
Intermedia nor the Digex board of directors will need to reconsider its
approval of the merger in light of the tracking stock proposals.
WorldCom Tracking Stock. The WorldCom tracking stock will reflect the
performance of the following businesses:
. data;
. Internet;
. hosting;
. international;
. wireless;
. business long-distance voice; and
. business local voice.
The WorldCom business has annualized revenues of approximately $23 billion.
Of that, data, Internet and international operations represent an
approximately $16 billion annualized revenue stream.
The international business consists of revenue streams generated outside of
the U.S., with annualized revenues exceeding $6 billion, operations in more
than 65 countries and local networks in more than 20 cities across Europe,
Latin America and the Asia-Pacific region. Additionally, business voice
represents annualized revenues of approximately $7 billion from a full range
of enterprises.
MCI Tracking Stock. The MCI tracking stock will reflect the performance of
the following businesses:
. mass markets;
. wholesale services;
. small business;
. dial-up Internet service;
. paging; and
. prepaid card.
The MCI tracking stock will provide investors with dividend income and will
track WorldCom, Inc.'s high cash flow consumer, small business, wholesale
voice-based long-distance and dial-up Internet businesses. With annual
revenues of more than $16 billion, the MCI business will focus on providing
shareholders with an income-oriented investment opportunity linked to some of
WorldCom, Inc.'s most established enterprises. The MCI management team will be
compensated based on its ability to generate operating cash flow, reduce debt
and return excess cash flow to holders of MCI tracking stock.
As one of the largest providers of consumer long-distance services, the MCI
business will leverage its globally recognized brand, marketing channels and
broad consumer product offerings. The MCI business has one of the world's
largest and most successful telemarketing operations, encompassing 18 call
centers.
Management Structure. Bernard J. Ebbers will remain WorldCom, Inc.'s
president and chief executive officer. Scott Sullivan will remain WorldCom,
Inc.'s chief financial officer, reporting to Mr. Ebbers. MCI's management
structure, reporting up to Mr. Ebbers, is expected to be named in the coming
weeks.
The WorldCom, Inc. board of directors will govern the activities of both
WorldCom and MCI. The WorldCom, Inc. board of directors will have the same
fiduciary duties to holders of the WorldCom and MCI
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tracking stocks that it currently has to holders of the existing WorldCom, Inc.
common stock. That duty is to act in its good faith business judgment in the
best interests of the company as a whole.
Transaction Specifics. Upon approval of the tracking stocks by WorldCom,
Inc.'s shareholders, WorldCom, Inc. shareholders will receive one share of MCI
stock for every 25 shares of WorldCom, Inc. common stock held immediately prior
to the tracking stock distribution date.
MCI stock will initially pay a quarterly dividend of approximately $75
million ($300 million per year). MCI will initially be allocated notional debt
of $6 billion, and the remaining WorldCom, Inc. debt will be allocated on a
notional basis to the WorldCom tracking stock.
WorldCom, Inc. will report separate financial results for WorldCom and MCI
in addition to the consolidated WorldCom, Inc. results. WorldCom, Inc. does not
expect that this transaction will have any impact on its credit ratings.
Voting rights of WorldCom and MCI shareholders will be prorated based on the
relative market values of WorldCom and MCI, with no predetermined maximum limit
on the percentage of vote either group may represent. WorldCom, Inc. will
conduct shareholder meetings that encompass all holders of WorldCom, Inc.
common stock. WorldCom and MCI shareholders will vote together as a single
class on all matters brought to a vote of shareholders, including the election
of directors.
The WorldCom, Inc. board of directors may convert each outstanding share of
MCI tracking stock into shares of WorldCom tracking stock at a premium of 110%
of the relative trading value of the MCI tracking stock for the 20 days prior
to the announcement of the conversion. No premium will be paid on a conversion
that occurs three years after the issuance of the MCI tracking stock.
If all or substantially all of the WorldCom or MCI assets were sold, the
relevant shareholders would receive either:
. a distribution equal to the fair value of the net proceeds of the sale,
either by special dividend or by redemption of shares; or
. a number of shares of the remaining entity's common stock having been
calculated in accordance with a predetermined conversion premium.
Registration Statement. WorldCom expects:
. to file a registration/proxy statement in connection with the tracking
stock with the Securities and Exchange Commission before the end of
2000;
. to hold its shareholder meeting to vote on the tracking stock plan in
the first half of 2001; and
. to effect the distribution of the MCI tracking stock shortly after
shareholder approval.
No regulatory approvals are expected to be required.
We urge investors and security holders to read WorldCom, Inc.'s Registration
Statement on Form S-4 relating to the tracking stock, including the prospectus
and proxy statement, when they become available. When these and other documents
relating to the tracking stock transaction are filed with the Securities and
Exchange Commission, they may be obtained without charge from the Securities
and Exchange Commission's website at http://www.sec.gov. Holders of WorldCom,
Inc. stock may also obtain each of these documents (when they become available)
for free by directing their request to WorldCom, Inc., c/o Investor Relations
Department, 500 Clinton Center Drive, Clinton, Mississippi 39056. This proxy
statement/prospectus does not constitute an offer to sell or the solicitation
of an offer to buy, nor will there be any sale of tracking stock in any state
in which
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such an offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of that state. No offering of tracking
stock will be made except by means of a prospectus meeting the requirements of
Section 10 of the Securities Act of 1933.
WorldCom, Inc. and other persons referred to below may be deemed to be
participants in the solicitation of proxies of WorldCom shareholders to adopt
the proposals that will be set forth in the proxy statement contained in
WorldCom's Registration Statement on Form S-4 relating to the tracking stock.
The participants in this solicitation may include the directors and executive
officers of WorldCom, who may have an interest in the transaction including as
a result of holding shares of common stock and/or options to acquire the same.
A detailed list of the names and interests of WorldCom's directors and
executive officers is contained in WorldCom's proxy statement for its 2000
annual meeting, which may be obtained without charge at the Securities and
Exchange Commission's website at http://www.sec.gov.
Intermedia
Intermedia provides integrated data and voice communications services,
including enterprise data solutions (frame relay and ATM), Internet
connectivity, private line data, managed Web site and application hosting,
local and long-distance, and integration services to approximately 90,000
business and government customers. Intermedia is a significant nationwide frame
relay provider in the United States, a leading Internet service provider, the
largest shared tenant telecommunications service provider in the United States,
and a leading domestic provider of systems integration services. Intermedia is
also a leading and rapidly growing provider of managed Web site and application
hosting services to large corporations and Internet companies through Digex,
its publicly traded subsidiary. As of the record date, Intermedia owned shares
of Digex capital stock representing approximately 62% of the outstanding Digex
common shares and approximately 94% of the voting power of the outstanding
Digex capital stock. Intermedia operates in primarily two segments, the
provision of integrated communications and Web site and application hosting
services.
Intermedia delivers its local access and voice services, primarily through
its owned local and long-distance switches, over a digital transport network.
Intermedia offers its data and Internet services to its customers on an
extensive intercity network that connects its customers to locations
nationwide. Through its network-to-network interfaces and data switches,
Intermedia has established one of the most densely deployed frame relay
switching networks in the nation. Intermedia's nationwide interexchange network
carries both its data and voice traffic.
Disputes with BellSouth. Intermedia has filed complaints against BellSouth
in Florida and North Carolina, and BellSouth has filed a complaint against
Intermedia in Georgia, concerning a dispute over the correct rates for the
transport and termination of local traffic, commonly known as reciprocal
compensation. The rate dispute arose because of an amendment to the
interconnection agreement between Intermedia and BellSouth designed to
implement a cost savings for Intermedia in interconnection architecture, known
as Multiple Tandem Access or "MTA", in return for significantly lower
reciprocal compensation rates. BellSouth has contended that the signing of the
amendment triggered the lower rates, while Intermedia has contended that the
lower rates would only be in force if Intermedia elected MTA. Intermedia's
position is that it did not elect the MTA option. In Florida, the Florida
Public Service Commission ruled on August 29, 2000, in favor of BellSouth's
contract interpretation. On October 13, 2000, Intermedia filed an appeal of
this ruling with the United States District Court for the Northern District of
Florida. On the same date, Intermedia also filed a motion for stay of the
ruling with the Supreme Court of Florida. Amounts at risk in Florida are
approximately $57.0 million against prior period revenue in the event BellSouth
sustains this decision. In Georgia and North Carolina, the amounts at risk are
approximately $8.0 million and $11.0 million, respectively. The hearing in
North Carolina was held on October 10, 2000, with an expected state public
utility commission ruling in the first quarter of 2001. In Georgia, the
complaint hearing is scheduled for December 18, 2000, with an expected state
public utility commission ruling by the end of the first quarter of 2001.
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On June 5, 2000, BellSouth filed a complaint against Intermedia before the
Florida Public Service Commission alleging that Intermedia had improperly
reported its percentage of interstate usage or "PIU" for the billing of
terminating access services and requesting an award of damages. The complaint
is expected to be docketed for hearing in the year 2001.
Intermedia has also filed a complaint against BellSouth in U.S. District
Court for the Middle District of Florida. The suit, which was filed on July 11,
2000, argues that BellSouth has violated antitrust laws, the Federal
Communications Act, and other federal and state laws and regulations in
refusing to provide adequate transport facilities to Intermedia. Intermedia
argues that BellSouth's failure to provide adequate transport has prevented
Intermedia from expanding its network and customer base as Intermedia has
planned, and that as a result, Intermedia is entitled to an amount of damages
that will be established at trial.
Other Disputes. Intermedia has joined a number of other competitive carriers
in filing a multi-party complaint against Sprint and AT&T in a federal district
court in Virginia. The suit charges that Sprint and AT&T are unlawfully
refusing to pay Intermedia (and other members of the multi-party group)
lawfully tariffed charges for access services provided to Sprint and AT&T.
Intermedia has filed claims against the two carriers that total over $3.5
million, plus other damages. While Intermedia continues to vigorously pursue
the collection of all receivables and believes that future revenue recognized
under its tariffs will be realized, there can be no assurance that future
regulatory, congressional and judicial actions relating to these matters will
be favorable.
Intermedia's executive offices are located at One Intermedia Way, Tampa,
Florida 33647, and its telephone number is (813) 829-0011. Additional
information regarding Intermedia is contained in Intermedia's filings with the
Securities and Exchange Commission. See "Where You Can Find More Information"
beginning on page 107.
Material Contracts Between WorldCom and Intermedia
On August 7, 1998, Intermedia Communications Inc. and WorldCom Network
Services, Inc. entered into a Master Service Agreement for telecommunications
services, as amended on September 11, 2000. Under the terms of the agreement,
Intermedia provides local access and interexchange services to WorldCom. The
agreement provides for an initial schedule of location-specific services, which
may be amended or supplemented by the parties. Services under the agreement are
priced on the basis of an initial nonrecurring charge for service initiation
and monthly recurring charges following initiation of service. The charges are
subject to a discount that increases as the term of the service period
increases and as the volume of the services ordered increases. The agreement
has an initial term of three years. Upon expiration of the initial term, the
agreement continues in effect on a month-to-month basis until terminated by
either party upon 30 days prior written notice. WorldCom and Intermedia have
been engaged in transactions under this agreement aggregating approximately
$2.4 million in 1998, $2.4 million in 1999 and $2.0 million in the first nine
months of 2000. Under various arrangements between Intermedia and WorldCom,
Intermedia purchases interexchange private line, Internet and local access, and
switched services from WorldCom. Intermedia has purchased services from
WorldCom under these arrangements totaling approximately $10.8 million in 1998,
$30.8 million in 1999 and $33.3 million in the first nine months of 2000.
WorldCom and Intermedia have entered into a note purchase agreement, dated
as of October 31, 2000, pursuant to which WorldCom has agreed to purchase up to
an aggregate principal amount of $225 million of Intermedia senior subordinated
notes due October 31, 2009. Upon each request by Intermedia for a purchase of
notes by WorldCom, WorldCom may, at its sole option, choose to purchase in lieu
of notes shares of what would be a new series of Intermedia preferred stock,
the Intermedia series H preferred stock due October 31, 2009. The Intermedia
series H preferred stock will be purchased at a liquidation preference equal to
the principal amount of notes requested to be purchased.
As conditions precedent to each purchase of Intermedia notes or Intermedia
series H preferred stock, Intermedia, in addition to being in compliance with
all of the terms and provisions of the note purchase
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agreement, must be unable to meet its monthly cash requirements to fund its
operating expenses and working capital after using all but $15.0 million of
unrestricted cash available to it, including amounts available under
Intermedia's $350.0 million revolving credit facility with Bank of America,
N.A. and The Bank of New York, as amended to date. Furthermore, Intermedia must
be in compliance with the terms and conditions of the merger agreement, and the
merger must be capable of being completed in accordance with the terms and
conditions of the merger agreement. The interest rate on the notes and the
dividend rate on the Intermedia series H preferred stock both will be equal to
the greater of (1) the average weighted interest rate of Intermedia's
outstanding debt instruments and senior preferred stock plus 300 basis points
and (2) 14.12%, and the average weighted interest rate will be recalculated,
and the interest and dividend rate for outstanding notes and series H preferred
stock will be adjusted, if necessary, on the first day of each calendar month.
With respect to each purchase, the interest rate on notes and the dividend rate
on series H preferred stock will be calculated using the average weighted
interest from the most recent date of determination. Until April 2001, interest
on any notes issued will be capitalized and added to the principal. The
interest rate and dividend rate for the notes and the Intermedia series H
preferred stock, respectively, at October 31, 2000, would have been 14.12%.
The note purchase agreement will govern any outstanding notes and includes
negative covenants substantially similar to the negative covenants applicable
to Intermedia under its 12 1/4% senior subordinated discount notes due 2009,
including covenants restricting payments on equity, investments, incurrence of
indebtedness and issuance of certain types of equity, assets sales,
transactions with affiliates, liens, sale and leaseback transactions, certain
business activities, and mergers and consolidations. The notes will rank pari
passu with the 12 1/4% senior subordinated notes and will be contractually
subordinated to the same extent as the 12 1/4% senior subordinated notes to all
senior debt of Intermedia, including indebtedness outstanding under the credit
facility and all outstanding senior note indentures. In the event a change of
control occurs that would require Intermedia to make an offer to repurchase
other outstanding notes, Intermedia must also make an offer to each holder of
notes to repurchase the notes at 100% of the principal amount of the notes,
plus accrued and unpaid interest. Events of default under the note purchase
agreement applicable to Intermedia include failure to make timely payments of
principal, and subject to a grace period, interest, failure to comply with
certain covenants, and after a grace period, any terms of the note purchase
agreement, breach of representations and warranties, acceleration of material
debt instruments, insolvency or bankruptcy, material judgments, certain
environmental and ERISA events, and a change of control other than the merger.
The Intermedia series H preferred stock will be governed by a certificate of
designation that will include negative covenants substantially similar to those
of the certificate of designation governing Intermedia's series B preferred
stock, including covenants restricting payments on equity, investments,
incurrence of indebtedness and issuance of certain types of equity,
restrictions on subsidiaries' ability to make payments to Intermedia,
transactions with affiliates, mergers and consolidations, and asset sales. The
holders of Intermedia series H preferred stock will be entitled to vote,
together with the holders of outstanding shares of Intermedia common stock, on
all matters on which holders of Intermedia common stock are entitled to vote.
Each share of Intermedia series H preferred stock will entitle its holder to
1/10 of one vote. The Intermedia series H preferred stock will rank pari passu
with Intermedia's existing junior preferred stock and all junior preferred
stock issued in the future, and junior to the Intermedia series B preferred
stock and Intermedia preferred stock issued in the future that expressly
indicates that it is senior to the Intermedia series H preferred stock. Each
share of Intermedia series H preferred stock will be redeemable at any time at
the option of Intermedia at the redemption prices set forth in the certificate
of designation for the Intermedia series H preferred stock. In the event a
change of control occurs, Intermedia must offer to redeem the Intermedia series
H preferred stock at 101% of its liquidation preference, plus accrued and
unpaid interest, subject to limitations set forth in Intermedia's outstanding
debt instruments.
The note purchase agreement provides that, in the event the board of
directors of Intermedia or Digex approves a higher bid or offer from a third
party to merge with or into Intermedia or Digex, Intermedia will cause that
third party to assume all of WorldCom's obligations under the note purchase
agreement and the certificate of designation for the Intermedia series H
preferred stock, purchase all outstanding notes and
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Intermedia series H preferred stock and assume WorldCom's obligations under
WorldCom's guaranty of the credit facility.
WorldCom has also agreed to guarantee in full Intermedia's obligations under
the credit facility pursuant to a guaranty dated as of October 31, 2000, among
WorldCom and the parties to the credit facility.
In October 2000, WorldCom and Digex entered into a prime/subcontractor
arrangement whereby Digex has agreed to provide managed hosting services to
WorldCom customers in the United States and in all international locations
Digex serves now or in the future, in exchange for certain service fees. Under
the terms of the arrangement, Digex will provide the computer hardware,
software, network technology, Internet connectivity and systems management
necessary to offer WorldCom's customers comprehensive outsourced Web site and
application hosting solutions. Digex's revenues under the arrangement during
the fourth quarter of 2000 are expected to be no less than $6.0 million.
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THE MERGER
Background to the Merger
From time to time and increasingly during 2000, the Intermedia board of
directors had considered the possibility of a strategic transaction involving
Intermedia or its publicly traded Web hosting subsidiary, Digex. On July 11,
2000, Intermedia issued a press release announcing, among other things, that it
had retained Bear, Stearns & Co. Inc. to explore strategic alternatives with
respect to Digex, including the possible sale of Intermedia's ownership
interest in Digex to another company. After this announcement, Bear Stearns
contacted 24 companies to determine if they had any interest in pursuing an
acquisition of Intermedia or Digex. Ten companies executed confidentiality
agreements with Intermedia and Digex and were delivered confidential
information packages prepared by Bear Stearns. Of those companies, five
received information packages regarding Digex only and five received
information packages regarding both Digex and Intermedia.
In connection with the announcement, on July 26, 2000, the Digex board of
directors appointed a special committee of directors for the purpose of making
recommendations to the full board of directors of Digex regarding any strategic
transaction. The Digex special committee was authorized to retain independent
counsel and select separate financial advisors. Pursuant to that authorization,
the Digex special committee retained Cahill Gordon & Reindel as independent
counsel and Credit Suisse First Boston Corporation as investment bankers to
assist it in its duties.
WorldCom, which had executed confidentiality agreements with Intermedia and
Digex and received information packages regarding the two companies, contacted
Bear Stearns in early August, 2000, and expressed interest in a possible
strategic transaction. Discussions did not proceed further at that point.
Two strategic acquisition candidates emerged from the process, Exodus
Communications Inc., which was only interested in a transaction to acquire 100%
of the equity of Digex, and Global Crossing Ltd., which expressed an initial
interest in acquiring only Intermedia. During the weeks following the
announcement, extensive due diligence was conducted by each of Exodus and
Global Crossing, and representatives of Intermedia and Digex engaged in
discussions with each of Exodus and Global Crossing concerning a possible
strategic transaction.
From August 17 through August 20, 2000, representatives of Exodus,
Intermedia, Digex and the Digex special committee conducted extensive
negotiations regarding the terms of a possible acquisition by Exodus of Digex
in a stock for stock merger. As part of these negotiations, the parties agreed
on an exchange ratio of 1.85 shares of Exodus common stock for each share of
outstanding Digex common stock, subject to resolution of a number of issues.
The proposed Exodus transaction presented a number of concerns for Intermedia
as the controlling shareholder of Digex, the most severe of which resulted from
contractual restrictions that would be imposed by Exodus on Intermedia's
ability to liquidate the shares of Exodus common stock to be received by it
upon consummation of the merger. Under the proposed arrangement, Intermedia
would have been unable to meet its indenture covenants that required it to
convert at least 85% of the Exodus stock received by Intermedia into cash
within 270 days of the closing of the Digex merger.
On August 17, 2000, Global Crossing representatives informed Intermedia
representatives that Global Crossing was withdrawing from discussions with
Intermedia since its management did not believe an offer acceptable to
Intermedia's board could be made for Intermedia, and Global Crossing did not
believe it could effectively compete for Digex since it was unwilling to use
Global Crossing stock as a currency for a Digex acquisition.
On August 21, 2000, both the Intermedia and Digex boards were scheduled to
meet to discuss the status of issues concerning a proposed Exodus acquisition
of Digex. On August 21, 2000, Global Crossing representatives once again
contacted Intermedia representatives saying they wished to present a revised
proposal for an acquisition of Intermedia and were prepared to negotiate a
contract immediately. The Intermedia and Digex boards of directors met on
August 21, 2000, and again on August 23, 2000, to discuss
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the proposed Exodus and Global Crossing transactions. As a consequence of the
resale restriction contained in the Exodus proposal, Intermedia representatives
advised the Digex board at the August 23, 2000, meeting that Intermedia, as a
stockholder of Digex, would not vote in favor of the Exodus transaction as
proposed. Intermedia representatives also advised the Digex board of Global
Crossing's renewed interest. The Intermedia and Digex board meetings were
adjourned to see if Exodus could address the liquidity issues in a manner
acceptable to Intermedia. In addition, the Intermedia and Digex boards
authorized Intermedia representatives to continue negotiations with Global
Crossing. Negotiations with Exodus and Global Crossing proceeded concurrently.
On August 24, 2000, a meeting was held between Intermedia and Exodus
representatives at which Exodus representatives were advised the Digex board
would like to accept the Exodus offer but Intermedia, as a stockholder of
Digex, would not vote in favor of the transaction because of the liquidity
issues that had previously been discussed at length with Exodus. Intermedia
advised Exodus that Intermedia must have the ability to sell or otherwise
liquidate an adequate number of Exodus shares within the 270-day period
following the closing to raise $2.4 billion so that Intermedia could be assured
it would be in a position to (1) comply with all of its various indenture
provisions or retire its outstanding debt, and (2) retain sufficient cash to
meet its working capital needs. Intermedia representatives also raised other
issues and suggested other changes that would be helpful but reiterated the
most critical change was the ability to raise $2.4 billion in the 270-day post-
closing period. At the meeting, Exodus was also informed Intermedia was
involved in discussions with several banks regarding liquidity alternatives. On
August 24, 2000, following that meeting, Intermedia representatives advised
Exodus that Intermedia was also engaged in discussions with a third party
regarding another proposed strategic transaction.
A further meeting was held with Exodus representatives on August 25, 2000,
at which Exodus representatives presented what they said was a final offer. It
included the following changes to its proposal to acquire Digex: (1) the
payment of $250 million cash at closing, (2) minor increased flexibility for
Intermedia to sell Exodus shares in the period following 270 days after the
closing and (3) a reduction of the exchange ratio from 1.85 to 1.70. They
further advised Intermedia their revised offer would expire on August 28, 2000.
The Exodus representatives stated there was no additional flexibility on
Intermedia's ability to sell Exodus shares post-closing, and if Intermedia
required such flexibility, no transaction would be possible. Intermedia
representatives responded they would advise Exodus of Intermedia's decision in
due course. Exodus formally withdrew its offer on August 30, 2000.
Concurrently with the Exodus discussions, intensive negotiations took place
with Global Crossing representatives. On August 22, 2000, Global Crossing
submitted a proposal pursuant to which it would contribute its Global Center
subsidiary to Intermedia in exchange for securities of Intermedia which would
give Global Crossing voting control of Intermedia. A subsequent merger of
Global Center and Digex would be contemplated but not committed. This proposal
was rejected by Intermedia representatives, and Global Crossing was asked
instead to consider effecting both contemplated transactions immediately--an
immediate combination of Intermedia, Digex and Global Center. On August 23,
2000, Global Crossing agreed in principle to a three-way merger structure with
the further understanding that Global Crossing would arrange to deal with
Intermedia's outstanding indebtedness. By August 29, 2000, this understanding
had evolved into a proposed transaction in which Global Crossing would (1)
combine Intermedia, Digex and Global Center in exchange for 60% of the equity
interest of the combined company, (2) purchase at closing Intermedia's data
business for $1.5 billion and (3) cause Global Crossing's financial advisor,
Morgan Stanley Dean Witter & Co., to provide a $1.5 billion credit commitment
to the combined company.
Pursuant to the proposed three-way merger, Global Crossing's 60% equity
interest would be represented by "super" voting stock having ten votes per
share, and the remaining 40% equity interest would be split between the public
Digex stockholders and Intermedia stockholders in percentages to be agreed upon
by Intermedia and the Digex board. The surviving company of the three-way
merger would be a newly created corporation that would not become publicly
traded until the closing of the merger. The parties commenced preparation of
definitive acquisition agreements for the transaction and negotiations were
held between
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Intermedia representatives and representatives of the Digex special committee
regarding an appropriate equity split. The most significant difficulties in
negotiating the equity split were the widely divergent views of the Digex
special committee's financial advisor and Intermedia's financial advisor of the
value in the transaction being contributed by the three parties and the
probable market capitalization of the surviving company once its securities
became publicly traded. An equity split that would give 27% of the surviving
company to the Digex public stockholders and 13% to Intermedia common
stockholders was tentatively agreed upon by Intermedia representatives and the
Digex special committee representatives on August 30, 2000, subject to board
approval by each company. Intermedia believed the proposed equity split of the
newly created surviving company would deliver shares of the surviving company
to Intermedia common stockholders with an approximate value of $19 to $27 per
outstanding share of Intermedia common stock based upon the estimates of the
trading value of the surviving company by the financial advisors to the Digex
special committee and Intermedia. Representatives of Intermedia, the Digex
special committee, Global Center and Global Crossing met at the offices of
Simpson Thacher & Bartlett (counsel to Global Crossing) in New York City
throughout the day and evening on August 30, 2000, to negotiate the final terms
of the proposed three-way merger.
During the afternoon of August 30, 2000, a representative of WorldCom called
a representative of Intermedia to indicate WorldCom was interested in making an
offer for the acquisition of Digex. After advising WorldCom (1) Intermedia and
Digex were in the final stages of negotiations with other parties and intended
to sign an agreement on September 1, 2000, and (2) any WorldCom offer for Digex
would have to be in a $120 per share range, a Bear Stearns representative was
advised by WorldCom representatives WorldCom might be willing to make such an
offer and was prepared to conduct due diligence and negotiate an agreement for
execution on September 1, 2000. The members of the Digex special committee were
immediately informed of WorldCom's interest. On August 31, 2000, Intermedia's
representatives met with a representative of Global Crossing in the morning to
advise him of WorldCom's interest. The Global Crossing representative advised
Intermedia's representatives that Global Crossing would not compete with such
an offer but would advise their lawyers to continue negotiation of definitive
agreements for their proposed transaction, which would have to be executed by
the close of business on September 1, 2000. By a letter dated September 1,
2000, Global Crossing imposed a deadline of 5:00 p.m. on September 1, 2000, for
execution of definitive agreements for the proposed transaction, after which
its offer would be withdrawn.
The WorldCom negotiating team arrived at the offices of Kronish Lieb Weiner
& Hellman LLP, outside counsel to Intermedia and Digex, early in the afternoon
on August 31, 2000, and spent the balance of the afternoon reviewing due
diligence documents and meeting with representatives of Digex management.
Kronish Lieb had forwarded to Cravath, Swaine & Moore, counsel to WorldCom, on
the evening of August 30, 2000, a proposed agreement for a merger of Digex with
a subsidiary of WorldCom. Late in the afternoon of August 31, 2000, a Bear
Stearns representative was advised by WorldCom senior executives that
WorldCom's interest had shifted to an acquisition only of Intermedia, with
Digex remaining as a publicly traded subsidiary. The WorldCom senior executives
requested that Intermedia propose to WorldCom a price at which Intermedia would
be willing to accept such a proposal, subject to board and stockholder
approval. After consultation with Intermedia management and directors, the Bear
Stearns representative informed the WorldCom senior executives that Intermedia
would be prepared to consider an all stock transaction at the equivalent of $39
per share. The senior executives of WorldCom indicated they were prepared to
proceed on that basis, subject to the completion of due diligence, negotiation
of a merger agreement and board approval. An Intermedia representative
immediately called counsel to the Digex special committee to advise of
WorldCom's interest in an Intermedia transaction. That Intermedia
representative also advised counsel to the Digex special committee that
WorldCom would require a representation from Intermedia to the effect that
approval under section 203 of the Delaware General Corporation Law had been
granted by the board of directors of Digex prior to execution of the merger
agreement.
Section 203 prohibits business combinations between a Delaware corporation
and an "interested stockholder" within three years of the time the interested
stockholder becomes an interested stockholder, subject to certain exceptions,
including if the board of directors of the corporation gives its prior approval
of the transaction in which the interested stockholder becomes an interested
stockholder. By acquiring Intermedia, and therefore indirectly Intermedia's
controlling stake in Digex, WorldCom would become an interested
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stockholder of Digex. As a result, and even though WorldCom believed one or
more exceptions to the applicability of the section 203 prohibitions would
apply, WorldCom insisted on approval from the Digex board of directors under
section 203 of the Delaware General Corporation Law to ensure the restrictions
of section 203 would not apply to any possible subsequent transaction between
WorldCom and Digex.
In the evening of August 31, 2000, Kronish Lieb delivered to Cravath a draft
merger agreement between Intermedia and WorldCom. Representatives of WorldCom
and Intermedia conducted due diligence on each other during the afternoon and
evening of August 31, 2000, and the morning of September 1, 2000.
Negotiation of the merger agreement with WorldCom continued throughout the
night of August 31, 2000, and the morning of September 1, 2000. During those
negotiations, Intermedia's representative requested, among other things, the
following changes to the merger agreement: (1) inclusion of a provision
pursuant to which WorldCom would agree that any subsequent material transaction
between WorldCom and any of its affiliates and Digex that would otherwise have
been subject to the approval provisions of section 203 of the Delaware General
Corporation Law would require the approval of a committee of unaffiliated
directors of Digex, and (2) inclusion of an agreement by WorldCom to make a
cash tender offer for the outstanding public shares of Digex at a price equal
to $120 per share. WorldCom agreed to the first request and rejected the second
request. Intermedia also requested that WorldCom commit on a pre-closing basis
to continued funding of Intermedia and Digex, the principal purpose of which
was to ensure that Digex's accelerated capital spending plan would be funded
pending consummation of the merger. WorldCom agreed to the requested pre-
closing funding, subject to the satisfaction of various conditions.
The Digex board met in the afternoon of September 1, 2000. After extensive
discussion, it was proposed the Digex board of directors take all necessary
action to ensure transactions between WorldCom and/or its affiliates and Digex
subsequent to the consummation of the proposed merger would not be subject to
the restrictions set forth in section 203 of the Delaware General Corporation
Law. The proposal was approved by a four-to-three vote, with the Digex special
committee members and the chief executive officer of Digex voting against the
proposal and the balance of the Digex directors, each of whom was also a
director or officer of Intermedia, present at the meeting voting for the
proposal.
On September 1, 2000, immediately following the meeting of the board of
directors of Digex, the board of directors of Intermedia met to consider action
on the proposed WorldCom acquisition. The Intermedia board was advised Exodus
had withdrawn its offer and had reiterated on at least two occasions it would
not improve its liquidity proposals and WorldCom had advised both Intermedia
representatives and the members of the Digex special committee WorldCom's offer
was only for an Intermedia merger. Intermedia's legal advisor reviewed the
terms of the WorldCom merger agreement with the Intermedia board. At the
meeting, the Intermedia board received an oral opinion from Bear Stearns
(subsequently confirmed in writing) that, as of that date, the consideration to
be received by Intermedia common stockholders in the WorldCom merger was fair,
from a financial point of view, to Intermedia common stockholders. The
Intermedia board then concluded the WorldCom proposal was more favorable to an
Intermedia stockholder than the Global Crossing proposal (based in part upon
advice received from Bear Stearns) and the Exodus proposal (which had been
withdrawn) was not acceptable to the Intermedia board. The Intermedia board
unanimously approved the WorldCom merger agreement and the merger and
authorized senior management to execute the WorldCom merger agreement and
proceed with the transaction with WorldCom.
On September 1, 2000, representatives of WorldCom and their advisors
described the terms of the proposed Intermedia transaction to the WorldCom
board of directors. After discussion, the WorldCom board of directors approved
the transaction and authorized WorldCom's senior management to execute the
merger agreement.
At approximately 5:00 p.m. on September 1, 2000, Intermedia and WorldCom
executed the merger agreement and WorldCom, ICI Ventures and the Intermedia
directors executed the stockholders agreement. On the next business day,
September 5, 2000, the two companies publicly announced the execution of the
merger agreement.
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Intermedia's Reasons for the Merger and the Intermedia Board of Directors'
Recommendation
Intermedia Board Action on September 1, 2000. At its September 1, 2000,
meeting, the Intermedia board of directors unanimously:
. determined that the merger and the merger agreement are advisable, fair
to and in the best interests of Intermedia and its stockholders;
. approved the merger agreement and the transactions contemplated by that
agreement;
. resolved to recommend that Intermedia common stockholders and holders
of Intermedia series G preferred stock adopt the merger agreement; and
. directed that the merger agreement be submitted for consideration by
Intermedia common stockholders and holders of Intermedia series G
preferred stock.
Intermedia's Reasons for the Merger. The Intermedia board of directors
believes the long-term value to Intermedia stockholders of an investment in the
combined company will more likely than not be superior to the long-term value
of an investment in Intermedia as a stand-alone company.
The decision of the Intermedia board of directors to approve the merger
agreement and recommend its adoption by Intermedia stockholders was based upon
various factors in addition to those set forth above in "--Background to the
Merger" beginning on page 26, including the following:
. the fact the exchange ratio on September 1, 2000, represented a premium
to the holders of Intermedia common stock of approximately 70.5% over
the then-current trading price of Intermedia common stock, and
Intermedia believed the consideration to be received by the Intermedia
common stockholders in the WorldCom merger was more favorable to the
Intermedia common stockholders than the consideration the Intermedia
common stockholders would have received in the proposed transaction
with Global Crossing;
. the terms of the merger agreement, including (1) WorldCom's obligation
to fund certain of Intermedia's and Digex's capital requirements prior
to the closing of the merger, (2) WorldCom's agreement that any
subsequent material transaction between WorldCom and Digex, including a
transaction that would otherwise be subject to the approval of section
203 of the Delaware General Corporation Law, would require the approval
of a committee of unaffiliated directors of Digex, (3) the conditions
to completion of the merger, (4) Intermedia's ability under certain
conditions to consider unsolicited alternative business combination
proposals, and (5) Intermedia's ability to terminate the agreement in
circumstances specified in the merger agreement (see "The Merger
Agreement--Termination" beginning on page 60);
. the judgment, advice and analyses of senior management of Intermedia,
including, in addition to their favorable recommendation of the merger,
senior management's analysis of conditions in the telecommunications
industry, the strategic options available to Intermedia, including
Intermedia's continued pursuit of its strategic plan as an independent
company, the likelihood of future consolidation in the
telecommunications industry and the constraints on Intermedia's ability
to continue to adequately finance its strategic plan as well as the
strategic growth plan of its subsidiary, Digex;
. the Intermedia board of directors' consideration of the business,
financial position, prospects and personnel of Intermedia and WorldCom
on a combined basis, including the ability of the combined company more
effectively to exploit Intermedia's and Digex's business opportunities
and prospects due to WorldCom's size and financial resources;
. Bear Stearns' contacts with other companies in the telecommunications
industry with respect to a sale of Intermedia, Digex or both companies
on behalf of Intermedia and that firm's and Intermedia management's
assessment of the alternatives available to Intermedia;
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. Bear Stearns' financial analysis of the proposed merger and its opinion
described below to the effect that, as of the date of the opinion and
based upon and subject to matters stated in the opinion, the common
stock merger consideration was fair, from a financial point of view, to
the holders of Intermedia common stock (see "--Opinion of Intermedia's
Financial Advisor" beginning on page 32);
. that the merger is intended to be accomplished on a tax-free basis to
the stockholders of Intermedia for U.S. Federal income tax purposes,
except for cash received by Intermedia common stockholders instead of
fractional shares or pursuant to WorldCom's cash election; and
. the interests of Intermedia's directors and management in the merger as
described in "--Interests of Intermedia Directors and Executive
Officers in the Merger" beginning on page 40.
In reaching its decision to approve the merger agreement and to recommend
the adoption of the merger agreement to the Intermedia stockholders, the
Intermedia board of directors did not view any single factor as determinative,
and did not find it necessary or practicable to assign any relative or
specific weights to the various factors considered. Furthermore, individual
directors may have given differing weights to the various factors. Each of the
factors listed above was believed by the Intermedia board of directors to
support the decision to approve the merger agreement.
The Intermedia board of directors also considered two principal detriments
to Intermedia of the merger:
. as a result of the merger, the benefits of Intermedia's long-term
prospects would be shared by Intermedia and WorldCom stockholders,
rather than being realized solely by Intermedia's existing
stockholders; and
. the terms of the merger agreement limiting Intermedia's ability to
consider other acquisition proposals and requiring the payment by
Intermedia of a termination fee in certain circumstances made it more
difficult for another potential bidder to propose to acquire Intermedia
on a basis that would be superior to that contemplated by the merger
agreement.
However, the Intermedia board of directors determined that the foregoing
detriments were outweighed by the potential benefits of the merger summarized
above, including the opportunity for Intermedia's stockholders to share in the
benefits of the combined company's long-term prospects. In addition, as to the
second factor relating to the transaction protections sought by WorldCom, the
Intermedia board of directors believed, based in substantial part on the
contacts made with other potential strategic partners and consultation with
Bear Stearns, it was not reasonably likely a superior proposal was available.
Accordingly, the Intermedia board determined the benefits of the proposed
merger outweighed the potential detriments of these specific provisions.
There can be no assurance, however, that any of the potential benefits
considered by the Intermedia board will be realized. See "Risk Factors
Relating to the Merger" beginning on page 12.
Recommendation of the Intermedia Board. The Intermedia board of directors
believes the merger and the merger agreement are advisable, fair to and in the
best interests of Intermedia and its stockholders and unanimously recommends
the Intermedia common stockholders and holders of Intermedia series G
preferred stock vote in favor of adoption of the merger agreement.
WorldCom's Reasons for the Merger
WorldCom believes that the merger with Intermedia will accelerate
WorldCom's expansion into managed web site and application hosting services.
Through its acquisition of Intermedia, WorldCom will indirectly acquire a
controlling interest in Digex. Digex is a pioneer and leading worldwide
provider of managed Web and application hosting services. After the merger,
WorldCom will indirectly own approximately 62% of Digex's outstanding shares
of common stock and approximately 94% of the voting power of Digex.
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<PAGE>
In particular, WorldCom believes that the merger will:
. focus WorldCom's capital investments in one of the industry's fastest
growing segments;
. provide WorldCom and Digex customers with a more complete portfolio of
products and services to help grow their Web-based business;
. pair Digex's range of managed, enterprise and portal hosting solutions
with WorldCom's worldwide, facilities-based network and WorldCom's
customer relationships with leading businesses around the world; and
. enable WorldCom and Digex to offer integrated solutions for emerging and
established Internet-based businesses and portals as well as established
businesses that are leveraging Web-based business to open new markets,
lower costs, improve customer satisfaction and broaden distribution.
WorldCom and Intermedia are exploring the possibility of a sale concurrent
with or following the completion of the merger of all or substantially all of
the assets of Intermedia that are not related to Intermedia's controlling
interest in and ownership of shares of Digex.
Opinion of Intermedia's Financial Advisor
The full text of the written opinion, which sets forth the assumptions made,
procedures followed and matters considered by Bear Stearns, is set forth as
Annex C to this proxy statement/prospectus. Intermedia stockholders are urged
to read carefully Bear Stearns' opinion in its entirety.
Overview
The Intermedia board of directors retained Bear Stearns to act as its
financial advisor in connection with the merger. At the September 1, 2000,
meeting of Intermedia's board of directors, Bear Stearns delivered its oral
opinion, subsequently confirmed in writing, that, as of September 1, 2000, and
based upon and subject to the assumptions made in its opinion, the
consideration to be received in the merger by the holders of Intermedia common
stock (as described in the opinion, the common stock merger consideration) was
fair, from a financial point of view, to those holders of shares of Intermedia
common stock.
In reading the discussion of the fairness opinion presented below,
Intermedia stockholders should be aware that Bear Stearns' opinion:
. was provided to Intermedia's board of directors for its use and benefit
in connection with its consideration of the merger and addresses only
the fairness, from a financial point of view, of the common stock merger
consideration to holders of shares of Intermedia common stock as of the
date of the opinion;
. does not address any other aspect of the merger;
. does not constitute a recommendation to Intermedia's board of directors
in connection with the merger;
. does not constitute a recommendation to any Intermedia stockholder as to
how to vote with respect to the merger; and
. does not express any opinion as to Intermedia's underlying business
decision to pursue the merger, or the price or range of prices at which
the shares of Intermedia, Digex or WorldCom common stock may trade
subsequent to the announcement of the merger or the price or range of
prices at which the shares of Digex or WorldCom common stock may trade
subsequent to completion of the merger.
The common stock merger consideration, the form of the consideration and the
terms of the merger were determined by arm's-length negotiations between
Intermedia and WorldCom and were not based on any
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<PAGE>
recommendation by Bear Stearns. Intermedia did not provide specific
instructions or impose any limitations on Bear Stearns with respect to the
investigation made or the procedures followed by Bear Stearns in rendering its
opinion.
In connection with rendering its opinion, Bear Stearns, among other things:
. reviewed the merger agreement and the stockholders agreement;
. reviewed selected publicly available information concerning
Intermedia, Digex and WorldCom;
. reviewed certain operating and financial information relating to
Intermedia's and Digex's businesses and prospects on a stand-alone
basis, including projections, that were prepared and provided to
Bear Stearns by Intermedia and Digex;
. reviewed certain financial information concerning WorldCom,
including projections, contained in certain publicly available
securities analysts' research reports;
. met with certain members of the senior management of Intermedia,
Digex and WorldCom to discuss each company's respective business,
operations, historical and projected financial results and future
prospects as well as other matters Bear Stearns believed to be
relevant to its inquiry;
. reviewed the historical prices, trading multiples and trading
volumes of the Intermedia, Digex and WorldCom common stock;
. reviewed publicly available financial data, stock market
performance data and trading multiples of companies that Bear
Stearns deemed generally comparable to Intermedia and Digex;
. reviewed the terms of recent mergers and acquisitions involving
companies that Bear Stearns deemed generally comparable to
Intermedia and Digex;
. performed theoretical discounted cash flow analyses for Intermedia
and Digex based on the projections furnished by Intermedia and
Digex to Bear Stearns; and
. conducted such other studies, analyses, inquiries and
investigations as Bear Stearns deemed appropriate.
Bear Stearns relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including,
without limitation, the projections provided to it by Intermedia and Digex.
With respect to the projected financial results provided by Intermedia and
Digex, Bear Stearns assumed that they had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the senior
management of Intermedia and Digex as to the expected future performance of
Intermedia and Digex. Bear Stearns did not assume any responsibility for the
independent verification of any such information or of the projections provided
to it, and Bear Stearns further relied upon the assurances of the senior
management of Intermedia and Digex that they were unaware of any facts that
would make the information and projections provided to Bear Stearns incomplete
or misleading. In connection with its opinion, Bear Stearns considered and
discussed with the senior management of Intermedia and Digex the capital needs
of each of Intermedia and Digex, as reflected in the projections mentioned
above, and whether such needs could be met in light of Intermedia's recent
operating performance and financial condition and Intermedia's access to
capital given current market conditions.
In arriving at its opinion, Bear Stearns did not perform or obtain any
independent appraisal of the assets or liabilities (contingent or otherwise) of
Intermedia, Digex or WorldCom, nor was Bear Stearns furnished with any such
appraisals. During the course of its engagement, Bear Stearns was asked by
Intermedia's board of directors to solicit indications of interest from various
third parties regarding a transaction with Intermedia and/or Digex, and Bear
Stearns considered the results of this solicitation in rendering its opinion.
Bear Stearns assumed that the merger will qualify as a tax-free
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code, and that the merger will be completed in a timely manner and in
accordance with the
33
<PAGE>
terms of the merger agreement without any regulatory limitations, restrictions,
conditions, amendments or modifications that collectively would have a material
effect on Intermedia, Digex or WorldCom.
Summary of Analysis
The following is a summary of the material financial and valuation analyses
that Bear Stearns presented to Intermedia's board of directors on September 1,
2000. In order to understand fully the financial and valuation analyses used by
Bear Stearns, any information presented below in tabular format must be read
together with the text of each summary. The tables alone do not represent a
complete description of the financial and valuation analyses.
Summary Valuation Analysis. Bear Stearns reviewed the aggregate equity and
enterprise values of Intermedia, including the value of Intermedia's stake in
Digex, based on Intermedia's closing stock prices on August 30, 2000, and on
July 11, 2000 (the day before Intermedia's public announcement that it was
considering strategic alternatives with regard to its stake in Digex) and based
on the merger assuming a per share value of $39 (within the collar). Bear
Stearns then compared these per share values to Intermedia's recent trading
prices and calculated implied multiples of enterprise value to estimated
revenue for 2000 and 2001, which revenue estimates were based on projections
provided to Bear Stearns by the respective managements of Intermedia and Digex,
and to gross property, plant and equipment as of June 30, 2000.
Summary Valuation Analysis
<TABLE>
<CAPTION>
Trading Values as
of
-----------------
Transaction July
Value Within August 30, 11,
Collar 2000 2000
------------ ---------- ------
<S> <C> <C> <C> <C>
Valuation Data
Intermedia stock price................. $39.00 $20.88 $23.38
Gross equity value..................... $3,158 $1,345 $1,507
Net equity value....................... 2,945 1,304 1,465
Enterprise value....................... 8,194 6,888 6,546
Valuation Parameters
Premium (discount) to:
Closing price on August 30, 2000..... $20.88 86.8% -- 12.0%
20-day average price as at August 30,
2000................................ 18.45 111.4 13.1% 26.7
Closing price on July 11, 2000....... 23.38 66.8 (10.7) --
20-day average price as at July 11,
2000................................ 32.05 21.7 (34.9) (27.1)
High price during past year.......... 77.38 (49.6) (73.0) (69.8)
Low price during past year........... 14.75 164.4 41.5 58.5
Enterprise value/revenue:
2000 estimated....................... 7.6x 6.4x 6.1x
2001 estimated....................... 5.5 4.7 4.4
Enterprise value/gross property, plant
and equipment......................... 3.2x 2.7x 2.6x
</TABLE>
The stock price premia and implied consolidated transaction multiples of
revenue and gross property, plant and equipment for Intermedia outlined in the
table above were used by Bear Stearns for comparison to the stock price premia
and valuation multiples implied by certain precedent mergers and acquisition
transactions --see "--Analysis of Selected Precedent Mergers and Acquisition
Transactions" below and to the trading multiples calculated for certain
comparable publicly traded companies--see "--Comparable Company Analysis"
below.
