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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MFS COMMUNICATIONS COMPANY, INC.
(Name of registrant as specified in its charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid: $2,002,360.00
(2) Form, Schedule or Registration Statement No.: Schedule 14A
(3) Filing Party: WorldCom, Inc.
(4) Date Filed: September 24, 1996
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[MFS LOGO]
MFS Communications Company, Inc.
11808 Miracle Hills Drive
Omaha, Nebraska 68154
Telephone: (402) 231-3000
November 14, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
MFS Communications Company, Inc. ("MFS"), to be held at 9:00 a.m., local time on
December 20, 1996 at The Joslyn Art Museum, 2200 Dodge Street, Omaha, Nebraska.
At this important meeting, you will be asked to authorize and adopt the
Amended and Restated Agreement and Plan of Merger dated as of August 25, 1996
(the "Merger Agreement") providing for the merger (the "Merger") of a subsidiary
of WorldCom, Inc. ("WorldCom") with and into MFS and to authorize the other
transactions contemplated by the Merger Agreement. The consummation of the
Merger will result in, among other things, MFS becoming a wholly owned
subsidiary of WorldCom. As a result of the Merger, each share of the common
stock, par value $.01 per share, of MFS (the "MFS Common Stock") will be
converted into the right to receive 2.1 shares (the "Common Exchange Ratio") of
common stock, par value $.01 per share, of WorldCom (the "WorldCom Common
Stock"), and each share of MFS' Series A 8% Cumulative Convertible Preferred
Stock, par value $.01 per share, and MFS' Series B Convertible Preferred Stock,
par value $.01 per share (the "MFS Series B Preferred Stock") (other than those
held by holders of MFS Series B Preferred Stock exercising appraisal rights)
will be converted into the right to receive, respectively, one share (the
"Preferred Exchange Ratio") of Series A 8% Cumulative Convertible Preferred
Stock, par value $.01 per share, of WorldCom (the "WorldCom Series A Preferred
Stock") and one share of Series B Convertible Preferred Stock, par value $.01
per share, of WorldCom (the "WorldCom Series B Preferred Stock"). The terms of
the WorldCom preferred stock are substantially similar to the terms of the
corresponding MFS preferred stock, except that each share of WorldCom Series B
Preferred Stock (i) will be entitled to one vote per share on all matters on
which holders of WorldCom Common Stock are entitled to vote, and (ii) in
contrast to shares of MFS Series B Preferred Stock, will not be subject to an
irrevocable proxy with respect to any voting rights of such series and will not
be subject to contractual restrictions on transfer. In addition, WorldCom
intends to issue depositary shares each representing a 1/100th interest in a
share of WorldCom Series A Preferred Stock.
Holders of MFS Series B Preferred Stock who properly demand and perfect
appraisal rights in accordance with the conditions established by Section 262
("Section 262") of the Delaware General Corporation Law will be entitled to
appraisal rights. However, it is uncertain, and counsel to MFS is unable to
express a definite view, to what extent appraisal rights will be available to
holders of MFS Series B Preferred Stock in connection with the Merger. Section
262 requires that the holder of MFS Series B Preferred Stock who desires to seek
appraisal rights must not vote in favor of the Merger Agreement or the Merger
and must deliver a separate written demand for appraisal to MFS prior to the
vote by the stockholders of MFS on the Merger Agreement and the Merger. Since
the shares of MFS Series B Preferred Stock are held subject to an irrevocable
proxy that has been granted to the Secretary and Assistant Secretary of MFS to
vote the shares of MFS Series B Preferred Stock on the proposals to be voted on
at the Special Meeting in proportion to the vote of the MFS Common Stock, it is
uncertain to what extent a holder of MFS Series B Preferred Stock will be able
to satisfy the requirement not to vote in favor of the Merger Agreement or the
Merger that is contained in Section 262. STOCKHOLDERS OF MFS WHO WISH TO SEEK
APPRAISAL ARE ADVISED TO CONSULT WITH THEIR LEGAL COUNSEL REGARDING WHETHER
APPRAISAL RIGHTS
<PAGE> 3
WOULD BE AVAILABLE AND HOW TO DEMAND AND PERFECT SUCH APPRAISAL RIGHTS, IF
AVAILABLE.
ADDITIONAL INFORMATION REGARDING THE MERGER AND THE MERGER AGREEMENT IS SET
FORTH IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS AND THE APPENDICES
THERETO, WHICH YOU ARE URGED TO READ CAREFULLY IN THEIR ENTIRETY. PLEASE DO NOT
SEND ANY SHARE CERTIFICATES AT THIS TIME.