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<PAGE>
Intermedia Core Implied Valuation Analysis. Bear Stearns performed an
analysis of the implied enterprise value of Intermedia's core operations (i.e.,
excluding the value of Intermedia's stake in Digex). This analysis was based on
a $39 per share merger value and assumed a range of hypothetical per share
values for Digex. The analysis was prepared assuming no tax impact relating to
any hypothetical disposition of Intermedia's stake in Digex and, alternatively,
assuming a tax liability relating to such hypothetical disposition. In
connection with this analysis, Bear Stearns calculated implied multiples of
Intermedia's core enterprise value to the estimated revenue of Intermedia's
core operations for 2001 and to Intermedia's core gross property, plant and
equipment as of June 30, 2000.
Implied Valuation of Intermedia's Core Operations Based on $39 Per Share Merger
Value for Intermedia and a Range of Hypothetical Digex Per Share Values
<TABLE>
<CAPTION>
Trading Values of
Digex as of
-----------------
July
August 30, 11, Range of Hypothetical Digex
2000 2000 Values
---------- ------ ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
$86.06 $71.50 $90.00 $100.00 $110.00 $120.00
Digex enterprise
value/2001E Revenue 19.1x 15.6x 20.1x 22.5x 24.9x 27.3x
------ ------ ------ ------- ------- -------
Pre-tax valuation
Intermedia's core
enterprise value........ $2,350 $2,923 $2,195 $1,802 $1,408 $1,015
Enterprise value/
2001 estimated
revenue............... 2.2x 2.7x 2.0x 1.7x 1.3x 0.9x
Gross property, plant
and equipment......... 1.1 1.3 1.0 0.8 0.6 0.5
Tax-affected valuation(1)
Intermedia's core
enterprise value........ $3,024 $3,483 $2,899 $2,584 $2,269 $1,954
Enterprise value/
2001 estimated
revenue............... 2.8x 3.2x 2.7x 2.4x 2.1x 1.8x
Gross property, plant
and equipment......... 1.4 1.6 1.3 1.2 1.0 0.9
</TABLE>
--------
(1) Assumes zero tax basis in Digex shares, a tax rate of 40% and deferred
payment of tax for five years at a discount rate of 15%.
The implied hypothetical multiples of revenue for Digex and the implied
multiples of revenue and gross property, plant and equipment for Intermedia's
core operations outlined in the table above were used by Bear Stearns for
comparison to the valuation multiples implied by certain precedent mergers and
acquisition transactions--see "--Analysis of Selected Precedent Mergers and
Acquisition Transactions" below and to the trading multiples calculated for
certain comparable publicly traded companies--see "--Comparable Company
Analysis" below.
Analysis of Selected Precedent Mergers and Acquisition Transactions. Bear
Stearns reviewed selected precedent mergers and acquisitions involving
companies that, like Intermedia and Digex, provide data and voice
communications services and/or Web hosting services. Bear Stearns noted that
many precedent transactions involving these companies were not directly
relevant for the purpose of comparison to the merger, as the transactions were,
among other things, (1) acquisitions of companies that provide only data
communications services or Web hosting services or (2) effected in historical
periods where the valuations of telecommunications services companies and
general stock market conditions were substantially different from that of the
current market environment. Bear Stearns also noted that the comparability of
some transactions to the WorldCom/Intermedia merger was somewhat limited due to
Intermedia's failure to meet its recent financial and operational targets and
uncertainty as to whether Intermedia's operations could be funded in the
absence of a transaction given current market conditions.
In connection with its review, Bear Stearns directly compared the
WorldCom/Intermedia merger to the acquisitions of (1) IXC Communications Inc.
by Cincinnati Bell Inc., (2) Concentric Network Corporation by
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<PAGE>
NEXTLINK Communications Inc., (3) Teleglobe Inc. by BCE Inc. and (4) Verio Inc.
by NTT Communications Corporation. The table below summarizes certain relevant
stock price premia and valuation multiples relating to each of these
transactions.
Precedent Mergers and Acquisition Transactions
<TABLE>
<CAPTION>
Concentric/
IXC/Cincinnati NEXTLINK Teleglobe/BCE Verio/NTT
Bell (July 21, (January 10, (February 15, (May 8,
1999)(1) 2000)(1) 2000)(1) 2000)(1)
-------------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
Stock price premium
compared to:
One day prior........... 36.3% 50.0% 5.6% 67.0%
20-day average price
prior.................. 26.4 55.9 14.7 88.5
Unaffected stock
price(2)............... 49.8 -- -- --
Enterprise value/revenue:
Current year............ 4.6x 8.4x 3.1x 15.5x
Current year + 1........ 3.6 5.0 2.6 9.4
</TABLE>
--------
(1) Announcement date of transaction.
(2) One day prior to announcement of exploration of strategic alternatives.
For IXC, February 3, 1999.
Bear Stearns noted that the WorldCom/Intermedia merger was most comparable,
when viewed on a consolidated basis, to the IXC/Cincinnati Bell,
Concentric/NEXTLINK and Teleglobe/BCE transactions. Based on this comparison,
Bear Stearns indicated that the stock price premia and transaction
value/revenue multiples for the WorldCom/Intermedia merger generally compared
favorably to these precedent mergers and acquisition transactions.
Bear Stearns also compared Digex's enterprise value/revenue multiples, which
were based on Digex's recent stock prices and a range of hypothetical values,
as indicated under "--Intermedia Core Implied Valuation Analysis" above, to the
Verio/NTT transaction, which Bear Stearns believed was the most relevant
precedent mergers and acquisition transaction involving a web hosting company.
Based on this comparison, Bear Stearns observed that the range of Digex
enterprise value/revenue multiples significantly exceeded the implied
transaction value/revenue multiple for the Verio/NTT transaction.
Finally, Bear Stearns compared the implied enterprise value/revenue and
enterprise value/gross property, plant and equipment multiples for Intermedia's
core operations, excluding Intermedia's stake in Digex, as indicated under "--
Intermedia Core Implied Valuation Analysis" above, to Time Warner Telecom
Inc.'s recent acquisition of substantially all of the assets of GST
Telecommunications, Inc. Based on this comparison, Bear Stearns determined that
the implied multiples for Intermedia's core operations generally compared
favorably to the GST/Time Warner Telecom transaction, which had an implied
transaction value/revenue multiple of 1.5x and an implied transaction
value/gross property, plant and equipment multiple of 0.7x.
Bear Stearns noted that none of the subject transactions are identical to
the merger. Bear Stearns further noted that the analysis of precedent mergers
and acquisition transactions necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors that would necessarily affect the acquisition value of Intermedia
as compared to the acquisition value of any other comparable company in general
and the transactions above in particular.
Comparable Company Analysis. Bear Stearns analyzed selected historical and
projected operating information, stock market performance data and valuation
multiples for Intermedia and Digex and compared this data to that of certain
publicly traded companies deemed by Bear Stearns to be comparable to Intermedia
and Digex, respectively. Bear Stearns calculated enterprise value/estimated
2000 revenue multiples and enterprise value/estimated 2001 revenue multiples
based on closing stock prices as of August 30, 2000, for the integrated
communications provider companies comparable to Intermedia's core operations
and for the Web
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<PAGE>
hosting companies comparable to Digex. In addition, Bear Stearns calculated
enterprise value/gross property, plant and equipment multiples for each of the
integrated communications provider companies Bear Stearns deemed comparable to
Intermedia. Such values and multiples were based on publicly available
information, including estimates in published third-party research reports.
These comparable companies and their respective multiples are set forth in the
tables below:
Comparable Trading Multiples--Integrated Communications Providers
<TABLE>
<CAPTION>
Enterprise Value/
-----------------------------------------
2000 2001 Gross Property, Plant
Estimated Estimated and Equipment at June
Revenue Revenue 30, 2000
--------- --------- ---------------------
<S> <C> <C> <C>
NEXTLINK Communications Inc. ........ 26.4x 12.5x 10.7x
Time Warner Telecom Inc. ............ 16.7 11.5 7.4
Allegiance Telecom, Inc.............. 17.1 9.1 6.9
McLeodUSA Incorporated............... 9.5 6.5 6.0
Electric Lightwave, Inc.............. 5.5 3.5 1.6
Adelphia Business Solutions, Inc. ... 5.5 2.4 1.6
ICG Communications, Inc. ............ 1.9 1.1 0.6
</TABLE>
Comparable Trading Multiples--Web Hosting Companies
<TABLE>
<CAPTION>
Enterprise Value/
Estimated Revenue
-----------------
2000 2001
-------- --------
<S> <C> <C>
Exodus Communications, Inc.................................. 44.3x 19.8x
Digital Island, Inc......................................... 36.4 13.0
Navisite, Inc............................................... 31.6 12.3
Globix Corporation.......................................... 14.9 7.3
Data Return Corporation..................................... 12.7 5.7
Usinternetworking, Inc. .................................... 10.1 4.7
Genuity Inc. ............................................... 5.4 3.3
Interliant, Inc. ........................................... 4.6 2.6
PSINet Inc. ................................................ 3.7 2.5
</TABLE>
No company utilized in the peer group comparison is identical to Intermedia
or Digex or the merger, and accordingly, Bear Stearns' analysis of comparable
companies necessarily involved complex considerations and judgments concerning
differences in financial and operating characteristics and other factors which
would necessarily affect the relative trading values of Intermedia and Digex
compared to the companies to which Intermedia and Digex were compared. Bear
Stearns observed that the integrated communications provider comparable
companies and Web hosting comparable companies could be generally categorized
into two groups: (1) a group of larger capitalization companies that were
typically adequately funded and had performed well with respect to recent
financial and operational targets and (2) a group of smaller capitalization
companies that were more likely to have limited access to capital given current
market conditions and to have underperformed recent expectations of equity
research analysts with respect to financial and operational targets. Bear
Stearns further observed that the larger, better capitalized comparable
companies tended to trade at multiples significantly higher than other
comparable companies that may have been perceived to have limited access to
capital or financial and/or operational difficulties.
Theoretical Discounted Cash Flow Analysis. Bear Stearns performed
theoretical discounted cash flow analyses on the after-tax cash flows of
Intermedia's core operations and Digex to determine a range of estimated per
share equity values for Intermedia on a stand-alone basis that included the
value of Intermedia's stake in Digex.
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<PAGE>
Bear Stearns noted that the theoretical discounted cash flow analyses were
highly dependent on growth rates and margin assumptions relating to the
underlying projections and that such projections were difficult to forecast due
to the rapidly evolving nature of the telecommunications, data and Internet
markets in which Intermedia's core businesses and Digex operate. Consequently,
Bear Stearns observed that the resulting discounted cash flow valuations are
inherently theoretical due to the difficulty in forecasting projected operating
results as well as assumptions relating to, among other factors, the
availability of sufficient capital, the cost of such capital and assessing
implied perpetual growth rates beyond the forecast period.
Bear Stearns further observed that stocks frequently trade at meaningful
discounts to theoretical discounted cash flow values. Moreover, Bear Stearns
noted that during periods characterized by volatile market conditions, emerging
high growth companies in particular (such as Intermedia and Digex) trade at
significant discounts to theoretical discounted cash flow values. On balance,
Bear Stearns placed less emphasis on these theoretical discounted cash flow
analyses than on other analyses, particularly in light of Intermedia's (1)
failure to meet recent financial and operational targets and the high degree of
uncertainty that exists regarding the achievability of Intermedia's long-term
projections, (2) limited access to capital and uncertainty as to whether
Intermedia's operations could be funded in the absence of a transaction and (3)
having conducted an extensive auction over the past year that had failed to
produce values approaching the theoretical discounted cash flow values
discussed above.
In performing its theoretical discounted cash flow analysis, Bear Stearns
calculated after-tax cash flows for the nine-and-one-half-year period
commencing July 1, 2000, and ending on December 31, 2009, based on after-tax
earnings before depreciation and amortization less changes in working capital
and capital expenditures. Bear Stearns calculated a terminal value for
Intermedia's core businesses and Digex by applying to projected earnings before
interest, taxes, depreciation and amortization, referred to as EBITDA, in 2009
a range of multiples of 7.0x to 11.0x and 9.0x to 13.0x, respectively. Bear
Stearns determined that this range of multiples was appropriate for valuing
Intermedia's core businesses and Digex based on:
. the implied perpetual growth rates of free cash flow derived from such
multiples;
. Bear Stearns' review of integrated data and voice communications
companies and Web hosting companies generally comparable to
Intermedia's core businesses and to Digex; and
. Bear Stearns' overall experience in valuing growth-oriented companies.
Bear Stearns chose weighted average costs of capital ranging from 13.0% to
17.0% for Intermedia's core business and 14.0% to 18.0% for Digex based on
several assumptions relating to factors such as the inherent risks in
Intermedia's core business and Digex, the assumed equity betas for Intermedia
and Digex and the respective costs of debt and prospective capital structures
for Intermedia's core business and Digex.
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<PAGE>
The theoretical discounted cash flow analyses were based on projections
prepared and provided to Bear Stearns by Intermedia and Digex. Bear Stearns'
theoretical discounted cash flow analysis of Intermedia (its core business and
the value of Intermedia's stake in Digex) generated the following range of per
share equity values:
Intermedia Theoretical Discounted Cash Flow Analysis
<TABLE>
<CAPTION>
Weighted EBITDA Exit Multiple in
Average 2009(1)
Cost of -----------------------
Capital(2) Low Middle High
---------- ------- ------- -------
<S> <C> <C> <C>
Low................................................. $103.44 $134.69 $165.93
Middle.............................................. 82.86 109.33 135.80
High................................................ 65.67 88.20 110.68
</TABLE>
--------
(1) 2009 EBITDA multiple for Digex at 9.0x at low, 11.0x at middle and 13.0x
at high. For Intermedia's core operations, 7.0x at low, 9.0x at middle
and 11.0x at high.
(2) Weighted average cost of capital for Digex 14.0% at low, 16.0% at middle
and 18.0% at high. For Intermedia's core operations, 13.0% at low, 15.0%
at middle and 17.0% at high.
Bear Stearns also analyzed the impact on Intermedia's theoretical discounted
cash flow per share equity values assuming Intermedia's core operations and
Digex achieved various percentages of planned EBITDA over the nine-and-one-
half-year projection period. Per share equity values based on this sensitivity
analysis are outlined in the table below:
Intermedia Theoretical Discounted Cash Flow
Analysis--Sensitivity Analysis
<TABLE>
<CAPTION>
EBITDA Exit Multiple
in 2009 and Assuming
Midpoint Weighted
Average Cost of
Percentage Capital(1) (2)
of ----------------------
EBITDA Low Middle High
------ ------ ------- -------
<S> <C> <C> <C>
60.0%................................................... $17.00 $ 37.38 $ 53.71
80.0.................................................... 52.47 73.76 94.94
100.0.................................................... 82.86 109.33 135.80
</TABLE>
--------
(1) 2009 EBITDA multiple for Digex at 9.0x at low, 11.0x at middle and 13.0x
at high. For Intermedia core operations, 7.0x at low, 9.0x at middle and
11.0x at high.
(2) Weighted average cost of capital for Digex at 16.0% and weighted average
cost of capital for Intermedia's core operations at 15.0%.
Other Considerations
The preparation of a fairness opinion is a complex process that involves
various judgments and determinations as to the most appropriate and relevant
methods of financial and valuation analysis and the application of those
methods to the particular circumstances. The opinion is, therefore, not
necessarily susceptible to partial analysis or summary description. Bear
Stearns believes that its analyses must be considered as a whole and that
selecting portions of its analyses and the factors considered, without
considering all of the analyses and factors, would create a misleading and
incomplete view of the processes underlying its opinion. Bear Stearns did not
form an opinion as to whether any individual analysis or factor, whether
positive or negative, considered in isolation, supported or failed to support
its opinion. In arriving at its opinion, Bear Stearns did not assign any
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<PAGE>
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments based upon its experience in providing such opinions and
on then-existing economic, monetary, market and other conditions as to the
significance of each analysis and factor. In performing its analyses, Bear
Stearns, at Intermedia's direction and with Intermedia's consent, made numerous
assumptions with respect to industry performance, general business conditions
and other matters, many of which are beyond the control of Intermedia, Digex,
WorldCom or Bear Stearns. Any assumed estimates implicitly contained in Bear
Stearns' opinion or relied upon by Bear Stearns in rendering its opinion do not
necessarily reflect actual values or predict future results or values. Any
estimates relating to the value of a business or securities do not purport to
be appraisals or to necessarily reflect the prices at which companies or
securities may actually be sold.
Intermedia's board of directors retained Bear Stearns based upon Bear
Stearns' qualifications, experience and expertise. Bear Stearns is an
internationally recognized investment banking firm that regularly engages in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Bear Stearns has
previously rendered investment banking and financial advisory services to
Intermedia and Digex and has received customary fees for rendering these
services. In the ordinary course of its business, Bear Stearns may actively
trade the equity and/or debt securities of Intermedia, Digex and WorldCom 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.
Pursuant to an engagement letter, Intermedia agreed to pay to Bear Stearns a
total advisory fee of $22 million upon completion of the merger. Of this amount
$2.2 million was payable upon Bear Stearns rendering its fairness opinion to
Intermedia's board of directors. In addition, Intermedia agreed to reimburse
Bear Stearns for all reasonable out-of-pocket expenses incurred by Bear Stearns
in connection with the merger, including the reasonable fees of and
disbursements to its legal counsel. Intermedia has also agreed to indemnify
Bear Stearns against specific liabilities in connection with its engagement,
including liabilities under the federal securities laws.
Interests of Intermedia Directors and Executive Officers in the Merger
Introduction
Some of the members of Intermedia's board of directors and executive
officers have interests in the merger that are different from or in addition to
the interests of stockholders of Intermedia generally. These additional
interests relate to, among other things, the effect of the merger on employment
and benefit arrangements to which directors and executive officers are parties
or under which they have rights. These interests, to the extent material, are
described below. The Intermedia board of directors was aware of these interests
and considered them, among other things, prior to approving the merger
agreement.
Employment Agreements
Intermedia has entered into employment agreements with each of its executive
officers. David C. Ruberg is employed as President, Chief Executive Officer and
Chairman of the Board of Intermedia pursuant to an employment agreement dated
May 1, 1993, as amended. Richard J. Buyens is employed as Senior Vice
President, Sales of Intermedia pursuant to an employment agreement dated
December 23, 1998, as amended. Patricia A. Kurlin is employed as Senior Vice
President, General Counsel of Intermedia pursuant to an employment agreement
dated November 10, 1998, as amended. Robert M. Manning is employed as Senior
Vice President, Chief Financial Officer and Secretary of Intermedia pursuant to
an employment agreement dated August 27, 1996, as amended. Richard W. Marchant
is employed as Senior Vice President, Engineering of Intermedia pursuant to an
employment agreement dated as of September 1, 1998, as amended. Davis D. Howe
is employed as Senior Vice President, Customer Service Delivery and Operations
of Intermedia pursuant to an employment agreement dated July 11, 2000, as
amended.
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<PAGE>
Each of the employment agreements described in the preceding paragraph
provides that if the executive officer's employment is terminated by Intermedia
for any reason other than for cause, as described below, following a change of
control (which would include the completion of the merger), Intermedia will pay
such executive officer's base salary as in effect at the time of termination in
one lump-sum payment immediately following the date of termination. Mr. Manning
is also entitled to executive level outplacement services if his employment
with Intermedia is terminated, unless such termination is voluntary or results
from fraud, gross violation of company policy, gross negligence, an intentional
act which is against the best interests of the company, death or disability.
For purposes of these employment agreements, "cause" means
. any conduct or behavior by the executive officer that would reasonably
be expected to have a material adverse effect on Intermedia's business
or reputation;
. commission by the executive officer of an act involving moral turpitude
or dishonesty, including fraud;
. the executive officer's material failure to reasonably perform his or
her duties for Intermedia; or
. the executive officer's willful failure to perform or abide by any
lawful directions or instructions of Intermedia consistent with his or
her capacity as a senior executive of Intermedia.
Notwithstanding any payments to be made to the executive officers pursuant
to the preceding paragraph, each executive officer's employment agreement also
provides that upon the occurrence of a change of control of Intermedia (which
would include the completion of the merger), Intermedia will pay to the
executive officer, in a lump sum promptly following the occurrence of the
change of control, an amount equal to the sum of (1) two multiplied by the
executive's base salary in effect immediately prior to the occurrence of the
change of control, plus (2) two multiplied by the amount of the target bonus
applicable to the position held by the executive officer immediately prior to
the change of control for the fiscal year in which the change of control
occurs.
For purposes of the preceding paragraphs, "change of control" means the
sale, exchange or transfer of Intermedia common stock, whether in one
transaction or a series of related transactions occurring in one year, that
results in an accumulation of 50% or more of the outstanding shares of
Intermedia common stock (on a fully diluted basis) in one holder or several
affiliated holders (or any such transactions occurring within six months that
results in an accumulation of at least 35% of the outstanding shares of
Intermedia common stock (on a fully diluted basis)).
Each executive officer's employment agreement also provides that the
executive will receive an additional amount, on an after-tax basis, to
compensate for any excise taxes imposed on that executive officer under Section
4999 of the Internal Revenue Code.
Pursuant to the change of control and severance provisions contained in the
employment agreements of Intermedia's executive officers, the estimated change
of control and severance payments that may become payable to those executive
officers if their employment were terminated immediately following the merger
in a manner qualifying for severance benefits (excluding the amounts of any
excise tax gross-up payments) are as follows, assuming that the merger is
completed on February 1, 2001:
<TABLE>
<CAPTION>
Severance upon a
Change of Severance change of
Name control amount amount control
---- -------------- ---------- ----------------
<S> <C> <C> <C>
David C. Ruberg...................... $2,125,000 $ 625,000 $2,750,000
Robert M. Manning.................... 1,200,000 375,000 1,575,000
Patricia A. Kurlin................... 825,000 275,000 1,100,000
Richard J. Buyens.................... 825,000 275,000 1,100,000
Richard W. Marchant.................. 765,000 255,000 1,020,000
Davis D. Howe........................ 750,000 250,000 1,000,000
---------- ---------- ----------
Total.............................. $6,490,000 $2,055,000 $8,545,000
========== ========== ==========
</TABLE>
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<PAGE>
Restricted Stock Awards
Pursuant to a Restricted Share Agreement between Intermedia and David C.
Ruberg, dated January 25, 1996, as amended, Intermedia granted Mr. Ruberg a
contingent restricted stock award covering 400,000 shares of Intermedia common
stock. Under the terms of the agreement, the restricted shares would be issued
to Mr. Ruberg only if substantial specified increases in stockholder value were
obtained by specified dates. These increases in stockholder value were obtained
in 1996 and the restricted shares were issued to Mr. Ruberg. The restricted
shares vest in equal quarterly installments over a twenty-year period, with
acceleration of vesting upon attainment of certain goals. Two of these goals
were obtained in the first quarter of 2000 which accelerated the vesting of 66%
of the unvested restricted shares. Upon the occurrence of a change of control
of Intermedia, which would include the completion of the merger, the unvested
portion of the issued restricted shares will become fully vested. As of the
record date, 63,656 of Mr. Ruberg's restricted shares were unvested.
Pursuant to the employment agreement of Robert M. Manning, and a Restricted
Share Agreement dated May 21, 1997, as amended, Intermedia granted Mr. Manning
two contingent restricted stock awards covering a total of 130,000 shares of
Intermedia common stock. Under the terms of the agreements, the restricted
shares would be issued only if substantial specified increases in stockholder
value were obtained by specified dates. These goals were met in 1997. The
restricted shares vest in equal quarterly installments over a twenty-year
period, with acceleration of vesting upon attainment of certain goals. Two of
these goals were obtained in the first quarter of 2000 which accelerated the
vesting on 66% of the unvested shares. Upon the occurrence of a change of
control of Intermedia, which would include the completion of the merger, the
unvested portion of the issued restricted shares will become fully vested. As
of the record date, 29,005 of Mr. Manning's restricted shares were unvested.
Pursuant to his employment agreement, Intermedia granted Richard J. Buyens a
contingent restricted stock award covering 10,000 shares of Intermedia common
stock. Under the terms of the award, 5,000 of the restricted shares vested on
January 15, 2000, the end of the first full year of employment, and the
remaining 5,000 shares vest on January 15, 2001, the end of the second full
year of employment. Upon the occurrence of a change of control of Intermedia,
which would include the completion of the merger, the unvested portion of the
issued restricted shares will become fully vested. As of the record date, 5,000
of Mr. Buyens' restricted shares were unvested.
Warrants and Preferred Stock
Pursuant to an agreement and warrant certificate dated as of November 20,
1997, Intermedia issued to Ralph J. Sutcliffe, a director of Intermedia, a
warrant to purchase up to 200,000 shares of Intermedia common stock at an
exercise price of $20.75 per share. The warrant may be exercised on or before
November 20, 2002, when the warrant will expire and cease to be exercisable.
Upon the completion of the merger, the warrant will become exercisable for
shares of WorldCom common stock, with the number of shares of WorldCom common
stock issuable and the exercise price based on the exchange ratio, without
giving effect to WorldCom's cash election right. See "--Effect on Awards
Outstanding Under Intermedia Stock Plans; Warrants" beginning on page 55.
Pursuant to two warrant agreements dated as of February 17, 2000, between
Intermedia and ICI Ventures, an associate, as defined under the securities
laws, of James H. Greene, Jr. and Alexander Navab, Jr., who are each directors
of Intermedia, Intermedia issued to ICI Ventures warrants to purchase up to
1,000,000 shares of Intermedia common stock at an exercise price equal to
$40.00 per share and up to 1,000,000 shares of Intermedia common stock at an
exercise price equal to $45.00 per share. The warrants may be exercised on or
before February 17, 2004, when the warrants will expire and cease to be
exercisable. Upon the completion of the merger, these warrants and the series G
preferred stock will become exercisable and/or convertible into shares of
WorldCom common stock with the number of shares of WorldCom common stock
issuable and the exercise and/or conversion price based on the exchange ratio.
See "--Effect on Awards Outstanding Under Intermedia Stock Plans; Warrants"
beginning on page 55. In connection with the merger, WorldCom will
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<PAGE>
assume certain registration rights granted by Intermedia to ICI Ventures. In
addition, ICI Ventures owns an aggregate of 200,000 shares of Intermedia series
G preferred stock. The Intermedia series G preferred stock will be exchanged
for WorldCom series G preferred stock with terms more fully described under
"Description of WorldCom Capital Stock" beginning on page 68. In addition, ICI
Ventures will have the right to have its WorldCom Series G preferred stock
redeemed by WorldCom within 45 days of completion of the merger.
Indemnification
Pursuant to the terms of the merger agreement, WorldCom agrees that all
rights to indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the consummation of the merger, existing in
favor of the current or former directors or officers of Intermedia or its
subsidiaries as provided in the certificate of incorporation or bylaws and any
indemnification or other agreements of Intermedia or its subsidiaries as in
effect on September 1, 2000, shall be assumed by the surviving corporation as
of the consummation of the merger and will survive the merger. Intermedia has
entered into indemnification agreements with each of its senior executive
officers and each member of its board of directors.
The merger agreement provides that for the six-year period following the
completion of the merger, WorldCom will cause the surviving corporation to
maintain in effect directors' and officers' liability insurance covering acts
or omissions occurring prior to the completion of the merger, or obtain
substitute insurance coverage, covering each person currently covered by the
directors' and officers' liability insurance policy maintained by Intermedia on
terms which are, in the aggregate, no less favorable to those directors and
officers than the current policy. In no event will the surviving corporation be
required to pay insurance premiums in excess of 200% of the amount of the
aggregate premiums paid by Intermedia in 1999 for such purpose.
Effects of the Merger on Grants Pursuant to Stock Plans and Employment
Agreements
Intermedia stock options to purchase shares of Intermedia common stock have
been granted in connection with Intermedia's 1992 Stock Option Plan, 1996 Long-
Term Incentive Plan, 1997 Equity Participation Plan for the Benefit of
Employees of Digex and 1997 Stock Option Plan for the Benefit of Employees of
Digex.
Pursuant to the terms of the Intermedia stock plans, all Intermedia employee
stock options granted pursuant to the plans after March 1999 (which do not
fully vest upon a change of control) will become fully vested upon the earlier
of (1) the termination of the optionee's employment without cause by Intermedia
or any of its subsidiaries following the occurrence of a change of control,
which would include the completion of the merger, or (2) the first anniversary
of the occurrence of a change of control, provided the optionee is still an
employee of Intermedia or any of its subsidiary companies on that date.
The following chart sets forth as of the record date the total number of
Intermedia stock options granted to Intermedia executive officers after March
1999 that are subject to the terms described in the preceding paragraph, the
number of those options that remain unvested and the weighted average exercise
price of the unvested options:
<TABLE>
<CAPTION>
Number of
Number of unvested Weighted average
Name stock options stock options exercise price
---- ------------- ------------- ----------------
<S> <C> <C> <C>
David C. Ruberg.................... 800,000 646,665 $28.9531
Robert M. Manning.................. 450,000 352,501 21.0625
Patricia A. Kurlin................. 140,000 106,668 23.4688
Richard J. Buyens.................. 90,000 74,500 28.3125
Richard W. Marchant................ 160,000 119,167 27.0313
Davis D. Howe...................... -- -- --
</TABLE>
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<PAGE>
Pursuant to the terms of the Intermedia stock plans, all Intermedia employee
stock options granted before March 1999, except as otherwise described in this
section, will become fully vested if within 12 months of a change of control of
Intermedia, which would include the completion of the merger:
. the optionee's employment or other relationship with Intermedia or any
of its subsidiary companies is terminated without cause by Intermedia or
any of its subsidiaries;
. the optionees' title or authority is materially diminished or base pay
or bonus potential is reduced; or
. the optionee is required to relocate to a different metropolitan area at
least 60 miles away from the area in which he or she worked at the time
of the change of control.
The following chart sets forth as of the record date the total number of
options granted to Intermedia executive officers before March 1999 that are
subject to the terms described in the preceding paragraph, the number of those
options that remain unvested and the weighted average exercise price of the
unvested options:
<TABLE>
<CAPTION>
Number of
Number of unvested Weighted average
Name stock options stock options exercise price
---- ------------- ------------- ----------------
<S> <C> <C> <C>
David C. Ruberg.................... -- -- --
Robert M. Manning.................. 50,000 27,500 $34.6250
Patricia A. Kurlin................. 15,000 7,500 36.1875
Richard J. Buyens.................. -- -- --
Richard W. Marchant................ -- -- --
Davis D. Howe...................... -- -- --
</TABLE>
Pursuant to the terms of Intermedia's stock plans and individual employment
arrangements, upon the change of control of Intermedia, which would include the
completion of the merger, the unvested portion of some Intermedia stock options
granted to David C. Ruberg, Robert M. Manning, Patricia A. Kurlin, Richard J.
Buyens, Richard W. Marchant and Davis D. Howe will become fully vested. The
following chart sets forth as of the record date the total number of Intermedia
stock options that vest immediately upon a change of control of Intermedia, the
number of those options that remain unvested and the weighted average exercise
price of the unvested options:
<TABLE>
<CAPTION>
Number of Number of unvested Weighted average
Name stock options stock options exercise price
---- ------------- ------------------ ----------------
<S> <C> <C> <C>
David C. Ruberg............ 890,000 126,662 $ 8.4045
Robert M. Manning.......... 192,830 38,332 12.6134
Patricia A. Kurlin......... 67,839 33,085 14.8792
Richard J. Buyens.......... 100,000 65,000 15.0000
Richard W. Marchant........ 40,000 23,334 14.0000
Davis D. Howe.............. 175,000 166,250 23.3125
</TABLE>
The following chart sets forth as of the record date the total number of
Intermedia stock options granted to Intermedia executive officers to purchase
shares of Intermedia common stock, the total number of those options that
remain unvested and the weighted average exercise price of the unvested
options:
<TABLE>
<CAPTION>
Number of Number of unvested Weighted average
Name stock options stock options exercise price
---- ------------- ------------------ ----------------
<S> <C> <C> <C>
David C. Ruberg............ 1,690,000 773,327 $18.1317
Robert M. Manning.......... 692,830 418,333 19.6897
Patricia A. Kurlin......... 222,839 147,253 21.7100
Richard J. Buyens.......... 190,000 139,500 21.3059
Richard W. Marchant........ 200,000 142,501 24.4250
Davis D. Howe.............. 175,000 166,250 23.3125
</TABLE>
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<PAGE>
All employees of Intermedia (including its executive officers) who were
employees on the date Digex completed its initial public offering in August
1999 also have options to purchase shares of common stock of Digex,
Intermedia's public Web hosting subsidiary. Pursuant to the terms of the Digex
stock plan, upon a change of control of Intermedia, which would include the
completion of the merger, the unvested portion of the Digex stock options
granted to these Intermedia employees will become fully vested on the earlier
of (1) one year following the occurrence of the change of control, if the
optionee continues to be employed by Intermedia on that date or (2) the date
the optionee's employment is terminated by Intermedia other than for cause.
The following chart sets forth as of the record date the total number of
options granted under the Digex stock plan to Intermedia executive officers to
purchase shares of Digex common stock, the total number of those options that
remain unvested and the weighted average exercise price of the unvested
options:
<TABLE>
<CAPTION>
Number of Number of unvested Weighted average
Name stock options stock options exercise price
---- ------------- ------------------ ----------------
<S> <C> <C> <C>
David C. Ruberg............ 50,000 34,375 $17.0000
Robert M. Manning.......... 50,000 34,375 17.0000
Patricia A. Kurlin......... 40,000 27,500 17.0000
Richard J. Buyens.......... 30,000 20,625 17.0000
Richard W. Marchant........ 30,000 20,625 17.0000
Davis D. Howe.............. -- -- --
</TABLE>
Options issued to non-employee directors of Intermedia will become fully
vested upon a change of control of Intermedia, which would include the
completion of the merger. Except for David C. Ruberg, none of the directors of
Intermedia are employees of Intermedia.
The following chart sets forth as of the record date the total number of
Intermedia stock options granted to Intermedia non-employee directors, the
total number of those options that remain unvested and the weighted average
exercise price of the unvested options:
<TABLE>
<CAPTION>
Number of Number of unvested Weighted average
Name stock options stock options exercise price
---- ------------- ------------------ ----------------
<S> <C> <C> <C>
John C. Baker.............. 30,000 -- $19.9792
Philip A. Campbell......... 30,000 -- 17.9585
James H. Greene, Jr........ 22,000 20,000 52.1250
George F. Knapp............ 47,900 -- 13.7462
Alexander Navab, Jr........ 22,000 20,000 52.1250
Ralph J. Sutcliffe......... 22,000 20,000 34.1875
</TABLE>
On September 1, 2000, the Intermedia board of directors approved a
resolution whereby all Intermedia stock options held by Mr. Manning and Mr.
Ruberg will expire on the earlier of five years following the consummation of
the merger or the existing expiration dates of all such options.
Employee Benefits
For a description of the treatment of employee benefits matters in the
merger, see "--Intermedia Employee Benefits Matters" beginning on page 55.
Form of the Merger
Subject to the terms and conditions of the merger agreement and in
accordance with Delaware law, at the completion of the merger, Wildcat
Acquisition Corp., a wholly owned Delaware subsidiary of WorldCom, will merge
with and into Intermedia, and Intermedia will be the surviving corporation.
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<PAGE>
Merger Consideration
Common Stock
At the completion of the merger, each outstanding share of Intermedia common
stock, other than treasury stock held by Intermedia and shares held by WorldCom
or Wildcat, will be converted into the right to receive, subject to the
WorldCom cash election right described below, a number of shares of WorldCom
common stock equal to the exchange ratio, rounded to the nearest 1/10,000,
which will be determined by dividing:
. $39.00 by
. the average price, rounded to the nearest 1/10,000, of the volume
weighted averages, rounded to the nearest 1/10,000, of the trading
prices of WorldCom common stock on The Nasdaq National Market, as
reported by Bloomberg Financial Markets or another source to which
WorldCom and Intermedia agree in writing, for the 15 trading days
randomly selected by lot by WorldCom and Intermedia together from the
30 consecutive trading days ending on the third trading day immediately
before the completion of the merger.
However, the exchange ratio will not be less than 0.8904 or greater than
1.1872.
In addition, Intermedia common stockholders that receive WorldCom common
stock in the merger will receive the same combination of tracking stocks as
current holders of WorldCom common stock. See "The Companies--WorldCom--Recent
Developments--Tracking Stock" beginning on page 19.
In the event that the exchange ratio would otherwise be greater than 1.0685,
WorldCom will have a cash election right whereby WorldCom can cause the
exchange ratio to be equal to 1.0685 by adding to the common stock merger
consideration an amount of cash per share of Intermedia common stock equal to
the product of:
. the difference between the exchange ratio without giving effect to the
WorldCom cash election right and 1.0685; and
. the average price of WorldCom common stock, determined above.
WorldCom is not permitted to exercise the cash election right to the extent
its exercise will result in the merger's ceasing to qualify as a reorganization
under Section 368(a) of the Internal Revenue Code.
Preferred Stock
Intermedia Series B Preferred Stock. At the completion of the merger, each
share of Intermedia series B preferred stock outstanding immediately before the
completion of the merger will remain outstanding as series B preferred stock of
Intermedia, as the corporation surviving the merger, without any change to the
powers, preferences or special rights of the Intermedia series B preferred
stock. Prior to completion of the merger, Intermedia will amend the certificate
of designation of the Intermedia series B preferred stock to provide that each
share of Intermedia series B preferred stock will be entitled to one-tenth of
one vote per share on all matters, voting together with the common stock and
other classes of voting securities of Intermedia as a single group.
Intermedia Series D Preferred Stock. At the completion of the merger, each
share of Intermedia series D preferred stock, other than shares held by
WorldCom or Wildcat and treasury stock held by Intermedia, will be converted
into the right to receive one share of WorldCom series D preferred stock. The
WorldCom series D preferred stock will have terms that will be the same as
those of the Intermedia series D preferred stock, except that:
. the issuer will be WorldCom rather than Intermedia;
. the WorldCom series D preferred stock will be convertible into WorldCom
common stock, and cash if WorldCom exercises its cash election right;
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<PAGE>
. dividends will accrue from the last dividend payment date of the
Intermedia series D preferred stock prior to the completion of the
merger and be payable in WorldCom common stock or cash; and
. each share of WorldCom series D preferred stock will be entitled to
one-tenth of one vote per share on all matters, voting together with
the WorldCom common stock and the other classes of WorldCom voting
securities as a single group.
Intermedia Series E Preferred Stock. At the completion of the merger, each
share of Intermedia series E preferred stock, other than shares held by
WorldCom or Wildcat and treasury stock held by Intermedia, will be converted
into the right to receive one share of WorldCom series E preferred stock. The
WorldCom series E preferred stock will have terms that will be the same as
those of the Intermedia series E preferred stock, except that:
. the issuer will be WorldCom rather than Intermedia;
. the WorldCom series E preferred stock will be convertible into WorldCom
common stock, and cash if WorldCom exercises its cash election right;
. dividends will accrue from the last dividend payment date of the
Intermedia series E preferred stock prior to the completion of the
merger and be payable in WorldCom common stock or cash; and
. each share of WorldCom series E preferred stock will be entitled to
one-tenth of one vote per share on all matters, voting together with
the WorldCom common stock and the other classes of WorldCom voting
securities as a single group.
Intermedia Series F Preferred Stock. At the completion of the merger, each
share of Intermedia series F preferred stock, other than shares held by
WorldCom or Wildcat and treasury stock held by Intermedia, will be converted
into the right to receive one share of WorldCom series F preferred stock. The
WorldCom series F preferred stock will have terms that will be the same as
those of the Intermedia series F preferred stock, except that:
. the issuer will be WorldCom rather than Intermedia;
. the WorldCom series F preferred stock will be convertible into WorldCom
common stock, and cash if WorldCom exercises its cash election right;
. dividends will accrue from the last dividend payment date of the
Intermedia series F preferred stock prior to the completion of the
merger and be payable in WorldCom common stock or cash; and
. each share of WorldCom series F preferred stock will be entitled to
one-tenth of one vote per share on all matters, voting together with
the WorldCom common stock and the other classes of WorldCom voting
securities as a single group.
Intermedia Series G Preferred Stock. At the completion of the merger, each
share of Intermedia series G preferred stock, other than shares held by
WorldCom or Wildcat and treasury stock held by Intermedia, will be converted
into the right to receive one share of WorldCom series G preferred stock. The
WorldCom series G preferred stock will have terms that will be the same as
those of the Intermedia series G preferred stock, except that:
. the issuer will be WorldCom rather than Intermedia;
. the WorldCom series G preferred stock will be convertible into WorldCom
common stock, and cash if WorldCom exercises its cash election right;
. dividends will accrue from the last dividend payment date of the
Intermedia series G preferred stock prior to the completion of the
merger and be payable in WorldCom common stock or cash;
. the holders of WorldCom series G preferred stock will not have, in the
absence of an event of default, the right to elect any directors,
except voting together with the holders of WorldCom common stock;
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<PAGE>
. the approval of the holders of a majority of the outstanding shares of
WorldCom series G preferred stock, voting as a separate class, will not
be required to approve a merger or sale of WorldCom or certain other
transactions; and
. the provisions for redemption at the holders' option following a change
of control contained in the certificate of designation for the
Intermedia series G preferred stock may be exercised within 45 days
after the completion of the merger.
Intermedia Series H Preferred Stock. At the completion of the merger, each
share of Intermedia series H preferred stock outstanding immediately before the
completion of the merger will remain outstanding as series H preferred stock of
Intermedia, as the corporation surviving the merger, without any change to the
powers, preferences or special rights of the Intermedia series H preferred
stock. The certificate of designation of the Intermedia series H preferred
stock provides that each share of series H preferred stock will be entitled to
one-tenth of one vote per share on all matters, voting together with the common
stock and other classes of voting securities of Intermedia as a single group.
Adjustments
The consideration for Intermedia common stock or Intermedia preferred stock,
as applicable, will be correspondingly adjusted to reflect any
reclassification, recapitalization, split-up, subdivision, stock dividend,
combination, exchange of shares or similar transaction relating to the
Intermedia common stock or Intermedia preferred stock that occurs between the
date of the merger agreement and the completion of the merger, or if the record
date for one of these transactions is within that period.
The consideration for Intermedia common stock will be correspondingly
adjusted to reflect any reclassification, recapitalization, split-up,
subdivision, stock dividend, combination, exchange of shares or similar
transaction relating to the WorldCom common stock that occurs between the date
of the merger agreement and the completion of the merger, or if the record date
for one of these transactions is within that period.
Treasury Stock; Shares Held by the Acquiror
At the completion of the merger, all outstanding shares of Intermedia common
stock and Intermedia preferred stock held in the treasury of Intermedia or held
by WorldCom or Wildcat will be canceled and retired and will cease to exist. No
consideration will be delivered for those shares in the merger.
Fractional Shares
Intermedia common stockholders will receive cash for any fractional shares
that they would otherwise receive in the merger, based on the closing price of
WorldCom common stock on The Nasdaq National Market on the trading day
preceding the completion of the merger.
Conversion of Shares and Procedures for Exchange of Certificates
The conversion of each share of Intermedia 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 Intermedia stockholder. The
transmittal letter will contain instructions with respect to obtaining the
merger consideration in exchange for shares of Intermedia capital stock.
Intermedia stockholders should not send stock certificates with the enclosed
proxy.
After the merger, each certificate that previously represented shares of
Intermedia 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 WorldCom common
stock, or the right to receive cash for the fair value of those shares for
which appraisal rights exist and have been perfected.
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<PAGE>
Holders of certificates previously representing Intermedia capital stock
will not be paid dividends or distributions on the WorldCom capital stock into
which their Intermedia 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 Intermedia capital stock which is
not registered in the records of Intermedia'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 and cash paid if WorldCom
exercises its cash election right upon surrender of certificates representing
the applicable shares of Intermedia capital stock will be deemed to have been
issued and paid in full satisfaction of all rights relating to those shares of
Intermedia capital stock. WorldCom will remain obligated, however, to pay any
dividends or make any other distributions declared or made by Intermedia in
accordance with the merger agreement on shares of Intermedia 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.
Effective Time of the Merger
The merger will become effective at the time of filing of a certificate of
merger with the Delaware Secretary of State or at such later time as agreed
upon by WorldCom and Intermedia and specified in the certificate of merger. The
filing of the certificate of merger will be filed as soon as practicable after
the satisfaction or, if permissible, waiver of the conditions to the completion
of the merger described in the merger agreement.
Listing of WorldCom Capital Stock
Common Stock
WorldCom has agreed to use reasonable efforts to cause the WorldCom common
stock issuable in the merger and issuable upon conversion and as dividends on
the WorldCom preferred stock to be issued in the merger to be approved for
quotation on The Nasdaq National Market, subject to official notice of
issuance, on or before the completion of the merger.
Preferred Stock
The WorldCom preferred stock that will be issuable to Intermedia preferred
stockholders in the merger will not be listed on any exchange or quotation
service.
Delisting and Deregistration of Intermedia Common Stock
Intermedia common stock is approved for quotation on The Nasdaq National
Market and is registered under the Securities Exchange Act. If the merger is
completed, the Intermedia common stock will not be quoted on The Nasdaq
National Market and will be deregistered under the Securities Exchange Act.
Material U.S. Federal Income Tax Consequences
General
This section discusses the material U.S. Federal income tax consequences of
the merger to United States persons who hold shares of Intermedia common stock
and Intermedia preferred stock as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986. It does not discuss tax consequences
that
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may be relevant to holders of Intermedia common stock or Intermedia preferred
stock entitled to special treatment under U.S. Federal income tax law
(including, without limitation, dealers in securities or foreign currency, tax-
exempt organizations, banks, trusts, insurance companies, persons that hold
Intermedia common stock or Intermedia preferred stock as part of a straddle, a
hedge against currency risk or as a constructive sale or conversion
transaction, persons that have a functional currency other than the United
States dollar and investors in pass-through entities) or to holders who
acquired their Intermedia common stock or Intermedia preferred stock pursuant
to the exercise or cancellation of employee stock options or otherwise as
compensation. This discussion also does not describe tax consequences arising
out of the tax laws of any state, local or foreign jurisdiction.
For purposes of this discussion, "U.S. holder" means:
. a citizen or resident of the United States;
. a corporation or other entity taxable as a corporation created or
organized under the laws of the United States or any of its political
subdivisions;
. a trust if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. fiduciaries have the
authority to control all substantial decisions of the trust; or
. an estate that is subject to U. S. Federal income tax regardless of its
source.
Consequences of the Merger
The merger is intended to qualify as a tax free reorganization under Section
368(a) of the Internal Revenue Code. It is a condition to Intermedia's
obligation to consummate the merger that Intermedia receive an opinion of
Kronish Lieb Weiner & Hellman LLP, counsel to Intermedia, dated as of the
effective date of the merger, stating that, on the basis of the facts,
representations and assumptions set forth in that opinion, (1) the merger will
qualify as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code, and (2) WorldCom, Wildcat and Intermedia will each be a
"party to a reorganization" within the meaning of Section 368(b) of the
Internal Revenue Code.
Assuming that the merger will qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code, in the opinion of
Kronish Lieb Weiner & Hellman LLP, subject to the assumptions and limitations
described below:
. U.S. holders of Intermedia common stock or Intermedia preferred stock
who receive WorldCom common stock or WorldCom preferred stock for their
Intermedia stock in the merger will not recognize gain or loss for U.S.
Federal income tax purposes, except with respect to cash, if any, they
receive (1) instead of a fractional share of WorldCom common stock or
(2) pursuant to the cash election that is available to WorldCom if the
exchange ratio exceeds 1.0685, as described below;
. each U.S. holder's aggregate tax basis in the WorldCom capital stock
received in the merger will be the same as the U.S. holder's aggregate
tax basis in the Intermedia capital stock surrendered in the merger,
decreased by the amount of any tax basis allocable to any fractional
share interest in WorldCom common stock for which cash is received and
decreased by any cash received as a consequence of WorldCom's exercise
of its cash election right in excess of the portion of that cash that is
recognized as taxable gain;
. the holding period of the WorldCom capital stock received in the merger
by a U.S. holder of Intermedia capital stock will include the holding
period of the Intermedia stock that the U.S. holder surrendered in the
merger; and
. no income, gain or loss will be recognized by Intermedia, WorldCom or
Wildcat as a consequence of the merger.
The above conclusions are based on the Internal Revenue Code, Treasury
Department regulations promulgated thereunder and in effect as of the date of
this proxy statement/prospectus, current administrative
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rulings and practice and judicial precedent, all of which are subject to
change, possibly with retroactive effect. Any change in law or failure of the
factual representations and assumptions to be true, correct and complete in all
material respects could alter the tax consequences discussed above. The parties
will not request, and the merger is not conditioned upon, a ruling from the
Internal Revenue Service as to any of the U.S. Federal income tax consequences
of the merger. Therefore, there can be no assurance that the Internal Revenue
Service will not challenge any of the conclusions set forth in this discussion.
A U.S. holder of Intermedia common stock who receives cash instead of a
fractional share of WorldCom common stock will recognize gain or loss equal to
the difference between the amount of cash received and his or her tax basis in
the WorldCom common stock that is allocable to the fractional share. That gain
or loss generally will constitute capital gain or loss. In the case of an
individual stockholder, any such capital gain will be subject to a maximum U.S.
Federal income tax rate of 20% if the individual has held his or her Intermedia
common stock for more than one year at the effective time of the merger. The
deductibility of capital losses is subject to limitations for both individuals
and corporations.
A U.S. holder of Intermedia common stock who realizes gain in the merger and
receives cash pursuant to WorldCom's cash election right will recognize capital
gain to the extent of the lesser of the gain realized in the exchange and the
amount of cash received. If the amount of cash received exceeds the amount of
gain realized, the excess will reduce the U.S. holder's basis in the WorldCom
common stock received in the merger.
Some holders of Intermedia capital stock may be able to exercise appraisal
rights, in which case they may be entitled to receive cash for their Intermedia
capital stock instead of WorldCom capital stock. See "--Appraisal Rights"
beginning on page 54. In addition, holders of Intermedia series B preferred
stock are entitled to receive an offer to repurchase their stock for cash. U.S.
holders who exercise their appraisal rights or who elect to accept an offer to
repurchase the series B preferred stock of Intermedia will generally recognize
capital gain or loss equal to the difference between the cash received and
their adjusted basis in the Intermedia capital stock. If the holders of more
than 20% of any series of non-voting Intermedia capital stock exercise
appraisal rights, the merger will not qualify as a "reorganization" within the
meaning of section 368(a) of the Internal Revenue Code, in which case the
merger will be a taxable exchange for all Intermedia stockholders.
Backup Withholding
Certain noncorporate holders of Intermedia common stock may be subject to
backup withholding at a rate of 31% on cash payments received in lieu of
fractional shares of WorldCom common stock and cash, if any, paid in the
merger. Backup withholding will not apply, however, to a holder of Intermedia
common stock who:
. furnishes a correct taxpayer identification number and certifies that he
or she is not subject to backup withholding on the substitute Form W-9
(or successor form) included in the letter of transmittal to be
delivered to holders of Intermedia common stock following consummation
of the merger;
. provides a certification of foreign status on Form W-8 (or successor
form); or
. is otherwise exempt from backup withholding.
Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules may be credited against a holder's U.S. tax liability,
and a U.S. holder may obtain a refund of any excess amounts withheld under the
backup withholding rules by filing the appropriate claim for refund with the
Internal Revenue Service.
Tax laws are complex and the tax consequences to any particular holder of
Intermedia common stock or Intermedia preferred stock may be affected by
matters not discussed above. As a result, each Intermedia stockholder is urged
to consult his or her personal tax advisor concerning the applicability to him
or her of this discussion, as well as any other tax consequences of the merger.
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Regulatory Matters
FCC Approvals
The Federal Communications Commission will be requested to approve the
transfer of control to WorldCom of Intermedia and those subsidiaries of
Intermedia that hold FCC licenses and authorizations. The FCC must determine
whether WorldCom is qualified to control such licenses and authorizations and
whether the transfer is consistent with the public interest, convenience and
necessity. On October 23, 2000, WorldCom and Intermedia filed transfer of
control applications with the FCC. On November 6, 2000, the FCC requested
public comments on the applications. The deadline for comments is December 6,
2000, and reply comments are due December 21, 2000.
United States Antitrust
Under the Hart-Scott-Rodino Act, the merger may not be completed until
notifications have been filed and all applicable waiting periods have expired
or been terminated. On September 21, 2000, WorldCom and Intermedia filed
notification and report forms under the Hart-Scott-Rodino Act with the FTC and
the Antitrust Division of the U.S. Department of Justice. On November 17, 2000,
WorldCom and Intermedia entered into a Hold Separate Stipulation and Order (the
Stipulation) with the Antitrust Division and consented to entry of a judgment
by the U.S. District Court for the District of Columbia to resolve the
Division's concerns regarding the merger. Pursuant to the Stipulation, WorldCom
agrees to divest all of Intermedia's assets, except for its Digex stock, within
six months after the merger (unless extended by the Antitrust Division) and,
until the divestiture, Intermedia and WorldCom agree to continue to operate
Intermedia as an independent competitive business. The proposed Final Judgment
will be reviewed by the district court pursuant to the provisions of the
Antitrust Procedures and Penalties Act, which allow for public comment before
the judgment is entered. However, the Stipulation provides that the merger may
be consummated once the Stipulation is entered by the district court.
State attorneys general and certain private parties also have standing to
bring suit to challenge mergers under federal and, in some instances, state
antitrust laws. However, no pre-merger notifications are required to be made
under any state antitrust law. There can be no assurance that a challenge to
the merger on state antitrust grounds will not be made or, if such challenge is
made, that it would not be successful.
State Regulatory Approvals
Intermedia and various of its subsidiaries hold certificates, licenses and
service authorizations issued by the state public utility commissions.
Approximately 24 state commissions require formal applications for the transfer
of control of these certificates, licenses and authorizations to WorldCom. The
vast majority of these state filings have been made. Applications for state
approvals are subject to public comment and objections and oppositions of third
parties who may interpose objections. In addition to these applications,
WorldCom and Intermedia will file notifications of the merger in the remaining
states. In some of these states, the public utility commissions could initiate
proceedings in response to the notification. WorldCom and Intermedia believe
that the merger complies with applicable state standards for approval, but
there can be no assurance that the state PUCs will timely grant the transfer
applications or not subject their approval to conditions or restrictions.
Foreign Regulatory Reviews
No foreign competition authority has asserted jurisdiction to review the
merger.
Litigation
The following 10 purported class actions have been filed against Intermedia,
Digex, the directors of Digex, and, in some cases, WorldCom, in the Court of
Chancery of the State of Delaware in and for New Castle County:
. Mohamed Yassin v. Intermedia et al., on September 5, 2000;
. Gerard F. Hug v. Intermedia et al., on September 5, 2000;
. Taam Associates v. Intermedia et al., on September 6, 2000;
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. David Reynoldson v. Intermedia et al., on September 12, 2000;
. John F. Prince v. Intermedia et al., on September 11, 2000;
. Thomas Turberg v. Intermedia et al., on September 14, 2000;
. Jason Reiner v. Digex et al., on September 8, 2000;
. Marilyn Kalabsa v. Digex et al., on September 13, 2000;
. TCW Technology Limited Partnership v. Intermedia et al., on September
20, 2000, which also purports to be a derivative suit, as described
below; and
. Kansas Public Employee Retirement System (KPER) v. Intermedia et al., on
October 4, 2000, which also purports to be a derivative suit as
described below.
These actions purport to be class actions brought on behalf of all persons,
other than the defendants, who own the common stock of Digex, against
Intermedia, Digex, the directors of Digex who are also directors or executive
officers of Intermedia, and in the case of the first six actions listed,
WorldCom and the independent directors of Digex.
Each of the foregoing complaints makes substantially similar allegations
that the defendants, other than WorldCom, breached their fiduciary duties to
the class members by acting to further their own interests at the expense of
Digex public stockholders, engaged in self-dealing with and did not act in good
faith towards the Digex public stockholders, and caused irreparable harm to
such stockholders. In addition, in Reiner v. Digex et al., KPER v. Intermedia
et al., Kalabsa v. Digex et al. and TCW Technology v. Intermedia et al., the
plaintiffs allege that the Digex board members who are also directors or
executive officers of Intermedia conferred a substantial benefit on Intermedia
at the expense of the Digex public stockholders by voting to waive application
of section 203 of the Delaware General Corporation Law to WorldCom. The
foregoing actions, except for Reiner v. Digex et al., KPER v. Intermedia et
al., Kalabsa v. Digex et al. and TCW Technology v. Intermedia et al., also
allege that WorldCom aided and abetted Intermedia's and Digex's wrongdoing. The
complaints seek injunctive relief and unspecified damages, including orders:
. preliminarily and permanently enjoining the defendants and all persons
acting in concert with them, from proceeding with, consummating or
closing the contemplated transactions;
. in the event the contemplated transaction is consummated, rescinding it
and setting it aside or awarding rescissory damages to the class
members;
. directing the defendants to account to the class members for their
damages sustained as a result of the wrongs complained of;
. awarding the plaintiffs the costs of the actions, including reasonable
allowances for attorneys' and experts' fees; and
. in the case of Reiner v. Digex et al., KPER v. Intermedia et al.,
Kalabsa v. Digex et al., and TCW Technology v. Intermedia et al.,
enjoining the waiver by the Digex board of directors of section 203 of
the Delaware General Corporation Law's application to WorldCom.
Additionally the following five actions have been filed against the
directors of Digex, Intermedia, as the majority stockholder of Digex common
stock, and Digex, as a nominal defendant, in the Court of Chancery of the State
of Delaware in and for New Castle County:
. David J. Steinberg et al. v. Ruberg et al., on September 7, 2000;
. Crandon Capital Partners v. Ruberg et al., on September 12, 2000;
. TCW Technology v. Intermedia et al., which purports to be a class action
complaint as described above;
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. Sinha v. Ruberg et al., on October 4, 2000; and
. KPER v. Intermedia et al., which purports to be a class action complaint
as described above.
These actions purport to be stockholder derivative actions brought on behalf
of Digex. Each of these complaints makes substantially similar allegations that
Intermedia breached its fiduciary duties to Digex by usurping an alleged Digex
corporate opportunity for itself, and the Digex directors breached their
fiduciary duty of loyalty to Digex by permitting Intermedia to usurp Digex's
alleged corporate opportunity and approving the merger. The complaints seek
injunctive relief and unspecified damages, including orders substantially
similar to those sought in the purported class actions described above.
The Court established a schedule to conduct expedited discovery, and a
hearing on the preliminary injunctions sought in the TCW Technology v.
Intermedia et al. case has been scheduled for November 29, 2000. On October 17,
2000, the Court ordered all 13 purported derivative and class action lawsuits
listed above to be consolidated into a single action to proceed according to
the schedule set for TCW Technology v. Intermedia, et al. Accordingly, on
October 19, 2000, all of the above listed plaintiffs filed a "Consolidated
Class Action and Derivative Complaint". The claims in the consolidated action
are essentially identical to the claims in the prior 13 separate actions,
except that the consolidated complaint also alleges that the individual
defendants breached fiduciary duties as officers and directors of Digex by
allegedly causing Digex to provide confidential information to Bear Stearns
with knowledge that the provision of that information was either contrary to
Digex's interests or would not result in any benefit to Digex. The consolidated
action also differs from some of the prior separate actions insofar as Digex
directors Richard A. Jalkut and Jack Reich, named as defendants in certain of
the prior actions, were not named as defendants in the consolidated action.
Following the filing of the consolidated complaint, plaintiffs also voluntarily
dismissed defendant Digex director Mark K. Shull. The defendants intend to
defend vigorously these actions.
Accounting Treatment
The merger is expected to be accounted for using purchase accounting with
WorldCom having acquired Intermedia.
Appraisal Rights
Except in the event that any cash, other than cash received in lieu of
fractional shares, is received by Intermedia common stockholders as
consideration in connection with the merger as a result of WorldCom's exercise
of its cash election right, holders of Intermedia common stock will not have
appraisal rights under Delaware law because, on the record date, Intermedia
common stock was designated and quoted for trading on The Nasdaq National
Market and will be converted into shares of WorldCom common stock that at the
completion of the merger will be designated and quoted for trading on The
Nasdaq National Market.
If WorldCom exercises its cash election right and pays a portion of the
common stock merger consideration in cash, Intermedia common stockholders will
be entitled under Delaware law to appraisal rights for their shares of
Intermedia common stock. In addition, holders of each series of Intermedia
preferred stock will be entitled to appraisal rights in connection with the
merger. An Intermedia stockholder who is entitled to appraisal rights and who
does not wish to accept the consideration provided for in the merger agreement
has the right to demand appraisal of, and to be paid the "fair value" for, that
stockholder's shares of Intermedia stock. The value of the Intermedia stock for
this purpose will exclude any element of value arising from the accomplishment
or expectation of the merger.
In order to exercise any appraisal rights they may have, holders of
Intermedia stock must not vote in favor of adoption of the merger agreement,
must deliver to Intermedia a written demand for appraisal prior to the taking
of the vote on the merger agreement and must otherwise comply with the
procedural requirements of section 262 of the Delaware General Corporation Law.
Because WorldCom will not decide whether or not to
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exercise its cash election right until the exchange ratio is determined, which
will occur after the special meeting, any Intermedia common stockholder wishing
to exercise any appraisal rights must take the foregoing steps before knowing
whether appraisal rights will exist. The full text of section 262 is attached
as Annex D to this proxy statement/prospectus, and any stockholder desiring to
exercise appraisal rights in connection with the merger is urged to consult
with legal counsel prior to taking any action in order to ensure that he or she
complies with section 262. Failure to take any of the steps required under
section 262 on a timely basis may result in the loss of appraisal rights.
ICI Ventures, the sole holder of Intermedia series G preferred stock, has
agreed in the stockholders agreement to waive its appraisal rights.
Intermedia Employee Benefits Matters
WorldCom has agreed that, for six months following the completion of the
merger, WorldCom will cause Intermedia, which will be the surviving corporation
in the merger, to either:
. maintain the employee benefit programs, other than equity-based
arrangements, provided by Intermedia and its subsidiaries before the
completion of the merger; or
. replace all or any of these programs with programs maintained for
similarly situated employees of WorldCom.
The parties have agreed that the aggregate level of benefits, other than
equity-based arrangements, provided to Intermedia employees during this six-
month period will be substantially similar to the aggregate level of benefits,
other than equity-based arrangements, provided by Intermedia and its
subsidiaries before the completion of the merger.
If any of WorldCom's employee benefit plans becomes applicable to any
employee or former employee of Intermedia or its subsidiaries before the
completion of the merger, WorldCom has agreed that those employees or former
employees will be credited for their service with Intermedia and its
subsidiaries (and any of their predecessors) for purposes of:
. determining eligibility to participate in and nonforfeitability of
benefits under that WorldCom employee benefit plan; and
. benefit accrual under vacation and severance pay plans,
but only to the extent such service was credited under similar plans of
Intermedia and its subsidiaries.
In the case of any welfare benefit plan WorldCom offers to Intermedia
employees who were Intermedia employees or employees of its subsidiaries
immediately prior to the completion of the merger, WorldCom will cause
Intermedia to:
. waive any waiting periods, pre-existing condition exclusions and
actively-at-work requirements to the extent these provisions did not
apply to those employees immediately before the plan was made available;
and
. provide that any eligible expenses incurred by any employee and his or
her covered dependents on or before the plan was made available will be
taken into account for purposes of satisfying applicable deductible, co-
insurance and maximum out-of-pocket requirements applicable to that
employee and his or her covered dependents for the applicable plan year
as if these amounts had been paid in accordance with the WorldCom plan.
Effect on Awards Outstanding Under Intermedia Stock Plans; Warrants
Under the merger agreement, the parties intend that, at the completion of
the merger, WorldCom will assume the outstanding stock options and underlying
agreements under the Intermedia stock plans, and that those options and
agreements will continue in effect following the merger on the same terms and
conditions,
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except for changes to those plans that WorldCom and Intermedia agree are
appropriate to give effect to the
merger. At the completion of the merger, each outstanding option to acquire
shares of Intermedia common stock will be converted into an option to acquire
WorldCom common stock on the same terms and conditions as were applicable to
the Intermedia stock option. The number of shares of WorldCom common stock
subject to any option will be equal to the number of shares of Intermedia
common stock subject to the Intermedia stock option multiplied by the exchange
ratio in the merger, assuming for this purpose that WorldCom does not exercise
any cash election right, and rounded up to the nearest whole share. The
exercise price per share of WorldCom common stock under any option will be
equal to the aggregate exercise price for the shares of Intermedia common stock
otherwise purchasable pursuant to that Intermedia stock option divided by the
aggregate number of shares of WorldCom common stock deemed purchasable pursuant
to the Intermedia stock option, rounded down to the nearest whole cent.
Under the merger agreement, WorldCom agreed to register with the Securities
and Exchange Commission the number of shares of WorldCom common stock deemed
purchasable upon the converted Intermedia stock options outstanding at the
completion of the merger. As of the record date, the number of shares of
Intermedia common stock reserved for issuance under outstanding options to
purchase Intermedia common stock was approximately 12,639,877.
Under the merger agreement, at the completion of the merger, each
outstanding warrant to acquire shares of Intermedia common stock will
automatically be converted into an option or warrant to acquire shares of
WorldCom common stock on the same terms and conditions as were applicable under
the Intermedia warrant. The number of shares of WorldCom common stock to be
subject to any warrant will be equal to the number of shares of Intermedia
common stock subject to the Intermedia warrant multiplied by the exchange ratio
in the merger, assuming for this purpose that WorldCom does not exercise any
cash election right, and rounded up to the nearest whole share. The exercise
price per share of WorldCom common stock under the warrant will be equal to the
aggregate exercise price for the shares of Intermedia common stock otherwise
purchasable pursuant to the Intermedia warrant divided by the aggregate number
of shares of WorldCom common stock to be purchased pursuant to the Intermedia
warrant rounded down to the nearest whole cent. As of the date of this proxy
statement/prospectus, there are outstanding warrants held by ICI Ventures to
purchase 2,000,000 shares of Intermedia common stock and held by Ralph J.
Sutcliffe, an Intermedia director, to purchase 200,000 shares of Intermedia
common stock.
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 Intermedia stockholder who may be deemed to be an "affiliate" of
WorldCom or Intermedia for purposes of Rule 145 under the Securities Act. It is
expected that those affiliates will agree not to transfer any WorldCom common
stock or preferred stock received in the merger except in compliance with the
resale provisions of Rule 144 or 145 under the Securities Act or as otherwise
permitted under the Securities Act.
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 such resale.
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THE MERGER AGREEMENT
The following description summarizes the material provisions of the merger
agreement. You should carefully read the merger agreement in its entirety, a
copy of which is attached as Annex A to this proxy statement/prospectus and is
incorporated by reference in this proxy statement/prospectus.
Conditions to the Completion of the Merger
Each party's obligation to effect the merger is subject to the satisfaction
of various conditions, which include the following:
. the waiting period applicable to the merger under the Hart-Scott-Rodino
Act having expired or been terminated;
. no preliminary or permanent injunction or other order of any
governmental authority having been issued and in effect, and no United
States federal or state statute, rule or regulation having been enacted
or promulgated after the date of the merger agreement that would prevent
the completion of the merger;
. no pending action, suit or proceeding having been commenced by any
governmental authority in the United States that would prevent the
completion of the merger;
. the registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, having become effective under the
Securities Act and not being the subject of any stop order or
proceedings seeking a stop order;
. the shares of WorldCom common stock issuable to Intermedia common
stockholders in the merger having been approved for quotation on The
Nasdaq National Market, subject only to official notice of issuance;
. all material consents, approvals or orders of authorization of, or
actions by the FCC having been obtained, and all material state public
utilities commission approvals having been obtained which are required
to complete the merger, the failure of which to be obtained,
individually or in the aggregate, would be reasonably likely to have a
material adverse effect on Intermedia;
. holders of a majority of the voting power of Intermedia common stock and
Intermedia series G preferred stock, voting together as a single class,
having voted to adopt the merger agreement; and
. the holders of a majority of the voting power of the Intermedia series G
preferred stock having voted as a separate class to adopt the merger
agreement.
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 of the other party set forth in the
merger agreement being true and correct in all material respects, as of
the date of the merger agreement and as of the date on which the merger
is to be completed, or if such representations and warranties expressly
relate to an earlier date, then as of the earlier date; and
. the other party to the merger agreement having performed in all material
respects all obligations required to be performed by it under the merger
agreement on or before the date on which the merger is to be completed.
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In addition, Intermedia's obligation to effect the merger is also subject to
the satisfaction or waiver of the following additional condition:
. Intermedia having received from its legal counsel an opinion stating
that
-- the merger will be treated for U.S. Federal income tax purposes as a
"reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code, and
-- the parties to the merger agreement will each be a party to that
reorganization within the meaning of Section 368(b) of the Internal
Revenue Code.
No party to the merger agreement may rely on the failure of any condition to
the completion of the merger to be satisfied if the failure was caused by that
party's failure to use its best efforts to complete the merger.
Each of the conditions listed above is waivable by the party or parties
whose obligations to complete the merger are so conditioned, except to the
extent the condition must be satisfied in order to comply with applicable law.
The merger agreement provides that "material adverse effect" means, when
used in connection with Intermedia or WorldCom, any change or effect that,
individually or in the aggregate with all other changes or effects, is or is
reasonably likely to be materially adverse to the business, operations,
properties, financial condition, assets, liabilities or prospects of the party
and its subsidiaries, taken as a whole, other than:
. those relating to the economy or securities markets in general; or
. the industries in which the parties and their respective subsidiaries
operate in general.
For the purposes of determining whether Intermedia has suffered a material
adverse effect between the date of signing the merger agreement and the
completion of the merger, the merger agreement provides that the following
events will not be a material adverse effect:
. any effect on Intermedia relating to the announcement of the merger; and
. the reciprocal compensation dispute with BellSouth as described in "The
Companies--Intermedia--Dispute with BellSouth".
No Solicitation
In the merger agreement, Intermedia agreed that it will not and will not
permit any of its subsidiaries or authorize any of its directors, officers or
employees or any investment banker, financial advisor, attorney, accountant or
other representative retained by it to, directly or indirectly through another
person:
. solicit, initiate or encourage, including by way of furnishing
information, or take any other action designed to facilitate, the making
of any takeover proposal, as described below; or
. participate in any discussions or negotiations regarding any takeover
proposal.
The merger agreement provides further that, as of the date of the merger
agreement, Intermedia will immediately cease and cause to be terminated all
existing discussions or negotiations with any parties conducted before entering
into the merger agreement with respect to any takeover proposal and will
request the prompt return or destruction of all confidential information
previously furnished. Intermedia may not release any third party from, or waive
any provision of, any confidentiality or standstill agreement to which
Intermedia is a party.
However, if prior to the date the stockholders of Intermedia adopt the
merger agreement, Intermedia receives a takeover proposal, Intermedia, to the
extent the board of directors of Intermedia determines in good faith that there
is a reasonable likelihood that the takeover proposal would constitute a
superior proposal, as described below, may:
. participate in discussions or negotiations regarding that proposal; or
. provide information to any person in response to that proposal.
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In such event, Intermedia will:
. prior to participating in any such discussions or negotiations or
providing any information, inform WorldCom of the material terms and
conditions of the takeover proposal, including the identity of the
person making the takeover proposal; and
. keep WorldCom reasonably informed of the status of any takeover
proposal.
The merger agreement provides that:
. the term "takeover proposal" means any bona fide proposal or offer from
any person relating to:
-- any direct or indirect acquisition or purchase of a business that
constitutes 35% or more of the net revenues, net income or the
assets of Intermedia and its subsidiaries, taken as a whole, or 35%
or more of the voting power of Intermedia or any of its
subsidiaries,
-- any tender offer or exchange offer that if completed would result in
any person beneficially owning 35% or more of the voting power of
Intermedia or any of its subsidiaries, or
-- any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Intermedia
or any of its subsidiaries where any third party or the shareholders
of any third party would own 35% or more of the voting power of
Intermedia or any resulting parent company of Intermedia, other than
the transactions contemplated by the merger agreement; and
. the term "superior proposal" means any takeover proposal that the board
of directors of Intermedia determines in good faith, based on the advice
of a financial advisor, taking into account
-- the estimated time required to complete the offer,
-- the person making the offer, and
-- the legal, financial, regulatory and other aspects of the offer
deemed appropriate by the board of directors of Intermedia
is reasonably capable of being completed, and if completed, would
result in a transaction that provides consideration to the holders of
Intermedia common stock with a greater value than the consideration
payable in the merger.
Except as expressly permitted as described above, neither the Intermedia
board of directors nor any committee of the Intermedia board of directors may:
. withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to WorldCom, the approval or recommendation by the
Intermedia board of directors or such committee of the merger or the
merger agreement;
. approve or recommend, or propose publicly to approve or recommend, any
takeover proposal,
except, prior to the date the Intermedia stockholders adopt the merger
agreement, to the extent the Intermedia board of directors determines in
good faith, after consultation with outside counsel, that such action would
be prudent to assure compliance with their fiduciary obligations, and
subject to providing three business days' prior written notice to WorldCom;
or
. cause Intermedia to enter into any acquisition agreement or other
similar agreement related to any takeover proposal.
The merger agreement also provides that Intermedia must promptly advise
WorldCom orally and in writing of any request for information or of any
takeover proposal, the material terms and conditions of any request or takeover
proposal and the identity of the person making the request or takeover
proposal. Intermedia must keep WorldCom informed of the status and details
(including amendments) of any request or takeover proposal.
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Termination
The merger agreement may be terminated at any time before the completion of
the merger, whether before or after the Intermedia stockholders have adopted
the merger agreement:
. by consent of the boards of directors of WorldCom and Intermedia;
. by Intermedia or WorldCom, if the other party has materially breached or
failed to perform in any material respect any of its representations,
warranties, covenants or other agreements or conditions contained in the
merger agreement, and the breach has not been cured on or before June
30, 2001;
. by Intermedia or WorldCom if the merger has not been completed on or
before June 30, 2001, unless that date is extended by the consent of the
boards of directors of Intermedia and WorldCom; however, this right to
terminate the merger agreement will not be available to any party whose
failure to fulfill any obligation under the merger agreement has been
the cause of, or resulted in, the failure of the merger to be completed
by that date;
. by Intermedia or WorldCom, if the Intermedia stockholders do not adopt
the merger agreement at the special meeting;
. by Intermedia or WorldCom, if any injunction, order, statute, rule or
regulation prohibiting the merger is in effect and has become final and
nonappealable, except that the party seeking to terminate the merger
agreement pursuant to this right must have used best efforts to prevent
the entry of and to remove such injunction, order, statute, rule or
regulation; or
. by WorldCom, if the Intermedia board of directors or any committee of
the Intermedia board of directors has
-- withdrawn or modified, or proposed publicly to withdraw or modify,
in a manner adverse to WorldCom, the approval or recommendation by
the Intermedia board of directors or a committee of the Intermedia
board of directors of the merger or the merger agreement, or
-- approved or recommended, or proposed publicly to approve or
recommend, any takeover proposal.
Termination Fees
If the merger agreement is terminated:
. by WorldCom or Intermedia as described in the third clause under "--
Termination" above, without the special meeting having occurred, or as
described in the fourth clause under that heading, in each case at a
time when a takeover proposal has been made to Intermedia or made
directly to Intermedia stockholders generally or has otherwise become
publicly known or any person has publicly announced an intention to make
a takeover proposal;
. by WorldCom as described above in the sixth clause under "--Termination"
above,
then Intermedia must pay WorldCom a $135 million termination fee, payable
within two business days of the date of termination; except that no termination
fee will be payable to WorldCom under the first clause of this section unless
Intermedia enters into any acquisition agreement with respect to, or completes,
any takeover proposal, within 12 months of termination of the merger agreement.
Conduct of Intermedia Business Pending the Merger
Under the merger agreement, Intermedia has agreed that, before the
completion of the merger:
. Intermedia and its subsidiaries, other than Digex, will carry on their
businesses in the ordinary course consistent with past practice; and
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. Intermedia, solely in its capacity as a stockholder of Digex, will not
vote its shares of Digex in any meeting or by written consent, will use
its best efforts to ensure that its representatives on Digex's board of
directors not vote or act by written consent or, if such best efforts
are insufficient, use its best efforts to remove its representatives, to
cause or permit Digex to take any of the actions set forth in the
clauses below relating to Intermedia and its subsidiaries.
In addition, Intermedia has agreed that, among other things and subject to
some exceptions, neither it nor any of its subsidiaries, other than Digex,
will:
. amend its certificate of incorporation or bylaws;
. authorize for issuance, issue, sell, deliver, grant any options for,
pledge or encumber any shares of any class of its capital stock or any
securities convertible into shares of any class of its capital stock,
except
-- for dividends and distributions declared, set aside or paid by
Intermedia in accordance with the terms of its capital stock as of
the date of the merger agreement,
-- in accordance with the terms, as of the date of the merger
agreement, of convertible securities, warrants and options of
Intermedia outstanding as of the date of the merger agreement,
-- for the issuance of employee options to purchase shares of (1)
Intermedia common stock in the ordinary course of business not to
exceed a total of 750,000 shares in any calendar quarter, net of
option cancellations made during that quarter, and the issuance of
shares of Intermedia common stock upon exercise of those options and
(2) Digex class A common stock in the ordinary course of business
not to exceed a total of 500,000 shares in any calendar quarter net
of option cancellations made during that quarter, and the issuance
of shares of Digex class A common stock upon the exercise of those
options, and
-- to WorldCom in exchange for financing as described below under "--
Other Agreements";
. split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution on its capital stock
or purchase, redeem or otherwise acquire any shares of its own capital
stock or of any of its subsidiaries, or any rights, warrants or options
to acquire any such shares except for (1) the purchase by Intermedia of
its common stock in the ordinary course of business in connection with
the cashless exercise of options or the funding of employee incentive
plans, profit sharing plans or other benefit plans of Intermedia, (2)
dividends and distributions declared, set aside or paid by Intermedia in
accordance with the terms of its capital stock as of the date of the
merger agreement and (3) dividends and distributions by a direct or
indirect subsidiary of Intermedia to its parent;
. incur any indebtedness for borrowed money other than (1) under
Intermedia's revolving credit facility in the ordinary course of
business, (2) intercompany indebtedness between Intermedia and any of
its wholly owned subsidiaries or between those wholly owned subsidiaries
and (3) intercompany indebtedness between Intermedia or any of its
wholly owned subsidiaries, on the one hand, and Digex, on the other
hand, to fund operating expenses in the ordinary course of business
consistent with past practice;
. guarantee or otherwise become liable for the obligations of any other
person except for Intermedia pursuant to the revolving credit facility;
. make any loans, advances or capital contributions to, or investments in,
any other person, other than advances to employees of Intermedia and its
subsidiaries in the ordinary course of business;
. increase the cash compensation and other non-equity based benefits of
(1) any employee except in the ordinary course of business consistent
with past practice or (2) any of its directors or executive officers;
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. pay any pension, retirement allowance or other employee benefit not
required, or enter into any agreement with any director or officer or
employee relating to any pension, retirement allowance or other employee
benefit, except as required under agreements, plans or arrangements in
accordance with their terms as in effect on the date of the merger
agreement;
. grant any severance or termination pay to, or enter into any employment
or severance agreement with, any director, executive officer or
employee, except as required under plans as in effect on the date of
the merger agreement;
. become obligated under any new pension, option or employee benefits
plan, or amend or terminate any plan in existence on the date of the
merger agreement although Intermedia and its subsidiaries may renew any
plans that existed on the date the merger agreement was executed on
terms no more favorable to the parties to the plan;
. agree to any plan of liquidation or dissolution, or any acquisition,
including by merger, consolidation or otherwise, of assets or
securities, other than purchases of raw materials or supplies in the
ordinary course of business;
. agree to any sale, transfer, lease, license, encumbrance, or other
disposition of assets or securities, other than sales or licenses of
finished goods and services in the ordinary course of business, any
encumbrance granted pursuant to the revolving credit facility and other
than to WorldCom in exchange for financing as described below under "--
Other Agreements";
. release or relinquish any material contract rights;
. authorize or commit to make capital expenditures for Intermedia and its
subsidiaries on a consolidated basis in excess of $165 million per
calendar quarter, with unused amounts being rolled over to succeeding
quarters;
. make any change in the accounting methods or accounting practices
followed by Intermedia;
. settle any action, suit, claim, investigation or proceeding in excess
of $5 million in the aggregate for all such matters above the amount of
any specific reserves included in Intermedia's financial statements;
. enter into, amend or expand any agreement with any backbone network
provider relating to the use by Intermedia or any of its subsidiaries
of any backbone network other than WorldCom's network, except after
offering WorldCom a reasonable opportunity to timely provide Intermedia
with adequate backbone network capacity on market terms, including
pricing and timely provisioning of access to Intermedia's points-of-
presence;
. make any election under the Internal Revenue Code which, individually
or in the aggregate, is reasonably likely to have a material adverse
effect on Intermedia or settle or compromise any material tax
liability; or
. agree to do any of the foregoing.
Amendment and Waiver
Subject to applicable law:
. the merger agreement may be amended by the parties in writing at any
time before or after the Intermedia stockholders have adopted the
merger agreement; and
. generally, any term or provision of the merger agreement may be waived
in writing at any time by the party or parties entitled to the benefits
of that term or provision.
Under section 251(d) of the Delaware General Corporation Law, no amendment
to the merger agreement made after the adoption of the merger agreement by the
stockholders of Intermedia may, without further
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stockholder approval, alter or change the amount or kind of consideration to
be received by Intermedia stockholders in the merger, or alter or change any
terms and conditions of the merger agreement if such alteration or change
would adversely affect the holders of any class or series of stock of
Intermedia.
Expenses; Transfer Taxes
Whether or not the merger is completed, all costs and expenses incurred in
connection with the merger and related transactions will be paid by the party
incurring such expense, except that Intermedia will pay all stock transfer,
real estate transfer, documentary, stamp, recording and other similar taxes,
including interest, penalties and additions to any such taxes, incurred in
connection with the merger and related transactions.
Representations and Warranties
The merger agreement contains customary representations and warranties
relating to, among other things:
. corporate organization and similar corporate matters;
. capital structure;
. subsidiaries of Intermedia;
. 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;
. absence of conflicts;
. documents filed with the Securities and Exchange Commission, the
accuracy of information contained in those documents and the absence of
undisclosed liabilities;
. 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;
. outstanding and pending litigation;
. required stockholder vote of Intermedia;
. engagement and payment of fees of brokers, investment bankers,
financial advisors and other persons;
. receipt of fairness opinion by Intermedia from its financial advisor;
. approval of the Intermedia and Digex boards of directors;
. compliance with applicable laws by Intermedia;
. absence of changes in Intermedia benefit plans; and
. delivery of shares of WorldCom capital stock to be issued in the
merger.
Other Agreements
Each of WorldCom and Intermedia has agreed to use its best efforts to:
. cause the conditions precedent to the merger as set forth in the merger
agreement and summarized under the heading "--Conditions to the
Completion of the Merger" to be fulfilled;
. take, or cause to be taken, all action, and do or cause to be done all
things necessary, proper or advisable under applicable laws and
regulations to complete the merger, including to lift any injunction or
remove any other impediment to completion of the merger; and
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. to cause their officers and directors to take all further action after
completion of the merger necessary or desirable to carry out the
purposes of the merger agreement.
The merger agreement provides that neither WorldCom nor Intermedia is
required to agree to, or proffer to divest or hold separate:
. any assets or any portion of any business of Intermedia or any of its
subsidiaries if the board of directors of WorldCom determines that so
doing could reasonably be expected to have a material adverse effect on
Intermedia;
. any assets or any portion of any business of WorldCom or any of its
subsidiaries; or
. any assets of or any portion of Intermedia's ownership interests in
Digex.
In addition, Intermedia has agreed to give WorldCom the opportunity to
participate in the defense of any litigation against Intermedia and/or its
directors relating to the merger.
WorldCom has agreed in the merger agreement to provide financing to
Intermedia in the form of equity or subordinated indebtedness on terms and
conditions to be agreed upon by WorldCom and Intermedia. This financing will
not exceed a total of $40 million during September 2000, or $110 million in any
calendar quarter following September 2000. WorldCom is not required to provide
this financing unless Intermedia is unable to meet its monthly cash
requirements to fund its operating expenses and working capital needs after
using all unrestricted cash available to Intermedia, including amounts
available under Intermedia's revolving credit facility. WorldCom and Intermedia
have reached agreement on the terms and conditions of financing that will
satisfy this obligation of WorldCom. See "The Companies--Material Contracts
Between WorldCom and Intermedia" beginning on page 23.
Following the merger, WorldCom has agreed that Digex may not enter into a
material transaction with any of its affiliates (including WorldCom), including
transactions that would have been covered by section 203 of the Delaware
General Corporation Law, unless such transaction is approved by a special
committee of independent directors of Digex.
WorldCom also agreed in the merger agreement to cause the company surviving
the merger to comply with the outstanding indentures and certificates of
designation of Intermedia, including the applicable provisions relating to a
change of control. Pursuant to that agreement, WorldCom expects to make or to
cause Intermedia to make change of control offers to repurchase the
outstanding:
. Intermedia series B preferred stock;
. Intermedia 9.5% senior notes due 2009;
. Intermedia 12.25% senior subordinated discount notes due 2009;
. Intermedia 8.60% senior notes due 2008;
. Intermedia 8.5% senior notes due 2008;
. Intermedia 8.875% senior notes due 2007;
. Intermedia 11.25% senior discount notes due 2007; and
. Intermedia 12.5% senior discount notes due 2006.
In addition, pursuant to the terms of the WorldCom series G preferred stock,
the holder of the WorldCom series G preferred stock will have the option during
the 45-day period immediately following the completion of the merger to have
the WorldCom series G preferred stock redeemed by WorldCom.
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Certificate of Incorporation and Bylaws of Surviving Corporation
The merger agreement provides that the certificate of incorporation of
Intermedia, as in effect immediately before the completion of the merger, will
be the certificate of incorporation of Intermedia, as the surviving
corporation, until altered or amended.
The merger agreement provides that the bylaws of Wildcat, as in effect
immediately before the completion of the merger, will be the bylaws of
Intermedia, as the surviving corporation, until altered, amended or repealed.
See "Description of WorldCom Capital Stock" beginning on page 68 and
"Comparison of Rights of WorldCom Shareholders and Intermedia Stockholders"
beginning on page 86.
THE STOCKHOLDERS AGREEMENT
The following description summarizes the material provisions of the
stockholders agreement. You should carefully read the stockholders agreement in
its entirety, a copy of which is attached as Annex B to this proxy
statement/prospectus and is incorporated by reference in this proxy
statement/prospectus.
Concurrently with the execution of the merger agreement, WorldCom entered
into a stockholders agreement with ICI Ventures and Messrs. Ruberg, Baker,
Knapp, Campbell, Sutcliffe, Greene and Navab, who on the record date, together
held approximately 0.5% of the outstanding shares of Intermedia common stock.
ICI Ventures holds 100% of the outstanding shares of Intermedia series G
preferred stock. On the record date, the shares of Intermedia capital stock
subject to the stockholders agreement represented approximately 9.8% of the
voting power of the outstanding Intermedia capital stock entitled to vote
together as a group.
Each of the stockholders signing the stockholders agreement has agreed:
. at every meeting of Intermedia stockholders called to vote upon the
merger or the merger agreement, to vote all shares of Intermedia common
stock or Intermedia series G preferred stock held by that stockholder in
favor of the adoption of the merger agreement;
. not to take any action by written consent in any circumstance other than
in accordance with the paragraph above;
. at every meeting of Intermedia stockholders called to vote upon (1) any
takeover proposal for Intermedia, as described under "The Merger
Agreement--No Solicitation" beginning on page 58; (2) any amendment of
Intermedia's certificate of incorporation or bylaws or other action
involving Intermedia or its subsidiaries or stockholders that could
reasonably be expected to frustrate the adoption of the merger
agreement; or (3) changing, in any manner, except pursuant to the merger
agreement, the voting rights of Intermedia common stock or Intermedia
series G preferred stock, to vote those shares of Intermedia common
stock or Intermedia series G preferred stock held by that stockholder
against such proposals;
. not to sell, transfer, pledge, assign, or otherwise dispose of the
stockholder's shares of Intermedia common stock or Intermedia series G
preferred stock unless the person who receives those shares agrees to be
bound by the stockholders agreement;
. not to enter into any voting arrangement, whether by proxy, voting
agreement or otherwise, in connection with the stockholder's shares of
Intermedia common stock or Intermedia series G preferred stock;
. except in a capacity as a director of Intermedia and in accordance with
the no solicitation provisions of the merger agreement, not to, and not
to permit any of the stockholder's affiliates or representatives to,
directly or indirectly, (1) solicit, initiate, encourage (including by
way of furnishing information), or take any other action designed to
facilitate, any inquiries or the making of any proposal that constitutes
either a takeover proposal or any transaction described in the third
clause
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above, (2) enter into any agreement with respect to any takeover
proposal or transaction described in clause three above or (3)
participate in discussions or negotiations regarding any takeover
proposal or transaction described in clause three above;
. except in a capacity as a director of Intermedia and as may be required
by law not to, and not to permit any of the stockholder's affiliates or
representatives to, issue any press release regarding the merger, the
merger agreement or the stockholders agreement, except with the prior
written consent of WorldCom;
. to waive any rights of appraisal the stockholder may have;
. to grant an irrevocable proxy to John T. Stupka and K. William Grothe,
Jr. and any other individual designated by WorldCom to vote such
stockholder's shares of Intermedia common stock or Intermedia series G
preferred stock, when applicable, in favor of Intermedia's adoption of
the merger agreement and the merger; and
. not to, directly or indirectly, grant any proxies to any other person
with respect to the stockholder's shares of Intermedia common stock or
Intermedia series G preferred stock.
The stockholders agreement provides that it will terminate upon the first
to occur of:
. the completion of the merger; and
. 10 business days after the termination of the merger agreement.
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COMPARATIVE STOCK PRICES AND DIVIDENDS
WorldCom common stock is quoted on The Nasdaq National Market under the
trading symbol "WCOM" and Intermedia common stock is quoted on The Nasdaq
National Market under the trading symbol "ICIX". The following table sets
forth, for the periods indicated, the high and low sale prices per share of
WorldCom common stock and of Intermedia common stock on The Nasdaq National
Market. The sale prices of WorldCom common stock have been restated to reflect
WorldCom's three-for-two stock split in the form of a 50% stock dividend that
was distributed on December 30, 1999. The sale prices of Intermedia common
stock have been restated to reflect Intermedia's two-for-one stock split in the
form of a stock dividend that was distributed on June 15, 1998. For current
price information, you are urged to consult publicly available sources. Neither
WorldCom nor Intermedia has ever paid cash dividends on its common stock.