The Board of Directors of MFS has received the opinion, dated as of August
24, 1996, of Gleacher NatWest, Inc., which is annexed to the accompanying Joint
Proxy Statement/Prospectus as Appendix VI, that, as of such date and based upon
and subject to certain matters stated therein, the Common Exchange Ratio and the
Preferred Exchange Ratio are fair to the holders of MFS capital stock from a
financial point of view.
A second proposal is to approve the adjournment of the Special Meeting to
allow for additional solicitation of stockholder proxies or votes in the event
that the number of proxies or votes sufficient to obtain a quorum or to approve
the Merger Agreement and the transactions contemplated thereby has not been
received by the date of the Special Meeting.
A third proposal is to consider and vote upon such other business as may
properly come before the Special Meeting or any adjournment or postponement
thereof.
MFS' BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE TERMS AND CONDITIONS
OF THE PROPOSED MERGER AND HAS UNANIMOUSLY DETERMINED THAT THE TERMS OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN
THE BEST INTERESTS OF, MFS AND ITS STOCKHOLDERS. ACCORDINGLY, YOUR BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF THE MERGER
AGREEMENT AND THE AUTHORIZATION OF THE MERGER AND THE TRANSACTIONS CONTEMPLATED
BY THE MERGER AGREEMENT AND FOR THE PROPOSAL TO ADJOURN THE SPECIAL MEETING TO
SOLICIT ADDITIONAL PROXIES OR VOTES.
As of the record date for the Special Meeting, all directors and executive
officers of MFS and their affiliates (as a group) were entitled to vote
approximately 7% of the voting power of the MFS capital stock at the Special
Meeting. All such directors and executive officers and their affiliates have
indicated their intention to vote their shares for the approval of the Merger
Agreement and the transactions contemplated thereby at the Special Meeting and
for the approval of the adjournment of the Special Meeting to solicit additional
proxies or votes.
In view of the importance of the action to be taken at this Special Meeting
of MFS Stockholders, we urge you to review carefully the accompanying Notice of
Special Meeting of Stockholders and the Joint Proxy Statement/Prospectus,
including the appendices thereto, which also include information on MFS and
WorldCom. Whether or not you expect to attend the Special Meeting, please
complete, sign and date the enclosed proxy and return it to MFS as promptly as
possible. Should you require assistance in completing your proxy card or if you
have questions about the voting procedure described in the accompanying Joint
Proxy Statement/Prospectus, please feel free to contact Gary Brandt, Vice
President Investor Relations, at 11808 Miracle Hills Drive, Omaha, Nebraska
68154 (telephone (402) 231-3000).
Sincerely,
/s/ JAMES Q. CROWE
---------------------------------
James Q. Crowe
Chairman of the Board and
Chief Executive Officer
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MFS COMMUNICATIONS COMPANY, INC.
11808 MIRACLE HILLS DRIVE
OMAHA, NEBRASKA 68154
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 20, 1996
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To the Stockholders of MFS Communications Company, Inc.:
The Special Meeting of Stockholders of MFS Communications Company, Inc., a
Delaware corporation ("MFS"), will be held at The Joslyn Art Museum, 2200 Dodge
Street, Omaha, Nebraska, on December 20, 1996 at 9:00 a.m., local time, for the
following purposes:
(1) To consider and vote upon a proposal (the "Merger Proposal") to
adopt the Amended and Restated Agreement and Plan of Merger, dated as of
August 25, 1996 (the "Merger Agreement"), by and among MFS, WorldCom, Inc.,
a Georgia corporation ("WorldCom"), and HIJ Corp., a wholly owned
subsidiary of WorldCom ("Acquisition Subsidiary"), providing for the merger
(the "Merger") of Acquisition Subsidiary with and into MFS, and to
authorize the Merger and the other transactions contemplated thereby. The
consummation of the Merger will result in, among other things, MFS becoming
a wholly owned subsidiary of WorldCom and the exchange of each outstanding
share of common stock of MFS, par value $.01 per share, into the right to
receive 2.1 shares of WorldCom common stock, par value $.01 per share, and
each outstanding share of Series A 8% Cumulative Convertible Preferred
Stock, par value $.01 per share, of MFS and Series B Convertible Preferred
Stock, par value $.01 per share, of MFS (the "MFS Series B Preferred
Stock") (other than those held by holders of MFS Series B Preferred Stock
exercising appraisal rights) into the right to receive one share of Series
A 8% Cumulative Convertible Preferred Stock, par value $.01 per share, of
WorldCom and one share of Series B Convertible Preferred Stock, par value
$.01 per share, of WorldCom, respectively;
(2) To consider and vote upon a proposal to adjourn the Special
Meeting to allow for additional solicitation of stockholder proxies or
votes in the event that the number of proxies or votes sufficient to obtain
a quorum or to approve the Merger Proposal has not been received by the
date of the Special Meeting; and
(3) To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The Board of Directors of MFS has fixed the close of business on November
13, 1996, as the record date for the determination of the holders of MFS capital
stock entitled to notice of, and to vote at, the Special Meeting and
adjournments or postponements thereof. The Merger Proposal requires the
affirmative vote of the holders of a majority of the votes entitled to be cast
in respect of all outstanding shares of MFS capital stock voting as a single
class. The proposal to adjourn the Special Meeting to solicit additional proxies
or votes requires the approval of a majority of votes represented by the holders
of MFS capital stock present in person or by proxy at the Special Meeting and
entitled to vote thereon.
Information regarding the proposed Merger, the Merger Agreement and related
matters is contained in the accompanying Joint Proxy Statement/Prospectus and
the appendices thereto, which are incorporated by reference herein and form a
part of this Notice.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, HOWEVER, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A
POSTAGE PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY STOCKHOLDER ATTENDING
THE SPECIAL MEETING MAY VOTE IN PERSON EVEN IF THAT STOCKHOLDER HAS RETURNED A
PROXY.
By Order of the Board of Directors
/s/ JAMES Q. CROWE
-----------------------------------
James Q. Crowe
Chairman of the Board and
Chief Executive Officer
Dated: November 14, 1996
PLEASE DO NOT SEND SHARE CERTIFICATES AT THIS TIME
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WORLDCOM, INC.
MFS COMMUNICATIONS COMPANY, INC.
JOINT PROXY STATEMENT FOR
SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD ON DECEMBER 20, 1996.
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WORLDCOM, INC.
PROSPECTUS
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This Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus") is being furnished to the holders of (i) common stock,
par value $.01 per share (the "MFS Common Stock"), (ii) Series A 8% Cumulative
Convertible Preferred Stock, par value $.01 per share (the "MFS Series A
Preferred Stock"), and (iii) Series B Convertible Preferred Stock, par value
$.01 per share (the "MFS Series B Preferred Stock," and together with the MFS
Common Stock and the MFS Series A Preferred Stock, the "MFS Capital Stock"), of
MFS Communications Company, Inc., a Delaware corporation ("MFS"), in connection
with the solicitation of proxies by the Board of Directors of MFS (the "MFS
Board of Directors") for use at the Special Meeting of Stockholders of MFS to be
held at The Joslyn Art Museum, 2200 Dodge Street, Omaha, Nebraska, on December
20, 1996, at 9:00 a.m., local time, and at any and all adjournments or
postponements thereof (the "MFS Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to the
holders of common stock, par value $.01 per share (the "WorldCom Common Stock"),
of WorldCom, Inc., a Georgia corporation ("WorldCom"), in connection with the
solicitation of proxies by the Board of Directors of WorldCom (the "WorldCom
Board of Directors") for use at the Special Meeting of Shareholders of WorldCom
to be held at 515 East Amite Street, Jackson, Mississippi on December 20, 1996,
at 9:00 a.m. local time, and at any and all adjournments or postponements
thereof (the "WorldCom Special Meeting" and, together with the MFS Special
Meeting, the "Special Meetings").