<TABLE>
<CAPTION>
WorldCom Intermedia
common stock common stock
--------------- ---------------
High Low High Low
------- ------- ------- -------
<S> <C> <C> <C> <C>
1997:
First quarter................................. 18.5833 14.5000 13.1250 6.4375
Second quarter................................ 21.9792 14.1667 16.5000 7.7500
Third quarter................................. 25.0000 19.9167 26.2500 25.0000
Fourth quarter................................ 26.5833 19.0000 30.9375 20.6250
1998:
First quarter................................. 29.9167 18.6667 45.6250 26.9063
Second quarter................................ 32.2917 27.7500 45.2338 30.8750
Third quarter................................. 38.5833 26.6667 41.5000 20.3750
Fourth quarter................................ 50.5000 26.0000 26.4375 12.7500
1999:
First quarter................................. 62.8333 46.0000 28.7500 13.0625
Second quarter................................ 64.5104 53.5417 39.5000 21.1875
Third quarter................................. 60.9167 47.9167 37.9375 18.1250
Fourth quarter................................ 61.3333 44.0417 42.8750 20.0000
2000:
First quarter................................. 55.0000 40.6250 77.3750 32.7500
Second quarter................................ 47.0000 35.8750 51.0000 23.8750
Third quarter................................. 49.9690 25.2500 33.8750 14.7500
Fourth quarter (through November 16, 2000) ... 30.4375 15.0000 29.4375 14.2500
</TABLE>
The following table presents:
. the last reported sale price of one share of WorldCom common stock, as
reported on The Nasdaq National Market;
. the last reported sale price of one share of Intermedia common stock, as
reported on The Nasdaq National Market; and
. the market value of one share of Intermedia common stock on an
equivalent per share basis;
on September 1, 2000, which was the last full trading day before the public
announcement of the proposed merger, and on November 16, 2000, which was the
last full trading day for which such information could be obtained before the
date of this proxy statement/prospectus. The equivalent price per share data
for Intermedia common stock has been determined by multiplying the last
reported sale price of one share of WorldCom common stock (1) September 1,
2000, by an assumed exchange ratio of 1.0558, and (2) November 16, 2000, by an
assumed exchange ratio of 1.1872.
<TABLE>
<CAPTION>
Equivalent price
per share of
WorldCom Intermedia Intermedia
Date common stock common stock common stock
---- ------------ ------------ ----------------
<S> <C> <C> <C>
September 1, 2000.................... $36.94 $22.88 $39.00
November 16, 2000.................... $16.00 $15.50 $19.00
</TABLE>
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Currently there are no outstanding shares of the WorldCom preferred stock
that will be issued to certain of the Intermedia preferred stockholders in the
merger. Accordingly, their market price and dividend information have not been
included in this document.
DESCRIPTION OF WORLDCOM CAPITAL STOCK
The following is a summary of the material terms of the capital stock of
WorldCom and the provisions of its articles of incorporation, bylaws and rights
agreement. It also summarizes relevant provisions of the Georgia Business
Corporation Code, which we refer to as Georgia law. Since the terms of those
articles of incorporation, bylaws and rights agreement, and Georgia law, are
more detailed than the general information provided below, you should carefully
consider the actual provisions of those documents and Georgia law. The
following summary of the capital stock of WorldCom is subject in all respects
to applicable Georgia law, WorldCom's articles of incorporation and bylaws and
WorldCom's rights agreement. If you would like to read WorldCom's articles of
incorporation, bylaws or 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 107. Additional information
regarding the capital stock of WorldCom is contained under the heading
"Comparison of Rights of WorldCom Shareholders and Intermedia Stockholders"
beginning on page 86.
General
The authorized capital stock of 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.
Common Stock
All of the outstanding shares of WorldCom common stock are fully paid and
nonassessable. As of October 31, 2000, 2,879,100,271 shares of WorldCom common
stock were outstanding.
Voting Rights
Each holder of WorldCom common stock is entitled to cast one vote for each
share held of record, voting together with holders of WorldCom series B
preferred stock, and, following completion of the merger, together with the
holders of WorldCom series D preferred stock, WorldCom series E preferred
stock, WorldCom series F preferred stock and WorldCom series G preferred stock
issuable in the merger, on all matters submitted to a vote of shareholders,
including the election of directors. Holders of WorldCom common stock have no
cumulative voting rights.
Dividends
Holders of WorldCom common stock are entitled to receive dividends or other
distributions when, as and if declared by the WorldCom board of directors. The
right of the WorldCom board of directors to declare dividends, however, is
subject to the rights of any holders of WorldCom preferred stock and the
availability of sufficient funds under Georgia law to pay dividends.
Liquidation Rights
In the event of the dissolution of WorldCom, 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 WorldCom articles of incorporation.
Preemptive and Other Rights
Holders of WorldCom common stock have no preemptive rights to purchase or
subscribe for any stock or other securities of WorldCom. In addition, there are
no conversion rights or redemption or sinking fund provisions with respect to
the WorldCom common stock.
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The 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 WorldCom management, they could render more
difficult or discourage an attempt to obtain control of WorldCom by means of a
merger, tender offer, proxy contest or otherwise. This could protect the
continuity of WorldCom's management and possibly deprive shareholders of an
opportunity to sell their shares of 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 WorldCom.
Preferred Stock
The 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 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 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 WorldCom. This could
protect the continuity of 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.
As of October 31, 2000, the WorldCom board of directors had designated
shares of the following series of WorldCom preferred stock:
. 94,992 shares of WorldCom series A preferred stock, of which no shares
were outstanding;
. 15,000,000 shares of WorldCom series B convertible preferred stock, of
which 10,749,524 shares were outstanding;
. 3,750,000 shares of WorldCom series C preferred stock, of which no
shares were outstanding; and
. 5,000,000 shares of WorldCom series 3 preferred stock, of which no
shares were outstanding--these shares were designated in connection with
the adoption of the WorldCom rights agreement.
WorldCom Series B Preferred Stock
Rank. The WorldCom series B preferred stock will rank on a parity with the
WorldCom series D preferred stock, WorldCom series E preferred stock, WorldCom
series F preferred stock and WorldCom series G preferred stock issuable in
connection with the merger.
Dividends. Holders of 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 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 WorldCom common stock or any
other stock ranking as to dividends junior to WorldCom series B preferred stock
in any year.
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Dividends are only payable in cash, except for payment of accrued but unpaid
dividends upon conversion or redemption of WorldCom series B preferred stock,
as described below. WorldCom is not permitted to set apart for or pay upon the
WorldCom common stock any extraordinary cash dividend, as described below,
unless at the same time WorldCom sets apart for or pays upon all shares of
WorldCom series B preferred stock an amount of cash per share of WorldCom
series B preferred stock equal to the extraordinary cash dividend that would
have been paid in respect of that share if the holder had converted his or her
share of WorldCom series B preferred stock into shares of 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 WorldCom common stock paid
during the consecutive 12-month period ending on and including that date
exceeds, on a per share of WorldCom common stock basis, 10% of the average
daily closing price of WorldCom common stock over that 12-month period.
Voting Rights. Holders of 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 WorldCom series B preferred
stock and holders of WorldCom common stock vote together as a single group, and
holders of WorldCom series D preferred stock, series E preferred stock, series
F preferred stock and series G preferred stock issuable in the merger will also
vote as part of that single group, unless otherwise provided by law or the
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
WorldCom series B preferred stock is required to adversely change the rights,
preferences or privileges of 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, WorldCom series B
preferred stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of WorldCom will not
be deemed to affect adversely WorldCom series B preferred stock.
Conversion Rights. Holders of WorldCom series B preferred stock have the
right to convert any or all of their shares, at any time, into shares of
WorldCom common stock at a rate of 0.1460868 shares of WorldCom common stock
for each share of 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 WorldCom series B preferred stock
surrendered for conversion, which will be payable in cash or, at the option of
WorldCom, in shares of WorldCom common stock, based on their fair market value.
If a holder converts WorldCom series B preferred stock following WorldCom's
establishment of tracking stocks, that holder will receive tracking stock in
the same proportion as current holders of WorldCom common stock.
Redemption Provisions. The WorldCom series B preferred stock is not
redeemable by WorldCom before September 30, 2001. After that time, WorldCom
will have the right to redeem any or all of the shares of WorldCom series B
preferred stock at a redemption price of $1.00 per share plus an amount equal
to all accrued and unpaid dividends on that share. WorldCom has the option to
pay any or all of the redemption price, including accrued dividends, in cash or
in shares of WorldCom common stock, based on their fair market value.
Adjustment for Consolidation or Merger. The WorldCom articles of
incorporation provide for customary adjustments of the conversion price,
redemption price and related terms in the case of those mergers, consolidations
or other capital transactions where holders of WorldCom common stock receive
cash, stock, securities or other property in respect of or in exchange for
their shares of WorldCom common stock. No such adjustment will be required in
connection with the merger.
Liquidation Rights. In the event of any liquidation, dissolution or winding
up of WorldCom, holders of WorldCom series B preferred stock are entitled to
receive a liquidation preference for each share out of the assets of WorldCom
in an amount equal to the sum of $1.00 plus all accrued and unpaid dividends.
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WorldCom Series D Preferred Stock, WorldCom Series E Preferred Stock and
WorldCom Series F Preferred Stock
General. We have described below the material terms of the WorldCom series D
preferred stock, WorldCom series E preferred stock and WorldCom series F
preferred stock. However, there are certain tax consequences that may result
from your holding the WorldCom series D preferred stock, WorldCom series E
preferred stock and WorldCom series F preferred stock that we have not
addressed, including those relating to dividends, interest, redemptions,
exchange, conversion, sale or other aspects of these series of WorldCom
preferred stock. We urge you to contact your tax advisors concerning those and
other tax aspects of holding WorldCom preferred stock.
Rank. The WorldCom series D preferred stock, series E preferred stock and
series F preferred stock will rank for purposes of dividend distributions and
distributions upon the liquidation, winding up or dissolution of WorldCom:
. senior to all classes of WorldCom common stock and to each other class
of WorldCom capital stock or series of WorldCom preferred stock issued
after the completion of the merger, whose terms do not expressly provide
that it ranks senior to or on a parity with such series of WorldCom
preferred stock;
. on a parity with each other, with the WorldCom series B preferred stock,
with the WorldCom series G preferred stock and any other class of
WorldCom capital stock or series of WorldCom preferred stock issued
after the completion of the merger whose terms expressly provide that it
ranks on a parity with such series of WorldCom preferred stock; and
. junior to each class of WorldCom capital stock or series of WorldCom
preferred stock issued after the completion of the merger whose terms
expressly provide that it ranks senior to such series of WorldCom
preferred stock.
Liquidation Preference. The WorldCom series D preferred stock, WorldCom
series E preferred stock and WorldCom series F preferred stock will each have a
liquidation preference of $2,500 per share.
Dividends. Holders of WorldCom series D preferred stock, WorldCom series E
preferred stock and WorldCom series F 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 dividends per share at an
annual rate of 7% of the liquidation preference per share, payable on January
15, April 15, July 15 and October 15, commencing with the first such date
following the completion of the merger. The first dividend payment on the
WorldCom series D preferred stock, WorldCom series E preferred stock and
WorldCom series F preferred stock will include dividends accrued on the
corresponding shares of Intermedia series D preferred stock, Intermedia series
E preferred stock and Intermedia series F preferred stock since the last
dividend payment date for each of these series of Intermedia preferred stock
prior to the completion of the merger. WorldCom may pay dividends:
. in cash;
. by delivery of shares of common stock; or
. through any combination of cash and common stock.
If WorldCom pays a dividend in common stock the number of shares of common
stock payable will be determined by dividing the dividend to be paid by 95% of
the average of the high and low sales prices of the WorldCom common stock on
The Nasdaq National Market for each of the 10 consecutive trading days before
the fifth trading day before the record date for the dividend.
Dividends payable will be deemed to accrue on a daily basis and will be
computed on the basis of 360-day year consisting of twelve 30-day months.
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No dividend may be declared or paid upon, or any sum set apart for the
payment of dividends for any dividend period unless all dividends for all
preceding dividend periods have been declared and paid, or declared and a
sufficient sum set apart for their payment.
Unless full cumulative dividends for all past dividend periods have been
declared and paid, or declared and a sufficient sum set apart for their
payment:
. no dividend or other distribution, other than a dividend or distribution
payable solely in shares of securities ranking junior to such series of
preferred stock, may be declared or paid upon any share of securities
ranking junior to such series of preferred stock;
. no shares of junior securities may be purchased, redeemed or otherwise
acquired or retired by WorldCom or any of its subsidiaries; and
. no monies may be paid into a sinking fund for the purchase, redemption
or other acquisition or retirement of any shares of junior securities by
WorldCom or any of its subsidiaries.
Conversion Rights. Holders of shares of WorldCom series D preferred stock,
WorldCom series E preferred stock and WorldCom series F preferred stock will be
entitled to convert their shares into WorldCom common stock at any time at a
rate for each share that is equal to the quotient obtained by dividing the sum
of the liquidation preference plus all accumulated and unpaid dividends on that
share by the conversion price in effect for that series on the date of
conversion.
The conversion price per share for each series will initially be equal to:
. $19.45 for the WorldCom series D preferred stock;
. $30.235 for the WorldCom series E preferred stock; and
. $42.075 for the WorldCom series F preferred stock,
in each case, divided by the exchange ratio in the merger.
If a holder converts shares of WorldCom series D preferred stock, WorldCom
series E preferred stock or WorldCom series F preferred stock following
WorldCom's establishment of tracking stocks, that holder will receive tracking
stock in the same proportion as current holders of WorldCom common stock.
If WorldCom exercises its cash election right, each share of WorldCom series
D preferred stock, WorldCom series E preferred stock and WorldCom series F
preferred stock will become convertible into (1) the number of shares of
WorldCom common stock determined as described in the preceding sentence using
an exchange ratio of 1.0685, and (2) cash equal to the product of:
. the difference between the exchange ratio without giving effect to the
WorldCom cash election right and 1.0685;
. the average price of WorldCom stock, determined as described under "The
Merger--Merger Consideration"; and
. the aggregate number of shares of WorldCom common stock into which that
share would otherwise be convertible using the exchange ratio of
1.0685.
Upon surrender of certificates of shares of WorldCom series D preferred
stock, WorldCom series E preferred stock or WorldCom series F preferred stock
to be converted, WorldCom will issue the number of shares of WorldCom common
stock issuable upon conversion of those shares, plus cash in the amount
computed in accordance with the preceding paragraph if WorldCom has exercised
its cash election right. No fractional shares will be issued upon conversion.
Instead WorldCom will round the results of a conversion up to the nearest full
share of WorldCom common stock.
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Conversion Price Adjustments. The conversion prices of the WorldCom series D
preferred stock, WorldCom series E preferred stock and WorldCom series F
preferred stock will be subject to adjustment in a manner similar to that of
the WorldCom series G preferred stock as described under "--WorldCom Series G
Preferred Stock--Conversion Price Adjustments" beginning on page 79, except
that the conversion prices will not adjust for the issuance of WorldCom common
stock for a price per share below the then-current market price of WorldCom
common stock.
If WorldCom consolidates with, merges with or into or sells or transfers all
or substantially all of its assets to another person, each share of WorldCom
series D preferred stock, WorldCom series E preferred stock and WorldCom series
F preferred stock will entitle its holder to receive upon conversion of that
holder's shares of WorldCom series D preferred stock, WorldCom series E
preferred stock or WorldCom series F preferred stock the kind and amount of
securities, cash or assets that are receivable upon the transaction by a holder
of the number of shares of WorldCom common stock into which that holder's
shares of that series could have been converted immediately before the
transaction.
Liquidation Rights. In a liquidation, dissolution or winding up of WorldCom
the holder of a share of WorldCom series D preferred stock, WorldCom series E
preferred stock or WorldCom series F preferred stock will be entitled to
receive out of the assets of WorldCom available for distribution to
shareholders, before any distribution of assets is made to the holders of
WorldCom common stock or any other stock ranking junior to such shares of
preferred stock, an amount equal to the liquidation preference of the share of
preferred stock held by that holder, plus accrued and unpaid dividends to the
date of liquidation, dissolution or winding up. After payment in full of this
liquidation amount, the holders of WorldCom series D preferred stock, WorldCom
series E preferred stock and WorldCom series F preferred stock will not be
entitled to any further participation in any distribution of assets of
WorldCom.
If upon the liquidation, dissolution or winding up of WorldCom, the amounts
payable in respect of the WorldCom series D preferred stock, the WorldCom
series E preferred stock or the WorldCom series F preferred stock or any parity
securities are not paid in full, the holders of the WorldCom series D preferred
stock, WorldCom series E preferred stock and WorldCom series F preferred stock
and any parity securities will share equally and ratably in any distribution of
assets in proportion to their full liquidation preference, and any accumulated
and unpaid dividends to which that series is entitled.
Redemption. WorldCom will have the option to redeem all or part of the
WorldCom series D preferred stock, WorldCom series E preferred stock and
WorldCom series F preferred stock at the per share redemption prices set forth
below, expressed as a percentage of the liquidation preference, during the
relevant 12-month period beginning on:
. July 19, in the case of the WorldCom series D preferred stock;
. October 18, in the case of the WorldCom series E preferred stock; and
. October 17, in the case of the WorldCom series F preferred stock,
of the years shown below, plus any accumulated and unpaid dividends to the
redemption date.
<TABLE>
<CAPTION>
Series D
preferred
stock and
series E Series F
preferred preferred
stock stock
--------- --------------
Year Year Percentage
---- -------------- ----------
<S> <C> <C>
2000 2001 104.00%
2001 2002 103.00%
2002 2003 102.00%
2003 2004 101.00%
2004 and after 2005 and after 100.00%
</TABLE>
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If WorldCom elects to redeem shares of WorldCom series D preferred stock,
WorldCom series E preferred stock or WorldCom series F preferred stock, it will
mail a notice of redemption to holders of record not less than 30 nor more than
60 days before the redemption date. If the redemption price has been paid or
provided for, including any accumulated and unpaid dividends, then on and after
the date fixed for redemption:
. dividends will cease to accumulate on the shares called for redemption;
. those shares will no longer be deemed to be outstanding; and
. all rights of the holders of those redemption shares as shareholders of
WorldCom will cease, except the right to receive the required payment.
Any holder of shares of WorldCom series D preferred stock, WorldCom series E
preferred stock or WorldCom series F preferred stock selected for redemption
may, at any time before the close of business on the day before the redemption
date, convert those shares into shares of WorldCom common stock as described
above under "--Conversion Rights".
Change of Control. Upon a change of control, as described below, WorldCom
will be required to make an offer to each holder of WorldCom series D preferred
stock, WorldCom series E preferred stock and WorldCom series F preferred stock
to repurchase all or any part of that holder's shares of WorldCom series D
preferred stock, WorldCom series E preferred stock and WorldCom series F
preferred stock at a repurchase price per share in cash equal to the sum of the
liquidation preference plus accumulated and unpaid dividends to the date of
repurchase.
Within 30 days following a change of control, WorldCom will publish a notice
of the change of control in The Wall Street Journal or a similar business daily
publication of national distribution and mail a notice to each holder of
WorldCom series D preferred stock, WorldCom series E preferred stock and
WorldCom series F preferred stock describing, among other things:
. the occurrence of the change of control;
. WorldCom's offer to purchase shares of WorldCom series D preferred
stock, WorldCom series E preferred stock and WorldCom series F
preferred stock; and
. the date on which WorldCom will purchase shares of WorldCom series D
preferred stock, WorldCom series E preferred stock and WorldCom series
F preferred stock, which will not be earlier than 30 days nor later
than 60 days from the date the notice is mailed.
The terms of the WorldCom series D preferred stock, WorldCom series E
preferred stock and WorldCom series F preferred stock will each define "change
of control" to mean the occurrence of any one of the following:
. the sale, lease, transfer, conveyance or other disposition, other than
by way of merger or consolidation, of all or substantially all of the
assets of WorldCom and its subsidiaries;
. the adoption of a plan of liquidation or dissolution of WorldCom;
. the completion of any transaction, including a merger or consolidation,
after which any "person" or "group", as those terms are used in Section
13(d)(3) of the Securities Exchange Act, becomes the "beneficial
owner", as that term is defined in Rule 13d-3 and Rule 13d-5 under the
Securities Exchange Act, directly or indirectly, of more than 50% of
the voting power of the outstanding voting stock of WorldCom, unless
-- the price per share of WorldCom common stock for any five trading
days within the period of 10 consecutive trading days ending
immediately after the announcement of the change of control equals
or exceeds 105% of the conversion price then in effect with respect
to the applicable series of preferred stock, or
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-- at least 90% of the consideration in the transaction constituting
the change of control pursuant to this clause consists of shares of
common stock traded or to be traded immediately following the change
of control on a national securities exchange or The Nasdaq National
Market and as a result of such transaction, the preferred stock is
solely convertible into such common stock; or
. the first day on which a majority of the members of the WorldCom board
of directors are not (1) members of the board of directors who were
members on the original issue date of the series of preferred stock or
(2) nominated for election or elected to the board of directors with
the affirmative vote of two-thirds of the members of the board of
directors who were members on the original issue date of the series of
preferred stock.
However, the terms of the WorldCom series D preferred stock, WorldCom series
E preferred stock and WorldCom series F preferred stock provide that a change
of control will not be deemed to have occurred in a transaction where WorldCom
becomes a subsidiary of another entity if:
. the shareholders of WorldCom immediately prior to the transaction
"beneficially own", directly or indirectly, at least a majority of the
voting power of the outstanding voting stock of WorldCom immediately
following the completion of the transaction; and
. immediately following the completion of the transaction, no "person" or
"group", other than the other entity, "beneficially owns", directly or
indirectly, more than 50% of the voting power of the outstanding voting
stock of WorldCom.
Before making an offer to purchase WorldCom series D preferred stock,
WorldCom series E preferred stock or WorldCom series F preferred stock in
connection with a change of control, within 90 days following a change of
control, WorldCom will either:
. repay or refinance all outstanding indebtedness; or
. obtain the requisite consents, if any, under all agreements governing
outstanding indebtedness necessary to permit the repurchase of the
affected series of WorldCom preferred stock required by the change of
control provisions.
WorldCom must first comply with the covenants in its outstanding
indebtedness or take the actions described in the preceding sentence before it
will be required to repurchase shares of WorldCom series D preferred stock,
WorldCom series E preferred stock or WorldCom series F preferred stock in the
event of a change of control; provided, that if WorldCom fails to repurchase
shares of one of these series of WorldCom preferred stock, the sole remedy to
holders of an affected series of WorldCom preferred stock will be the right of
the holders of that series to elect directors to the board of directors as
described below under "--Voting Rights".
Merger or Consolidation. WorldCom may not engage in a merger or
consolidation, or sale or other disposition of substantially all of the assets
of WorldCom, without the vote of the holders of a majority of the outstanding
shares of each of the WorldCom series D preferred stock, WorldCom series E
preferred stock and WorldCom series F preferred stock unless, with respect to
each WorldCom series:
. the entity formed by the consolidation or merger or the entity to which
the disposition of assets has been made is a corporation organized and
existing under the laws of the United States, any state or the District
of Columbia;
. if WorldCom is not the resulting entity, the applicable series of
preferred stock is converted into or exchanged for and becomes shares
of the resulting entity, having the same or more favorable rights as
existed immediately prior to the transaction; and
. immediately after the transaction, no event has occurred that would give
the series of preferred stock the right to elect directors as described
below.
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Voting Rights. Each share of WorldCom series D preferred stock, WorldCom
series E preferred stock and WorldCom series F preferred stock will entitle its
holder to one-tenth of one vote on all matters, voting together with the
WorldCom common stock and the other classes of WorldCom voting securities,
including the WorldCom series B preferred stock and WorldCom series G preferred
stock, as a single group. In addition, in the event that:
. there is an accumulation of accumulated and unpaid dividends in an
amount equal to six quarterly dividends with respect to a series; or
. WorldCom fails to satisfy its change of control obligations with respect
to a series,
then in each case the holders of the affected series of preferred stock will be
entitled, voting as a single class, to elect a number of directors equal to at
least 20% of the existing number of directors, although this number may never
be less than one director or more than two, and the number of directors on the
board of directors will be increased by that number.
In addition, the affirmative vote of at least a majority of the shares of
each series then outstanding, voting as a single class, is required for
WorldCom to:
. authorize, create or issue any securities senior to that series;
. amend the certificate of designation of that series in any manner that
adversely affects the rights and preferences of the holders of shares of
that series;
. authorize the issuance of any additional shares of that series; or
. waive any existing triggering event affording the holders of that series
the right to elect directors or any compliance with provisions in the
certificate of designation of that series.
However, the affirmative vote of the holders of at least two-thirds of the
outstanding shares of each series is required to amend the change of control
provisions with respect to that series.
In addition, the affirmative vote of all of the outstanding shares of a
series is required to:
. alter the voting rights with respect to the series or reduce the number
of shares of the series whose holders must consent to an amendment,
supplement or waiver;
. reduce the liquidation preference of or alter the provisions with
respect to the redemption of the series;
. reduce the rate of or change the time for payment of dividends on any
share of the series;
. waive the consequences of any failure to pay dividends on any shares of
the series;
. make any share of the series payable in any form other than that stated
in the certificate of designation governing the series;
. make any change in the rights of the series relating to waivers of the
rights of holders of the series to receive the liquidation preference
and dividends on the series;
. waive a redemption payment with respect to any share of the series; or
. make any change in the amendment and waiver provisions governing the
series.
Depositary Shares. The WorldCom series D preferred stock, WorldCom series E
preferred stock and WorldCom series F preferred stock will be issued as and
represented by respective depositary shares. Each depositary share will
represent 1/100 of a share of the respective WorldCom series D preferred stock,
WorldCom series E preferred stock or WorldCom series F preferred stock, as the
case may be. A holder of depositary shares of WorldCom series D preferred
stock, WorldCom series E preferred stock or WorldCom series F preferred stock
will only have voting rights equal to the number of whole shares of a series
represented by those depositary shares.
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Preemptive Rights; Sinking Fund. Holders of WorldCom series D preferred
stock, WorldCom series E preferred stock or WorldCom series F preferred stock
will not have preemptive rights to purchase or subscribe for any stock or other
securities. The WorldCom series D preferred stock, WorldCom series E preferred
stock and WorldCom series F preferred stock will not be subject to any sinking
fund or other obligation of WorldCom to set aside funds in order to redeem
shares.
Reissuance. Any share of WorldCom series D preferred stock, WorldCom series
E preferred stock or WorldCom series F preferred stock converted, redeemed or
otherwise acquired by WorldCom will be retired and canceled and assume the
status of authorized but unissued shares of preferred stock. It may thereafter
be reissued in the same manner as other authorized but unissued preferred
stock.
WorldCom Series G Preferred Stock
General. We have described below the material terms of the WorldCom series G
preferred stock. However, there are certain tax consequences that may result
from your holding the WorldCom series G preferred stock that we have not
addressed, including those relating to dividends, interest, redemptions,
exchange, conversion, sale or other aspects of the WorldCom series G preferred
stock. We urge you to contact your tax advisors concerning those and other tax
aspects of holding WorldCom series G preferred stock.
Rank. The WorldCom series G preferred stock will rank for purposes of
dividend distributions and distributions upon the liquidation, winding up and
dissolution of WorldCom:
. senior to all classes of WorldCom common stock and to each other class
of WorldCom capital stock or WorldCom series of WorldCom preferred
stock issued after the completion of the merger, whose terms do not
expressly provide that it ranks senior to or on a parity with the
WorldCom series G preferred stock;
. on a parity with the WorldCom series B preferred stock, WorldCom series
D preferred stock, WorldCom series E preferred stock, WorldCom series F
preferred stock and any other class of WorldCom capital stock or series
of WorldCom preferred stock issued after the completion of the merger
whose terms expressly provide that it ranks on a parity with the
WorldCom series G preferred stock; and
. junior to each class of WorldCom capital stock or series of WorldCom
preferred stock issued after the completion of the merger whose terms
expressly provide that it ranks senior to the WorldCom series G
preferred stock.
Liquidation Preference. The WorldCom series G preferred stock will have a
liquidation preference per share of $1,000.
Dividends. The holders of the WorldCom series G preferred stock will be
entitled to receive, when, as and if declared by WorldCom's board of directors
out of funds of WorldCom legally available for such purpose, dividends accruing
at the annual rate per share of 7% of the sum of the liquidation preference per
share plus all accumulated and unpaid dividends on that share of WorldCom
series G preferred stock since the date of the last dividend payment date of
the Intermedia series G preferred stock, compounded quarterly and payable in
four equal installments on January 15, April 15, July 15 and October 15,
commencing with the first such date following completion of the merger. The
first dividend payment on the WorldCom series G preferred stock will include
dividends accrued on the corresponding shares of Intermedia series G preferred
stock since the last dividend payment date for the shares of this series of
preferred stock prior to the completion of the merger. Dividends on the
WorldCom series G preferred stock will be cumulative.
WorldCom will have the option to pay dividends on the WorldCom series G
preferred stock in cash, in shares of WorldCom common stock or in a combination
of cash and shares of common stock. If WorldCom pays a dividend in common
stock:
. the number of shares of common stock payable will be determined by
dividing the dividend to be paid by the average of the high and low
sales prices of WorldCom common stock on The Nasdaq
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National Market for each of the 10 consecutive trading days before the
fifth trading day before the record date for the dividend; and
. no fractional shares will be used as a dividend payment--instead the
number of shares of WorldCom common stock payable as a dividend will be
rounded up to the nearest full share of common stock.
The dividends will be payable to holders of record as of the preceding
January 1, April 1, July 1 and October 1. However, holders of shares of
WorldCom series G preferred stock called for redemption on a redemption date
falling between a dividend payment record date and the dividend payment date
will receive that dividend payment, together with all other accrued and unpaid
dividends, on the date fixed for redemption, instead of receiving the dividend
on the dividend payment date. Dividends payable on the WorldCom series G
preferred stock will be deemed to accumulate on a daily basis and will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
If dividends are not paid in full upon the WorldCom series G preferred
stock and any other preferred stock ranking on a parity as to dividends with
the WorldCom series G 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 full cumulative dividends on the WorldCom series G preferred
stock have been paid or declared and set aside for payment, neither dividends
nor other distributions may be made upon WorldCom common stock or on any other
stock ranking junior to or on a parity with the preferred stock as to
dividends, except for dividends or distributions paid solely in:
. common stock; or
. other capital stock ranking junior as to dividends and upon liquidation
to the WorldCom series G preferred stock, or, in the case of securities
on a parity with the WorldCom series G preferred stock, capital stock
ranking on a parity with the WorldCom series G preferred stock.
In addition, no common stock or any other stock ranking junior to or on a
parity with the WorldCom series G preferred stock as to dividends and upon
liquidation may be redeemed, purchased or otherwise acquired by WorldCom,
except for an exchange for shares of any other stock ranking junior to the
WorldCom series G preferred stock, unless full cumulative dividends on the
WorldCom series G preferred stock have been paid or declared and set aside for
payment.
Holders of WorldCom series G preferred stock will also be entitled to
receive, when, as and if declared by WorldCom's board of directors out of
funds of WorldCom legally available for such purpose, any dividends or other
distributions payable to holders of WorldCom common stock. A holder will
receive these dividends as if the holder of WorldCom series G preferred stock
held the number of shares of common stock into which the holder's shares of
preferred stock might have been converted on the record date for the dividend
on the common stock.
No dividend may be declared or paid upon, or any sum set apart for the
payment of dividends upon, any share of WorldCom series G preferred stock for
any dividend period unless all dividends for all preceding dividend periods
have been declared and paid, or declared and a sufficient sum set apart for
their payment, upon all outstanding shares of securities ranking senior to the
WorldCom series G preferred stock.
Conversion Rights. Holders of WorldCom series G preferred stock may, at any
time, convert their shares of WorldCom series G preferred stock into shares of
WorldCom common stock. The number of shares of common stock issuable upon
conversion of each share of WorldCom series G preferred stock will be equal to
the quotient obtained by dividing the sum of the liquidation preference plus
all accumulated and unpaid dividends on that share by the conversion price in
effect on the date of conversion. The initial conversion price will be equal
to $36.00 divided by the exchange ratio. However, the conversion price may be
adjusted from
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time to time as described below. Upon conversion, the holder of a share of
WorldCom series G preferred stock will not be entitled to any payment with
respect to dividends accrued on the WorldCom series G preferred stock.
If a holder converts shares of WorldCom series G preferred stock following
WorldCom's establishment of tracking stocks, that holder will receive tracking
stock in the same proportion as current holders of WorldCom common stock.
If WorldCom exercises its cash election right, each share of WorldCom's
series G preferred stock will become convertible into (1) the number of shares
of WorldCom common stock determined as described above using an exchange ratio
of 1.0685, and (2) cash equal to the product of:
. the difference between the exchange ratio without giving effect to the
WorldCom cash election right and 1.0685;
. the average price of WorldCom stock, determined as described under "The
Merger--Merger Consideration"; and
. the aggregate number of shares of WorldCom common stock into which that
share of WorldCom series G preferred stock would otherwise be
convertible using an exchange ratio of 1.0685.
Upon surrender of certificates for shares of WorldCom series G preferred
stock to be converted, WorldCom will issue the number of shares of common stock
issuable upon conversion of those shares, plus cash in the amount computed in
accordance with the preceding paragraph if WorldCom has exercised its cash
election right. No fractional shares will be issued upon conversion of WorldCom
series G preferred stock. Instead, WorldCom will round the results of a
conversion up to the nearest full share of WorldCom common stock.
Conversion Price Adjustments. The WorldCom series G preferred stock
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 common stock payable in shares
of WorldCom common stock;
. subdivisions, combinations and reclassifications of WorldCom common
stock;
. the issuance of rights allowing holders of WorldCom common stock to
purchase shares of WorldCom common stock for a price per share that is
less than the then-current market price of WorldCom common stock;
. the issuance in certain circumstances of WorldCom common stock (or
securities exercisable, exchangeable or convertible for WorldCom common
stock) for a price per share that is less than the then-current market
price of WorldCom common stock; and
. the distribution to the holders of WorldCom common stock of any of
WorldCom's assets, debt securities or any rights or warrants to
purchase securities, excluding cash dividends on the WorldCom common
stock that do not exceed specified levels.
Whenever the conversion price is adjusted, WorldCom will promptly mail to
holders of WorldCom series G preferred stock a notice briefly stating the facts
requiring the adjustment and the manner of computing it. No adjustment in the
conversion price need be made unless the adjustment would require an increase
or decrease of at least 1% in the conversion price. However, any adjustments
that are not made will be carried forward and taken into account in any later
adjustment. All adjustment calculations will be made either to the nearest
1/1000 of a cent or the nearest 1/1000 of a share.
If WorldCom consolidates with, merges with or into, or sells all or
substantially all of its assets to another person, each share of WorldCom
series G preferred stock thereafter will entitle its holder to receive upon
conversion of that holder's shares of WorldCom series G preferred stock the
number of shares of capital stock
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or other securities or property that the holder of the number of shares of
WorldCom common stock into which the share of WorldCom series G preferred
stock would have been convertible immediately before the transaction would
have been entitled to receive in the transaction.
WorldCom will reserve a sufficient number of shares of authorized WorldCom
common stock to permit the conversion of all outstanding shares of WorldCom
series G preferred stock.
Liquidation Rights. After payments to holders of securities ranking senior
to the WorldCom series G preferred stock, in a liquidation, dissolution or
winding up of WorldCom the holder of a share of WorldCom series G preferred
stock will be entitled to receive out of the assets of WorldCom available for
distribution to shareholders, before any distribution of assets is made to the
holders of WorldCom common stock or any other stock ranking junior to the
WorldCom series G preferred stock upon liquidation, the greater of:
. the liquidation preference, plus accumulated and unpaid dividends to
the date of liquidation, dissolution or winding up; and
. the amount the holder would have received in the liquidation,
dissolution or winding up if the share of WorldCom series G preferred
stock had been converted to common stock immediately prior to such
event.
If there is a sale, lease, transfer, conveyance or other disposition of all
or substantially all the assets of WorldCom or any merger or consolidation of
WorldCom unless:
. WorldCom is the surviving entity and no change is made in the rights,
powers, preferences or privileges of the WorldCom series G preferred
stock; or
. if WorldCom is not the surviving entity,
--the entity formed by the consolidation or merger or to which the sale
or other disposition has been made is a corporation organized in the
United States, any state or the District of Columbia; and
--the WorldCom series G preferred stock is converted into or exchanged
for and becomes shares of the resulting entity having the same or more
favorable powers, preferences and relative, participating, optional or
other special rights that the WorldCom series G preferred stock had
immediately prior to the transaction,
then WorldCom must send the holders of the WorldCom series G preferred stock a
notice informing them of the transaction. The holders of a majority of the
outstanding shares of WorldCom series G preferred stock may then send a
written notice to WorldCom indicating that they would like the transaction to
be deemed a liquidation, dissolution or winding up of WorldCom. The holders of
WorldCom series G preferred stock would then become entitled to receive from
WorldCom the amount they would receive in a liquidation, dissolution or
winding up of WorldCom.
Redemption at WorldCom's Option. WorldCom will have the option to redeem
all, but not less than all, shares of WorldCom series G preferred stock at the
per share redemption prices set forth below, expressed as a percentage of the
liquidation preference, in effect during the relevant 12-month period
beginning on February 17 of the years shown below, plus any accumulated and
unpaid dividends to the redemption date.
<TABLE>
<CAPTION>
If redeemed
during 12-
month
period
beginning
February 17 Percentage
----------- ----------
<S> <C>
2005 103.50%
2006 102.34%
2007 101.17%
2008 and after 100.00%
</TABLE>
WorldCom will have the option to pay the redemption price in cash or in
shares of WorldCom common stock having a market price equal to the redemption
price. For this purpose, the market price of WorldCom
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common stock will be the average of the last reported sale price on The Nasdaq
National Market for the 10 trading days immediately before the trading day
before the redemption date.
If WorldCom elects to redeem shares of WorldCom series G preferred stock, it
will mail a notice of redemption to holders of record not less than 30 nor more
than 60 days before the redemption date. If the redemption price has been paid
or provided for, including any accumulated and unpaid dividends, then on and
after the date fixed for redemption:
. dividends will cease to accumulate on the shares called for redemption;
. those shares will no longer be deemed to be outstanding; and
. all rights of the holders of those redemption shares as shareholders of
WorldCom will cease, except the right to receive the required payment.
Any holder of shares of WorldCom series G preferred stock selected for
redemption may, at any time before the close of business on the day before the
redemption date, convert those shares into shares of WorldCom common stock as
described above under "Conversion Rights".
Redemption Upon Holders' Option. At any time:
. after February 17, 2005;
. within 45 days after the completion of the merger and within 45 days
after the completion of a significant event, as described below; or
. after an event of default, as described below, for so long as the event
of default is not cured,
the holders of a majority of the outstanding shares of WorldCom series G
preferred stock will have the right to require WorldCom to redeem all, but not
less than all, the outstanding shares of WorldCom series G preferred stock. If
the holders of WorldCom series G preferred stock exercise this right, WorldCom
will be required to redeem each share of WorldCom series G preferred stock for
an amount in cash equal to the sum of the liquidation preference plus all
accumulated but unpaid dividends. If the terms of WorldCom's outstanding
indebtedness do not permit payment of all or any portion of this redemption
price in cash, the holders of a majority of the outstanding shares of WorldCom
series G preferred stock may withdraw their demand that WorldCom redeem the
WorldCom series G preferred stock. If they do not withdraw their demand, the
portion of the shares of WorldCom series G preferred stock that cannot be
redeemed for cash will automatically be converted into shares of common stock
or, if applicable, securities issuable to holders of common stock in connection
with a significant event, valued at the average of the closing prices of the
common stock on The Nasdaq National Market for the 10 trading days immediately
before the trading day before the date of conversion.
WorldCom's redemption obligation may be concurrent with analogous provisions
under securities ranking on a parity with the WorldCom series G preferred
stock.
To exercise their optional redemption right, the holders of a majority of
the outstanding shares of WorldCom series G preferred stock must send WorldCom
a written notice that specifies a date on which the outstanding shares of
WorldCom series G preferred stock is to be redeemed. This redemption date
cannot be less than 30 nor more than 60 days from the date of the notice.
The term "significant event" generally means any of the following:
. during any two-year period the directors of WorldCom at the beginning
of the period (together with any new directors elected by those
directors or nominated by a majority of those directors) cease to
constitute a majority of the WorldCom directors then in office;
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. any merger or consolidation of WorldCom with or into another entity
where in one transaction or a series of transactions
-- the shareholders of WorldCom immediately prior to the transaction
cease to own at least 50% of the voting securities of the entity
resulting from the transaction or the ultimate parent of that
entity, or
-- a person, entity or "group", as that term is used in Section
13(d)(3) of the Securities Exchange Act, becomes the beneficial
owner of more than 50% of the voting securities of the entity
resulting from the transaction or the ultimate parent of that
entity;
. more than 50% of WorldCom's voting power is transferred to any person,
entity or "group" in a transaction or series of transactions;
. any sale, lease or transfer of all or substantially all of the assets
of WorldCom;
. any liquidation, dissolution or winding up of WorldCom.
The term "event of default" generally means any of the following:
. a failure by WorldCom to pay a dividend on the WorldCom series G
preferred stock when due and the continuation of that failure for a
period of five business days;
. a failure by WorldCom to meet any liquidation payment obligation or
mandatory or optional redemption or repurchase obligation with respect
to the WorldCom series G preferred stock;
. a failure by WorldCom to comply with selected agreements in the
purchase agreement or registration rights agreement entered into by
Intermedia in connection with the original issuance of the Intermedia
series G preferred stock, and the continuance of that failure for 45 or
more days after notice;
. a default by WorldCom under any current or future mortgage, indenture
or other instrument of indebtedness of WorldCom or guaranteed by
WorldCom with an aggregate principal amount of $5 million or more that
-- is caused by a failure of WorldCom to pay the principal of, or
premium, if any, or interest on that indebtedness, or
-- results in the acceleration of that indebtedness before the maturity
specified in that indebtedness;
. WorldCom's voluntary or involuntary bankruptcy, receivership,
assignment for the benefit of creditors or liquidation; or
. the acceleration of obligations of WorldCom or final judgments against
WorldCom in an amount greater than $1 million that remain unsatisfied,
not discharged or unstayed for at least 30 consecutive days.
The provisions described above would not necessarily afford holders of the
WorldCom series G preferred stock protection upon the occurrence of events that
would constitute a change in control or in the event of highly leveraged or
other transactions involving WorldCom that may adversely affect such holders or
against a decline in the creditworthiness of WorldCom.
Change of Control. Upon a change of control, as described above under "--
WorldCom Series D Preferred Stock, WorldCom Series E Preferred Stock and
WorldCom Series F Preferred Stock--Change of Control" on page 74, WorldCom will
be required to make an offer to each holder of WorldCom series G preferred
stock to repurchase all or any part of that holder's shares of WorldCom series
G preferred stock at a repurchase price per share in cash equal to the sum of
the liquidation preference plus accumulated and unpaid dividends to the date of
repurchase.
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Within 30 days following a change of control, WorldCom will publish a notice
of the change of control in The Wall Street Journal or a similar business daily
publication of national distribution and mail a notice to each holder of
WorldCom series G preferred stock describing, among other things:
. the occurrence of the change of control;
. WorldCom's offer to purchase shares of WorldCom series G preferred
stock; and
. the date on which WorldCom will purchase shares of WorldCom series G
preferred stock, which will not be earlier than 30 days nor later than
60 days from the date the notice is mailed.
If the terms of WorldCom's outstanding indebtedness do not permit payment of
all or any portion of the repurchase price in cash, the portion that may not be
paid in cash will be automatically converted into shares of common stock, or,
if applicable, securities issuable to holders of WorldCom common stock in
connection with the change of control, valued at the average of the closing
prices of the common stock on The Nasdaq National Market for the 10 trading
days immediately before the trading day before the date of repurchase. WorldCom
may not make a repurchase payment in cash until all similar change of control
payments required under WorldCom's outstanding indebtedness and senior
securities are made in full.
WorldCom's repurchase obligation may be concurrent with analogous
obligations under securities ranking on a parity with the WorldCom series G
preferred stock.
The provisions described above would not necessarily afford holders of the
WorldCom series G preferred stock protection upon the occurrence of events that
would constitute a change in control or in the event of highly leveraged or
other transactions involving WorldCom that may adversely affect such holders or
against a decline in the creditworthiness of WorldCom.
Voting Rights. The holders of shares of WorldCom series G preferred stock
will be entitled to vote as a single group together with all the outstanding
shares of WorldCom common stock, WorldCom series B preferred stock, WorldCom
series D preferred stock, WorldCom series E preferred stock and WorldCom series
F preferred stock on all matters on which holders of common stock are entitled
to vote, except as otherwise required by Georgia law. When voting with the
WorldCom common stock, each share of WorldCom series G preferred stock will
have a number of votes equal to the number of shares of WorldCom common stock
issuable upon conversion of a share of WorldCom series G preferred stock.
WorldCom may not, without the affirmative vote or consent of the holders of
at least a majority of the outstanding shares of WorldCom series G preferred
stock voting as one class:
. amend or otherwise alter the certificate of designation of the WorldCom
series G preferred stock, directly or indirectly, or through merger or
consolidation with another entity in any manner that adversely affects
the specified rights, preferences, privileges or voting rights of
holders of WorldCom series G preferred stock;
. authorize or issue any additional shares of WorldCom series G preferred
stock;
. amend or otherwise alter WorldCom's certificate of incorporation or
bylaws in any manner that adversely affects the specified rights,
preferences, privileges or voting rights of holders of WorldCom series
G preferred stock;
. complete the liquidation, dissolution or winding up of WorldCom other
than in connection with a sale or other disposition of all or
substantially all the assets of WorldCom, or merger or consolidation
involving WorldCom; or
. take any other action that requires a vote of the holders of the
WorldCom series G preferred stock under Georgia law.
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Upon an event of default as described under "--Redemption upon Holders'
Option" on page 81, the holders of a majority of the outstanding shares of
WorldCom series G preferred stock, voting as a separate class, will be entitled
to elect two additional members to the board of directors of WorldCom, and the
number of members of WorldCom's board of directors will be automatically
increased by two. This right to elect directors will continue until all
dividends in arrears have been paid in full and all other events of default
have been cured or waived. At that time the terms of the directors elected by
holders of WorldCom series G preferred stock will terminate.