This Joint Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of HIJ Corp., a Delaware corporation and wholly owned subsidiary of
WorldCom ("Acquisition Subsidiary"), with and into MFS pursuant to an Amended
and Restated Agreement and Plan of Merger, dated as of August 25, 1996, by and
among WorldCom, Acquisition Subsidiary and MFS (the "Merger Agreement"). Upon
consummation of the Merger, MFS will become a wholly owned subsidiary of
WorldCom. In the Merger, each share of MFS Common Stock will be converted into
the right to receive 2.1 shares of WorldCom Common Stock (the "Common Exchange
Ratio"), and each share of MFS Series A Preferred Stock and MFS Series B
Preferred Stock (other than those held by holders of MFS Series B Preferred
Stock exercising appraisal rights) will be converted into the right to receive
one share of Series A 8% Cumulative Convertible Preferred Stock, par value $.01
per share, of WorldCom (the "WorldCom Series A Preferred Stock"), and one share
of Series B Convertible Preferred Stock, par value $.01 per share, of WorldCom
(the "WorldCom Series B Preferred Stock"), respectively (such exchange ratios
being hereinafter referred to as the "Series A Exchange Ratio" and the "Series B
Exchange Ratio," respectively). The terms of the WorldCom preferred stock issued
to MFS preferred stockholders are substantially similar to the terms of the
corresponding MFS preferred stock (with such stock being convertible at the same
conversion price into the same number of shares of WorldCom Common Stock, in
each case, as adjusted for the Common Exchange Ratio), except that each share of
WorldCom Series B Preferred Stock (i) will be entitled to one vote per share on
all matters on which holders of WorldCom Common Stock are entitled to vote, and
(Continued on following page.)
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE EVALUATED IN CONNECTION WITH THE MERGER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
This Joint Proxy Statement/Prospectus, the Notices of Special Meeting and
the accompanying forms of proxy were first mailed to the shareholders of
WorldCom and stockholders of MFS on or about November 18, 1996.
---------------------
The date of this Joint Proxy Statement/Prospectus is November 14, 1996.
<PAGE> 6
(ii) in contrast to shares of MFS Series B Preferred Stock, will not be subject
to an irrevocable proxy with respect to any voting rights of such series and
will not be subject to contractual restrictions on transfer. In addition, each
depositary share representing 1/100th of a share of MFS Series A Preferred Stock
(the "MFS Depositary Shares") will be exchanged for a depositary share
representing 1/100th of a share of WorldCom Series A Preferred Stock (the
"WorldCom Depositary Shares"). For additional information regarding the
consideration to be received by MFS stockholders in connection with the Merger
(the "Merger Consideration"), including the WorldCom Common Stock, the WorldCom
Series A Preferred Stock and the WorldCom Series B Preferred Stock
(collectively, the "WorldCom Capital Stock") and the WorldCom Depositary Shares,
see "Plan of Merger -- General Description of the Merger" and "Description of
WorldCom Capital Stock." Fractional shares of WorldCom Common Stock will not be
issued; instead, MFS stockholders who would otherwise be entitled to fractional
shares of WorldCom Common Stock will receive cash in lieu thereof. See "Plan of
Merger -- Fractional Shares."
At the Effective Time (as hereinafter defined), the then outstanding and
unexercised options (the "MFS Options") and warrants (the "MFS Warrants")
exercisable for shares of MFS Common Stock will be converted into options
("WorldCom Options") and warrants ("WorldCom Warrants"), respectively,
exercisable for shares of WorldCom Common Stock having the same terms and
conditions as the MFS Options and MFS Warrants, including such terms and
conditions as may be incorporated by reference into the agreements evidencing
the MFS Options and MFS Warrants, except that (i) the exercise price and the
number of shares issuable upon exercise will be divided and multiplied,
respectively, by the Common Exchange Ratio and (ii) the holder of each then
outstanding and unexercised MFS Option which is an "Outperformance Option"
awarded under the MFS 1993 Stock Plan (the "MFS Outperformance Options") will be
instead entitled to receive the value of such MFS Outperformance Option in
accordance with the terms of the MFS 1993 Stock Plan. See "Plan of
Merger -- Terms and Conditions of the Proposed Merger -- MFS Options and
Warrants."
The Merger is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, no gain or loss will be recognized by MFS stockholders on the
exchange of their shares of MFS Capital Stock (the "MFS Shares") for shares of
WorldCom Capital Stock ("WorldCom Shares") except to the extent of cash payments
received in lieu of fractional WorldCom Shares. The exchange of the MFS Options
and MFS Warrants for WorldCom Options and WorldCom Warrants pursuant to the
terms of the Merger should be treated as a nontaxable event to the holders
thereof. See "Plan of Merger -- Certain Federal Income Tax Consequences."
Termination by WorldCom or MFS under certain circumstances, including,
without limitation, failure to receive shareholder approval, will require one
party to make a $350 million payment to the other party as a termination fee. In
the event a party is entitled to such fee, such party will also be entitled to
receive certain communications services at a defined cost from the other party
for a period of three years. See "Plan of Merger -- Terms and Conditions of the
Proposed Merger -- Termination Fees" and "-- Description of Services Agreement."