Modification. Without the consent of each holder of WorldCom series G
preferred stock affected, an amendment or waiver of WorldCom's certificate of
incorporation or the certificate of designations of the WorldCom series G
preferred stock may not:
. alter the voting rights of the WorldCom series G preferred stock or
reduce the percentage of shares whose holders must consent to an
amendment, supplement or waiver;
. reduce the liquidation preference of the WorldCom series G preferred
stock;
. reduce the rate of or change the time for payment of dividends on the
WorldCom series G preferred stock;
. make any conversion of shares of WorldCom series G preferred stock
payable in any form other than those stated in the certificate of
designations of the WorldCom series G preferred stock; or
. make any change relating to the waiver of the rights of holders of
WorldCom series G preferred stock to receive the liquidation
preference, liquidation amount and dividends on the WorldCom series G
preferred stock.
WorldCom may, however, amend or supplement the certificate of designation of
the WorldCom series G preferred stock to:
. cure any ambiguity, defect or inconsistency, except if the amendment or
supplement adversely affects the specified rights, preferences,
privileges or voting rights of the holders of WorldCom series G
preferred stock;
. provide for uncertificated WorldCom series G preferred stock in
addition to or in place of certificated WorldCom series G preferred
stock; or
. make any change that would provide any additional rights or benefits to
the holders of WorldCom series G preferred stock or that does not
adversely affect the legal rights under the certificate of designation
of the WorldCom series G preferred stock of any holder of WorldCom
series G preferred stock.
Except as described above, the creation, authorization or issuance of any
shares of securities ranking junior, equal to or senior to the WorldCom series
G preferred stock or the increase or decease in the amount of authorized
capital stock of any class will not require the consent of the holders of
WorldCom series G preferred stock and will not be deemed to affect adversely
the rights, preferences, privileges, special rights or voting rights of holders
of WorldCom series G preferred stock.
Preemptive Rights; Sinking Fund. Holders of the WorldCom series G preferred
stock will not have preemptive rights to purchase or subscribe for any stock or
other securities. The WorldCom series G preferred stock will not be subject to
any sinking fund or other obligation of WorldCom to set aside funds in order to
redeem shares.
Reissuance. Any share of WorldCom series G preferred stock converted,
redeemed or otherwise acquired by WorldCom will be retired and canceled and
assume the status of authorized but unissued shares of preferred stock. It may
thereafter be reissued in the same manner as other authorized but unissued
preferred stock.
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Listing
WorldCom common stock is quoted on The Nasdaq National Market under the
symbol "WCOM".
The WorldCom series B preferred stock is not, and the WorldCom series D
preferred stock, WorldCom series E preferred stock, WorldCom series F preferred
stock and WorldCom series G preferred stock will not be, listed on any exchange
or quotation service.
Transfer Agent
The transfer agent and registrar for the WorldCom common stock and WorldCom
series B preferred stock is, and the transfer agent and registrar for the
WorldCom preferred stock to be issued in the merger will be, The Bank of New
York, 101 Barclay Street--12W, New York, New York 10286.
Anti-Takeover Considerations
Georgia law and the WorldCom articles of incorporation and bylaws 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
these provisions, see "Comparison of Rights of WorldCom Shareholders and
Intermedia Stockholders--Number and Election of Directors", "--Removal of
Directors", "--Rights Plans", "--State Anti-Takeover Statutes" and "--Business
Combination Restrictions".
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COMPARISON OF RIGHTS OF WORLDCOM SHAREHOLDERS
AND INTERMEDIA STOCKHOLDERS
The rights of Intermedia stockholders are at present governed by the
Delaware General Corporation Law, which we refer to as Delaware law,
Intermedia's certificate of incorporation and bylaws and Intermedia's rights
agreement. Upon completion of the merger, holders of Intermedia common stock,
Intermedia series D preferred stock, Intermedia series E preferred stock,
Intermedia series F preferred stock and Intermedia series G preferred stock
will become holders of WorldCom capital stock and their rights will be governed
by the Georgia Business Corporation Code, which we refer to as Georgia law,
WorldCom's articles of incorporation and bylaws and WorldCom's rights
agreement. In addition, upon completion of the merger the holders of Intermedia
stock options and warrants will be entitled to exercise or convert those
securities into shares of WorldCom common stock.
The following summarizes the material differences between the rights of
WorldCom shareholders and the rights of Intermedia stockholders, but does not
purport to be a complete statement of all those differences, or a complete
description of the specific provisions referred to in this summary. See
"Description of WorldCom Capital Stock" and "Where You Can Find More
Information".
Capitalization
WorldCom
WorldCom's authorized capital stock is described above under "Description of
WorldCom Capital Stock--Common Stock" and "--Preferred Stock".
Intermedia
The authorized capital stock of Intermedia consists of 150,000,000 shares of
Intermedia common stock and 2,000,000 shares of Intermedia preferred stock, of
which (1) 600,000 shares have been designated as Intermedia series B preferred
stock; (2) 69,000 shares have been designated as Intermedia series D preferred
stock; (3) 87,500 shares have been designated as Intermedia series E preferred
stock; (4) 92,000 shares have been designated as Intermedia series F preferred
stock; (5) 200,000 shares have been designated as Intermedia series G preferred
stock; and (6) 40,000 shares have been designated as Intermedia series C
preferred stock.
At the close of business on the record date, (1) 54,724,625 shares of
Intermedia common stock were issued and outstanding; (2) 481,792 shares of
Intermedia series B preferred stock were issued and outstanding; (3) 53,724
shares of Intermedia series D preferred stock were issued and outstanding; (4)
64,047 shares of Intermedia series E preferred stock were issued and
outstanding; (5) 79,600 shares of Intermedia series F preferred stock were
issued and outstanding; and (6) 200,000 shares of Intermedia series G preferred
stock were issued and outstanding. No shares of Intermedia series C preferred
stock were issued and outstanding.
Voting Rights
WorldCom
Each holder of WorldCom common stock may cast one vote for each share of
record on all matters submitted to a vote of shareholders, including the
election of directors. Holders of WorldCom common stock have no cumulative
voting rights.
Each holder of 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 WorldCom series B preferred stock and holders of
WorldCom common stock vote together as a single class on all matters presented
to WorldCom shareholders for their action, except as provided by law and by the
next sentence. The approval of at least a
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majority of the votes entitled to be cast by holders of outstanding shares of
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 WorldCom
series B preferred stock so as to adversely affect the rights, preferences or
privileges of WorldCom series B preferred stock.
Intermedia
Each holder of Intermedia common stock is entitled to one vote for each
share held of record at all meetings of stockholders. Holders of Intermedia
common stock have no cumulative voting rights. Holders of Intermedia common
stock and Intermedia series G preferred stock, voting together as a single
group, elect the board of directors by a plurality vote and any question
brought before any meeting of stockholders shall be decided by the vote of the
majority of voting power represented by the shares of capital stock represented
and entitled to vote at the meeting, provided a quorum is present. A majority
of the voting power represented by capital stock issued and outstanding and
entitled to vote at a meeting, present in person or represented by proxy,
constitutes a quorum.
Number and Election of Directors
WorldCom
Under Georgia law, directors are elected at each annual shareholders
meeting, unless the articles of incorporation or a bylaw adopted by the
shareholders provides 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 the 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 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, WorldCom's board of directors has 12 members. Neither the WorldCom
articles of incorporation nor the WorldCom bylaws provide for a staggered board
of directors. The existing 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
WorldCom shares may elect any director solely by vote of such class or series.
Under Georgia law, shareholders do not have cumulative voting rights for the
election of directors unless the articles of incorporation so provide. The
WorldCom articles of incorporation do not provide for cumulative voting.
Intermedia
Under Delaware law, directors are elected at each annual meeting of
stockholders unless the certificate of incorporation or bylaws provide
otherwise, or if their terms are staggered. The certificate of incorporation
may authorize the election of certain directors by one or more classes or
series of shares and the certificate of incorporation or bylaws may provide for
staggered terms for directors.
The Intermedia certificate of incorporation and 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 or more than seven people. Currently,
Intermedia's board of directors has seven members. Intermedia's certificate of
incorporation and bylaws provide for a staggered board of directors consisting
of three classes of directors, although each class shall consist of a number of
directors as equal as possible, with no class having more than one director
more than any other class. Under Intermedia's certificate of incorporation and
bylaws, at each annual meeting of stockholders, the successors of the class of
directors whose term expires at the meeting will be elected to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their
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election. Except for vacancies, directors shall be elected by a plurality of
votes cast by the holders of Intermedia common stock and Intermedia series G
preferred stock, voting together as a single group, at the annual meeting of
stockholders. Directors need not be stockholders. Holders of Intermedia series
G preferred stock have the right to elect two directors of Intermedia pursuant
to section 7 of the certificate of designation for the Intermedia series G
preferred stock.
Under Delaware law, stockholders do not have cumulative voting rights for
the election of directors unless the certificate of incorporation so provides.
Intermedia's certificate of incorporation does not provide for cumulative
voting or for the election of directors by written consent of stockholders.
Vacancies on the Board of Directors
WorldCom
Under Georgia law, either shareholders or directors may fill any vacancies
on the board of directors, unless the articles of incorporation or a bylaw
approved by the shareholders specifically regulates the filling of these
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 the
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 WorldCom bylaws provide that any vacancy on the 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 WorldCom
capital stock.
Intermedia
Under Delaware law, unless the certificate of incorporation or bylaws
provide otherwise, vacancies on the board of directors may be filled by the
stockholders or the directors.
Intermedia's certificate of incorporation and bylaws provide that vacancies
and newly created directorships resulting from any increase in the authorized
number of directors may be filled by a majority of the directors then in
office, though less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the next annual election and until
their successors are duly elected and qualified, or until their earlier
resignation or removal.
Removal of Directors
WorldCom
Georgia law provides that 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
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. 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 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 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, any or all
WorldCom directors may be removed with or without cause by a majority vote of
shares of WorldCom capital stock.
Intermedia
Under Delaware law, each director holds office until that director's
successor is elected and qualified or until that director's earlier resignation
or removal. Under Delaware law, unless otherwise provided in the certificate of
incorporation, if a company's board of directors is classified, any director or
the entire board of directors may be removed by the holders of a majority of
the shares then entitled to vote at an election of directors only for cause.
Under Delaware law, if the certificate of incorporation entitles holders of
any class or series to elect one or more directors, only the holders of the
outstanding shares of that class or series may vote on the removal of those
directors for cause. Holders of Intermedia's series G preferred stock have the
right to elect two directors of Intermedia pursuant to the Intermedia series G
preferred stock certificate of designation.
Amendments to Articles of Incorporation
WorldCom
Georgia law allows WorldCom's board of directors to make only relatively
technical amendments to the articles of incorporation without shareholder
approval, except that the WorldCom board of directors may amend the articles of
incorporation to create and establish the rights and preferences of additional
classes or series of stock because this is permitted by the WorldCom articles
of incorporation. Otherwise, the affirmative vote of a majority of the votes
entitled to be cast on the amendment by each voting group entitled to vote on
the amendment is required to amend 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 the
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.
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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 will be entitled to vote as a separate voting group
on the amendment.
Neither the articles of incorporation of WorldCom nor its board of directors
has authorized or provided for a super-majority percentage of any voting group
for the amendment of the articles of incorporation of WorldCom.
Intermedia
Under Delaware law, an amendment to the certificate of incorporation of a
corporation requires the approval of the board of directors and the approval of
the holders of a majority of the outstanding stock entitled to vote upon the
proposed amendment. The 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 the
class;
. increase or decrease the par value of the shares of the class; or
. alter or change the powers, preferences or special rights of the shares
of the 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 will be considered a separate class.
Under Intermedia's certificate of incorporation, Intermedia reserves the
right to amend, alter, change or repeal any provision contained in the
certificate of incorporation in the manner prescribed by Delaware law and all
rights and powers conferred upon stockholders, directors and officers are
subject to this reservation.
Amendments to Bylaws
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.
WorldCom's bylaws allow the directors or shareholders to amend or repeal the
bylaws, and neither the articles of incorporation nor the bylaws of WorldCom
provide any restrictions on the authority of either the shareholders or the
directors to amend or repeal the bylaws except that shareholders may not adopt
bylaw amendments that restrict the power of the board of directors to manage
the corporation.
Intermedia
Under Delaware law, unless a corporation's certificate of incorporation
provides otherwise, the stockholders entitled to vote have the power to adopt,
amend or repeal the corporation's bylaws. Intermedia's certificate of
incorporation provides that a majority of the entire board of directors then in
office may amend or change the bylaws. Intermedia's bylaws provide that notice
of any alteration, amendment, repeal or adoption of new bylaws by the
stockholders or the board of directors must be contained in the notice of the
meeting of stockholders or the board of directors. The bylaws further state
that all amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire board of directors then in office.
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Shareholder Action
WorldCom
Subject to certain requirements, Georgia law provides that any action
required or permitted to be taken by the shareholders at a meeting may be taken
without a meeting if evidenced by one or more written consents describing the
action taken, signed and dated by all shareholders entitled to vote on the
action. Alternatively, if the articles of incorporation so provide, the action
could be taken by persons who would be entitled to vote shares at a meeting
having the requisite voting power to take action at a meeting at which all
shareholders entitled to vote were present and voted. The 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 meeting of
shareholders requires the written consent of all WorldCom shareholders entitled
to vote on the action.
Intermedia
Delaware law provides that, unless otherwise provided in the certificate of
incorporation, any action that could be taken by the stockholders at a meeting
may be taken without a meeting if a consent or consents in writing, setting
forth the action taken, is signed by the holders of record of outstanding stock
having at least the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
on the matter were present and voted. Intermedia's certificate of incorporation
and bylaws provide that any action required or permitted to be taken by the
stockholders of Intermedia must be effected at a duly called annual or special
meeting of the stockholders and may not be effected by any written consent of
the stockholders.
Notice of Shareholder Action
WorldCom
Under 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
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 the notice must be given by the shareholder and
received by 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 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.
The WorldCom bylaws provide that in the case of special meetings of
shareholders, the only business that will be conducted, and the only proposals
that will be acted upon, are those brought pursuant to 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 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 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 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 that business and other matters
specified in the bylaws.
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Proposals of other business may be considered at a special meeting requested
in accordance with the bylaws only if the requesting shareholder gives and
WorldCom receives a notice containing the same information as required for an
annual meeting at the time the meeting is requested.
Intermedia
Intermedia's bylaws require that at annual meetings stockholders will elect
the board of directors and transact any other business properly brought before
the meeting of stockholders. Written notice of a special meeting stating the
place, date and hour of the meeting and the purpose for which the meeting is
called must be given to stockholders when a special meeting of stockholders is
requested in writing by the stockholders owning shares representing at least a
majority of the capital stock of Intermedia issued and outstanding and entitled
to vote.
Special Shareholder Meetings
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 meetings, or any other percentage as may be provided
in the corporation's articles of incorporation or bylaws.
The WorldCom bylaws provide that a special meeting may be called by the
WorldCom board of directors or the president of WorldCom, and must be called by
the president of 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.
Intermedia
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or by other persons authorized by the certificate of
incorporation or the bylaws. Intermedia's bylaws provide that, subject to any
rights of holders of any shares of preferred stock of Intermedia, special
meetings of the stockholders may only be called by the chairman of the board of
directors, by the president, by the request in writing of a majority of the
board of directors or by the request in writing of the stockholders owning
shares representing at least a majority of the capital stock of Intermedia
issued and outstanding and entitled to vote. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose for
which the meeting is called must be given not less than 10 nor more than 60
days before the date of the meeting to each stockholder entitled to vote at the
meeting.
Limitation of Personal Liability of Directors
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. However, 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 the law;
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. unlawful distributions; or
. any transaction in which the director receives an improper personal
benefit.
WorldCom's articles of incorporation limit the personal liability of
directors for monetary damages to the fullest extent permissible under Georgia
law.
Intermedia
Delaware law provides that a certificate of incorporation may contain a
provision eliminating or limiting the personal liability of directors to the
corporation or its shareholders for monetary damages for breach of a fiduciary
duty as a director, except no provision in the certificate of incorporation may
eliminate or limit the liability of a director:
. for any breach of a director's duty of loyalty to the corporation or
its stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. statutory liability for unlawful payment of dividends or unlawful stock
purchase or redemption; or
. for any transaction from which the director derived an improper
personal benefit.
Intermedia's certificate of incorporation and bylaws provide that, to the
fullest extent permitted by law, directors will have no personal liability for
monetary damages for breach of a fiduciary duty or failure to exercise any
applicable standard of care in their capacity as a director of Intermedia.
Indemnification of Directors and Officers
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 the
conduct was in the best interests of the corporation;
. in all other cases other than a criminal proceeding, that the conduct
was at least not opposed to the best interests of the corporation; and
. in the case of a criminal proceeding, that there was no reasonable
cause to believe that 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 by a director in connection
with the proceeding if it is determined that the director has met the
relevant standard of conduct described above; or
. in connection with any 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 indemnifying 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 a majority vote of all the disinterested
directors;
. by a majority vote of the members of a committee consisting of two or
more disinterested directors appointed by a majority vote of all the
disinterested directors;
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. by special legal counsel that is selected by a vote of the board
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, except that shares owned by or voted under the
control of a director who is not a disinterested director may not vote
on the determination.
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 if he or she
delivers to the corporation:
. a written affirmation of his or her good faith belief that he or she
has met the relevant standard of conduct described in the Georgia law
or that the proceeding involves conduct for which the director's
liability has been properly eliminated under the articles of
incorporation; and
. his or her written undertaking to repay any funds advanced if it is
ultimately determined that the director was not entitled to
indemnification.
The authorization for the advancement of funds will be made:
. by a majority vote of all of the disinterested directors or by a
majority of the members of a committee of two or more disinterested
directors appointed by such vote in the case where there are two or
more disinterested directors;
. by a vote of the board of directors, including directors who are not
disinterested directors in the case where there are fewer than two
disinterested directors; or
. by the shareholders, except that shares owned or voted under the
control of a director who is not a disinterested director may not be
voted on the authorization.
Georgia law also allows a Georgia corporation to indemnify directors made a
party to a proceeding without regard to the limitations set forth above if
indemnification has been authorized by a majority of the votes entitled to be
cast which excludes shares owned or voted under the control of the director or
directors who are not disinterested. However, the corporation may not indemnify
a director adjudged liable of any of the acts or omissions described above
under "--Limitation of Personal Liability of Directors".
Under Georgia law, 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". A person who is both
an officer and a director is treated, for indemnification purposes, as a
director.
The WorldCom articles of incorporation and bylaws authorize indemnification
to the fullest extent permitted by Georgia law, including the additional
shareholder approved indemnification provisions described above.
Intermedia
Under Delaware law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any proceeding, other than an
action by or on behalf of the corporation, because the person is or was a
director or officer, against liability incurred in connection with the
proceeding if:
. the director or officer acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the
corporation; and
. the director or officer, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was
unlawful.
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Under Delaware law, 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 of Chancery or the court in which the proceeding was brought determines
that, despite the adjudication of liability but in view of all the
circumstances of the case, the director or officer is fairly and reasonably
entitled to indemnity for those expenses which the Court of Chancery or the
court, as the case may be, deems proper.
Delaware law provides that any indemnification of a former or present
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, with respect to a person who is a director or officer at the
time of the determination, will be made:
. by a majority vote of the directors who are not parties to the
proceeding, even though less than a quorum;
. by a committee of directors designated by a majority vote of the
eligible directors, even though less than a quorum;
. if there are no eligible directors, or if the eligible directors so
direct, by independent legal counsel in a written opinion; or
. by the stockholders.
Under Delaware law, a corporation may advance expenses before the final
disposition of a 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. These expenses incurred by former directors or
officers may be paid upon the terms and conditions, if any, as the corporation
deems appropriate.
Under Delaware law, 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, that person must be indemnified against expenses
actually and reasonably incurred in connection with any claim.
Delaware law gives a corporation the power to purchase and maintain
insurance on behalf of any director or officer against any liability asserted
against the director or officer and incurred in his or her capacity as a
director or officer, whether or not the corporation would have the power to
indemnify the director or officer against this liability under Delaware law.
Intermedia's certificate of incorporation and bylaws provide that Intermedia
will indemnify any and all of its directors and officers to the fullest extent
allowed by law. Intermedia's bylaws provide that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding will be paid by
Intermedia in advance of the final disposition of the action, suit or
proceeding upon receipt, if required by law, of an undertaking by or on behalf
of the director or officer to repay the amount if it is ultimately determined
that he or she was not entitled to be indemnified by Intermedia. Intermedia has
obtained insurance policies to insure its officers and directors for an amount
up to $50 million.
Dividends
WorldCom
Holders of WorldCom common stock are entitled to receive dividends declared
by the board of directors; 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
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. 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 board of directors to declare dividends on its common
stock, however, is subject to the rights of any holders of preferred stock of
WorldCom and the availability of sufficient funds under Georgia law to make
distributions to its shareholders.
Intermedia
Delaware law provides that a corporation may pay dividends out of its
surplus or if there is no surplus out of its net profits for the fiscal year in
which the dividend is declared and for the preceding fiscal year. Delaware law
also provides that dividends may not be paid out of the 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.
Intermedia's certificate of incorporation provides that dividends may be
declared and paid on Intermedia common stock from funds lawfully available
therefor as and when determined by Intermedia's board of directors and subject
to any preferential dividend rights of any then outstanding preferred stock.
Intermedia's bylaws provide that, subject to the provisions of the
certificate of incorporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property or in shares of the capital stock. Prior to the payment of dividends,
the board of directors may set aside, out of funds available for dividends,
sums that the board of directors deems proper as reserves to meet contingencies
or for any purpose.
Appraisal Rights
WorldCom
Georgia law provides that shareholders are entitled to dissent from and
obtain payment of the fair value of their 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;
. 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 to the articles of incorporation that materially and
adversely affects the rights of a dissenter's shares; and
. certain other actions taken pursuant to a shareholder vote to the
extent provided for under Georgia law, the articles of incorporation,
bylaws or resolution of the board of directors.
However, unless the corporation's articles of incorporation otherwise
provide, appraisal rights are not available:
. to holders of shares of any class or series of shares not entitled to
vote on the merger, share exchange or sale or exchange of all or
substantially all of a corporation's assets;
. in a sale of all or substantially all of the assets of the corporation
pursuant to court order;
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. in a sale of all or substantially all of the corporation's assets for
cash, where all or substantially all of the net proceeds of the sale
will be distributed to the shareholders within one year; or
. to holders of shares which at the record date were either listed on a
national securities exchange or held of record by more than 2,000
shareholders, unless
-- in the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger
or share exchange to accept for their shares anything except shares
of the surviving corporation or a publicly held corporation which
at the effective time 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
-- the articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
WorldCom's articles of incorporation do not provide for appraisal rights
under these circumstances.
Intermedia
Under Delaware law, a stockholder of a Delaware 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 a merger or consolidation in which the
corporation is to be a party if the stockholder continuously holds his or her
shares through the time of the merger or consolidation and neither votes in
favor of the merger or the consolidation nor consents thereto in writing. This
right to demand an appraisal does not apply to holders of shares of any class
or series of stock which are:
. 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., such as The Nasdaq
National Market;
. held of record by more than 2,000 holders; or
. shares of a surviving corporation and if a vote of the stockholders of
that corporation is not necessary to authorize the merger or
consolidation.
Appraisal rights are available for holders of shares of any class or series
of stock of a Delaware corporation if the holders are required by the terms of
the merger agreement or consolidation agreement to accept in exchange for their
stock anything except:
. shares of stock of the corporation surviving or resulting from the
merger or consolidation, or depository receipts in respect thereof;
. shares of stock of any other corporation, or depository receipts in
respect thereof, which, at the time of the merger or consolidation,
will be 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, such as The Nasdaq
National Market, or held of record by more than 2,000 holders;
. cash instead of fractional shares or fractional depository receipts of
the corporations described above; or
. any combination of the shares of stock, depository receipts and cash
instead of fractional shares or fractional depository receipts
described above.
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Preemptive Rights
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.
WorldCom does not meet the narrow criteria for which its shareholders are
statutorily provided preemptive rights nor do the articles of incorporation of
WorldCom provide for preemptive rights although the articles of incorporation
do not prohibit WorldCom from granting, contractually or otherwise, the right
to purchase additional securities of WorldCom.
Intermedia
Delaware 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 certificate of incorporation. Intermedia's
certificate of incorporation does not provide for preemptive rights.
Conversion
WorldCom
Holders of WorldCom common stock do not have the right to convert their
shares into any other securities.
Intermedia
Holders of Intermedia common stock do not have the right to convert their
shares into any other securities.
Special Redemption Provisions
WorldCom
The existing WorldCom articles of incorporation contain provisions allowing
WorldCom to redeem shares of its capital stock from some foreign shareholders
in order to enable it to continue to hold common carrier radio licenses. These
provisions are intended to cause 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 any other percentage specified by the
Communications Act and related regulations, WorldCom has the right to redeem
the excess shares held by them at a specified amount based on then recent
trading prices. After 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 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.
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.
Intermedia
Intermedia's certificate of incorporation does not contain any special
redemption provisions.
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Rights Plan
WorldCom
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 WorldCom rights agreement. You should read the WorldCom rights agreement
carefully. See "Where You Can Find More Information" beginning on page 107.
Exercisability of Rights. Under the rights agreement, one right, which we
refer to as a WorldCom right, attaches to each share of WorldCom common stock
outstanding and, when exercisable, entitles the registered holder to purchase
from WorldCom two-thirds of 1/1000 of a share of WorldCom series 3 preferred
stock at an initial purchase price of $160, subject to the customary
antidilution adjustments.
The 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 WorldCom voting stock;
. 10 business days after WorldCom first determines that a person or group
has become the beneficial owner of securities representing 15% or more
of the voting power of WorldCom voting stock; or
. 10 business days 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 owner of securities
representing 15% or more of the voting power of WorldCom voting stock
(or such later date as the 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 WorldCom
voting stock and WorldCom has registered the securities subject to the WorldCom
rights under the Securities Act, the flip-in or flip-over features of the
WorldCom rights or, at the discretion of the WorldCom board of directors, the
exchange features of the 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 WorldCom
voting stock, each holder of a WorldCom right, except for such person or group,
will have the right to acquire, upon exercise of the WorldCom right, instead of
two-thirds of 1/1000 of a share of WorldCom series 3 preferred stock, shares of
WorldCom common stock having a value equal to twice the exercise price of the
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 WorldCom right is
exercised, any holder of a 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 WorldCom voting stock, may exercise his or her WorldCom right
by paying WorldCom $160 in order to receive from WorldCom shares of common
stock having a value equal to $320.
"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 WorldCom voting stock, the WorldCom board of directors
may, at its option, exchange all or some of the WorldCom rights, except for
those held by such person or group, for WorldCom common stock at an exchange
ratio of one share of common stock per WorldCom right, subject to adjustment,
and cash instead of fractional shares, if any. Use of this exchange feature
means that eligible WorldCom rights holders would not have to pay a purchase
price before receiving shares of WorldCom common stock.
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"Flip Over" Feature. In the event WorldCom is acquired in a merger or other
business combination transaction or 50% or more of the assets or earning power
of WorldCom and its subsidiaries, taken as a whole, are sold, each holder of a
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 WorldCom voting
stock, will have the right to receive, upon exercise of the 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 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
WorldCom voting stock; or
. 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 WorldCom voting stock,
WorldCom's board of directors may redeem all of the WorldCom rights at a
redemption price of $0.01 per right, subject to adjustment. The right to
exercise the WorldCom rights, as described under "--Rights Plan--
Exercisability of Rights", will terminate upon redemption, and at such time,
the holders of the WorldCom rights will have the right to receive only the
redemption price for each 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
WorldCom voting stock, the terms of the existing WorldCom rights agreement may
be amended by the WorldCom board of directors without the consent of the
holders of the 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 WorldCom voting stock then known to 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 WorldCom rights agreement, of the voting power of the WorldCom voting
stock, the WorldCom board of directors may not adopt amendments to the existing
WorldCom rights agreement that adversely affect the interests of holders of the
WorldCom rights. Furthermore, once the WorldCom rights are no longer
redeemable, the WorldCom board of directors may not adopt any amendment that
would lengthen the time period during which the WorldCom rights are redeemable.
Termination of Rights. If not previously exercised, the WorldCom rights will
expire on September 6, 2001, unless WorldCom earlier redeems or exchanges the
WorldCom rights or extends the final expiration date.
Anti-takeover Effects. The WorldCom rights have anti-takeover effects. Once
the WorldCom rights have become exercisable, the WorldCom rights will cause
substantial dilution to a person or group that attempts to acquire or merge
with WorldCom in most cases. Accordingly, the existence of the WorldCom rights
may deter potential acquirors from making a takeover proposal or tender offer.
The WorldCom rights should not interfere with any merger or other business
combination approved by the WorldCom board of directors since WorldCom may
redeem the WorldCom rights as described above and since a transaction approved
by the WorldCom board of directors would not cause the WorldCom rights to
become exercisable.
Series 3 Preferred Stock. In connection with the creation of the WorldCom
rights, as described above, the WorldCom board of directors has authorized the
issuance of 5,000,000 shares of preferred stock as series 3 junior
participating preferred stock.
WorldCom has designed the dividend, liquidation, voting and redemption
features of the WorldCom series 3 preferred stock so that the value of two-
thirds of 1/1000 of a share of WorldCom series 3 preferred stock approximates
the value of one share of WorldCom common stock. Shares of WorldCom series 3
preferred
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stock may only be purchased after the WorldCom rights have become exercisable,
and each share of the 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 or 1,500 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 1,500
times the payment made per share of common stock;
. will have 1,500 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 1,500 times the amount and type of consideration received per
share of common stock.
The rights of the WorldCom series 3 preferred stock as to dividends,
liquidation and voting, and in the event of mergers and consolidations, are
protected by customary antidilution provisions.
Intermedia
In 1996, Intermedia's board of directors adopted the Intermedia rights
agreement and issued, as a dividend, one preferred stock purchase right for
each outstanding share of Intermedia common stock. One Intermedia purchase
right has also been issued with respect to each share of Intermedia common
stock issued since the date of that dividend.
Each Intermedia purchase right entitles the holder to buy one unit (or
1/1000 of a share) of Intermedia's series C preferred stock at a price of $200
per unit, subject to adjustment. The Intermedia purchase rights will be
exercisable after the earlier of:
. 10 business days, or such later date as may be determined by action of
Intermedia's board of directors, following a public announcement that a
person or group has become the beneficial owner of 15% or more of the
outstanding shares of Intermedia common stock; or
. 10 business days, or such later date as may be specified by the
Intermedia board of directors, following the commencement of a tender
offer or exchange offer that would result in a person becoming the
beneficial owner of 15% or more of the outstanding shares of Intermedia
common stock.
If a person or group beneficially owns 15% or more of the outstanding shares
of Intermedia common stock, each holder of an Intermedia purchase right will
receive, upon exercise, shares of Intermedia's series C preferred stock with a
market value equal to two times the exercise price of an Intermedia purchase
right, except that purchase rights owned by such acquiring person or group will
be void. If, following the date that a person or group becomes the beneficial
owner of 15% or more of the outstanding shares of Intermedia common stock,
Intermedia is acquired in a merger or other business combination, each
Intermedia purchase right will be exercisable for shares of Intermedia series C
preferred stock or the number of the acquiring company's shares of common
stock, in each case, having a market value equal to two times the exercise
price of the Intermedia purchase right.
Intermedia may redeem the purchase rights at a price of $0.01 per purchase
right before the purchase rights become exercisable.
Pursuant to the rights agreement, the purchase rights are not exercisable
when an acquiring person becomes the beneficial owner of 15% or more of the
outstanding common stock of Intermedia pursuant to a transaction
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that was approved in advance by Intermedia's board of directors. Therefore, the
execution of the merger agreement and the consummation of the merger with
WorldCom will not trigger the exercisability of the rights.
Shareholder Suits
WorldCom
Under Georgia law, a shareholder may file a lawsuit against one or more
directors, either on his own behalf or on behalf of the corporation. As noted
previously, Georgia law permits a corporation, in its articles of
incorporation, to limit or eliminate the personal liability of a director to
the corporation or its shareholders for monetary damages for any action taken,
or any failure to take any action, as a director, except in some circumstances.
The WorldCom articles of incorporation contain such a provision, as described
above under "--Limitation of Personal Liability of Directors" beginning on page
92.
Intermedia
Under Delaware law and applicable court decisions, a stockholder may file a
lawsuit on behalf of the corporation. Delaware law provides that a stockholder
must state in the complaint that he or she was a stockholder of the corporation
at the time of the transaction of which he or she complains. However, no action
may be brought by a stockholder unless he or she first seeks remedial action on
his claim from the corporation's board of directors, unless the demand for
redress is excused.
The board of directors may appoint an independent litigation committee to
review a stockholder's request for a derivative action and the litigation
committee, acting reasonably and in good faith, can terminate the stockholder's
action subject to a court's review of the committee's independence, good faith
and reasonable investigation.
Under Delaware law, the court in a derivative action may apply a variety of
legal and equitable remedies on behalf of the corporation that vary depending
on the facts and circumstances of the case and the nature of the claim brought.
As noted above, Delaware law contains provisions allowing a corporation,
through a provision in its restated certificate of incorporation, to limit or
eliminate the personal liability of a director to the corporation or its
stockholders for breach of a fiduciary duty as a director, except that the
provision cannot eliminate or limit the liability of a director in some
circumstances, as described above under "--Limitation of Personal Liability of
Directors" beginning on page 92.
Liquidation Rights
WorldCom
In the event of the dissolution of WorldCom, 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 WorldCom articles of incorporation.
Intermedia
Upon the dissolution or liquidation of Intermedia, whether voluntary or
involuntary, holders of Intermedia common stock will be entitled to receive all
assets of Intermedia available for distribution to its stockholders, subject to
preferential or participating rights of any then outstanding preferred stock.
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Vote on Extraordinary Corporate Transactions
WorldCom
Georgia law is similar to Delaware law in that, except as described below
under "--Business Combination Restrictions", a sale or other disposition of all
or substantially all of the corporation's assets, a merger of the corporation
with and into another corporation, a share exchange involving one or more
classes or series of the corporation's shares or a dissolution of the
corporation must be adopted by the WorldCom board of directors, except in
certain limited circumstances, plus the affirmative vote of the holders of a
majority of all shares of stock entitled to vote thereon, except in certain
cases.
Intermedia
Under Delaware law, mergers or consolidations or sales or exchanges of all
or substantially all of a corporation's assets or a dissolution of the
corporation require the affirmative vote of the board of directors (except in
certain limited circumstances). In addition, the affirmative vote of a majority
of the outstanding stock of the corporation entitled to vote on the matter is
required, except in certain cases. Stockholder consent is not required under
the following circumstances:
. for a corporation that survives a merger and does not issue in the
merger more than 20% of its outstanding shares immediately prior to the
merger;
. if the merger agreement does not amend in any respect the survivor's
certificate of incorporation;
. if each share of the surviving corporation outstanding immediately prior
to the merger remains an identical outstanding share of the surviving
corporation after the merger;
. if stockholder approval is not required by the survivor's certificate of
incorporation; and
. for either corporation where one corporation owns 90% of each class of
outstanding stock of the other corporation.
Business Combination Restrictions
WorldCom
The existing WorldCom articles of incorporation contain a provision that
requires the approval by the holders of a least 70% of the voting power of the
outstanding shares of any class of 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
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
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; and
. the minimum price and other requirements are met.
A "business transaction" means:
. any merger, share exchange or consolidation involving WorldCom or any of
its subsidiaries;
. any sale, lease, exchange, transfer or other disposition by 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 WorldCom or a subsidiary of WorldCom;
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. the issuance, sale, exchange, transfer or other disposition by WorldCom
or a subsidiary of WorldCom of any securities of WorldCom or any
subsidiary of 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 WorldCom with any
subsidiary of WorldCom in which 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 WorldCom articles of incorporation;
. any recapitalization or reorganization of WorldCom, or reclassification
of its securities which would have the effect of increasing the voting
power of a related person or reducing the number of shares of each class
of voting securities outstanding;
. any liquidation, spin off, split off, split up or dissolution of
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 WorldCom's
outstanding voting stock.
A "continuing director" means a director of WorldCom who either;
. was a member of the board of directors on September 15, 1993; or
. became a 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
WorldCom shareholder, is not considered a continuing director.
Intermedia
Intermedia is subject to the anti-takeover provisions in Delaware law. The
anti-takeover provisions prohibit business combinations between a Delaware
corporation and an interested stockholder, as described below, within three
years of the time the interested stockholder became an interested stockholder
unless:
. before that time, the board of directors approved either the business
combination or the transaction in which the interested stockholder
became an interested stockholder; or
. upon completion of the transaction that resulted in the stockholder
becoming an interested stockholder, the stockholder owned at least 85%
of the voting stock of the corporation, excluding shares held by
directors who are also officers of the corporation and by employee stock
ownership plans that do not permit employees to determine confidentially
whether shares held by the plan will be tendered in a tender or exchange
offer; or
. on or following that time, the business combination is approved by the
board of directors and the business combination transaction is approved
by the holders of at least 66 2/3% of the outstanding voting stock of
the corporation not owned by the interested stockholder.
The business combination restrictions described above do not apply if:
. the corporation's original certificate of incorporation contains a
provision expressly electing not to be governed by the anti-takeover
provisions in Delaware law;
. the holders of a majority of the voting stock of the corporation approve
an amendment to its certificate of incorporation or bylaws expressly
electing not to be governed by the anti-takeover provisions, which
election will be effective 12 months after the amendment's adoption and
would not
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apply to any business combination with a person who was an interested
stockholder at or prior to the time the amendment was approved; or
. the corporation does not have a class of voting stock that is (1) listed
on a national securities exchange, (2) authorized for quotation on The
Nasdaq National Market or (3) owned by more than 2,000 shareholders.
The anti-takeover provisions do not apply to a business combination that:
. is proposed after the public announcement of, and before the
consummation or abandonment of
-- a merger or consolidation of the corporation,
-- a sale of 50% or more of the aggregate market value of the assets of
the corporation and its subsidiaries determined on a consolidated
basis or the aggregate market value of all outstanding shares of the
corporation, or
-- a tender or exchange offer for 50% or more of the outstanding shares
of the corporation;
. is with a person who either was not an interested stockholder during the
previous three years or who became an interested stockholder with the
approval of the board of directors; and
. is approved by a majority of the current directors who were also
directors before any person became an interested stockholder during the
previous three years.
An "interested stockholder" generally is defined as a person that owns 15%
or more of the corporation's outstanding voting stock and the affiliates and
associates of that person.
The term "business combination" includes the following transactions with an
interested stockholder:
. a merger or consolidation of the corporation with an interested
stockholder;
. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition, except proportionately as a stockholder of the corporation,
of assets of the corporation or its subsidiaries having an aggregate
market value equal to 10% or more of either the aggregate market value
of all assets of the corporation and its subsidiaries determined on a
consolidated basis or the aggregate market value of all the outstanding
stock of the corporation;
. any transaction which results in the issuance or transfer by the
corporation or its subsidiaries of stock of the corporation or the
subsidiary to the interested stockholder, except for transactions
involving the exercise, conversion or exchange of securities outstanding
before the interested stockholder became an interested stockholder and
certain other transactions which do not increase the interested
stockholder's proportionate share of any class or series of the
corporation's stock;
. any transaction involving the corporation or any of its subsidiaries
which increases the proportionate share of any class or series of stock,
or securities convertible into the stock of any class or series, of the
corporation or any subsidiary which is owned by the interested
stockholder, except as a result of immaterial changes due to fractional
share adjustments or as a result of any purchase or redemption of any
shares of stock not caused by the interested stockholder; or
. any receipt by the interested stockholder of the benefit, except
proportionately as a stockholder of the corporation, of any loans,
advances, guarantees, pledges or other financial benefits provided by
the corporation or its subsidiaries.
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LEGAL MATTERS
The legality of WorldCom capital stock offered by this proxy
statement/prospectus will be passed upon for WorldCom by P. Bruce Borghardt,
Esq., General Counsel--Corporate Development of WorldCom. Mr. Borghardt is paid
a salary by WorldCom, is a participant in various employee benefit plans
offered to employees of WorldCom generally and owns and has options to purchase
shares of WorldCom common stock.
Kronish Lieb Weiner & Hellman LLP, New York, New York, has represented
Intermedia in connection with this transaction and will pass on material U.S.
Federal income tax consequences of the merger for Intermedia. Ralph J.
Sutcliffe, a partner of Kronish Lieb Weiner & Hellman LLP, is a director of
Intermedia and beneficially owns 11,461 shares of Intermedia common stock, a
warrant to purchase 200,000 shares of Intermedia common stock at an exercise
price of $20.75 per share, and, subject to vesting, options to purchase 22,000
shares of Intermedia common stock at an exercise price of $34.1875 per share.
In addition, partners of Kronish Lieb Weiner & Hellman LLP beneficially own
19,696 shares of the class A common stock of Digex, Intermedia's public Web
hosting subsidiary.
EXPERTS
The consolidated financial statements of WorldCom as of December 31, 1999
and 1998, and for each of the years in the three-year period ended December 31,
1999, have been audited by Arthur Andersen LLP, independent public accountants,
as indicated in their report with respect thereto, are included in WorldCom's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999, and are
incorporated by reference in this proxy statement/prospectus, in reliance upon
the authority of that firm as experts in accounting and auditing in giving such
reports.
The consolidated financial statements of Brooks Fiber Properties, Inc. for
the year ended December 31, 1997, have been audited by KPMG LLP, independent
certified public accountants, as indicated in their report with respect
thereto, are included in WorldCom's Annual Report on Form 10-K for the year
ended December 31, 1999, and are incorporated by reference in this proxy
statement/prospectus, in reliance upon the authority of that firm as experts in
accounting and auditing in giving such reports.
The consolidated financial statements and schedule of Intermedia and its
subsidiaries included in Intermedia's Annual Report on Form 10-K for the year
ended December 31, 1999, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report, which is incorporated by reference in
this proxy statement/prospectus, in reliance upon such report given on the
authority of that firm as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
Intermedia will hold an annual meeting of Intermedia stockholders in 2001
only if the merger is not completed before the time of that meeting. Intermedia
stockholders who wish to submit proposals for inclusion in the proxy statement
for Intermedia's annual meeting to be held in 2001 must comply with and meet
the requirements of Regulation 14A-8 of the Securities Exchange Act. That
regulation requires, among other things, that:
. any proposal to be included in Intermedia's proxy statement for its
annual meeting in 2001 must be received by Intermedia at its principal
executive office, One Intermedia Way, Tampa, Florida 33647, Attention:
Secretary, by December 29, 2000; and
. the person submitting a proposal has been an owner of at least 1% or
$2,000 in market value of Intermedia voting stock for a period of at
least one year and must continue to own these shares through the date
on which the 2001 annual meeting is held.
In addition, if an Intermedia stockholder presents a proposal for action at
Intermedia's 2001 annual meeting without providing Intermedia with notice of
the proposal by March 14, 2001, stock represented at any 2001 annual meeting by
proxies solicited by Intermedia's board of directors may be voted in the
discretion of the proxy holders.
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OTHER MATTERS
As of the date of this proxy statement/prospectus, the Intermedia board of
directors knows of no matters that will be presented for consideration at the
special meeting other than as described in this proxy statement/prospectus.
WHERE YOU CAN FIND MORE INFORMATION
WorldCom and Intermedia are subject to the informational requirements of the
Securities Exchange Act and in accordance with those requirements file annual,
quarterly and special reports, proxy statements and other information with the
Securities and Exchange Commission. You may read and copy these reports,
statements or other information 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 WorldCom and
Intermedia may also be inspected at:
The Nasdaq Stock Market
1735 K Street, N.W.
Washington, D.C. 20006
WorldCom filed a registration statement on Form S-4 on October 16, 2000 to
register with the Securities and Exchange Commission the WorldCom capital stock
to be issued to Intermedia stockholders in the merger. This proxy
statement/prospectus is a part of that registration statement and constitutes a
prospectus of WorldCom in addition to being a proxy statement of Intermedia. As
allowed by Securities and Exchange Commission rules, this document does not
contain all the information you can find in WorldCom's registration statement
or the exhibits to the registration statement.
The Securities and Exchange Commission allows WorldCom and Intermedia 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 WorldCom and Intermedia have previously filed with the
Securities and Exchange Commission. These documents contain important business
and financial information about WorldCom and Intermedia that is not included in
or delivered with this statement/prospectus.
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<TABLE>
<CAPTION>
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, 1999
Quarterly Reports on Form 10-Q...... Quarters ended March 31, 2000, June 30, 2000, and
September 30, 2000
Proxy Statement..................... Filed May 1, 2000
Current Reports on Form 8-K......... Form 8-K-1 dated April 11, 2000 (filed April 11,
2000), Form 8-K-2 dated April 11, 2000 (filed
April 11, 2000), Form 8-K dated May 16, 2000
(filed May 16, 2000), Form 8-K dated May 19, 2000
(filed May 22, 2000), Form 8-K dated May 31, 2000
(filed June 12, 2000), Form 8-K dated July 13,
2000 (filed July 13, 2000), and Form 8-K dated
November 1, 2000 (filed November 2, 2000)
Rule 425 Prospectuses............... Prospectus dated November 1, 2000 (filed November
2, 2000), Prospectus dated November 1, 2000 (filed
November 2, 2000), Prospectus dated November 2,
2000 (filed November 3, 2000), Prospectus dated
November 3, 2000 (filed November 6, 2000),
Prospectus dated November 3, 2000 (filed November
6, 2000), Prospectus dated November 3, 2000 (filed
November 6, 2000), and Prospectus dated November
15, 2000 (filed November 15, 2000).
The description of WorldCom common
stock set forth in the registrant's
Registration Statement on Form 8-A.. Resurgens' Registration Statement on Form 8-A
dated December 12, 1989, as updated by the
descriptions contained in WorldCom's Registration
Statement on Form S-4 (File No. 333-16015), as
declared effective by the Securities and Exchange
Commission on November 14, 1996, which includes
the Joint Proxy Statement/Prospectus dated
November 14, 1996, with respect to WorldCom's
special meeting of shareholders held on December
20, 1996, under the following captions:
"Description of WorldCom Capital Stock" and
"Comparative Rights of Shareholders" and by the
descriptions contained in 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"
The description of the WorldCom
rights to acquire preferred stock
set forth in the registrant's
Registration Statement on
Form 8-A.......................... WorldCom's Registration Statement on Form 8-A
dated August 26, 1996, as updated by WorldCom's
Current Report on Form 8-K dated May 22, 1997
(filed June 6, 1997)
The description of WorldCom series B
Convertible Preferred Stock set
forth in the registrant's
registration statement on
Form 8-A dated November 13, 1996.. WorldCom's Registration Statement on Form 8-A
dated November 13, 1996 (filed November 13, 1996)
The description of WorldCom series C
preferred stock set forth in the
registrant's Registration Statement
on Form 8-A....................... WorldCom's Registration Statement on Form 8-A
dated August 26, 1999 (filed August 26, 1999)
</TABLE>
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<TABLE>
<CAPTION>
Intermedia Filings (File No. 000-
20135) Period
--------------------------------- ------
<S> <C>
Annual Report on Form 10-K.......... Fiscal year ended December 31, 1999
Quarterly Reports on Form 10-Q...... Quarters ended March 31, 2000, June 30, 2000, and
September 30, 2000
Proxy Statement..................... Filed April 28, 2000
Current Reports on Form 8-K......... Form 8-K dated January 12, 2000 (filed January 12,
2000), Form 8-K dated February 3, 2000 (filed
February 3, 2000), Form 8-K dated February 17,
2000 (filed February 18, 2000), Form 8-K dated
March 10, 2000 (filed March 10, 2000), Form 8-K
dated May 2, 2000 (filed May 4, 2000), Form 8-K
dated May 3, 2000 (filed May 4, 2000), Form 8-K
dated May 12, 2000 (filed May 12, 2000), Form 8-K
dated July 31, 2000 (filed August 1, 2000), Form
8-K dated August 1, 2000 (filed August 2, 2000),
Form 8-K dated August 14, 2000 (filed August 16,
2000), Form 8-K dated September 1, 2000
(filed September 7, 2000), Form 8-K dated
September 1, 2000 (filed September 14, 2000), Form
8-K dated September 6, 2000 (filed September 15,
2000), Form 8-K dated October 2, 2000 (filed
October 13, 2000), Form 8-K dated October 19, 2000
(filed October 26, 2000), Form 8-K dated October
26, 2000 (filed October 27, 2000), Form 8-K dated
October 26, 2000 (filed October 27, 2000), and
Form 8-K dated November 14, 2000 (filed November 14,
2000)
</TABLE>
WorldCom and Intermedia 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 Securities Exchange Act between the date of
this proxy statement/prospectus and the date of the Intermedia special meeting.
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.
WorldCom has supplied all information contained or incorporated by reference
in this proxy statement/prospectus relating to WorldCom, and Intermedia has
supplied all such information relating to Intermedia.
Intermedia stockholders should not send in their Intermedia stock
certificates until they receive the transmittal materials from the exchange
agent. Intermedia stockholders of record who have further questions about their
stock certificates or the exchange of their Intermedia capital stock for
WorldCom capital stock should call the exchange agent.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can 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 document, the exhibit will also be
provided without charge. Stockholders may obtain documents incorporated by
reference in this document by requesting them in writing or by telephone from
the appropriate company at the following addresses:
WorldCom, Inc. Intermedia Communications Inc.
500 Clinton Center Drive One Intermedia Way
Clinton, Mississippi 39056 Tampa, Florida 33647
Attention: Investor Relations Department Attention: Investor Relations
Telephone: (877) 624-9266 or Department
(601) 460-5600 Telephone: (888) 288-7658
109
<PAGE>
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 November
17, 2000. 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 stockholders nor the issuance
of WorldCom capital stock in the merger creates any implication to the
contrary.
110
<PAGE>
ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
Among
WORLDCOM, INC.,
WILDCAT ACQUISITION CORP.
and
INTERMEDIA COMMUNICATIONS INC.
Dated September 1, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
The Merger
<TABLE>
<CAPTION>
1.1 Merger; Surviving Corporation......................................... A-1
<C> <S> <C>
1.2 Certificate of Incorporation......................................... A-1
1.3 By-Laws.............................................................. A-1
1.4 Directors............................................................ A-1
1.5 Effective Time....................................................... A-1
1.6 Conversion of Shares................................................. A-2
1.7 Capital Stock of Merger Sub.......................................... A-4
1.8 Effect on Target Series B Preferred Stock............................ A-4
1.9 Exchange of Target Common Stock and Target Preferred Stock........... A-4
1.10 Adjustments.......................................................... A-5
</TABLE>
ARTICLE II
Representations and Warranties of Target
<TABLE>
<CAPTION>
2.1 Organization, Standing and Corporate Power........................... A-6
<C> <S> <C>
2.2 Capital Structure................................................... A-6
2.3 Subsidiaries........................................................ A-7
2.4 Authority........................................................... A-7
2.5 No Conflicts........................................................ A-8
2.6 Consents; Approvals................................................. A-8
2.7 SEC Documents; Undisclosed Liabilities.............................. A-8
2.8 Information Supplied................................................ A-9
2.9 No Material Adverse Effect.......................................... A-9
2.10 Litigation.......................................................... A-10
2.11 Voting Requirements................................................. A-10
2.12 Brokers............................................................. A-10
2.13 Opinion of Financial Advisor........................................ A-10
2.14 Approval of Boards of Directors..................................... A-10
2.15 Compliance with Applicable Laws..................................... A-10
2.16 Absence of Changes in Target Benefit Plans.......................... A-10
</TABLE>
ARTICLE III
Representations and Warranties of Wildcat
<TABLE>
<CAPTION>
3.1 Organization, Standing and Corporate Power........................... A-11
<C> <S> <C>
3.2 Capital Structure................................................... A-11
3.3 Authority........................................................... A-11
3.4 No Conflicts........................................................ A-11
3.5 Consents; Approvals................................................. A-12
3.6 SEC Documents; Undisclosed Liabilities.............................. A-12
3.7 Information Supplied................................................ A-12
3.8 Absence of Material Adverse Effect.................................. A-13
3.9 Litigation.......................................................... A-13
3.10 Brokers............................................................. A-13
3.11 Shares of Wildcat Common Stock and Wildcat Preferred Stock ......... A-13
</TABLE>
<PAGE>
ARTICLE IV
Covenants
<TABLE>
<CAPTION>
4.1 Conduct of Business by Target...................................... A-13
<C> <S> <C>
4.2 Intentionally Omitted............................................. A-15
4.3 No Solicitation................................................... A-15
4.4 Compliance with Conditions Precedent, Etc......................... A-16
4.5 Certain Notifications............................................. A-17
4.6 Expenses.......................................................... A-17
4.7 Public Announcements.............................................. A-17
Preparation of the Form S-4 and Proxy Statement; Stockholders
4.8 Meetings.......................................................... A-17
4.9 Letters of Target's Accountants................................... A-18
4.10 Letters of Wildcat's Accountants.................................. A-18
4.11 HSR and Other Filings............................................. A-18
4.12 Access to Information; Confidentiality............................ A-18
4.13 Indemnification, Exculpation and Insurance........................ A-19
4.14 Stock Exchange Listings........................................... A-19
4.15 Tax Treatment..................................................... A-20
4.16 Target Series B Preferred Stock................................... A-20
4.17 Target Stock Options and Warrants................................. A-20
4.18 Employee Benefit Plans; Existing Agreements....................... A-21
4.19 Section 16 Matters................................................ A-21
4.20 Voting Agreement Legend........................................... A-22
4.21 Target Rights Agreement........................................... A-22
4.22 Target Securities................................................. A-22
4.23 Prepayment of Indebtedness........................................ A-22
4.24 Dove Certificate of Incorporation................................. A-22
4.25 Wildcat Financing Commitments..................................... A-22
ARTICLE V
Conditions
<CAPTION>
5.1 Conditions to the Merger........................................... A-23
<C> <S> <C>
5.2 Additional Conditions to the Obligations of Target................ A-23
Additional Conditions to the Obligations of Wildcat and Merger
5.3 Sub............................................................... A-23
5.4 Frustration of Closing Conditions................................. A-24
ARTICLE VI
Termination, Amendment and Waiver
<CAPTION>
6.1 Termination........................................................ A-24
<C> <S> <C>
6.2 Effect of Termination............................................. A-24
6.3 Amendment......................................................... A-24
6.4 Waiver............................................................ A-24
</TABLE>
<PAGE>
ARTICLE VII
Definitions; Interpretation
<TABLE>
<CAPTION>
7.1 Definitions........................................................... A-25
<C> <S> <C>
7.2 Interpretation....................................................... A-29
</TABLE>
ARTICLE VIII
General Provisions
<TABLE>
<CAPTION>
8.1 Nonsurvival of Representations and Warranties........................ A-29
<C> <S> <C>
8.2 Notices............................................................. A-29
8.3 Severability........................................................ A-30
8.4 Entire Agreement; Third Party Beneficiaries......................... A-30
8.5 Governing Law....................................................... A-30
8.6 Counterparts........................................................ A-30
8.7 Assignment.......................................................... A-30
8.8 Specific Performance................................................ A-30
8.9 Jurisdiction........................................................ A-31
8.10 Waiver of Jury Trial................................................ A-31
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER (the "Agreement") being made and entered into
as of this 1st day of September 2000 by and among WORLDCOM, INC., a Georgia
corporation ("Wildcat"), WILDCAT ACQUISITION CORP., a Delaware corporation
("Merger Sub") and a wholly owned Subsidiary of Wildcat, and INTERMEDIA
COMMUNICATIONS INC., a Delaware corporation ("Target").
WHEREAS, the Boards of Directors of Wildcat, Merger Sub and Target have each
determined that it is in the best interests of their respective stockholders
for Merger Sub to merge with and into Target (the "Merger") upon the terms and
subject to the conditions set forth herein;
WHEREAS, the Boards of Directors of Wildcat, Merger Sub and Target have each
approved the Merger upon the terms and subject to the conditions set forth
herein;
WHEREAS, simultaneously with the execution and delivery of this Agreement
and as a condition and inducement to the willingness of Wildcat to enter into
this Agreement, Wildcat and certain stockholders of Target are entering into a
certain stockholders agreement (the "Voting Agreement") pursuant to which such
stockholders have agreed, among other things, to vote to approve the Merger
upon the terms and subject to the conditions set forth in the Voting Agreement;
and
WHEREAS, the parties desire to qualify the Merger as a reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 Merger; Surviving Corporation. In accordance with the provisions of this
Agreement and the Delaware General Corporation Law (the "DGCL"), at the
Effective Time (as such term and other capitalized terms used herein without
definition are defined in Section 7.1) Merger Sub shall be merged with and into
Target, and Target shall be the surviving corporation (hereinafter sometimes
called the "Surviving Corporation") and shall continue its corporate existence
under the laws of the State of Delaware. At the Effective Time the separate
corporate existence of Merger Sub shall cease. All properties, franchises and
rights belonging to Target and Merger Sub, by virtue of the Merger and without
further act or deed, shall be deemed to be vested in the Surviving Corporation,
which shall thenceforth be responsible for all the liabilities and obligations
of each of Merger Sub and Target.
1.2 Certificate of Incorporation. The Certificate of Incorporation of Target
as in effect immediately prior to the Effective Time shall thereafter continue
in full force and effect as the Certificate of Incorporation of the Surviving
Corporation until altered or amended as provided therein or by law.
1.3 By-Laws. The By-Laws of Merger Sub in effect immediately prior to the
Effective Time shall be the By-Laws of the Surviving Corporation until altered,
amended or repealed as provided therein and in the Certificate of Incorporation
of the Surviving Corporation.
1.4 Directors. The Directors of Merger Sub immediately prior to the
Effective Time shall be the directors of Surviving Corporation. Each of such
directors shall hold office in accordance with the Certificate of Incorporation
and By-Laws of the Surviving Corporation.
1.5 Effective Time. The Merger shall become effective at the time of filing
of a certificate of merger (the "Certificate of Merger") with the Secretary of
State of the State of Delaware in accordance with the provisions of Section 251
of the DGCL, or at such later time as Wildcat and Target shall agree and
specify as the effective time in the Certificate of Merger, which shall be so
filed as soon as practicable after the
A-1
<PAGE>
satisfaction or, if permissible, waiver of the conditions set forth in Article
V. The date and time when the Merger shall become effective are referred to
herein as the "Effective Date" and the "Effective Time", respectively. Prior to
such filing, a closing shall be held at the offices of Kronish Lieb Weiner &
Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036, or such
other place as shall be agreed to by the parties, for the purpose of confirming
the satisfaction or waiver, as the case may be, of the conditions set forth in
Article V.
1.6 Conversion of Shares. (a) Each share of Target Common Stock, issued and
outstanding immediately prior to the Effective Time (other than shares to be
canceled in accordance with Sections 1.6(c) and 1.6(d)) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive a number of fully paid and nonassessable shares of
Wildcat Common Stock equal to the Exchange Ratio (the "Common Stock Merger
Consideration"), subject to the limitations set forth in Section 1.9. The
"Exchange Ratio" means the quotient (rounded to the nearest 1/10,000)
determined by dividing $39 by the Average Price (as defined below); provided
that the Exchange Ratio shall not be less than 0.8904 or greater than 1.1872;
and provided further that in the event that the Exchange Ratio would otherwise
be greater than 1.0685, Wildcat shall have the right (the "Wildcat Cash
Election") to cause the Exchange Ratio to be equal to 1.0685 by adding to the
Common Stock Merger Consideration an amount of cash per share of Target Common
Stock equal to the product of (x) the difference between the Exchange Ratio
without giving effect to the Wildcat Cash Election and 1.0685 and (y) the
Average Price. "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 Wildcat 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
Wildcat and Target together from the 30 consecutive trading days ending on the
third trading day immediately preceding the Effective Date. Notwithstanding
anything to the contrary set forth in this Section 1.6, Wildcat shall not
exercise the Wildcat Cash Election to the extent such exercise will result in
the Merger ceasing to qualify as a reorganization under Section 368(a) of the
Code.
(b) (i) Subject to Sections 1.6(e) and 1.9, each share of Target Series D
Preferred Stock (other than shares to be canceled in accordance with Sections
1.6(c) and (d)) shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive one fully
paid and nonassessable share of 7% Series D Junior Convertible Preferred Stock
of Wildcat (the "Wildcat Series D Preferred Stock") (the "Series D Preferred
Stock Merger Consideration"), which Wildcat Series D Preferred Stock shall have
terms that are identical to Target Series D Preferred Stock except that (w) the
issuer thereof shall be Wildcat rather than Target, (x) the Wildcat Series D
Preferred Stock shall become convertible into Wildcat Common Stock as required
by Paragraph 3 of the Certificate of Designation for the Target Series D
Preferred Stock, (y) dividends will accrue from the last dividend payment date
of the Target Series D Preferred Stock prior to the Effective Time and be
payable in Wildcat Common Stock or cash and (z) each share of Wildcat Series D
Preferred Stock shall be entitled to one-tenth of one vote per share on all
matters, voting together with the Wildcat Common Stock and the other classes of
Wildcat voting securities as a single class.
(ii) Subject to Sections 1.6(e) and 1.9, each share of Target Series E
Preferred Stock (other than shares to be canceled in accordance with Sections
1.6(c) and (d)) shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive one fully
paid and nonassessable share of 7% Series E Junior Convertible Preferred Stock
of Wildcat (the "Wildcat Series E Preferred Stock") (the "Series E Preferred
Stock Merger Consideration"), which Wildcat Series E Preferred Stock shall have
terms that are identical to Target Series E Preferred Stock except that (w) the
issuer thereof shall be Wildcat rather than Target, (x) the Wildcat Series E
Preferred Stock shall become convertible into Wildcat Common Stock as required
by Paragraph 3 of the Certificate of Designation for the Target Series E
Preferred Stock, (y) dividends will accrue from the last dividend payment date
of the Target Series E Preferred Stock prior to the Effective Time and be
payable in Wildcat Common Stock or cash and (z) each share of Wildcat Series E
Preferred Stock shall be entitled to one-tenth of one vote per share on all
matters, voting together with the Wildcat Common Stock and the other classes of
Wildcat voting securities as a single class.
A-2
<PAGE>
(iii) Subject to Sections 1.6(e) and 1.9, each share of Target Series F
Preferred Stock (other than shares to be canceled in accordance with Sections
1.6(c) and (d)) shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive one fully
paid and nonassessable share of 7% Series F Junior Convertible Preferred Stock
of Wildcat (the "Wildcat Series F Preferred Stock") (the "Series F Preferred
Stock Merger Consideration"), which Wildcat Series F Preferred Stock shall have
terms that are identical to Target Series F Preferred Stock except that (w) the
issuer thereof shall be Wildcat rather than Target, (x) the Wildcat Series F
Preferred Stock shall become convertible into Wildcat Common Stock as required
by Paragraph 3 of the Certificate of Designation for the Target Series F
Preferred Stock, (y) dividends will accrue from the last dividend payment date
of the Target Series F Preferred Stock prior to the Effective Time and be
payable in Wildcat Common Stock or cash and (z) each share of Wildcat Series F
Preferred Stock shall be entitled to one-tenth of one vote per share on all
matters, voting together with the Wildcat Common Stock and the other classes of
Wildcat voting securities as a single class.
(iv) Subject to Sections 1.6(e) and 1.9, each share of Target Series G
Preferred Stock (other than shares to be canceled in accordance with Sections
1.6(c) and (d)) shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive one fully
paid and nonassessable share of 7% Series G Junior Convertible Preferred Stock
of Wildcat (the "Wildcat Series G Preferred Stock") (the "Series G Preferred
Stock Merger Consideration"), which Wildcat Series G Preferred Stock shall have
terms that are identical to Target Series G Preferred Stock except that (v) the
issuer thereof shall be Wildcat rather than Target, (w) the Wildcat Series G
Preferred Stock shall become convertible into Wildcat Common Stock as required
by Paragraph 3 of the Certificate of Designation for the Target Series G
Preferred Stock, (x) dividends will accrue from the last dividend payment date
of the Target Series G Preferred Stock prior to the Effective Time and be
payable in Wildcat Common Stock or cash, (y) there shall be the other
modifications thereto set forth in Section 5 of the Voting Agreement and (z)
the optional redemption provisions set forth in Paragraph 5(i) of the
Certificate of Designation for the Target Series G Preferred Stock may be
exercised within 45 days after the Effective Time. The Common Stock Merger
Consideration, the Series D Preferred Stock Merger Consideration, the Series E
Preferred Stock Merger Consideration, the Series F Preferred Stock Merger
Consideration and the Series G Preferred Stock Merger Consideration shall be
referred to collectively in this Agreement as the "Merger Consideration".
(c) Each share of Target Common Stock or Target Preferred Stock issued and
outstanding immediately prior to the Effective Time which is then owned
beneficially or of record by Wildcat or Merger Sub shall, by virtue of the
Merger, be canceled and retired and cease to exist, without any conversion
thereof.
(d) Each share of Target Common Stock or Target Preferred Stock held in the
treasury of Target immediately prior to the Effective Time shall, by virtue of
the Merger, be canceled and retired and cease to exist, without any conversion
thereof.
(e) Notwithstanding anything in this Section 1.6 to the contrary, shares of
Target Preferred Stock issued and outstanding immediately prior to the
Effective Time and held by any stockholder of Target who is entitled to demand
and properly demands appraisal of such shares pursuant to, and who complies in
all respects with, the provisions of Section 262 of the DGCL ("Appraisal
Shares") shall not be converted into the right to receive the Preferred Stock
Merger Consideration with respect thereto, if any, as provided in Section
1.6(b), but rather the holders of Appraisal Shares shall be entitled to payment
of the fair value of such Appraisal Shares in accordance with the provisions of
Section 262 of the DGCL; provided, however, that if any such holder shall fail
to perfect or otherwise shall waive, withdraw or lose the right to appraisal
under Section 262 of the DGCL or a court of competent jurisdiction shall
determine that such holder is not entitled to the relief provided by Section
262 of the DGCL, then the right of such holder of Appraisal Shares to be paid
the fair value of such holder's Appraisal Shares shall cease and such Appraisal
Shares shall be treated as if they had been converted as of the Effective Time
into the right to receive the Preferred Stock Merger Consideration with respect
thereto as provided in Section 1.6(b).
A-3
<PAGE>
1.7 Capital Stock of Merger Sub. Each share of common stock, par value $0.01
per share, of Merger Sub (the "Merger Sub Common Stock") issued and outstanding
immediately prior to the Effective Time shall be converted into one validly
issued, fully paid and nonassessable share of common stock, par value $0.01 per
share, of the Surviving Corporation. Following the Effective Time, each
certificate evidencing ownership of shares of Merger Sub Common Stock shall
evidence ownership of shares of capital stock of the Surviving Corporation.
1.8 Effect on Target Series B Preferred Stock. Subject to Section 1.6(e),
each share of Target Series B Preferred Stock issued and outstanding
immediately prior to the Effective Time shall remain outstanding as Series B
Preferred Stock of the Surviving Corporation, without any change to the powers,
preferences or special rights of such Target Series B Preferred Stock provided
for in the Certificate of Designation for the Target Series B Preferred Stock,
except that each share of Target Series B Preferred Stock shall be entitled to
one-tenth of one vote per share on all matters, voting together with the common
stock and other classes of voting securities of the Surviving Corporation as a
single class.
1.9 Exchange of Target Common Stock and Target Preferred Stock. (a) Prior to
the Effective Time, Wildcat shall enter into an agreement with a bank or trust
company reasonably acceptable to Target (the "Exchange Agent"), which shall
provide that Wildcat shall deposit with the Exchange Agent as of the Effective
Time, for the benefit of the holders of shares of Target Common Stock and
Target Preferred Stock (other than the Target Series B Preferred Stock),
certificates representing the Common Stock Merger Consideration and Preferred
Stock Merger Consideration, issuable in exchange for outstanding shares of
Target Common Stock and Target Preferred Stock (other than the Target Series B
Preferred Stock), as the case may be. Wildcat shall make available to the
Exchange Agent from time to time as required after the Effective Time cash
and/or securities necessary to pay dividends and other distributions in
accordance with Section 1.9(e) and to make payments in lieu of any fractional
shares of Wildcat Common Stock in accordance with Section 1.9(f).
(b) As soon as practicable after the Effective Time, the Exchange Agent
shall mail to each holder of record (other than to holders of Target Common
Stock or Target Preferred Stock to be canceled as set forth in Section 1.6(c)
or 1.6(d) or Appraisal Shares and other than to holders of the Target Series B
Preferred Stock) of a certificate or certificates that immediately prior to the
Effective Time represented outstanding shares of Target Common Stock or Target
Preferred Stock (other than the Target Series B Preferred Stock) (the
"Certificates") (i) a form letter of transmittal (which shall be in customary
form and shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent) and (ii) instructions for effecting the
surrender of the Certificates in exchange for certificates representing the
applicable Merger Consideration.
(c) Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly executed, and such other
agreements as the Exchange Agent shall reasonably request, the holder of such
Certificate shall be entitled to receive in exchange therefor, (i) the
applicable Common Stock Merger Consideration or Preferred Stock Merger
Consideration into which the shares of Target Common Stock or Target Preferred
Stock theretofore represented by the Certificate so surrendered shall have been
converted pursuant to the provisions of this Article I, and (ii) any dividends
or other distributions and cash in lieu of fractional shares payable in
accordance with this Section 1.9, and the Certificate so surrendered shall
forthwith be canceled. Until surrendered as contemplated by this Section 1.9,
each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive the applicable Common Stock Merger
Consideration or Preferred Stock Merger Consideration with respect to the
shares of Target Common Stock or Target Preferred Stock formerly represented
thereby and any dividends or other distributions and cash in lieu of fractional
shares payable in accordance with this Section 1.9.
(d) If any Certificate representing shares of Wildcat Common Stock or
Wildcat Preferred Stock is to be issued in a name other than that in which the
Certificate surrendered is registered, it shall be a condition of payment that
the Certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer
A-4
<PAGE>
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the Certificate surrendered or establish to the reasonable
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable.
(e) No dividends or other distributions declared after the Effective Time
with respect to Wildcat Common Stock or Wildcat Preferred Stock and payable to
holders of record thereof after the Effective Time shall be paid to the holder
of any unsurrendered Certificate with respect to the shares of Wildcat Common
Stock or Wildcat Preferred Stock represented thereby until the holder of record
shall surrender such Certificate. Subject to the effect, if any, of applicable
law, after the subsequent surrender and exchange of a Certificate, the holder
thereof shall be entitled to receive any such dividends or other distributions,
without any interest thereon, which theretofore became payable with respect to
shares of Wildcat Common Stock or Wildcat Preferred Stock represented by such
Certificate.
(f) No certificates or scrip representing fractional shares of Wildcat
Common Stock shall be issued upon the surrender for exchange of Certificates,
and any such fractional share interest will not entitle the owner thereof to
vote or to any rights of the stockholders of Surviving Corporation. In lieu
thereof, Wildcat shall pay cash for such fractional shares based upon the
Closing Price on the trading day preceding the Effective Date.
(g) Any cash or certificates held by the Exchange Agent that remain
undistributed to the holders of the Certificates for one year after the
Effective Time shall be delivered to Wildcat, upon demand, and any holders of
the Certificates who have not theretofore exchanged their Certificates in
accordance with this Section 1.9 shall thereafter look only to Wildcat for
payment of their claim for the Merger Consideration, any dividends or
distributions with respect to Wildcat Common Stock or Wildcat Preferred Stock
and any cash in lieu of fractional shares of Wildcat Common Stock.
(h) All shares of Wildcat Common Stock and Wildcat Preferred Stock into
which and for which shares of Target Common Stock and Target Preferred Stock
shall have been converted or exchanged pursuant to this Article I shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such converted and exchanged shares of Target Common Stock and Target Preferred
Stock, as applicable.
(i) After the Effective Time, there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of shares of
Target Common Stock or Target Preferred Stock (other than the Target Series B
Preferred Stock) that were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates representing such shares are
presented to the Surviving Corporation, they shall be canceled and exchanged
for the applicable Merger Consideration as provided in this Article I.
(j) 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 Wildcat, the posting by such
person of a bond in such reasonable amount as Wildcat may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration and any unpaid dividends and distributions
in respect thereof and any cash in lieu of fractional shares of Wildcat Common
Stock, in each case pursuant to this Agreement.
1.10 Adjustments. (a) If, between the date of this Agreement and the
Effective Time, the outstanding shares of Target Common Stock or Target
Preferred Stock shall have been changed into a different number of shares or a
different class of shares by reason of any reclassification, recapitalization,
split-up, subdivision, stock dividend, combination, exchange of shares or
similar adjustment, or if any such transaction shall be declared with a record
date within such period, the consideration to be paid in the Merger in exchange
for each outstanding share of Target Common Stock or Target Preferred Stock as
provided in this Agreement shall be correspondingly adjusted.
A-5
<PAGE>
(b) If, between the date of this Agreement and the Effective Time, the
outstanding shares of Wildcat Common Stock shall have been changed into a
different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, subdivision, stock dividend,
combination, exchange of shares or similar adjustment, or if any such
transaction shall be declared with a record date within such period, the Common
Stock Merger Consideration to be paid in the Merger in exchange for each
outstanding share of Target Common Stock as provided in this Agreement shall be
correspondingly adjusted. In addition, in the event Wildcat pays (or
establishes a record date for payment of) any dividend on, or makes any other
distribution in respect of, Wildcat Common Stock, the Common Stock Merger
Consideration shall be appropriately adjusted to reflect such dividend or
distribution.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
Except (i) with respect to matters contemplated by Section 4.1, (ii) as
disclosed in Target SEC Documents filed and publicly available prior to the
date of this Agreement (the "Target Filed SEC Documents"), or (iii) as set
forth on the disclosure schedule delivered by Target to Wildcat prior to the
execution of this Agreement (the "Target Disclosure Schedule"), Target
represents and warrants to Wildcat as follows:
2.1 Organization, Standing and Corporate Power. Target and each of its
Subsidiaries is a corporation or other legal entity duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
organized and has the requisite corporate or other power and authority, as the
case may be, to carry on its business as now being conducted. Each of Target
and its Subsidiaries is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership, leasing or operation of its properties makes such qualification or
licensing necessary, except for those jurisdictions in which the failure to be
so qualified or licensed or to be in good standing, individually or in the
aggregate, is not reasonably likely to have a Material Adverse Effect on
Target. Copies of Target's Certificate of Incorporation and By-laws, in each
case as amended to and in effect on the date of this Agreement, have been filed
as exhibits to the Target Filed SEC Documents.
2.2 Capital Structure. (a) The authorized capital stock of Target consists
of 152,000,000 shares of capital stock consisting of: (1) 150,000,000 shares of
common stock, par value $.01 per share (the "Target Common Stock"), and (2)
2,000,000 shares of preferred stock, par value $1.00 per share, of which (A)
600,000 shares have been designated as the Target Series B Preferred Stock, (B)
69,000 shares have been designated as the Target Series D Preferred Stock, (C)
87,500 shares have been designated as the Target Series E Preferred Stock, (D)
92,000 shares have been designated as the Target Series F Preferred Stock, (E)
200,000 shares have been designated as the Target Series G Preferred Stock and
(F) 40,000 shares have been designated as Series C Preferred Stock, par value
$1.00 per share (the "Target Series C Preferred Stock"). At the close of
business on August 25, 2000, (i) 54,170,682 shares of Target Common Stock were
issued and outstanding; (ii) no shares of Target Common Stock were held by
Target in its treasury; (iii) 466,062 shares of the Target Series B Preferred
Stock were issued and outstanding; (iv) 53,724 shares of the Target Series D
Preferred Stock were issued and outstanding; (v) 64,047 shares of the Target
Series E Preferred Stock were issued and outstanding; (vi) 79,600 shares of the
Target Series F Preferred Stock were issued and outstanding; (vii) 200,000
shares of the Target Series G Preferred Stock were issued and outstanding;
(viii) 40,000 shares of the Target Series C Preferred Stock were reserved for
issuance in connection with the rights (the "Target Rights") to purchase shares
of the Target Series C Preferred Stock issued pursuant to the Rights Agreement
dated as of March 7, 1996 (as amended, the "Target Rights Agreement"), between
Target and Continental Stock Transfer & Trust Company, as rights agent; (ix) no
other shares of Target Preferred Stock were issued and outstanding; (x)
2,200,000 shares of Target Common Stock were reserved for issuance pursuant to
three warrants issued and outstanding to purchase Target Common Stock (the
"Target Warrants"); (xi) 12,363,567 shares of Target Common Stock were reserved
for issuance pursuant to Target's 1992 Stock Option Plan, 1996 Long-Term
Incentive Plan, 1997 Equity Participation Plan for the Benefit of Employees of
Dove (as defined in Section 2.2(b)), and 1997 Stock
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Option Plan for the Benefit of Employees of Dove (collectively, the "Target
Stock Plans") (of which 9,437,582 shares of Target Common Stock are subject to
outstanding stock options or other rights to purchase or to receive Target
Common Stock granted under the Target Stock Plans (collectively, "Target Stock
Options")); and (xii) 22,530,969 shares of Target Common Stock were reserved
for issuance upon conversion of (A) the Target Series D Preferred Stock, (B)
the Target Series E Preferred Stock, (C) the Target Series F Preferred Stock
and (D) the Target Series G Preferred Stock. Since August 25, 2000, and prior
to the date hereof, no shares of capital stock of, or any other interest in, or
any options, warrants, convertible, exchangeable or similar securities or other
rights, agreements, arrangements or commitments relating to the capital stock
of, Target were issued other than in connection with the exercise of Target
Stock Options and Target Warrants in accordance with their respective terms.
Other than Target Preferred Stock, regularly scheduled dividend payments on the
Target Preferred Stock, the Target Stock Options and the Target Warrants, there
are no options, warrants, convertible, exchangeable or similar securities or
other rights, agreements, arrangements or commitments of any character relating
to the capital stock of Target or obligating Target to issue or sell any shares
of capital stock of, or any other interest in, Target. No bonds, debentures or
other indebtedness having the right to vote on any matter on which stockholders
of Target may vote are issued or outstanding or subject to issuance. There are
no outstanding contractual obligations of Target to repurchase, redeem or
otherwise acquire any shares of capital stock of Target or to provide funds to,
or make any investment (in the form of a loan, capital contribution or
otherwise) in, any other Person. All of the outstanding shares of capital stock
of Target are, and all such shares that may be issued will be, when issued duly
authorized, validly issued, fully paid and nonassessable.
(b) The authorized capital stock of Digex, Incorporated, a Delaware
corporation ("Dove"), consists of 100,000,000 shares of Class A Common Stock,
par value $.01 per share ("Dove Class A Common Stock"), of which 24,303,163
shares are issued and outstanding, 50,000,000 shares of Class B Common Stock,
par value $.01 per share ("Dove Class B Common Stock" and, together with Dove
Class A Common Stock, "Dove Common Stock"), of which 39,350,000 shares are
issued and outstanding and 5,000,000 shares of preferred stock, par value $.01
per share, of which 100,000 shares have been designated as Series A Convertible
Preferred Stock, all of which are issued and outstanding. As of August 25,
2000, (i) 15,000,000 shares of Dove Class A Common Stock were reserved for
issuance pursuant to Dove's 1999 Long-Term Incentive Plan (the "Dove Stock
Plan") (of which 8,405,507 shares of Dove Class A Common Stock are subject to
outstanding stock options or other rights to purchase or to receive Dove Class
A Common Stock granted under the Dove Stock Plan (collectively, "Dove Stock
Options")), and (ii) 1,065,000 shares of Dove Class A Common Stock were
reserved for issuance pursuant to 1,065,000 warrants issued and outstanding to
purchase Dove Common Stock (the "Dove Warrants").
2.3 Subsidiaries. Section 2.3 of the Target Disclosure Schedule sets forth a
true and complete list of each of Target's Subsidiaries as of the date hereof.
All the outstanding shares of capital stock of, or other equity interests in,
each Subsidiary of Target have been validly issued and are fully paid and
nonassessable and are owned directly or indirectly by Target, free and clear of
all Encumbrances. Other than the Dove Stock Options and Dove Warrants, there
are no options, warrants, convertible securities or other rights, agreements,
arrangements or commitments of any character relating to the capital stock of
any Subsidiary of Target or obligating any Subsidiary of Target to issue or
sell any shares of capital stock or, or any other interest in, such Subsidiary.
There are no outstanding contractual obligations on the part of any Subsidiary
of Target to repurchase, redeem or otherwise acquire any shares of its capital
stock or to provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in, any other Person. Except for the capital
stock or other ownership interests of its Subsidiaries, as of the date hereof,
Target does not beneficially own directly or indirectly any material capital
stock, membership interest, partnership interest, joint venture interest or
other material equity interest in any person.
2.4 Authority. Target has the requisite corporate power and corporate
authority to enter into this Agreement and to consummate the transactions
contemplated hereby, subject to the receipt of the Target Stockholder Approval.
The execution and delivery of this Agreement and the consummation of the
transactions
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contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of Target, subject to receipt of the Target
Stockholder Approval. This Agreement has been duly executed and delivered by
Target and, assuming the due authorization, execution and delivery by each of
the other parties hereto, constitutes the legal, valid and binding obligations
of Target, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at law or in
equity).
2.5 No Conflicts. The execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated hereby and compliance with
the provisions hereof will not, conflict with, or result in any violation of or
default under (with or without notice or lapse of time or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of a benefit under, or result in the creation of any Encumbrance upon any
of the properties or assets of Target or any of its Subsidiaries under (i) the
organizational documents of Target or any of its Subsidiaries, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise, license or similar authorization
applicable to Target or any of its Subsidiaries or their respective properties
or assets or (iii) subject to the governmental filings and other matters
referred to in Section 2.6, any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Target or any of its Subsidiaries
or their respective properties or assets, other than, in the case of clauses
(ii) and (iii), any such conflicts, violations, defaults, rights, losses or
Encumbrances that, individually or in the aggregate, are not reasonably likely
to (x) have a Material Adverse Effect on Target or (y) prevent or materially
delay the consummation of the transactions contemplated by this Agreement.
2.6 Consents; Approvals. No consent, approval, order or authorization of,
action by or in respect of, or registration, declaration or filing with, any
Governmental Authority is required by or with respect to Target or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
Target or the consummation by Target of the transactions contemplated by this
Agreement, except for (i) the filing of a premerger notification and report
form by Target under the HSR Act and any applicable filings and approvals under
similar foreign antitrust or competition laws and regulations; (ii) the filing
with the SEC of the Proxy Statement and such reports under Section 13(a),
13(d), 15(d) or 16(a) of the Exchange Act as may be required in connection with
this Agreement and the transactions contemplated by this Agreement; (iii) the
filing of: (A) the Certificate of Merger with the Delaware Secretary of State,
(B) appropriate documents with the relevant authorities of other states in
which Target is qualified to do business, and (C) such filings with
Governmental Authorities as are necessary to satisfy the applicable
requirements of state securities or "blue sky" laws; (iv) filings with and
approvals of the Federal Communications Commission (the "FCC") as required
under the Communications Act of 1934, as amended (the "Communications Act"),
and the rules and regulations promulgated thereunder; (v) filings with and
approvals of any state public utility commissions ("PUCs") or similar
regulatory bodies as required by applicable statutes, laws, rules, ordinances
and regulations; and (vi) such other consents, approvals, orders or
authorizations the failure of which to be made or obtained, individually or in
the aggregate, is not reasonably likely to (x) have a Material Adverse Effect
on Target or (y) prevent or materially delay the consummation of the
transactions contemplated by this Agreement.
2.7 SEC Documents; Undisclosed Liabilities. Target has filed all required
reports, schedules, forms, statements and other documents (including exhibits
and all other information incorporated therein) with the SEC since January 1,
1998, and Dove has filed all such reports since August 1, 1999 (collectively,
the "Target SEC Documents"). As of their respective dates, the Target SEC
Documents complied as to form in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Target SEC
Documents, and none of the Target SEC Documents when filed (or, if amended or
superseded by a filing prior to the date of this Agreement, as of the date of
such filing) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances
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under which they were made, not misleading. Except to the extent that
information contained in any Target SEC Document has been revised or superseded
by a later filed Target SEC Document, none of the Target SEC Documents contains
any untrue statement of a material fact or omits 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 financial statements included in the Target SEC Documents
comply as to form, as of their respective dates of filing with the SEC, in all
material respects with the applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto ("Accounting Rules"),
have been prepared in accordance with GAAP (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly present in all material respects the respective consolidated
financial position of Target and Dove and their respective consolidated
Subsidiaries as of the dates thereof and their respective consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal recurring year-end audit adjustments
and the absence of footnotes if applicable). Except (i) as reflected in the
Target Filed SEC Documents or (ii) for liabilities incurred in connection with
this Agreement or the transactions contemplated by this Agreement, neither
Target nor any of its Subsidiaries has any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) that would be
required to be disclosed on a balance sheet of Target and its consolidated
Subsidiaries or the footnotes thereto prepared in accordance with GAAP which,
individually or in the aggregate, are reasonably likely to have a Material
Adverse Effect on Target.
2.8 Information Supplied. None of the information supplied or to be supplied
by Target specifically for inclusion or incorporation by reference in (i) 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 or (ii) the Proxy Statement will, at the date it is
first mailed to the stockholders of Target or at the time of the Target
Stockholders Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. The Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the respective
rules and regulations promulgated thereunder. No representation or warranty is
made by Target with respect to statements made or incorporated by reference in
the Proxy Statement based on information supplied by Wildcat specifically for
inclusion or incorporation by reference in the Proxy Statement.
2.9 No Material Adverse Effect. Except for liabilities incurred in
connection with or expressly permitted by this Agreement, since June 30, 2000,
there has not been (1) any event, occurrence or development (other than those
relating to the economy or securities markets in general or the industries in
which Target and its Subsidiaries operate in general or resulting from the
announcement of this Agreement) which has resulted in or could reasonably be
expected to result in a Material Adverse Effect on Target, (2) any declaration,
setting aside or payment of any dividend or other distribution (whether in
cash, stock or property) with respect to any of Target's capital stock, except
for dividends or other distributions declared, set aside or paid by Target as
required by and in accordance with the respective terms of such capital stock
as of the date hereof, (3) any split, combination or reclassification of any of
Target'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
Target's capital stock and (4) (A) any granting by Target or any of its
Subsidiaries to any current or former director, executive officer or other
employee of Target or its Subsidiaries of any increase in compensation, bonus
or other benefits, except for increases in cash compensation and other non-
equity-based benefits in the ordinary course of business or as was required by
law or under any employment agreement in effect as of the date of the most
recent audited financial statements included in the Target Filed SEC Documents,
(B) any granting by Target or any of its Subsidiaries to any such current or
former director, executive officer or employee of any increase in severance or
termination pay, (C) any entry by Target or any of its Subsidiaries into, or
any amendments of, any employment, deferred compensation, consulting,
severance, termination or indemnification agreement with any such current or
former director, executive officer or employee or (D) any amendment to, or
modification of, any Target Stock Plans, Target Stock Options or Target
Warrants.
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2.10 Litigation. There is no suit, action, proceeding, claim, grievance or
investigation pending or, to the Knowledge of Target or any of its
Subsidiaries, threatened against or affecting Target or any of its Subsidiaries
that, individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on Target, nor is there any judgment, decree, injunction, rule
or order of any Governmental Authority or arbitrator outstanding against Target
or any of its Subsidiaries having, or that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Target. There
are no facts, circumstances or conditions that are reasonably likely to give
rise to any liability of, or form the basis of a claim against, Target or any
of its Subsidiaries under any applicable statutes, laws, ordinances, rules or
regulations, which liability or claim is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Target.
2.11 Voting Requirements. The affirmative vote (the "Target Stockholder
Approval") of (i) the holders of a majority of the voting power represented by
the outstanding shares of Target Common Stock and Target Series G Preferred
Stock, voting together as a single class, entitled to vote at the Target
Stockholders Meeting to adopt this Agreement and (ii) the holders of a majority
of the voting power represented by the outstanding shares of the Target Series
G Preferred Stock, voting as a separate class, entitled to vote at the Target
Stockholders Meeting to adopt this Agreement, are the only votes of the holders
of any class or series of Target's capital stock necessary to adopt this
Agreement and approve the Merger and the other transactions contemplated by
this Agreement. No other approval of the stockholders of Target is required
with respect to this Agreement, the Stockholders Agreement or the transactions
contemplated hereby or thereby.
2.12 Brokers. No broker, investment banker, financial advisor or other
person, other than Bear, Stearns & Co. Inc. and Credit Suisse First Boston
Corporation, the fees, commissions and expenses of each of which will be paid
by Target, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission, or the reimbursement of expenses, in connection with
the transactions contemplated by this Agreement, based upon arrangements made
by or on behalf of Target.
2.13 Opinion of Financial Advisor. Target has received the opinion of Bear,
Stearns & Co. Inc., dated the date of this Agreement, to the effect that, as of
such date, the Exchange Ratio is fair, from a financial point of view, to the
holders of Target Common Stock.
2.14 Approval of Boards of Directors. The Board of Directors of Target has
approved the terms of this Agreement, the Voting Agreement and the consummation
of the transactions contemplated by this Agreement and the Voting Agreement.
The Board of Directors of Dove has approved the Merger and the transactions
pursuant to which Wildcat and Merger Sub would become interested shareholders
under Section 203 under the DGCL. Such approvals represent all the action
necessary to ensure that the restrictions on "business combinations" (as
defined in such Section 203 of the DGCL) contained in Section 203 of the DGCL
do not apply to Wildcat or Merger Sub in respect of Target or Dove in
connection with the Merger and the other transactions contemplated by this
Agreement and the Voting Agreement. To the Knowledge of Target, no other state
takeover statute or similar statute or regulation is applicable to this
Agreement, the Voting Agreement, the Merger or the other transactions
contemplated by this Agreement and the Voting Agreement.
2.15 Compliance with Applicable Laws. Target and its Subsidiaries hold all
permits, licenses, variances, exemptions, orders, registrations and approvals
of all Governmental Authorities which are required for them to own, lease or
operate their assets and to carry on their businesses (the "Target Permits"),
except where the failure to hold any thereof is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Target. Target
and its Subsidiaries are in compliance with the terms of the Target Permits and
all applicable statutes, laws, ordinances, rules and regulations, except where
the failure so to comply is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Target.
2.16 Absence of Changes in Target Benefit Plans. Since June 30, 2000, there
has not been any adoption or amendment by Target or any of its Subsidiaries of
any employment agreement with any director, officer or employee of Target or
any of its Subsidiaries or of any collective bargaining agreement or any
adoption or amendment of any Target Benefit Plans which, in each case, are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Target.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF WILDCAT
Except as disclosed in the Wildcat SEC Documents filed and publicly
available prior to the date of this Agreement (the "Wildcat Filed SEC
Documents"), Wildcat represents and warrants to Target as follows:
3.1 Organization, Standing and Corporate Power. Each of Wildcat and its
Subsidiaries is a corporation or other legal entity duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
organized and has the requisite corporate or other power and authority, as the
case may be, to carry on its business as now being conducted. Each of Wildcat
and its Subsidiaries is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership, leasing or operation of its properties makes such qualification or
licensing necessary, except for those jurisdictions in which the failure to be
so qualified or licensed or to be in good standing, individually or in the
aggregate, is not reasonably likely to have a Material Adverse Effect on
Wildcat. Copies of Wildcat's Certificate of Incorporation and By-laws, in each
case as amended to and in effect on the date of this Agreement, have been filed
as exhibits to the Wildcat SEC Documents.
3.2 Capital Structure. The authorized capital stock of Wildcat consists of
5,000,000,000 shares of common stock, par value $.01 per share ("Wildcat Common
Stock"), of which 2,881,952,220 shares are issued and outstanding, and
50,000,000 shares of preferred stock, par value $.01 per share, of which
10,757,448 shares are issued or outstanding. As of the date hereof, there are
369,051,165 options, warrants, convertible securities or other rights,
agreements, arrangements or commitments of any character relating to the
capital stock of Wildcat or obligating Wildcat to issue or sell any shares of
capital stock of, or any other interest in, Wildcat. As of the date hereof,
there are 879,825 incentive stock units outstanding. As of the date hereof,
there are no outstanding contractual obligations of Wildcat to repurchase,
redeem or otherwise acquire any shares of capital stock of Wildcat. All of the
outstanding shares of capital stock of Wildcat are, and all such shares that
may be issued will be, when issued, duly authorized, validly issued, fully paid
and nonassessable.