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
WorldCom with respect to an estimated (as of November 13, 1996) maximum of (i)
553,751,218 shares of WorldCom Common Stock and associated preferred stock
purchase rights, including 32,703,275 and 1,332,314 shares issuable upon
conversion of the WorldCom Series A Preferred Stock and WorldCom Series B
Preferred Stock, respectively, 2,033,600 shares issuable in payment in lieu of
cash dividends on WorldCom Series A Preferred Stock, and 262,899 shares issuable
in respect of accrued dividends upon conversion of WorldCom Series B Preferred
Stock, (ii) 9,499,200 WorldCom Depositary Shares, each representing a 1/100th
interest in a share of WorldCom Series A Preferred Stock, together with 94,992
underlying shares of WorldCom Series A Preferred Stock and (iii) 13,680,011
shares of WorldCom Series B Preferred Stock.
WorldCom Common Stock is traded on the Nasdaq National Market under the
symbol "WCOM." MFS Common Stock and MFS Depositary Shares are also traded on the
Nasdaq National Market under the symbols "MFST" and "MFSTP," respectively. On
November 13, 1996, the closing sale prices for WorldCom Common Stock, MFS Common
Stock and MFS Depositary Shares, as reported on the Nasdaq National Market, were
$24.63 per share, $50.75 per share and $86.25 per share, respectively. Holders
of MFS Capital Stock are urged to obtain more recent market information relating
to the closing sale price of the WorldCom Common Stock.
The Boards of Directors of MFS, WorldCom and Acquisition Subsidiary, and
WorldCom as the sole holder of all of the outstanding capital stock of
Acquisition Subsidiary have approved the Merger Agreement. THE MFS BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS OF MFS CAPITAL STOCK VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE AUTHORIZATION OF THE
MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT AND FOR THE
PROPOSAL TO ADJOURN THE MFS SPECIAL MEETING IF NECESSARY TO OBTAIN ADDITIONAL
PROXIES OR VOTES. THE WORLDCOM BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF WORLDCOM COMMON STOCK VOTE FOR THE ISSUANCE OF THE WORLDCOM CAPITAL
STOCK AND THE TRANSACTIONS CONTEMPLATED THEREBY AND THE PROPOSED AMENDMENT TO
THE AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED, OF WORLDCOM, AS
DESCRIBED HEREIN, AND FOR THE PROPOSAL TO ADJOURN THE WORLDCOM SPECIAL MEETING
IF NECESSARY TO OBTAIN ADDITIONAL PROXIES OR VOTES. See "Plan of
Merger -- Interests of Certain Persons in the Merger."
Proxies for the MFS Special Meeting may be revoked, subject to the
procedures described herein, at any time up to and including the date of the MFS
Special Meeting. See "The MFS Special Meeting -- Record Date; Voting Rights;
Proxies." Proxies for the WorldCom Special Meeting may be revoked, subject to
the procedures described herein, at any time up to and including the date of the
WorldCom Special Meeting. See "The WorldCom Special Meeting -- Voting and
Revocation of Proxies."
<PAGE> 7
NO PERSON HAS BEEN AUTHORIZED BY WORLDCOM OR MFS TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EITHER WORLDCOM OR MFS.
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A
PROXY OR AN OFFER OR SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OTHER THAN THE SHARES OF WORLDCOM CAPITAL STOCK TO WHICH IT
RELATES OR AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED HEREBY
SHALL, UNDER ANY CIRCUMSTANCES, IMPLY OR CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF WORLDCOM OR MFS OR IN THE INFORMATION SET FORTH
OR INCORPORATED BY REFERENCE HEREIN SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
WorldCom and MFS are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by each of WorldCom and MFS may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at New York Regional
Office, Seven World Trade Center, Suite 1300, New York, New York 10048 and
Midwest Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can also be obtained from the
Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a
Web site that contains reports, proxy and information statements and other
materials that are filed through the Commission's Electronic Data Gathering,
Analysis and Retrieval (EDGAR) system. This Web site can be accessed at
http://www.sec.gov. In addition, material filed by each of WorldCom and MFS can
be inspected at the offices of the National Association of Securities Dealers,
Inc. (the "NASD"), at 1735 K Street, N.W., Washington, D.C. 20006.
This Joint Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement on Form S-4 and exhibits
relating thereto, including any amendments (the "Registration Statement"), of
which this Joint Proxy Statement/Prospectus is a part, and which WorldCom has
filed with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). As permitted by the rules and regulations of the Commission,
this Joint Proxy Statement/Prospectus omits certain information contained or
incorporated by reference in the Registration Statement. Statements contained in
this Joint Proxy Statement/Prospectus as to the contents of any contract or
other document filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such reference. For further
information, reference is hereby made to the Registration Statement.
As used in this Joint Proxy Statement/Prospectus, the term "MFS" means MFS
Communications Company, Inc. and its subsidiaries, and the term "WorldCom" means
WorldCom, Inc. and its subsidiaries. All information contained or incorporated
by reference in this Joint Proxy Statement/Prospectus relating to MFS was
provided by the management and Board of Directors of MFS. WorldCom assumes no
responsibility for the accuracy of such information. All information contained
or incorporated by reference in this Joint Proxy Statement/Prospectus relating
to WorldCom was provided by the management and Board of Directors of WorldCom.
MFS assumes no responsibility for the accuracy of such information.
i
<PAGE> 8
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed with the Commission by WorldCom (formerly
LDDS Communications, Inc. ("LDDS") and Resurgens Communications Group, Inc.
("Resurgens")) under File No. 0-11258 (formerly File No. 1-10415) and by MFS
under File No. 0-21594 pursuant to the Exchange Act are incorporated herein by
reference:
(a) (1) WorldCom's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 (the "WorldCom 1995 Form 10-K"); (2) WorldCom's
Report by Issuer of Securities Quoted on NASDAQ on Form 10-C dated July 12,
1996; (3) WorldCom's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996; (4) WorldCom's
Current Reports on Form 8-K dated August 25, 1996 (filed August 26, 1996
and as amended on Form 8-K/A on November 4, 1996) and August 25, 1996
(filed August 26, 1996 and as amended on Form 8-K/A filed August 30, 1996);
(5) audited financial statements as of December 31, 1994 and 1993 and for
the years then ended of the network services operations of Williams
Telecommunications Group, Inc. ("WilTel"), including WilTel, Inc., WilTel
Undersea Cable, Inc. and WilTel International Inc., which were wholly owned
subsidiaries of WilTel (collectively "WilTel Network Services"), included
in WorldCom's Current Report on Form 8-K/A dated August 22, 1994 (filed
April 19, 1995); (6) the description of WorldCom's (formerly LDDS' and
Resurgens') Common Stock as contained in Item 1 of Resurgens' Registration
Statement on Form 8-A dated December 12, 1989, as updated by the
descriptions contained in Amendment No. 2 of Resurgens' Registration
Statement on Form S-4 (File No. 33-62746), as declared effective by the
Commission on August 11, 1993, which includes the Joint Proxy
Statement/Prospectus (the "1993 Joint Proxy Statement/Prospectus") with
respect to Resurgens' Annual Meeting of Shareholders held on September 14,
1993, under the following captions: "Proposals No. 1 and 2 -- The Proposed
Mergers -- Special Redemption Provisions," "Information Regarding
Resurgens -- Description of Resurgens Capital Stock" and "-- Amendments to
Resurgens' Restated Articles of Incorporation -- LDDS Merger Agreement,"
and as further updated by WorldCom's Current Report on Form 8-K dated and
filed August 14, 1995; (7) the description of WorldCom's Preferred Stock
Purchase Rights contained in WorldCom's Registration Statement on Form 8-A
dated August 26, 1996; and (8) the descriptions of the WorldCom Series A
Preferred Stock, the WorldCom Series B Preferred Stock and the WorldCom
Depositary Shares contained in WorldCom's Registration Statements on Form
8-A dated November 13, 1996.
(b)(1) MFS' Annual Report on Form 10-K for the year ended December 31,
1995, as amended by MFS' Form 10-K/A Amendment No. 1 on April 30, 1996; (2)
MFS' Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996,
June 30, 1996 and September 30, 1996; (3) MFS' Current Reports on Form 8-K
dated January 23, 1996, April 30, 1996, May 10, 1996, August 1, 1996,
August 12, 1996 (which Report includes audited financial statements of
UUNET Technologies, Inc. ("UUNET") as of December 31, 1995 and 1994 and for
each of the three years in the period ended December 31, 1995), and August
24, 1996; (4) the description of MFS Common Stock contained in MFS'
Registration Statement on Form 8-A filed with the Commission pursuant to
Section 12(g) of the Exchange Act on April 21, 1993, as amended by
Amendment No. 1 filed with the Commission on Form 8 on May 10, 1993, and
any amendment or report filed for the purpose of updating any such
description; (5) the description of MFS Series A Preferred Stock contained
in MFS' Registration Statement on Form 8-A filed with the Commission
pursuant to Section 12(g) of the Exchange Act on May 10, 1995, and any
amendment or report filed for the purpose of updating any such description;
(6) the description of MFS Series B Preferred Stock contained in MFS'
Registration Statement on Form 8-A filed with the Commission pursuant to
Section 12(g) of the Exchange Act on October 23, 1995, and any amendment or
report filed for the purpose of updating any such description; and (7) the
description of the Rights to Purchase Series C Junior Participating
Preferred Stock contained in Amendment No. 1 to MFS' Registration Statement
on Form 8-A filed with the Commission pursuant to Section 12(g) of the
Exchange Act on November 21, 1995, and any amendment or report filed for
the purpose of updating any such description.