3.3 Authority. Wildcat has the requisite corporate power and corporate
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of Wildcat. This
Agreement has been duly executed and delivered by Wildcat and, assuming the due
authorization, execution and delivery by each of the other parties hereto,
constitutes the legal, valid and binding obligations of Wildcat, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
3.4 No Conflicts. The execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated by this Agreement, and
compliance with the provisions hereof will not, conflict with, or result in any
violation of or default under (with or without notice or lapse of time or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under, or result in the creation of any
Encumbrance upon any of the properties or assets of Wildcat or any of its
Subsidiaries under (i) the organizational documents of Wildcat or any of its
Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise,
license or similar authorization applicable to Wildcat or any of its
Subsidiaries or their respective properties or assets or (iii) subject to the
governmental filings and other matters referred to in Section 3.6, any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Wildcat or any of its Subsidiaries or their respective properties or assets,
other than, in the case of clauses (ii) and (iii), any such conflicts,
violations, defaults, rights, losses or Encumbrances that, individually or in
the aggregate, are not reasonably likely to (x) have a Material Adverse Effect
on Wildcat or (y) prevent or materially delay the consummation of the
transactions contemplated by this Agreement.
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3.5 Consents; Approvals. No consent, approval, order or authorization of,
action by or in respect of, or registration, declaration or filing with, any
Governmental Authority is required by or with respect to Wildcat or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
Wildcat or the consummation by Wildcat of the transactions contemplated by this
Agreement, except for (i) the filing of a premerger notification and report
form by Wildcat under the HSR Act and any applicable filings and approvals
under similar foreign antitrust or competition laws and regulations; (ii) the
filing with the SEC of the Form S-4 and such reports under Section 13(a),
13(d), 15(d) or 16(a) of the Exchange Act as may be required in connection with
this Agreement and the transactions contemplated by this Agreement; (iii) the
filing of: (A) the Certificate of Merger with the Delaware Secretary of State,
(B) appropriate documents with the relevant authorities of other states in
which Wildcat is qualified to do business and (C) such filings with
Governmental Authorities as are necessary to satisfy the applicable
requirements of state securities or "blue sky" laws; (iv) filings with and
approvals of the FCC as required under the Communications Act, and the rules
and regulations promulgated thereunder; (v) filings with and approvals of any
PUCs or similar regulatory bodies as required by applicable statutes, laws,
rules, ordinances and regulations; (vi) filings with and approvals of the
Nasdaq National Market to permit the shares of Wildcat Common Stock issued as
Common Stock Merger Consideration to be listed for trading; and (vii) such
other consents, approvals, orders or authorizations the failure of which to be
made or obtained, individually or in the aggregate, is not reasonably likely to
(x) have a Material Adverse Effect on Wildcat or (y) prevent or materially
delay the consummation of the transactions contemplated by this Agreement.
3.6 SEC Documents; Undisclosed Liabilities. Wildcat has filed all required
reports, schedules, forms, statements and other documents (including exhibits
and all other information incorporated therein) with the SEC since January 1,
1998 (collectively, the "Wildcat SEC Documents"). As of their respective dates,
the Wildcat SEC Documents complied as to form in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
Wildcat SEC Documents, and none of the Wildcat SEC Documents when filed (or, if
amended or superseded by a filing prior to the date of this Agreement, as of
the date of such filing) contained any untrue statement of a material fact or
omitted to state a 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. Except to the extent that information contained
in any Wildcat SEC Document has been revised or superseded by a later filed
Wildcat SEC Document, none of the Wildcat SEC Documents contains any untrue
statement of a material fact or omits 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 financial
statements of Wildcat included in the Wildcat SEC Documents comply as to form,
as of their respective dates of filing with the SEC, in all material respects
with the Accounting Rules, have been prepared in accordance with GAAP (except,
in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects the
consolidated financial position of Wildcat and its consolidated Subsidiaries as
of the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal recurring year-end audit adjustments and the absence of footnotes if
applicable). Except (i) as reflected in the Wildcat Filed SEC Documents or (ii)
for liabilities incurred in connection with this Agreement or the transactions
contemplated by this Agreement, neither Wildcat nor any of its Subsidiaries has
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be disclosed on a balance
sheet of Wildcat and its consolidated Subsidiaries or the footnotes thereto
prepared in accordance with GAAP which individually or in the aggregate are
reasonably likely to have a Material Adverse Effect on Wildcat.
3.7 Information Supplied. None of the information supplied or to be supplied
by Wildcat specifically for inclusion or incorporation by reference in (i) 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 or (ii) the Proxy Statement will, at the date it is
first mailed to the stockholders of Target or at the time of the Target
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Stockholders Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. The Form S-4 and the Proxy Statement will comply as
to form in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, and the respective rules and regulations
promulgated thereunder. No representation or warranty is made by Wildcat with
respect to statements made or incorporated by reference in the Form S-4 and the
Proxy Statement based on information supplied by Target specifically for
inclusion or incorporation by reference in the Form S-4 or the Proxy Statement,
as the case may be.
3.8 Absence of Material Adverse Effect. Except for liabilities incurred in
connection with or expressly permitted by this Agreement, since June 30, 2000,
there has not been any event, occurrence or development (other than those
relating to the economy or securities markets in general or the industries in
which Wildcat and its Subsidiaries operate in general or resulting from the
announcement of this Agreement) which has resulted in or could reasonably be
expected to result in a Material Adverse Effect on Wildcat.
3.9 Litigation. There is no suit, action, proceeding, claim, grievance or
investigation pending or, to the Knowledge of Wildcat or any of its
Subsidiaries, threatened against or affecting Wildcat or any of its
Subsidiaries that, individually or in the aggregate, is reasonably likely to
have a Material Adverse Effect on Wildcat, nor is there any judgment, decree,
injunction, rule or order of any Governmental Authority or arbitrator
outstanding against Wildcat or any of its Subsidiaries having, or that is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Wildcat. There are no facts, circumstances or conditions that are
reasonably likely to give rise to any liability of, or form the basis of a
claim against, Wildcat or any of its Subsidiaries under any applicable
statutes, laws, ordinances, rules or regulations, which liability or claim is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Wildcat.
3.10 Brokers. No broker, investment banker, financial advisor or other
person, other than Chase Securities Inc., the fees, commissions and expenses of
which will be paid by Wildcat, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission, or the reimbursement of expenses,
in connection with the transactions contemplated by this Agreement, based upon
arrangements made by or on behalf of Wildcat.
3.11 Shares of Wildcat Common Stock and Wildcat Preferred Stock. At the
Effective Time, the shares of Wildcat Common Stock and Wildcat Preferred Stock
to be issued pursuant to the Merger will be duly authorized, validly issued,
fully paid and non-assessable and will be delivered free and clear of all
Encumbrances.
ARTICLE IV
COVENANTS
4.1 Conduct of Business by Target. Except as set forth in the Target
Disclosure Schedule, as contemplated by this Agreement or with the prior
written consent of Wildcat, which consent shall not be unreasonably withheld,
delayed or conditioned, from the date hereof to the Effective Time, (i) Target
shall, and shall cause its Subsidiaries (other than Dove) to, carry on their
respective businesses in the ordinary course consistent with past practice, and
(ii) Target, solely in its capacity as a stockholder of Dove, shall not vote
its shares of Dove in any meeting or by written consent, shall use its best
efforts to ensure that its representatives on Dove's Board of Directors not
vote or act by written consent (or, if such best efforts are insufficient, use
its best efforts to remove its representatives), to cause or permit Dove to
take any of the actions set forth in paragraphs (a)--(l) of this Section 4.1
relating to Target and its Subsidiaries. Without limiting the generality of the
foregoing, during the period from the date hereof to the Effective Time, except
as set forth in the Target Disclosure Schedule, as contemplated by this
Agreement or with the prior written consent of Wildcat, which consent shall not
be unreasonably withheld, delayed or conditioned, Target shall not, and shall
not permit any of its Subsidiaries (other than Dove) to:
(a) amend its certificate of incorporation or By-Laws;
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(b) authorize for issuance, issue, sell, deliver, grant any options for,
pledge, encumber, or otherwise agree or commit to issue, sell or
deliver any shares of any class of its capital stock or any securities
convertible into shares of any class of its capital stock, except (i)
for dividends and distributions declared, set aside or paid by Target
in accordance with the respective terms of its capital stock as of the
date hereof, (ii) pursuant to and in accordance with the present terms
of currently outstanding convertible securities, warrants and options
of Target, (iii) for the issuance of employee options to purchase
shares of (x) Target Common Stock in the ordinary course of business
in the aggregate not to exceed 750,000 shares in any calendar quarter
(net of option cancellations made during such quarter), and the
issuance of shares of Target Common Stock upon the exercise thereof
and (y) Dove Class A Common Stock in the ordinary course of business
in the aggregate not to exceed 500,000 shares in any calendar quarter
(net of option cancellations made during such quarter), and the
issuance of shares of Dove Class A Common Stock upon the exercise
thereof and (iv) pursuant to Section 4.25;
(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its
capital stock or purchase, redeem or otherwise acquire any shares of
its own capital stock or of any of its Subsidiaries, or any rights,
warrants or options to acquire any such shares except for (i) the
purchase from time to time by Target of Target Common Stock in the
ordinary course of business in connection with the cashless exercise
of options or the funding of employee incentive plans, profit sharing
plans or other benefit plans of Target, (ii) dividends and
distributions declared, set aside or paid by Target in accordance with
the respective terms of its capital stock as of the date hereof, and
(iii) dividends and distributions (including liquidating
distributions) by a direct or indirect Subsidiary of Target to its
parent;
(d) (i) create, incur, assume, maintain or permit to exist any debt for
borrowed money other than (A) under the Revolving Credit Agreement
among Target, Bank of America, N.A. and the other lenders named
therein, dated as of December 22, 1999 (the "Credit Facility"), in
accordance with its present terms in the ordinary course of business,
(B) intercompany indebtedness between Target and any of its wholly
owned Subsidiaries or between such wholly owned Subsidiaries and (C)
intercompany indebtedness between Target or any of its wholly owned
Subsidiaries, on the one hand, and Dove, on the other hand, to fund
operating expenses in the ordinary course of business consistent with
past practice; (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other Person except for Target pursuant to
the Credit Facility; or (iii) make any loans, advances or capital
contributions to, or investments in, any other Person (other than
advances to employees of Target and its Subsidiaries in the ordinary
course of business);
(e) (i) increase in any manner the cash compensation and other non-equity
based benefits of (x) any employee except in the ordinary course of
business consistent with past practice or (y) any of its directors or
executive officers; (ii) pay or agree to pay any pension, retirement
allowance or other employee benefit not required, or enter into or
agree to enter into any agreement or arrangement with any director or
officer or employee, whether past or present, relating to any such
pension, retirement allowance or other employee benefit, except as
required under currently existing agreements, plans or arrangements in
accordance with their present terms; (iii) grant any severance or
termination pay to, or enter into any employment or severance
agreement with, any director, executive officer or employee, except as
required under currently existing plans in accordance with their
present terms; or (iv) except as may be required to comply with
applicable law, become obligated under any new pension plan, welfare
plan, multiemployer plan, employee benefit plan, benefit arrangement,
or similar plan or arrangement, that was not in existence on the date
hereof, including any bonus, incentive, deferred compensation, stock
purchase, stock option, stock appreciation right, group insurance,
severance pay, retirement or other benefit plan, agreement or
arrangement, or employment or consulting agreement with or for the
benefit of any person, or amend, terminate or take any
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discretionary action with respect to any of such plans or any of such
agreements in existence on the date hereof; provided, however, that this
clause (iv) shall not prohibit Target or its Subsidiaries from renewing
any such plan, agreement or arrangement already in existence on terms no
more favorable to the parties to such plan, agreement or arrangement;
(f) authorize, recommend, propose or announce an intention to authorize,
recommend or propose, or enter into any agreement in principle or an
agreement with respect to, any plan of liquidation or dissolution, any
acquisition (including by merger, consolidation or otherwise) of
assets or securities (other than purchases of raw materials or
supplies in the ordinary course of business), any sale, transfer,
lease, license, Encumbrance, or other disposition of assets or
securities (other than (i) sales or licenses of finished goods and
services in the ordinary course of business, (ii) any Encumbrance
granted pursuant to the Credit Facility as in effect on the date of
this Agreement or (iii) pursuant to Section 4.25), or any release or
relinquishment of any material contract rights;
(g) authorize or commit to make capital expenditures for Target and its
Subsidiaries on a consolidated basis in excess of $165 million per
calendar quarter, with unused amounts being rolled over to succeeding
quarters;
(h) make any change in the accounting methods or accounting practices
followed by Target;
(i) settle any action, suit, claim, investigation or proceeding (legal,
administrative or arbitrative) in excess of $5,000,000 in the
aggregate for all such matters above the amount of any specific
reserves included in Target's financial statements;
(j) enter into, amend or expand any agreement with any backbone network
provider relating to the use by Target or any of its Subsidiaries of
any backbone network other than Wildcat's network, except after
offering Wildcat a reasonable opportunity to timely provide Target
with adequate backbone network capacity on market terms (including
pricing and timely provisioning of access to Target's points-of-
presence);
(k) make any election under the Code which, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on
Target or settle or compromise any material tax liability; or
(l) agree to do any of the foregoing.
4.2 Intentionally Omitted.
4.3 No Solicitation. (a) From the date hereof to the Effective Time, Target
shall not, nor shall it permit any of its Subsidiaries to, nor shall it
authorize any of its directors, officers or employees or any investment
banker, financial advisor, attorney, accountant or other representative
retained by it to, directly or indirectly through another Person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take
any other action designed to facilitate, the making of any proposal that
constitutes a Takeover Proposal, or (ii) participate in any discussions or
negotiations regarding any Takeover Proposal. Target shall immediately cease
and cause to be terminated all existing discussions or negotiations with any
parties conducted heretofore with respect to any Takeover Proposal and request
the prompt return or destruction of all confidential information previously
furnished. Target shall not release any third party from, or waive any
provision of, any confidentiality or standstill agreement to which Target is a
party. Notwithstanding the foregoing, if prior to the date the Target
Stockholder Approval is obtained, Target receives a Takeover Proposal, Target
may, to the extent the Board of Directors of Target determines in good faith
that there is a reasonable likelihood that such Takeover Proposal would
constitute a Superior Proposal, participate in discussions or negotiations
with, or provide information to, any Person in response to such Takeover
Proposal. In such event, Target shall (i) prior to participating in any such
discussions or negotiations or providing any information, inform Wildcat of
the material terms and conditions of such Takeover Proposal, including the
identity of the Person making such Takeover Proposal, and (ii) keep Wildcat
reasonably informed of the status of any such Takeover Proposal. For purposes
of this Agreement, "Takeover Proposal" means any bona fide proposal or offer
from any Person relating to any direct or indirect acquisition or purchase of
a business that constitutes 35% or more of the net
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revenues, net income or the assets of Target and its Subsidiaries, taken as a
whole, or 35% or more of the voting power of Target or any of its Subsidiaries,
any tender offer or exchange offer that if consummated would result in any
Person beneficially owning 35% or more of the voting power of Target or any of
its Subsidiaries, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Target or any of its Subsidiaries pursuant to which any third party or the
shareholders of any third party would own 35% or more of the voting power of
Target or any resulting parent company of Target, other than the transactions
contemplated by this Agreement. For purposes of this Agreement, "Superior
Proposal" means any Takeover Proposal which the Board of Directors of Target
determines in good faith (based on the advice of a financial advisor), taking
into account the estimated time required to consummate the offer, the Person
making the offer and the legal, financial, regulatory and other aspects of the
offer deemed appropriate by the Board of Directors of Target, is reasonably
capable of being completed, and if consummated, would result in a transaction
that provides consideration to the holders of Target Common Stock with a
greater value than the consideration payable in the Merger.
(b) Neither the Board of Directors of Target nor any committee thereof
shall (i) except, prior to the date the Target Stockholder Approval is
obtained, to the extent the Board of Directors of Target determines in
good faith (after consultation with outside counsel) that such action
would be prudent to assure compliance with their fiduciary
obligations, and subject to providing three business days' prior
written notice to Wildcat, (x) withdraw or modify, or propose publicly
to withdraw or modify, in a manner adverse to Wildcat, the approval or
recommendation by such Board of Directors or such committee of the
Merger or this Agreement or (y) approve or recommend, or propose
publicly to approve or recommend, any Takeover Proposal, or (ii) cause
Target to enter into any acquisition agreement or other similar
agreement (an "Acquisition Agreement") related to any Takeover
Proposal.
(c) In addition to the obligations of Target set forth in paragraphs (a)
and (b) of this Section 4.3, Target shall immediately advise Wildcat
orally and in writing of any request for information or of any
Takeover Proposal, the material terms and conditions of such request
or Takeover Proposal and the identity of the person making such
request or Takeover Proposal. Target will keep Wildcat informed of the
status and details (including amendments or proposed amendments) of
any such request or Takeover Proposal.
(d) Nothing contained in this Section 4.3 shall prohibit Target 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 Target's stockholders if, in the good faith judgment
of the Board of Directors of Target, after consultation with outside
counsel, failure so to disclose would be inconsistent with its
obligations under applicable law; provided, however, that neither
Target nor its Board of Directors nor any committee thereof shall
withdraw or modify, or propose publicly to withdraw or modify, its
position with respect to this Agreement or the Merger or approve or
recommend, or propose publicly to approve or recommend, a Takeover
Proposal.
4.4 Compliance with Conditions Precedent, Etc. Each of the parties will use
its best efforts to cause the conditions precedent to the Merger set forth in
Article V to be fulfilled and, subject to the terms and conditions herein
provided, to take, or cause to be taken, all action, and to do or cause to be
done all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement and the Merger, including to lift any injunction or remove any
other impediment to the consummation of such transactions or the Merger. In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers
and/or directors of the parties hereto shall take all such necessary action.
Nothing in this Agreement shall be deemed to require Wildcat or Target to agree
to, or proffer to, divest or hold separate (x) any assets or any portion of any
business of Target or any of its Subsidiaries if the Board of Directors of
Wildcat determines that so doing could reasonably be expected to have a
Material Adverse Effect on Target, (y) any assets or any portion of any
business of Wildcat or any of its Subsidiaries or (z) any assets of or any
portion of Target's
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ownership interests in Dove. Without limiting the generality of the foregoing,
Target shall give Wildcat the opportunity to participate in the defense of any
litigation against Target and/or its directors relating to the transactions
contemplated by this Agreement or the Voting Agreement.
4.5 Certain Notifications. At all times from the date hereof until the
Effective Time, each party shall promptly notify the others in writing of the
occurrence of any event which will or may result in the failure to satisfy the
conditions specified in Article V.
4.6 Expenses. (a) Except as set forth in this Section 4.6, whether or not
the Merger is consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense.
(b) In the event that (i) following the date of this Agreement and prior
to the date of the Target Stockholders Meeting, a Takeover Proposal
shall have been made to Target or shall have been made directly to the
stockholders of Target generally or shall have otherwise become
publicly known or any Person shall have publicly announced an
intention (whether or not conditional) to make a Takeover Proposal and
thereafter this Agreement is terminated by either Wildcat or Target
pursuant to Section 6.1(d) without a Target Stockholders Meeting
having occurred or Section 6.1(e), or (ii) this Agreement is
terminated by Wildcat pursuant to Section 6.1(g), then Target shall
pay Wildcat a termination fee equal to $135 million (the "Termination
Fee"), payable by wire transfer of same-day funds within two business
days of the date of such termination; provided, however, that no
Termination Fee shall be payable to Wildcat pursuant to clause (i) of
this paragraph (b) unless and until within 12 months of such
termination Target enters into any Acquisition Agreement with respect
to, or consummates, any Takeover Proposal, in which event the
Termination Fee shall be payable upon the first to occur of the
entering into such Acquisition Agreement or the consummation of such
Takeover Proposal.
(c) All stock transfer, real estate transfer, documentary, stamp,
recording and other similar taxes (including interest, penalties and
additions to any such taxes) incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by
Target.
4.7 Public Announcements. Wildcat and Target shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement or any transaction contemplated herein and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with
the Nasdaq National Market or any exchange upon which the capital stock of
Wildcat is listed.
4.8 Preparation of the Form S-4 and Proxy Statement; Stockholders
Meetings. (a) As soon as practicable following the date of this Agreement,
Wildcat and Target shall prepare and file with the SEC the Proxy Statement, and
Wildcat shall prepare and file with the SEC the Form S-4, in which the Proxy
Statement, will be included as a prospectus. Each of Target and Wildcat shall
use reasonable efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing and to keep the
Form S-4 effective for so long as necessary to complete the Merger. Target will
use all reasonable efforts to cause the Proxy Statement to be mailed to
Target's stockholders as promptly as practicable after the Form S-4 is declared
effective under the Securities Act. Wildcat shall take any action (other than
qualifying to do business in any jurisdiction in which it is not now so
qualified or to file a general consent to service of process) required to be
taken under any applicable state securities laws in connection with the
issuance of Wildcat Common Stock and Wildcat Preferred Stock (including the
issuance by Wildcat of depositary shares with respect thereto) in the Merger,
and Target shall furnish all information concerning Target as may be reasonably
requested in connection with any such action. No filing of, or amendment or
supplement to, or correspondence to the SEC or its staff with respect to the
Form S-4 will be made by Wildcat, or with respect to the Proxy Statement will
be made by Wildcat or Target, without providing the other party a reasonable
opportunity to review and comment thereon. Wildcat will advise Target, promptly
after it receives notice thereof, of the time when the
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Form S-4 has become effective or any supplement or amendment thereto has been
filed, the issuance of any stop order, the suspension of the qualification of
the Wildcat Common Stock or Wildcat Preferred Stock issuable or issued in
connection with the Merger for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Form S-4 or the Proxy Statement or
comments thereon and responses thereto or requests by the SEC for additional
information and will, as promptly as practicable, provide to Target copies of
all correspondence and filings with the SEC with respect to the Form S-4.
Target will inform Wildcat, promptly after it receives notice thereof, of any
request by the SEC for the amendment of the Proxy Statement or comments thereon
and responses thereto or requests by the SEC for additional information and
will, as promptly as practicable, provide to Wildcat copies of all
correspondence and filings with the SEC with respect to the Proxy Statement. If
at any time prior to the Effective Time any information relating to Target or
Wildcat, or any of their respective Affiliates, directors or officers, should
be discovered by Target or Wildcat that should be set forth in an amendment or
supplement to the Form S-4 or the Proxy Statement, so that any of such
documents would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, the party that
discovers such information shall promptly notify the other parties hereto, and
an appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the shareholders of Wildcat and Target.
(b) Target shall (i) as soon as practicable following the date of this
Agreement, establish a record date (which shall be as soon as
practicable following the date of this Agreement) for, duly call, give
notice of, convene and hold a meeting of its stockholders (the "Target
Stockholders Meeting") for the purpose of obtaining the Target
Stockholder Approval, (ii) through its Board of Directors, recommend
to its stockholders the approval and adoption of this Agreement, the
Merger and the other transactions contemplated hereby and (iii) use
its reasonable efforts to solicit the Target Stockholder Approval.
Target agrees that its obligations pursuant to clause (i) of the first
sentence of this Section 4.8(b) shall not be affected by the
commencement, public proposal, public disclosure or communication to
Target of any Takeover Proposal, and such obligations shall not be
affected by any action that Target takes under Section 4.3(b).
4.9 Letters of Target's Accountants. Target shall use reasonable efforts to
cause to be delivered to Wildcat two letters from Target's independent
accountants, one dated a date within two business days before the date on which
the Form S-4 shall become effective and one dated a date within two business
days before the Effective Date, each addressed to Wildcat, in form and
substance reasonably satisfactory to Wildcat and customary in scope and
substance for comfort letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4.
4.10 Letters of Wildcat's Accountants. Wildcat shall use reasonable efforts
to cause to be delivered to Target two letters from Wildcat's independent
accountants, one dated a date within two Business Days before the date on which
the Form S-4 shall become effective and one dated a date within two Business
Days before the Effective Date, each addressed to Target, in form and substance
reasonably satisfactory to Target and customary in scope and substance for
comfort letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
4.11 HSR and Other Filings. Target and Wildcat shall promptly make their
respective filings and any other required or requested submissions under the
HSR Act and shall cooperate with one another and use their best efforts, as
required by and subject to Section 4.4, to determine whether, in connection
with the consummation of the transactions contemplated by this Agreement, any
other filings are required to be made with, or any consents are required to be
obtained from, any third party or any Governmental Authority prior to the
Effective Time and to make any such filings promptly and to obtain any such
consents on a timely basis.
4.12 Access to Information; Confidentiality. Subject to the existing
confidentiality agreement dated as of August 3, 2000 (the "Confidentiality
Agreement"), among Target, Dove and Wildcat, upon reasonable notice, each of
Target and Wildcat shall, and shall cause each of its respective Subsidiaries
to, afford to the
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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 their respective properties, books, contracts, commitments, personnel and
records and, during such period, each of Target and Wildcat shall, and shall
cause each of its respective Subsidiaries to, furnish promptly to the other
party all other information concerning its business, properties and personnel
as such other party may reasonably request. Neither Target nor Wildcat shall be
required to provide access to or disclose information where such access or
disclosure would contravene any applicable law, rule, regulation, order or
decree or would, with respect to any pending matter, result in a waiver of the
attorney-client privilege or the protection afforded attorney work-product.
Target and Wildcat shall use reasonable efforts to obtain from third parties
any consents or waivers of confidentiality restrictions with respect to any
such information being provided by it. No review pursuant to this Section 4.12
shall have an effect for the purpose of determining the accuracy of any
representation or warranty given by any party hereto to the other parties
hereto. Each of Target and Wildcat will hold, and will cause its respective
officers, employees, accountants, counsel, financial advisors and other
representatives and Affiliates to hold, any nonpublic information in accordance
with the terms of the Confidentiality Agreement.
4.13 Indemnification, Exculpation and Insurance. (a) Wildcat agrees that all
rights to indemnification and exculpation from liabilities for acts or
omissions occurring at or prior to the Effective Time (and rights for
advancement of expenses) now existing in favor of the current or former
directors or officers of Target or its Subsidiaries as provided in their
respective certificate of incorporation or by-laws (or comparable
organizational documents) and any indemnification or other agreements of Target
or its Subsidiaries as in effect on the date hereof shall be assumed by
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 Wildcat 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 its
properties and assets to any Person, then, and in each such case,
Wildcat shall cause proper provision to be made so that its successors
and assigns assume the obligations set forth in this Section 4.13.
(c) For six years from and after the Effective Time, Wildcat shall cause
the Surviving Corporation to maintain in effect directors' and
officers' liability insurance covering acts or omissions occurring
prior to the Effective Time covering each person currently covered by
the directors' and officers' liability insurance policy maintained by
Target or any Affiliate of Target on behalf of Target and its
Subsidiaries on terms with respect to such coverage and amounts no
less favorable than those of such policy in effect on the date hereof;
provided that the Surviving Corporation may substitute therefor other
policies of at least the same coverage and amount and such other terms
which are, in the aggregate, no less favorable to such directors and
officers; provided, however, that in no event shall the Surviving
Corporation be required to pay aggregate premiums for insurance under
this Section 5.08(c) in excess of 200% of the amount of the aggregate
premiums paid by Target in 1999 for such purpose (which 1999 aggregate
premiums Target represents and warrants to be $372,500); and provided
further that the Surviving Corporation shall nevertheless be obligated
to provide such coverage as may be obtained for such 200% amount.
(d) The provisions of this Section 4.13 are (i) intended to be for the
benefit of, and will be enforceable by, each party currently covered
by such insurance or such indemnification agreements or provisions,
his or her heirs and his or her representatives and (ii) are in
addition to, and not in substitution for, any other rights to
indemnification or contribution that any such person may have by
contract or otherwise.
4.14 Stock Exchange Listings. Wildcat shall use reasonable efforts to cause
the Wildcat Common Stock issuable in the Merger and issuable upon conversion
and as dividends on the Wildcat Preferred Stock to be approved for listing on
the Nasdaq National Market, subject to official notice of issuance, as promptly
as practicable after the date hereof, and in any event prior to the Effective
Date.
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4.15 Tax Treatment. Each of Wildcat and Target shall use reasonable best
efforts to cause the Merger to qualify as a reorganization under the provisions
of Section 368 of the Code.
4.16 Target Series B Preferred Stock. Prior to the Effective Time, Target
shall cause the Certificate of Designation for the Target Series B Preferred
Stock to be amended to provide that each share of Target Series B Preferred
Stock shall be entitled to one-tenth of one vote per share on all matters,
voting together with the Target Common Stock and the other classes of Target
voting securities as a single class.
4.17 Target Stock Options and Warrants. (a) As soon as practicable following
the date of this Agreement, the Board of Directors of Target (or, if
appropriate, any committee administering Target Stock 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 Target Stock Options, whether
vested or unvested, as necessary to provide that, at the Effective
Time, each Target Stock Option outstanding immediately prior to the
Effective Time shall be amended and converted into an option to
acquire, on the same terms and conditions as were applicable under the
Target Stock Option, the number of shares of Wildcat Common Stock
(rounded up to the nearest whole share) determined by multiplying the
number of shares of Target Common Stock subject to such Target Stock
Option by the Exchange Ratio (assuming, for this purpose, that Wildcat
failed to make the Wildcat Cash Election), at a price per share of
Wildcat Common Stock equal to (A) the aggregate exercise price for the
shares of Target Common Stock otherwise purchasable pursuant to such
Target Stock Option divided by (B) the aggregate number of shares of
Wildcat Common Stock deemed purchasable pursuant to such Target Stock
Option (each, as so adjusted, an "Adjusted Option"); provided that
such exercise price shall be rounded down to the nearest whole cent;
and
(ii) make such other changes to the Target Stock Plans as Wildcat and
Target may agree are appropriate to give effect to the Merger.
(b) The adjustments provided herein with respect to any Target 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) At the Effective Time, by virtue of the Merger and without the
need of any further corporate action, each Target Stock Option
outstanding at the Effective Time shall be converted into an
option relating to Wildcat Common Stock following the Effective
Time so as to substitute Wildcat Common Stock for Target Common
Stock purchasable thereunder (subject to the adjustments required
by this Section 4.17 after giving effect to the Merger).
(d) As soon as practicable following the Effective Time, Wildcat shall
prepare and file with the SEC a registration statement on Form S-8
(or another appropriate form) registering a number of shares of
Wildcat 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
Target Stock Plans after the Effective Time may remain
outstanding.
(e) As soon as practicable following the Effective Time, Wildcat shall
deliver to the holders of Target Stock Options appropriate notices
setting forth such holders' rights pursuant to the respective
Target Stock Plans and the agreements evidencing the grants of
such Target Stock Options and that such Target Stock Options and
agreements shall be assumed by Wildcat and shall continue in
effect on the same terms and conditions (subject to the
adjustments required by this Section 4.17 after giving effect to
the Merger and to vesting, if any, caused by the Merger).
(f) Except as otherwise expressly provided in this Section 4.17 and
except to the extent required under the respective terms of Target
Stock Options, all restrictions or limitations on transfer and
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vesting with respect to Target Stock Options awarded under Target
Stock Plans or any other plan, program or arrangement of Target 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
Wildcat as set forth above.
(g) At the Effective Time, by virtue of the Merger and without the
need for any further corporate action, each Target Warrant
outstanding immediately prior to the Effective Time shall be
automatically converted into an option or warrant to acquire, on
the same terms and conditions, including registration rights, as
were applicable under such Target Warrant, the number of shares of
Wildcat Common Stock (rounded up to the nearest whole share)
determined by multiplying the number of shares of Target Common
Stock subject to such Target Warrant by the Exchange Ratio
(assuming, for this purpose, that Wildcat failed to make the
Wildcat Cash Election), at a price per share of Wildcat Common
Stock equal to (A) the aggregate exercise price for shares of
Target Common Stock otherwise purchasable pursuant to such Target
Warrant divided by (B) the aggregate number of shares of Wildcat
Common Stock deemed purchasable pursuant to such Target Warrant;
provided, however, that such exercise price shall be rounded down
to the nearest whole cent.
4.18 Employee Benefit Plans; Existing Agreements. (a) For the six-month
period following the Effective Date, Wildcat shall cause the Surviving
Corporation to either maintain the employee benefit programs (other than
equity-based arrangements) provided by Target and its Subsidiaries before the
Effective Time or replace all or any such programs with programs maintained for
similarly situated employees of Wildcat; provided that the aggregate level of
benefits (other than equity-based arrangements) provided to Target employees
during this period shall be substantially similar to the aggregate level of
benefits (other than equity-based arrangements) provided by Target and its
Subsidiaries before the Effective Time. To the extent that any employee benefit
plan of Wildcat or any of its Affiliates (a "Wildcat Plan") becomes applicable
to any employee or former employee of Target or its Subsidiaries, Wildcat shall
grant, or cause to be granted, to such employees or former employees credit for
their service with Target and its Subsidiaries (and any of their predecessors)
for the purpose of determining eligibility to participate and nonforfeitability
of benefits under such Wildcat Plan and for purposes of benefit accrual under
vacation and severance pay plans (but only to the extent such service was
credited under similar plans of Target and its Subsidiaries).
(b) With respect to any Wildcat Plan that is a welfare benefit plan and is
made available to individuals who immediately prior to the Effective
Time were employees of Target or any of its Subsidiaries (a "Wildcat
Welfare Plan"), Wildcat shall cause the Surviving Corporation to (i)
waive any waiting periods, pre-existing condition exclusions and
actively-at-work requirements to the extent such provisions were
inapplicable immediately before such Wildcat Welfare Plan was so made
available and (ii) provide that any eligible expenses incurred by any
such individual and his or her covered dependents during the portion
of the plan year of the corresponding Target Benefit Plan ending on
the date such plan was made available shall be taken into account for
purposes of satisfying applicable deductible, co-insurance and maximum
out-of-pocket requirements applicable to such individual and his or
her covered dependents for the applicable plan year as if such amounts
had been paid in accordance with such Wildcat Welfare Plan.
(c) Subject to compliance by Wildcat with its obligations under Sections
4.18(a) and 4.18(b), nothing contained in this Section 4.18 or
elsewhere in this Agreement shall be construed to prevent the
termination of employment of any individual employee of Target and its
Subsidiaries or any change in the employee benefits available to any
such individual employee or the amendment or termination of any
particular Target Benefit Plan to the extent permitted by its terms as
in effect immediately prior to the Effective Time.
4.19 Section 16 Matters. Prior to the Effective Time, Wildcat and Target
shall take all such steps as may be required to cause any dispositions of
Target Common Stock or Target Preferred Stock (including
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derivative securities with respect to Target Common Stock or Target Preferred
Stock) or acquisitions of Wildcat Common Stock or Wildcat Preferred Stock
(including derivative securities with respect to Wildcat Common Stock or
Wildcat Preferred Stock) resulting from the transactions contemplated by
Article I and Section 4.17 of this Agreement by each Person who is subject to
the reporting requirements of Section 16(a) of the Exchange Act with respect to
Target, to be exempt under Rule 16b-3 promulgated under the Exchange Act.
4.20 Voting Agreement Legend. Target will inscribe upon any certificate
representing shares of capital stock subject to the Voting Agreement tendered
by a stockholder in connection with any proposed transfer of such shares by
such stockholder in accordance with the terms of the Voting Agreement, the
following legend: "THE SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF
INTERMEDIA COMMUNICATIONS INC., REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A VOTING AGREEMENT DATED AS OF SEPTEMBER 1, 2000, AND ARE SUBJECT TO THE TERMS
THEREOF. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT THE PRINCIPAL EXECUTIVE
OFFICES OF INTERMEDIA COMMUNICATIONS INC."; and Target will return such
certificate containing such inscription to such Stockholder within three
business days following Target's receipt thereof.
4.21 Target Rights Agreement. The Board of Directors of Target shall take
all action necessary or desirable (including redeeming the Target Rights
immediately prior to the Effective Time or amending the Target Rights
Agreement) in order to render the Target Rights inapplicable to the Merger and
to the other transactions contemplated by this Agreement and the Voting
Agreement to the extent provided herein.
4.22 Target Securities. Following the Effective Time, Wildcat shall comply
with the applicable terms of the Credit Facility, the outstanding indentures
and the certificates of designation of Target and its Subsidiaries, including
the applicable provisions thereof relating to a "change of control".
4.23 Prepayment of Indebtedness. Target shall provide Wildcat with
reasonable advance notice of, and shall consult with Wildcat regarding, its
intention to prepay any notes, bonds, loans or similar indebtedness.
4.24 Dove Certificate of Incorporation. The Board of Directors of Dove shall
propose that the Certificate of Incorporation of Dove be amended to include a
provision prohibiting Dove from entering into a material transaction with any
of its affiliates, including transactions that would have been covered by
Section 203 of the DGCL had the approval under such section not been granted as
described in Section 2.14 of this Agreement, unless such transaction is
approved by a special committee of its independent directors. Pending the
adoption of such amendment, the Surviving Corporation shall use its best
efforts to cause the Board of Directors of Dove to give effect to such
amendment as though it had been adopted.
4.25 Wildcat Financing Commitments. Wildcat shall provide financing to
Target in the form of equity or subordinated indebtedness upon terms and
conditions to be agreed upon by Wildcat and Target which shall constitute
unrestricted funds for purposes of Target's debt instruments. Such financing
shall be in an aggregate amount not to exceed (a) during September 2000, $40
million; or (b) during any calendar quarter following September 2000, $110
million; provided, however, that Wildcat shall not be required to advance such
financing unless Target is unable to meet its monthly cash requirements to fund
its operating expenses and working capital after using all unrestricted cash
available to Target, including amounts available under the Credit Facility (in
accordance with the terms of Target's outstanding debt instruments). The
parties also acknowledge that Target may use available cash and borrowing under
the Credit Facility as restricted funds for purposes of Target's debt
instruments in an amount up to $60 million during September 2000 and in an
amount up to $140 million during any calendar quarter thereafter.
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ARTICLE V
CONDITIONS
5.1 Conditions to the Merger. The obligations of each party to effect the
Merger and carry out its respective obligations hereunder shall be subject to
the satisfaction, at or prior to the Effective Time, of each of the following
conditions:
(a) all notifications required pursuant to the HSR Act to carry out the
transactions contemplated by this Agreement shall have been made, and
the applicable waiting period and any extensions thereof shall have
expired or been terminated;
(b) no preliminary or permanent injunction or other order of any
Governmental Authority shall have been issued and be in effect, and no
United States Federal or state statute, rule or regulation shall have
been enacted or promulgated after the date hereof and be in effect
that prohibits the consummation of the Merger;
(c) there shall not be pending any action, suit or proceeding commenced by
any Governmental Authority in the United States prohibiting the
consummation of the Merger;
(d) the Form S-4 shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a
stop order;
(e) the shares of Wildcat Common Stock issuable as Merger Consideration
shall have been approved for listing on the Nasdaq National Market,
subject only to official notice of issuance;
(f) (i) all material consents, approvals or orders of authorization of, or
actions by the FCC, and (ii) all material PUC approvals required to
consummate the Merger and the other transactions contemplated hereby,
the failure of which to be obtained, individually or in the aggregate,
are reasonably likely to have a Material Adverse Effect on Target,
shall have been obtained; and
(g) the Target Stockholder Approval shall have been obtained.
5.2 Additional Conditions to the Obligations of Target. The obligations of
Target to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment or waiver, at or prior to the Effective Time, of
each of the following conditions:
(a) The representations and warranties of Wildcat contained in this
Agreement that are qualified as to materiality shall be true and
correct, and those that are not so qualified shall be true and correct
in all material respects, in each case as of the Effective Time, with
the same effect as if made as of the Effective Time (except to the
extent expressly made as of an earlier date, in which case as of such
date), and all the covenants contained in this Agreement to be
complied with by Wildcat on or before the Effective Time shall have
been complied with in all material respects, and Target shall have
received a certificate of Wildcat to such effect signed by a duly
authorized officer of Wildcat.
(b) Target shall have received an opinion from its counsel stating that
the Merger will be treated for U.S. Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and
that Wildcat, Target and Merger Sub will each be a party to that
reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, counsel for Target shall be entitled to rely
upon customary representations of officers of Wildcat and Target.
5.3 Additional Conditions to the Obligations of Wildcat and Merger Sub. The
obligations of Wildcat and Merger Sub to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment or waiver,
at or prior to the Effective Time, of the following condition:
The representations and warranties of Target contained in this Agreement
that are qualified as to materiality shall be true and correct, and those that
are not so qualified shall be true and correct in all material respects, in
each case as of the Effective Time, with the same effect as if made as of the
Effective Time (except to the extent expressly made as of an earlier date, in
which case as of such date), and all the covenants
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contained in this Agreement to be complied with by Target on or before the
Effective Time shall have been complied with in all material respects, and
Wildcat shall have received a certificate of Target to such effect signed by a
duly authorized officer of Target.
5.4 Frustration of Closing Conditions. Neither Wildcat, Merger Sub nor
Target may rely on the failure of any condition set forth in this Article V to
be satisfied if such failure was caused by such party's failure to use its best
efforts to consummate the Merger and the other transactions contemplated by
this Agreement, as required by and subject to Section 4.4.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
6.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after receipt of the Target Stockholder
Approval:
(a) by consent of the Boards of Directors of Wildcat and Target;
(b) by Wildcat upon written notice to Target, if Target shall have
materially breached or failed to perform in any material respect any of its
representations, warranties, covenants or other agreements or conditions of
this Agreement, which breach shall not have been cured on or before the
Termination Date;
(c) by Target upon written notice to Wildcat, if Wildcat shall have
materially breached or failed to perform in any material respect any of its
representations, warranties, covenants or other agreements or conditions of
this Agreement, which breach shall not have been cured on or before the
Termination Date;
(d) by Target or Wildcat upon notice to the other, if (i) the Merger
shall not have become effective on or before June 30, 2001 (the "Termination
Date"), unless such date is extended by the consent of the Boards of Directors
of Target and Wildcat evidenced by appropriate resolutions; provided, however,
that the right to terminate this Agreement under this Section 6.1(d) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date;
(e) by Target or Wildcat, if the Target Stockholder Approval shall not
have been obtained at the Target Stockholders Meeting duly convened therefor or
at any adjournment or postponement thereof;
(f) by Target or Wildcat, if any injunction, order, statute, rule or
regulation having the effects set forth in Section 5.1(b) shall be in effect
and shall have become final and nonappealable; provided that the party seeking
to terminate this Agreement pursuant to this Section 6.1(f) shall have used
reasonable efforts to prevent the entry of and to remove such injunction,
order, statute, rule or regulation; or
(g) by Wildcat, if the Board of Directors of Target or any committee
thereof shall (i) withdraw or modify, or propose publicly to withdraw or
modify, in a manner adverse to Wildcat, the approval or recommendation by such
Board of Directors or such committee of the Merger or this Agreement, or (ii)
approve or recommend, or propose publicly to approve or recommend, any Takeover
Proposal.
6.2 Effect of Termination. In the event of the termination of this Agreement
pursuant to the provisions of Section 6.1, the provisions of this Agreement
(other than Section 4.6, the last sentence of Section 4.12 and this Section 6.2
hereof) shall become void and have no effect, with no liability on the part of
any party hereto or its stockholders or directors or officers in respect
thereof; provided that nothing contained herein shall be deemed to relieve any
party of any liability it may have to any other party with respect to a willful
breach of its obligations under this Agreement.
6.3 Amendment. This Agreement may be amended by the parties at any time
before or after the Target Stockholder Approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of all of the
parties.
6.4 Waiver. Any term or provision of this Agreement (other than the
requirements set forth in Sections 6.1(a) and 6.1(f)) may be waived in writing
at any time by the party or parties entitled to the benefits thereof.
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ARTICLE VII
DEFINITIONS; INTERPRETATION
7.1 Definitions. As used in this Agreement, the following terms have the
following respective meanings:
Accounting Rules: as defined in Section 2.7.
Acquisition Agreement: as defined in section 4.3(a).
Adjusted Option: as defined in Section 4.17(a).
Affiliate: with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified Person, where
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management policies of a Person, whether through
the ownership of voting securities, by contract, as trustee or executor, or
otherwise.
Agreement: as defined in the first paragraph of this Agreement.
Appraisal Shares: as defined in Section 1.6(e).
Average Price: as defined in Section 1.6(a).
Certificate of Merger: as defined in Section 1.5.
Certificates: as defined in Section 1.9(b).
Closing Price: with respect to one share of Wildcat Common Stock, for any
day, the last reported sale price regular way or, in case no such reported sale
takes place on such day, the average of the closing bid and asked prices
regular way for such day, in each case (i) on the principal national securities
exchange on which the shares of Wildcat Common Stock are listed or to which
such shares are admitted to trading, (ii) if the Wildcat Common Stock is not
listed or admitted to trading on a national securities exchange, in the over-
the-counter market as reported by the Nasdaq Market or any comparable system or
(iii) if the Wildcat Common Stock is not listed on the Nasdaq Market or a
comparable system, as furnished by two members of the National Association of
Securities Dealers selected from time to time in good faith by the Board of
Directors of Wildcat for that purpose. In the absence of all of the foregoing,
or if for any other reason the Closing Price cannot be determined pursuant to
the provisions of the preceding sentence, the Closing Price shall be the fair
market value thereof as determined in good faith by the Board of Directors of
Wildcat.
Code: as defined in the recitals.
Common Stock Merger Consideration: as defined in Section 1.6(a).
Communications Act: as defined in Section 2.6.
Confidentiality Agreement: as defined in Section 4.12.
Credit Facility: as defined in Section 4.1(d).
DGCL: as defined in Section 1.1.
Dove: as defined in Section 2.2(b).
Dove Class A Common Stock: as defined in Section 2.2(b).
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Dove Class B Common Stock: as defined in Section 2.2(b).