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All documents filed by WorldCom and MFS with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the offering of any securities offered
hereby shall be deemed to be incorporated by reference into this Joint Proxy
Statement/Prospectus and to be a part hereof from the date of filing of such
documents. See "Available Information." Any statement contained herein, or in a
document incorporated or deemed to be incorporated herein by reference, shall be
deemed to be modified or superseded for purposes of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document incorporated or deemed to be incorporated
herein by reference, which statement is also incorporated herein by reference,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS
(EXCLUDING EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE INTO THE INFORMATION INCORPORATED HEREIN) WILL BE PROVIDED BY FIRST
CLASS MAIL WITHOUT CHARGE TO EACH PERSON TO WHOM THIS JOINT PROXY
STATEMENT/PROSPECTUS IS DELIVERED, INCLUDING ANY BENEFICIAL OWNER OF WORLDCOM
COMMON STOCK OR MFS CAPITAL STOCK, UPON WRITTEN OR ORAL REQUEST BY SUCH PERSON
AS FOLLOWS: WITH RESPECT TO WORLDCOM, TO WORLDCOM, INC., 515 EAST AMITE STREET,
JACKSON, MISSISSIPPI 39201-2702, ATTENTION: STEPHANIE Q. SCOTT, DIRECTOR OF
FINANCIAL REPORTING (TELEPHONE: (601) 360-8600); AND WITH RESPECT TO MFS, TO MFS
COMMUNICATIONS COMPANY, INC., 11808 MIRACLE HILLS DRIVE, OMAHA, NEBRASKA 68154,
ATTENTION: GARY BRANDT, VICE PRESIDENT INVESTOR RELATIONS (TELEPHONE: (402)
231-3000). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY DECEMBER 13, 1996.
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<PAGE> 10
TABLE OF CONTENTS
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AVAILABLE INFORMATION............................................................... i
INCORPORATION OF DOCUMENTS BY REFERENCE............................................. ii
INDEX OF DEFINED TERMS.............................................................. viii
SUMMARY............................................................................. 1
Business of WorldCom.............................................................. 1
Business of MFS................................................................... 2
The Proposed Merger............................................................... 3
Services Agreement................................................................ 5
Reciprocal Stock Options.......................................................... 5
Management and Operations After the Merger........................................ 5
Accounting Treatment.............................................................. 5
Proposed Amendment of WorldCom Articles........................................... 5
Certain Federal Income Tax Consequences........................................... 6
Reasons of WorldCom and MFS for the Merger........................................ 6
Recommendations of the WorldCom Board of Directors................................ 6
Opinion of WorldCom's Financial Advisor........................................... 6
Recommendation of the MFS Board of Directors...................................... 6
Opinion of MFS' Financial Advisor................................................. 7
The WorldCom Special Meeting...................................................... 7
The MFS Special Meeting........................................................... 8
Interests of Certain Persons in the Merger........................................ 8
Regulatory Filings and Approvals.................................................. 10
Appraisal Rights.................................................................. 10
Comparison of Shareholder Rights.................................................. 10
Risk Factors...................................................................... 10
Market Prices..................................................................... 11
Comparative Per Share Data........................................................ 13
Selected Pro Forma Consolidated Financial Information............................. 14
Summary Historical Financial Data................................................. 15
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS........................... 16
RISK FACTORS........................................................................ 16
Risks Related to the Merger....................................................... 16
Risks Associated with Failure to Obtain Consents of Certain Governmental
Authorities................................................................... 16
Integration of the Companies................................................... 16
Risks Associated with the Repurchase of MFS Senior Notes....................... 17
Substantial Dilution of Ownership Interest of Current WorldCom Shareholders.... 17
The Effect of Stock Price Fluctuations on the Consideration to be Received by
the Holders of MFS Capital Stock in the Merger; Opinions of Financial Advisors
Not Updated................................................................... 17
Shares Eligible for Future Sale; Possible Volatility of Stock Prices........... 18
Risks Related to WorldCom, MFS and the Combined Company........................... 18
Acquisition Strategy........................................................... 18
Operating Losses............................................................... 19
Significant Capital Requirements............................................... 19
Risks of Financial Leverage; Debt Service, Interest Rate Fluctuations, Possible
Reduction in Liquidity, Dividend Restrictions, and Other Restrictive
Covenants..................................................................... 20
Regulation..................................................................... 20
Competition.................................................................... 22
Risks of Expansion and Implementation.......................................... 24
Dependence on Availability of Transmission Facilities.......................... 25
Rapid Technological Changes; Dependence Upon Product Development............... 25