Dove Common Stock: as defined in Section 2.2(b).
Dove Preferred Stock: as defined in Section 2.2(b).
Dove Stock Options: as defined in Section 2.2(b).
Dove Stock Plan: as defined in Section 2.2(b).
Dove Warrants: as defined in Section 2.2(b).
Effective Date: as defined in Section 1.5.
Effective Time: as defined in Section 1.5.
Encumbrance: any security interest, pledge, mortgage, lien (including
environmental and tax liens), charge, encumbrance, adverse claim, preferential
arrangement or restriction of any kind, including any restriction on the use,
voting, transfer, receipt of income or other exercise of any attributes of
ownership.
Exchange Act: the Securities Exchange Act of 1934, as amended.
Exchange Agent: as defined in Section 1.9.
Exchange Ratio: as defined in Section 1.6(a).
FCC: as defined in Section 2.6.
Form S-4: the registration statement on Form S-4 filed by Wildcat to
register under the Securities Act (i) the issuance of the shares of Wildcat
Common Stock to be issued as Common Stock Merger Consideration and (ii) the
shares of Wildcat Preferred Stock to be issued as the Preferred Stock Merger
Consideration (including the issuance by Wildcat of depositary shares with
respect thereto).
GAAP: United States generally accepted accounting principles and practices
as in effect from time to time and applied consistently throughout the periods
involved.
Governmental Authority: means any United States Federal, state or local or
any foreign government, governmental, regulatory or administrative authority,
agency or commission or any court, tribunal or judicial or arbitral body.
HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
Knowledge: with respect to any Person that is not an individual, as to any
specific matter, the knowledge of such Person's executive officers and other
officers having primary responsibility for such matter.
Material Adverse Effect: any change or effect that, individually or in the
aggregate with all other changes or effects, is or is reasonably likely to be
materially adverse to the business, operations, properties, financial
condition, assets, liabilities or prospects of Target and its Subsidiaries,
taken as a whole, when used with respect to Target, or of Wildcat and its
Subsidiaries, taken as a whole, when used with respect to Wildcat; other than
those relating to the economy or securities markets in general or the
industries in which Wildcat, Target and their respective Subsidiaries operate
in general.
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Merger: as defined in the recitals.
Merger Consideration: as defined in Section 1.6(b).
Merger Sub: as defined in the first paragraph of this Agreement.
Merger Sub Common Stock: as defined in Section 1.7.
Person: an individual, general or limited partnership, joint venture,
corporation, limited liability company, trust, unincorporated organization or
government or any department or agency thereof.
Preferred Stock Merger Consideration: collectively, the Series D Preferred
Stock Merger Consideration, the Series E Preferred Stock Merger Consideration,
the Series F Preferred Stock Merger Consideration and the Series G Preferred
Stock Merger Consideration.
Proxy Statement: the proxy statement relating to the solicitation of the
approval of the Merger by the holders of the outstanding Target Common Stock
which is included in the Form S-4.
PUC: as defined in Section 2.6.
SEC: the Securities and Exchange Commission.
Securities Act: the Securities Act of 1933, as amended.
Series D Preferred Stock Merger Consideration: as defined in Section 1.6(b).
Series E Preferred Stock Merger Consideration: as defined in Section 1.6(b).
Series F Preferred Stock Merger Consideration: as defined in Section 1.6(b).
Series G Preferred Stock Merger Consideration: as defined in Section 1.6(b).
Subsidiary: with respect to any Person, any corporation or other business
entity, of which a majority (by number of votes) of the shares of capital stock
(or other voting interests) at the time outstanding is owned by such Person
directly or indirectly through Subsidiaries.
Superior Proposal: as defined in Section 4.3(a).
Surviving Corporation: as defined in Section 1.1.
Takeover Proposal: as defined in Section 4.3(a).
Target: as defined in the first paragraph of this Agreement.
Target Benefit Plan: any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical, welfare benefit or other plan, arrangement
or understanding providing compensation or benefits to any current or former
director, officer or employee of Target or any of its Subsidiaries.
Target Common Stock: as defined in Section 2.2(a).
Target Disclosure Schedule: as defined in Article II.
Target Filed SEC Documents: as defined in Article II.
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Target Permits: as defined in Section 2.15.
Target Preferred Stock: collectively, Target Series B Preferred Stock,
Target Series D Preferred Stock, Target Series E Preferred Stock, Target
Series F Preferred Stock and Target Series G Preferred Stock.
Target Rights: as defined in Section 2.2(a).
Target Rights Agreement: as defined in Section 2.2(a).
Target Series B Preferred Stock: 13.5% Series B Redeemable Exchangeable
Preferred Stock of Target.
Target Series C Preferred Stock: as defined in Section 2.2.
Target Series D Preferred Stock: 7% Series D Junior Convertible Preferred
Stock of Target.
Target Series E Preferred Stock: 7% Series E Junior Convertible Preferred
Stock of Target.
Target Series F Preferred Stock: 7% Series F Junior Convertible Preferred
Stock of Target.
Target Series G Preferred Stock: 7% Series G Junior Convertible
Participating Preferred Stock of Target.
Target SEC Documents: as defined in Section 2.7.
Target Stock Options: as defined in Section 2.2(a).
Target Stock Plans: as defined in Section 2.2(a).
Target Stockholder Approval: as defined in Section 2.11.
Target Stockholders Meeting: as defined in Section 4.8(b).
Target Warrants: as defined in Section 2.2(a).
Termination Date: as defined in Section 6.1(d).
Termination Fee: as defined in Section 4.6(b).
Voting Agreement: as defined in the recitals.
Wildcat: as defined in the first paragraph of this Agreement.
Wildcat Cash Election: as defined in Section 1.6(a).
Wildcat Common Stock: as defined in Section 3.2.
Wildcat Preferred Stock: collectively, the Wildcat Series D Preferred
Stock, the Wildcat Series E Preferred Stock, the Wildcat Series F Preferred
Stock and the Wildcat Series G Preferred Stock.
Wildcat Series D Preferred Stock: as defined in Section 1.6(b)(i).
Wildcat Series E Preferred Stock: as defined in Section 1.6(b)(ii).
Wildcat Series F Preferred Stock: as defined in Section 1.6(b)(iii).
Wildcat Series G Preferred Stock: as defined in Section 1.6(b)(iv).
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Wildcat SEC Documents: as defined in Section 3.6.
Wildcat Welfare Plan: as defined in Section 4.18(b).
7.2 Interpretation. When a reference is made in this Agreement to a recital,
Article, Section, Schedule or Exhibit, such reference shall be to a recital,
Article or Section of, or Schedule or Exhibit to, this Agreement unless
otherwise indicated. The table of contents 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." The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such term.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Nonsurvival of Representations and Warranties None of the
representations, warranties, covenants or agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 8.1 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time.
8.2 Notices. All notices, consents, instructions and other communications
required or permitted under this Agreement shall be effective only if given in
writing and shall be considered to have been duly given when (i) delivered by
hand, (ii) sent by telecopier (with receipt confirmed), provided that a copy is
mailed (on the same date) by certified or registered mail, return receipt
requested, postage prepaid, or (iii) received by the addressee, if sent by
Express Mail, Federal Express or other reputable express delivery service
(receipt requested), or by first class certified or registered mail, return
receipt requested, postage prepaid. Notice shall be sent in each case to the
appropriate addresses or telecopier numbers set forth below (or to such other
addresses and telecopier numbers as a party may from time to time designate as
to itself by notice similarly given to the other parties in accordance
herewith, which shall not be deemed given until received by the addressee).
Notice shall be given:
if to Target:
INTERMEDIA COMMUNICATIONS INC.
One Intermedia Way
Tampa, FL 33647
Attention: Robert M. Manning
Facsimile: 813-829-2470
and a copy to:
Kronish Lieb Weiner & Hellman LLP
1114 Avenue of the Americas
New York, NY 10036
Attention: Ralph J. Sutcliffe, Esq.
Facsimile: 212-479-6275
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if to Wildcat or Merger Sub:
WORLDCOM, INC.
500 Clinton Center Drive
Clinton, MS 39056
Attention: K. William Grothe, Jr.
Facsimile: 601-460-5239
and a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Attention: Robert I. Townsend, III, Esq.
Facsimile: (212) 765-1047
8.3 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon a 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 a mutually
acceptable manner in order that the transactions contemplated by this
Agreement, including the Merger, be consummated as originally contemplated to
the fullest extent possible.
8.4 Entire Agreement; Third Party Beneficiaries. This Agreement and the
Voting Agreement (including the exhibits, schedules, documents and instruments
referred to herein or therein) (a) constitute the entire agreement and
supersede all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
and thereof and (b) except with respect to Sections 4.13 and 4.17 of this
Agreement, are not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
8.5 Governing Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the internal laws of the
State of Delaware, without regard to conflicts of laws provisions.
8.6 Counterparts. This Agreement may be executed in two or more counterparts
which together shall constitute a single instrument and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties.
8.7 Assignment. Neither this Agreement nor any of the rights, interest or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties hereto without the prior
written consent of the other parties. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
8.8 Specific Performance. The parties agree that due to the unique subject
matter of this transaction, monetary damages will be insufficient to compensate
the non-breaching parties in the event of a breach of any part of this
Agreement. Accordingly, the parties agree that any non-breaching party shall be
entitled (without prejudice to any other right or remedy to which it may be
entitled) to an appropriate decree of specific performance, or an injunction
restraining any violation of this Agreement or other equitable remedies to
enforce this Agreement (without establishing the likelihood of irreparable
injury or posting bond or other security), and the breaching party waives in
any action or proceeding brought to enforce this Agreement the defense that
there exists an adequate remedy at law.
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<PAGE>
8.9 Jurisdiction. Each of the parties hereto (a) consents to submit itself
to the personal jurisdiction of any Federal court located in the State of
Delaware or any Delaware state court in the event any dispute arises out of
this Agreement or any of the transactions contemplated by this Agreement, (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 and (c) agrees that it
will not bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal court sitting
in the State of Delaware or a Delaware state court.
8.10 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY OR AGAINST IT ON ANY
MATTERS WHATSOEVER, IN CONTRACT OR IN TORT, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed,
by their respective duly authorized officers, on the date first above written.
WORLDCOM, INC.
/s/ Bernard J. Ebbers
By: ________________________________
Name: Bernard J. Ebbers
Title: President and CEO
WILDCAT ACQUISITION CORP.
/s/ Bernard J. Ebbers
By: ________________________________
Name: Bernard J. Ebbers
Title: President
INTERMEDIA COMMUNICATIONS INC.
/s/ David C. Ruberg
By: ________________________________
Name: David C. Ruberg
Title: President and CEO
A-32
<PAGE>
ANNEX B
STOCKHOLDERS AGREEMENT dated as of September 1, 2000 (this "Agreement"),
among WORLDCOM, INC., a Georgia corporation ("Parent"), and the individuals and
other parties listed on Schedule A attached hereto (each, a "Stockholder" and,
collectively, the "Stockholders").
WHEREAS Parent, Wildcat Acquisition Corp., a Delaware corporation and a
direct wholly owned subsidiary of Parent ("Merger Sub"), and Intermedia
Communications Inc., a Delaware corporation ("Target"), propose to enter into
an Agreement and Plan of Merger dated as of the date hereof (as the same may be
amended or supplemented, the "Merger Agreement"; terms used but not defined
herein shall have the meanings set forth in the Merger Agreement) providing for
the merger of Merger Sub with and into Target upon the terms and subject to the
conditions set forth in the Merger Agreement (the "Merger");
WHEREAS each Stockholder owns the number of shares of Target Common Stock or
Target Series G Preferred Stock set forth opposite such Stockholder's name on
Schedule A hereto (such shares of Target Common Stock or Target Series G
Preferred Stock, together with any other shares of Target Common Stock or
Target Series G Preferred Stock acquired by such Stockholder before or after
the date hereof and held during the term of this Agreement (including through
the exercise of any stock options, warrants or similar instruments), being
collectively referred to herein as the "Subject Shares"); and
WHEREAS as a condition to its willingness to enter into the Merger
Agreement, Parent has requested that each Stockholder enter into this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements set forth herein, the parties hereto agree as
follows:
SECTION 1. Representations and Warranties of Each Stockholder. Each
Stockholder hereby, severally and not jointly, represents and warrants to
Parent as follows:
(a) Organization; Authority; Execution and Delivery; Enforceability. Such
Stockholder has all requisite power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. To the extent that such
Stockholder is an entity other than an individual, such Stockholder is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. The execution and delivery of this Agreement by
such Stockholder and the consummation by such Stockholder of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of such Stockholder. This Agreement has been duly executed and delivered
by such Stockholder and, assuming due authorization, execution and delivery by
Parent, constitutes a legal, valid and binding obligation of such Stockholder,
enforceable against such Stockholder in accordance with its terms. The
execution and delivery by such Stockholder of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof, will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time or both) under, or give rise
to a right of termination, cancelation or acceleration of any obligation or
loss of a benefit under, or result in the creation of any Encumbrance on any
properties or assets of such Stockholder under, (i) any provision of any
certificate of incorporation or by-laws or partnership or limited liability
company agreement or the comparable organizational documents applicable to such
Stockholder, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise,
license or similar authorization (a "Contract") to which such Stockholder is a
party or by which any of the properties or assets of such Stockholder are bound
or (iii) subject to the filings and other matters referred to in the following
sentence of this Section 1(a), any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to such Stockholder or its properties
or assets, except in the case of each of clauses (ii) and (iii), as is not
reasonably likely to (x) impair the ability of such Stockholder to perform its
obligations under this Agreement or (y) prevent or materially delay the
consummation of the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, action by or in respect of, or
registration, declaration or filing with, any Governmental
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Authority is required by or with respect to such Stockholder in connection with
the execution and delivery of this Agreement by such Stockholder or the
consummation by such Stockholder of the transactions contemplated hereby,
except for such filings under the Exchange Act as may be required in connection
with this Agreement and the transactions contemplated hereby and except those
which are not reasonably likely to (x) impair the ability of such Stockholder
to perform its obligations under this Agreement or (y) prevent or materially
delay the consummation of the transactions contemplated by this Agreement. No
trust of which such Stockholder is a trustee requires the consent of any
beneficiary to the execution and delivery of this Agreement or to the
consummation of the transactions contemplated hereby, except for such consents
which have been obtained prior to the date hereof.
(b) The Subject Shares. Such Stockholder is the record and beneficial owner
of (or is the trustee of a trust that is the record holder of, and whose
beneficiaries are the beneficial owners of), and has good and marketable title
to, the Subject Shares set forth opposite its name on Schedule A hereto, free
and clear of any Liens. Such Stockholder does not own of record any shares of
Target Common Stock or Target Series G Preferred Stock other than the Subject
Shares set forth opposite its name on Schedule A hereto, and does not
beneficially own any shares of capital stock of Target other than Subject
Shares. Such Stockholder has the sole right to vote and Transfer (as defined
below) the Subject Shares set forth opposite its name on Schedule A hereto, and
none of such Subject Shares is subject to any voting trust or other agreement,
arrangement or restriction with respect to the voting or the Transfer of such
Subject Shares, except as set forth in Section 3 and Section 4 of this
Agreement.
SECTION 2. Representations and Warranties of Parent. Parent hereby
represents and warrants to each Stockholder as follows: Parent has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Parent. This Agreement has been duly executed and delivered by Parent and,
assuming due authorization, execution and delivery by each Stockholder,
constitutes a legal, valid and binding obligation of Parent, enforceable
against Parent in accordance with its terms. The execution and delivery by
Parent of this Agreement do not, and the consummation of the transactions
contemplated hereby and compliance with the provisions hereof, will not,
conflict with, or result in any violation of, or default (with or without
notice or lapse of time or both) under, or give rise to a right of termination,
cancelation or acceleration of any obligation or loss of a benefit under, or
result in the creation of any Encumbrance on any properties or assets of Parent
under, (i) any provision of the Second Amended and Restated Articles of
Incorporation or by- laws of Parent, (ii) any Contract to which Parent is a
party or by which any of its properties or assets are bound or (iii) subject to
the filings and other matters referred to in the last sentence of this Section
2, any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or any of its properties or assets, except in the case of
each of clauses (ii) and (iii), as is not reasonably likely to (x) have a
Material Adverse Effect on Parent, (y) impair the ability of Parent to perform
its obligations under this Agreement or (z) prevent or materially delay the
consummation of the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, action by or in respect of, or
registration, declaration or filing with, any Governmental Authority is
required by or with respect to Parent in connection with the execution and
delivery of this Agreement by Parent or the consummation by Parent of the
transactions contemplated hereby except for such filings under the Exchange Act
as may be required in connection with this Agreement and the transactions
contemplated hereby and except those which are not reasonably likely to (x)
have a Material Adverse Effect on Parent, (y) impair the ability of Parent to
perform its obligations under this Agreement or (z) prevent or materially delay
the consummation of the transactions contemplated by this Agreement.
SECTION 3. Covenants of Each Stockholder. Each Stockholder, severally and
not jointly, covenants and agrees during the term of this Agreement as follows:
(a) At any meeting of the stockholders of Target called to vote upon the
Merger or the Merger Agreement or at any adjournment thereof or in any other
circumstances upon which a vote, consent, adoption or other
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<PAGE>
approval (including by written consent solicitation) with respect to the Merger
or the Merger Agreement is sought, such Stockholder shall, including by
executing a written consent solicitation if requested by Parent, vote (or cause
to be voted) the Subject Shares in favor of the adoption by Target of the
Merger Agreement and the approval of the terms thereof and of the Merger and
each of the other transactions contemplated by the Merger Agreement. Such
Stockholder hereby agrees not to take any action by written consent in any
circumstance other than in accordance with this paragraph.
(b) At any meeting of the stockholders of Target or at any adjournment
thereof or in any other circumstances upon which a vote, consent, adoption or
other approval (including by written consent solicitation) is sought, such
Stockholder shall vote (or cause to be voted) all of the Subject Shares of such
Stockholder against, and shall not consent to (and shall cause not to be
consented to) any of the following (or any agreement to enter into, effect,
facilitate or support any of the following): (i) any Takeover Proposal or
transaction or occurrence which if proposed and offered to Target or its
stockholders (or any of them) would be a Takeover Proposal or (ii) any
amendment of Target's Restated Certificate of Incorporation or By-laws or other
proposal, action or transaction involving Target or any of its subsidiaries or
any of its stockholders, which amendment or other proposal, action or
transaction would, or could reasonably be expected to, prevent, impede,
interfere with, hinder or delay the consummation of the Merger or any of the
other transactions contemplated by the Merger Agreement or the consummation of
the transactions contemplated by this Agreement or to dilute in any material
respect the benefits to Parent of the Merger and the other transactions
contemplated by the Merger Agreement or the transactions contemplated by this
Agreement, or change, other than pursuant to the Merger Agreement, in any
manner the voting rights of Target Common Stock, Target Series G Preferred
Stock or any other voting securities of Target (collectively, "Frustrating
Transactions").
(c) Other than in accordance with the terms of this Agreement, such
Stockholder shall not (i) sell, transfer, pledge, assign or otherwise dispose
of (including by gift) (collectively, "Transfer"), or consent to any Transfer
of, any Subject Shares or any interest therein or enter into any contract,
option or other arrangement (including any profit sharing or other derivative
arrangement) with respect to the Transfer of, any Subject Shares or any
interest therein to any person other than pursuant to the Merger Agreement or
(ii) enter into any voting arrangement, whether by proxy, voting agreement or
otherwise, in connection with, directly or indirectly, any Takeover Proposal or
otherwise with respect to the Subject Shares. Such Stockholder shall not commit
or agree to take any action inconsistent with the foregoing. Notwithstanding
any other provision of this Agreement, each Stockholder may Transfer all or a
portion of such Stockholder's Subject Shares to any other person if such person
expressly agrees in writing to be bound by all of the provisions of this
Agreement.
(d) From and after the date of this Agreement, such Stockholder shall not,
and shall not authorize or permit any of its Subsidiaries or Affiliates (other
than Target in accordance with the Merger Agreement) or any of its or their
directors, officers, employees, investment bankers, financial advisors,
attorneys, accountants or other representatives to, directly or indirectly, (i)
solicit, initiate, encourage (including by way of furnishing information), or
take any other action designed to facilitate, any inquiries or the making of
any proposal that constitutes, a Takeover Proposal or a Frustrating
Transaction, (ii) enter into any agreement with respect to any Takeover
Proposal or Frustrating Transaction or (iii) participate in any discussions or
negotiations regarding a Takeover Proposal or a Frustrating Transaction;
provided that the foregoing shall not restrict actions taken by Stockholders in
their capacity as directors of Target in accordance with Section 4.3 of the
Merger Agreement.
(e) Except in his capacity as a director of Target, such Stockholder shall
not issue any press release or make any other public statement, and shall not
authorize or permit any of its Subsidiaries or Affiliates (other than Target in
accordance with the Merger Agreement) or any of its or their directors,
officers, employees, partners, investment bankers, attorneys or other advisors
or representatives to issue any press release or make any other public
statement, with respect to the Merger Agreement, this Agreement, the Merger or
any of the other transactions contemplated by the Merger Agreement or this
Agreement without the prior written consent of Parent, except as may be
required by applicable law, including any filings required under the Exchange
Act.
(f) Such Stockholder hereby waives any rights of appraisal, or right to
dissent from the Merger, that such Stockholder may have.
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<PAGE>
SECTION 4. Grant of Irrevocable Proxy. Each Stockholder hereby irrevocably
grants throughout the term of this Agreement to, and appoints, John T. Stupka
and K. William Grothe, Jr. and any other individual who shall hereafter be
designated by Parent, and each of them, such Stockholder's proxy and attorney-
in-fact (with full power of substitution), for and in the name, place and stead
of such Stockholder, to vote, or cause to be voted, such Stockholder's Subject
Shares, or grant a consent or approval in respect of such Subject Shares, at
any meeting of stockholders of Target or at any adjournment thereof or in any
other circumstances upon which their vote, consent or other approval is sought,
in favor of the adoption by Target of the Merger Agreement and the approval of
the terms thereof and of the Merger and each of the other transactions
contemplated by the Merger Agreement. Each Stockholder shall not, directly or
indirectly, grant any proxies or powers of attorney with respect to his, her or
its Subject Shares to any person in connection with or directly affecting the
Merger other than as set forth in this Section 4.
SECTION 5. Further Assurances. Each Stockholder will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional or
further consents, documents and other instruments as Parent may reasonably
request for the purpose of effectuating the matters covered by this Agreement.
In addition, ICI Ventures LLC hereby waives, effective as of the Effective
Time, ICI Ventures LLC's rights under (i) Sections 3.I.m and 6 of the Purchase
Agreement dated January 11, 2000, between Target and ICI Ventures LLC and (ii)
Sections 7(ii), 7(iii)(C)-(E) and 8 of the Certificate of Designation of
Target's 7% Series G Junior Convertible Participating Preferred Stock.
SECTION 6. Certain Events. Each Stockholder agrees that this Agreement and
the obligations hereunder shall attach to such Stockholder's Subject Shares and
shall be binding upon any person or entity to which legal or beneficial
ownership of such Subject Shares shall pass, whether by operation of law or
otherwise, including such Stockholder's heirs, guardians, administrators or
successors. In the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital structure of
Target affecting Target Common Stock or Target Series G Preferred Stock, or the
acquisition of additional shares of Target Common Stock, Target Series G
Preferred Stock or other voting securities of Target by any Stockholder, the
number of Subject Shares listed on Schedule A hereto beside the name of such
Stockholder shall be adjusted appropriately and this Agreement and the
obligations hereunder shall attach to any additional shares of Target Common
Stock, Target Series G Preferred Stock or other voting securities of Target
issued to or acquired by such Stockholder.
SECTION 7. Assignment. Except as permitted under Section 3(c), neither this
Agreement nor any of the rights, interests or obligations under this Agreement
shall be assigned, in whole or in part, by operation of law or otherwise, by
any of the parties hereto without the prior written consent of the other
parties hereto, except that Parent may assign, in its sole discretion, any of
or all its rights, interests and obligations under this Agreement to any direct
or indirect wholly owned subsidiary of Parent, but no such assignment shall
relieve Parent of its obligations under this Agreement. Any purported
assignment in violation of this Section 7 shall be void. Subject to the
preceding sentences of this Section 7, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties hereto and their
respective successors and assigns.
SECTION 8. Termination. This Agreement shall terminate upon the earlier of
(a) the Effective Time and (b) 10 business days after the termination of the
Merger Agreement in accordance with its terms. No such termination of this
Agreement shall relieve any party hereto from any liability for any breach of
this Agreement prior to termination.
SECTION 9. General Provisions. (a) Amendments. This Agreement may not be
amended except by an instrument in writing signed by each of the parties
hereto.
(b) Notices. All notices, requests, clauses, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (with confirmation) or sent by
overnight or same-day courier (providing proof of delivery) to Parent in
accordance with Section 8.2 of the Merger Agreement and to the Stockholders at
their respective addresses set forth on Schedule A hereto (or at such other
address for a party as shall be specified by like notice).
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<PAGE>
(c) Interpretation. When a reference is made in this Agreement to Sections
or Schedules, such reference shall be to a Section or Schedule to this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The words "hereof", "herein" and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. The
term "or" is not exclusive. The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms. Any
agreement or instrument defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement or instrument as
from time to time amended, modified or supplemented. References to a person are
also to its permitted successors and assigns.
(d) Counterparts; Effectiveness. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which, taken together, 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 hereto and delivered to the other party. The effectiveness of this
Agreement shall be conditioned upon the execution and delivery of the Merger
Agreement by each of the parties thereto.
(e) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (i) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties hereto with respect to the subject
matter of this Agreement and (ii) is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
(f) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO ANY
PRINCIPLES OF CONFLICTS OF LAWS OF SUCH STATE.
(g) No Recourse. Notwithstanding anything that may be expressed or implied
in this Agreement, Parent and Merger Sub covenant, agree and acknowledge that
no recourse under this Agreement shall be had against any current or future
director, officer, employee, general or limited partner, member, Affiliate or
assignee of any Stockholder or any of the foregoing, whether by the enforcement
of any assessment or by any legal or equitable proceeding, or by virtue of any
statue, regulation or other applicable law, it being expressly agreed and
acknowledged that no personal liability whatsoever shall attach to, be imposed
on or otherwise incurred by any current or future officer, agent or employee of
any Stockholder or any current or future member of any Stockholder or any
current or future director, officer, employee, partner, member, Affiliate or
assignee of any of the foregoing, as such for any obligation of a Stockholder
under this Agreement for any claim based on, in respect of or by reason of such
obligations or their creation.
SECTION 10. Stockholder Capacity. No person executing this Agreement who is
or becomes during the term hereof a director or officer of Target makes any
agreement or understanding herein in his or her capacity as such director or
officer. Each Stockholder signs solely in his or her capacity as the record
holder and beneficial owner of, or the trustee of a trust whose beneficiaries
are the beneficial owners of, such Stockholder's Subject Shares and nothing
herein shall limit or affect any actions taken by a Stockholder in its capacity
as an officer or director of Target, including under Section 4.3 of the Merger
Agreement.
SECTION 11. Enforcement. Each of the parties hereto agrees that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties hereto shall be entitled to
an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any Delaware
state court or any Federal court located in the State of Delaware, this being
in addition to any other remedy to which they are entitled at law or in equity.
In addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any Delaware state court or any
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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, (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 in any
Delaware state court or any Federal court located in the State of Delaware, and
hereby further 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.
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IN WITNESS WHEREOF, Parent has caused this Agreement to be signed by its
officer thereunto duly authorized, and each Stockholder has signed this
Agreement, all as of the date first written above.
WORLDCOM, INC.
/s/ Bernard J. Ebbers
By: ________________________________
Name: Bernard J. Ebbers
Title: President and CEO
STOCKHOLDERS:
ICI VENTURES LLC
/s/ James H. Greene, Jr.
By: ________________________________
Name: James H. Greene, Jr.
Title: Chief Executive Officer
/s/ David C. Ruberg
---------------------------------
David C. Ruberg
/s/ John C. Baker
---------------------------------
John C. Baker
/s/ George F. Knapp
---------------------------------
George F. Knapp
/s/ Philip A. Campbell
---------------------------------
Philip A. Campbell
/s/ Ralph J. Sutcliffe
---------------------------------
Ralph J. Sutcliffe
/s/ James H. Greene, Jr.
---------------------------------
James H. Greene, Jr.
/s/ Alexander Navab, Jr.
---------------------------------
Alexander Navab, Jr.
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SCHEDULE A
(As of April 10, 2000)
<TABLE>
<CAPTION>
Number of
Shares of
Number of Target
Name and Shares of Series G
Address of Target Preferred
Stockholder Common Stock/1/ Stock
----------- --------------- ---------
<S> <C> <C>
ICI Ventures LLC..................................... 2,172,561 200,000
c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, NY 10019
David C. Ruberg...................................... 1,059,005
John C. Baker........................................ 82,228
George F. Knapp...................................... 57,508
Philip A. Campbell................................... 28,000
Ralph J. Sutcliffe................................... 213,461
James H. Greene, Jr.................................. 2,000
Alexander Navab, Jr.................................. 2,000
The seven previous individuals,
c/o Intermedia Communications Inc.
One Intermedia Way
Tampa, FL 33647
</TABLE>
--------
/1/From the 2000 proxy statement of Intermedia Communications Inc. Includes
shares subject to options or warrants exercisable within 60 days of April
10, 2000, and to certain other vesting requirements.
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<PAGE>
[Letterhead of Bear Stearns]
ANNEX C
September 1, 2000
The Board of Directors
Intermedia Communications Inc.
One Intermedia Way
Tampa, Florida 33647
Ladies and Gentlemen:
We understand that Intermedia Communications Inc. ("Intermedia") and
WorldCom, Inc. ("WorldCom") propose to enter into an Agreement and Plan of
Merger, dated September 1, 2000 (the "Agreement"), pursuant to which a newly-
formed subsidiary of WorldCom will be merged with and into Intermedia (the
"Merger"), with Intermedia continuing as the surviving corporation in the
Merger as a wholly-owned subsidiary of WorldCom. The terms and conditions of
the Merger are more fully set forth in the Agreement, a copy of which has been
furnished to us. All capitalized terms not otherwise defined herein shall have
the same meaning as defined in the Agreement.
Pursuant to the Agreement, each outstanding share of (i) common stock, par
value $0.01 per share, of Intermedia ("Intermedia Common Stock") shall be
converted into the right to receive (x) a certain number of shares of common
stock, par value $0.01 per share, of WorldCom ("WorldCom Common Stock") equal
to the quotient determined by dividing $39.00 by the Average Price, provided
that such quotient shall not be less than 0.8904 or greater than 1.1872 (the
"Exchange Ratio") or (y) in the event the Exchange Ratio would otherwise be
greater than 1.0685 and if WorldCom so elects, 1.0685 shares of WorldCom Common
Stock plus an amount of cash equal to the product of (I) the difference between
the Exchange Ratio (without giving effect to the cash election mechanism) and
1.0685 and (II) the Average Price ((x) or (y) being the "Common Stock Merger
Consideration"), (ii) Intermedia 13.5% Series B Redeemable Exchangeable
Preferred Stock shall remain outstanding on substantially identical terms and
(iii) Intermedia 7% Series D Junior Convertible Preferred Stock, Intermedia 7%
Series E Junior Convertible Preferred Stock, Intermedia 7% Series F Junior
Convertible Preferred Stock and Intermedia 7% Series G Junior Convertible
Participating Preferred Stock shall be converted into the right to receive one
share of WorldCom 7% Series D Junior Convertible Preferred Stock, WorldCom 7%
Series E Junior Convertible Preferred Stock, WorldCom 7% Series F Junior
Convertible Preferred Stock and WorldCom 7% Series G Junior Convertible
Preferred Stock, respectively, each having terms substantially identical to its
predecessor Intermedia security, except that each share of WorldCom Preferred
Stock shall be convertible into a number of shares of WorldCom Common Stock and
cash, if any, subject to adjustment based on the Common Stock Merger
Consideration. Outstanding options and warrants to purchase shares of
Intermedia Common Stock shall be converted into options and warrants to
purchase shares of WorldCom Common Stock subject to adjustment based on the
Exchange Ratio (without giving effect to the cash election mechanism).
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You have asked us to render our opinion as to whether the Common Stock
Merger Consideration is fair, from a financial point of view, to the holders of
shares of Intermedia Common Stock.
In the course of performing our review and analyses for rendering this
opinion, we have:
. reviewed the Agreement and the Voting Agreement;
. reviewed Intermedia's and WorldCom's respective (i) Annual Reports to
Shareholders and Annual Reports on Form 10-K for the years ended
December 31, 1997 through December 31, 1999, (ii) Quarterly Reports on
Form 10-Q for the periods ended March 31, 2000 and June 30, 2000 and
(iii) Reports on Form 8-K for the three years ended December 31, 1999
and through September 1, 2000;
. reviewed Digex, Incorporated's ("Digex") (i) Annual Report to
Shareholders and Annual Report on Form 10-K for the year ended December
31, 1999, (ii) Quarterly Reports on Form 10-Q for the periods ended
March 31, 2000 and June 30, 2000 and (iii) Reports on Form 8-K for the
year ended December 31, 1999 and through September 1, 2000;
. reviewed certain operating and financial information relating to
Intermedia's and Digex's respective businesses and prospects on a
standalone basis, including projections, all of which was prepared and
provided to us by Intermedia's and/or Digex's management;
. reviewed certain financial information, including projections, regarding
WorldCom contained in certain publicly available securities analysts'
research reports;
. met with certain members of Intermedia's, Digex's and WorldCom's senior
management to discuss each company's respective business, operations,
historical and projected financial results and future prospects,
. reviewed the historical prices, trading multiples and trading volumes of
the shares of Intermedia Common Stock, WorldCom Common Stock and common
stock, par value $0.01 per share, of Digex ("Digex Common Stock");
. reviewed publicly available financial data, stock market performance
data and trading multiples of companies which we deemed generally
comparable to Intermedia and Digex;
. reviewed the terms of recent mergers and acquisitions involving
companies which we deemed generally comparable to Intermedia and Digex;
. performed theoretical discounted cash flow analyses based on the
projections for Intermedia and Digex furnished to us; and
. conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including
without limitation the projections, provided to us by Intermedia and Digex.
With respect to Intermedia's and Digex's projected financial results, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the senior management of
Intermedia and Digex as to the expected future performance of Intermedia and
Digex. We have not assumed any responsibility for the independent verification
of any such information or of the projections provided to us, and we have
further relied upon the assurances of the senior management of Intermedia and
Digex that they are unaware of any facts that would make the information and
projections provided to us incomplete or misleading. We have considered, and
discussed with the senior management of Intermedia and Digex, the capital needs
of each of Intermedia and Digex as reflected in the aforementioned projections
provided to us and whether such needs can be met in light of Intermedia's
recent operating performance and financial condition and its access to capital
given current market conditions.
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In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets or liabilities (contingent or otherwise) of
Intermedia, Digex or WorldCom, nor have we been furnished with any such
appraisals. During the course of our engagement, we were asked by the Board of
Directors of Intermedia to solicit indications of interest from various third
parties regarding a transaction with Intermedia and/or Digex, and we have
considered the results of such solicitation in rendering our opinion. We have
assumed that the Merger will qualify as a tax-free "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code. We have assumed that
the Merger will be consummated in a timely manner and in accordance with the
terms of the Agreement without any regulatory limitations, restrictions,
conditions, amendments or modifications that collectively would have a material
effect on Intermedia, Digex or WorldCom.
We do not express any opinion as to the price or range of prices at which
the shares of Intermedia Common Stock, Digex Common Stock or WorldCom Common
Stock may trade subsequent to the announcement of the Merger or as to the price
or range of prices at which the shares of Digex Common Stock or WorldCom Common
Stock may trade subsequent to the consummation of the Merger.
We have acted as a financial advisor to Intermedia in connection with the
Merger and will receive a customary fee for such services, a substantial
portion of which is contingent on successful consummation of the Merger. Bear
Stearns has been previously engaged by Intermedia and Digex to provide certain
investment banking and financial advisory services for which we received
customary fees. In the ordinary course of business, Bear Sterns may actively
trade the equity and debt securities of Intermedia, Digex and/or WorldCom for
our own account and for the account of our customers and, accordingly, may at
any time hold a long or short position in such securities.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of Intermedia in connection with its consideration of the
Merger. This letter does not constitute a recommendation to the Board of
Directors of Intermedia or any holders of shares of Intermedia Common Stock as
to how to vote in connection with the Merger. This opinion does not address
Intermedia's underlying business decision to pursue the Merger, the relative
merits of the Merger as compared to any alternative business strategies that
might exist for Intermedia or the effects of any other transaction in which
Intermedia might engage. This letter is not to be used for any other purpose,
or be reproduced, disseminated, quoted from or referred to at any time, in
whole or in part, without our prior written consent; provided, however, that
this letter may be included in its entirety in any proxy statement/prospectus
to be distributed to the holders of shares of Intermedia Common Stock in
connection with the Merger. Our opinion is subject to the assumptions and
conditions contained herein and is necessarily based on economic, market and
other conditions, and the information made available to us, as of the date
hereof. We assume no responsibility for updating or revising our opinion based
on circumstances or events occurring after the date hereof.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Common Stock Merger Consideration is fair, from a financial
point of view, to the holders of shares of Intermedia Common Stock.
Very truly yours,
BEAR, STEARNS & CO. INC.
/s/ James A. Ferency
By: _________________________________
Senior Managing Director
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ANNEX D
DELAWARE GENERAL CORPORATION LAW
Section 262. Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ((S)) 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As 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; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one (1) or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ((S)) 251 (other than a merger effected pursuant to ((S))
251(g) of this title), ((S)) 252, ((S)) 254, ((S)) 257, ((S)) 258, ((S)) 263 or
((S)) 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) 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 (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any 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 ((S)) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
((S))((S)) 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be 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 more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a, b and c of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ((S)) 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to ((S)) 228 or
((S)) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten 10 days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given
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prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed 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 surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
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(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions 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); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to 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.
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<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 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 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 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 WorldCom) in which
he or she is made a party by reason of being a director of WorldCom and a
director who, at the request of WorldCom, acts 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 (1) in the case of conduct in his or her official capacity,
that such conduct was in the best interests of the corporation, (2) in all
other cases other than a criminal proceeding, that such conduct was at least
not opposed to the best interests of the corporation, and (3) 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.
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 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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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 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 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 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, WorldCom may, as provided by
either (1) WorldCom's Second Amended and Restated Articles of Incorporation, as
amended, (2) WorldCom's Restated Bylaws, (3) general or specific actions by its
board of directors or (4) contract, indemnify and advance expenses to an
officer, employee or agent who is not a director to the extent that such
indemnification is consistent with public policy.
The indemnification provisions of Article X of WorldCom's Restated Bylaws
and Article Twelve of WorldCom's Second Amended and Restated Articles of
Incorporation, as amended, are consistent with the foregoing provisions of the
GBCC. However, 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,
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
to believe his or her conduct was unlawful, or in the case of a proceeding by
or in the right of WorldCom, in which such director was adjudged liable to
WorldCom, unless a court shall determine that the director is fairly and
reasonably entitled to indemnification in view of all the circumstances.
WorldCom's Restated Bylaws extend the indemnification available to officers
under the GBCC to employees and agents.
Item 21(a). Exhibits.
Please see the Exhibit Index.
Item 21(b). Financial Statement Schedules.
All financial statement schedules of WorldCom and Intermedia that are
required to be included herein are included in the Annual Report of WorldCom on
Form 10-K for the fiscal year ended December 31, 1999, or the Annual Report on
Form 10-K of Intermedia for the fiscal year ended December 31, 1999,
respectively, each of 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
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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 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 or 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 this 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; and
(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.
(b) 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.
(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.
II-3
<PAGE>
(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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Clinton, State of Mississippi, on
November 17, 2000.
<TABLE>
<S> <C>
WorldCom, Inc.
/s/ Scott D. Sullivan
By: _______________________________________
Scott D. Sullivan
Chief Financial Officer
</TABLE>
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>
Director
___________________________________________
Clifford L. Alexander, Jr.
Director
___________________________________________
James C. Allen
* Director November 17,
___________________________________________ 2000
Judith Areen
* Director November 17,
___________________________________________ 2000
Carl J. Aycock
* Director November 17,
___________________________________________ 2000
Max E. Bobbitt
* Director, President and November 17,
___________________________________________ Chief Executive Officer 2000
Bernard J. Ebbers (Principal Executive
Officer)
* Director November 17,
___________________________________________ 2000
Francesco Galesi
* Director November 17,
___________________________________________ 2000
Stiles A. Kellett, Jr.
* Director November 17,
___________________________________________ 2000
Gordon S. Macklin
* Director November 17,
___________________________________________ 2000
Bert C. Roberts, Jr.
* Director November 17,
___________________________________________ 2000
John W. Sidgmore
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Scott D. Sullivan Director and Chief November 17,
___________________________________________ Financial Officer 2000
Scott D. Sullivan (Principal Financial
Officer and Principal
Accounting Officer)
* By: /s/ Scott D. Sullivan November 17,
___________________________________________ 2000
Scott D. Sullivan
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2.1 Agreement and Plan of Merger between WorldCom, Inc. ("WorldCom"),
Wildcat Acquisition Corp. and Intermedia Communications Inc.
("Intermedia") dated as of September 1, 2000 (included as Annex A
to the proxy statement/prospectus included in this Registration
Statement).
4.1 Second Amended and Restated Articles of Incorporation of WorldCom
(including preferred stock designations), as amended as of May 1,
2000 (incorporated herein by reference to Exhibit 4.1 of
WorldCom's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2000 (File No. 0-11258)).
4.2 Restated Bylaws of WorldCom (incorporated herein by reference to
Exhibit 3.2 to 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 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 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
WorldCom's Current Report on Form 8-K dated August 26, 1996 (filed
August 30, 1996) (as amended on Form 8-K/A filed August 31, 1996)
(File No. 0-11258)).
4.4 Amendment No. 1 to Rights Agreement dated as of May 22, 1997, by
and between WorldCom and The Bank of New York, as Rights Agent
(incorporated herein by reference to Exhibit 4.2 to WorldCom's
Current Report on Form 8-K dated May 22, 1997 (filed June 5, 1997)
(File No. 0-11258)).
4.5 Form of Floating Rate Note Due 2001 (incorporated herein by
reference to Exhibit 4.1 to WorldCom's Current Report on Form 8-K
dated May 19, 2000 (filed May 22, 2000) (File No. 0-11258)).
4.6 Form of 7.875% Note Due 2003 (incorporated herein by reference to
Exhibit 4.2 to WorldCom's Current Report on Form 8-K dated May 19,
2000 (filed May 22, 2000) (File No. 0-11258)).
4.7 Form of 8.000% Notes Due 2006 (incorporated herein by reference to
Exhibit 4.3 to WorldCom's Current Report on Form 8-K dated May 19,
2000 (filed May 22, 2000) (File No. 0-11258)).
4.8 Form of 8.25% Notes Due 2010 (incorporated herein by reference to
Exhibit 4.4 to WorldCom's Current Report on Form 8-K dated May 19,
2000 (filed May 22, 2000) (File No. 0-11258)).
4.9 Indenture dated as of May 15, 2000, by and between WorldCom and
Chase Manhattan Trust Company, National Association (incorporated
herein by reference to Exhibit 4.1 to WorldCom's Registration
Statement on Form S-3 (File No. 333-34578)).
5.1* Legality Opinion of WorldCom Counsel.
8.1* Tax Opinion of Kronish Lieb Weiner & Hellman LLP.
9.1 Stockholders Agreement dated as of September 1, 2000, among
WorldCom and the stockholders of Intermedia named therein
(included as Annex B to the proxy statement/prospectus included in
this Registration Statement).
10.1 Amended and Restated Facility A Revolving Credit Agreement among
WorldCom, NationsBank, N.A., NationsBanc Montgomery Securities
LLC, Bank of America NT & SA, Barclays Bank PLC, The Chase
Manhattan Bank, Citibank, N.A., Morgan Guaranty Trust Company of
New York, and Royal Bank of Canada and the lenders named therein
dated as of August 6, 1998 (incorporated herein by reference to
Exhibit 10.1 to WorldCom's Current Report on Form 8-K dated August
6, 1998 (filed August 7, 1998) (File No. 0-011258)).
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.2 Amended and Restated 364-Day Revolving Credit and Term Loan
Agreement among WorldCom and Bank of America, N.A., Administrative
Agent; Bank of America Securities, LLC, Sole Lead Arranger and
Book Manager; Barclays Bank PLC, The Chase Manhattan Bank,
Citibank, N.A., Morgan Guaranty Trust Company of New York, and
Royal Bank of Canada, Co-Syndication Agents; and the lenders named
therein dated as of August 5, 1999 (incorporated herein by
reference to Exhibit 10.1 of WorldCom's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1999) (File No. 0-
11258).*
10.3 First Amendment and Renewal of the Amended and Restated 364-Day
Revolving Credit and Term Loan Agreement entered into as of August
3, 2000, among WorldCom, certain Purchasing Lenders named therein,
certain Increasing Lenders as named therein, Bank of America,
N.A., as a Lender and as Administrative Agent for itself and the
Accepting Lenders (as therein defined) with Banc of America
Securities, LLC, as the Sole Lead Arranger and Book Manager
(incorporated herein by reference to Exhibit 10.3 of WorldCom's
Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2000) (File No. 0-11258).*
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 Ernst & Young LLP.
23.4 Consent of WorldCom Counsel (included in Exhibit 5.1).
23.5 Consent of Kronish Lieb Weiner & Hellman LLP (included in Exhibit
8.1).
23.6 Consent of Bear, Stearns & Co. Inc. (included in Annex C to the
proxy statement/prospectus included in this Registration
Statement).
24.1* Power of Attorney.
99.1 Form of Proxy for Intermedia special meeting.
99.2 Opinion of Bear, Stearns & Co. Inc. (included as Annex C to the
proxy statement/prospectus included in this Registration
Statement).
</TABLE>
--------
* Previously filed.
** The registrant hereby agrees to furnish supplementally a copy of any
omitted schedules to this Agreement to the SEC upon request.
2