Dependence on Key Personnel.................................................... 25
Contingent Liabilities......................................................... 26
Potential Liability of On-line Service Providers............................... 27
Dependence upon Network Infrastructure; Risk of System Failure; Security
Risks......................................................................... 28
</TABLE>
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Variability of Quarterly Operating Results..................................... 28
Strategic Relationship Between UUNET and Microsoft............................. 28
UUNET's Dependence upon Suppliers; Sole and Limited Sources of Supply.......... 29
Anti-Takeover Provisions....................................................... 29
PLAN OF MERGER...................................................................... 31
General Description of the Merger................................................. 31
Background of the Merger.......................................................... 32
Reasons for the Merger; Board Recommendations..................................... 35
Opinions of Financial Advisors.................................................... 37
WorldCom....................................................................... 37
MFS............................................................................ 41
Terms and Conditions of the Proposed Merger....................................... 45
Conditions of the Merger....................................................... 45
Mutual Conditions.............................................................. 45
WorldCom's Conditions.......................................................... 46
MFS' Conditions................................................................ 46
Certain Covenants.............................................................. 47
Conduct of MFS Business Prior to the Merger.................................... 47
Conduct of WorldCom Business Prior to the Merger............................... 48
Agreement Not To Solicit Other Offers.......................................... 49
Confidentiality................................................................ 50
Other Covenants................................................................ 50
Termination of the Merger Agreement............................................ 51
Termination Fees............................................................... 53
Non-Survival of Representations and Covenants.................................. 55
Amendment of the Merger Agreement.............................................. 55
Closing Date................................................................... 55
Expenses....................................................................... 55
MFS Options and Warrants....................................................... 55
Description of Services Agreement................................................. 56
Interests of Certain Persons in the Merger........................................ 58
Surrender of Stock Certificates and Receipt of Merger Consideration............... 59
Fractional Shares................................................................. 60
Certain Regulatory Filings and Approvals.......................................... 60
Accounting Treatment.............................................................. 61
Public Trading Market............................................................. 62
Status Under Federal Securities Laws.............................................. 62
Certain Federal Income Tax Consequences........................................... 62
STOCK OPTION AGREEMENTS............................................................. 64
CERTAIN RELATED TRANSACTIONS........................................................ 67
Rights Agreements................................................................. 67
Other............................................................................. 67
PROPOSED AMENDMENT OF THE WORLDCOM ARTICLES......................................... 68
MANAGEMENT OF WORLDCOM FOLLOWING THE MERGER......................................... 70
Compensation of Directors......................................................... 73
Committees of the Board of Directors.............................................. 73
Other............................................................................. 73
THE WORLDCOM SPECIAL MEETING........................................................ 74
General........................................................................... 74
Date, Time and Place.............................................................. 74
Record Date; Vote Required........................................................ 74
Voting and Revocation of Proxies.................................................. 75
Solicitation of Proxies........................................................... 75
Adjournment of the WorldCom Special Meeting....................................... 76
Future Proposals of WorldCom Security Holders..................................... 76
</TABLE>
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THE MFS SPECIAL MEETING............................................................. 77
General........................................................................... 77
Date, Time and Place.............................................................. 77
Record Date; Voting Rights; Proxies............................................... 77
Solicitation of Proxies........................................................... 78
Quorum............................................................................ 78
Required Vote..................................................................... 78
Adjournment of the MFS Special Meeting............................................ 79
APPRAISAL RIGHTS.................................................................... 80
INFORMATION REGARDING WORLDCOM...................................................... 83
Business of WorldCom.............................................................. 83
DESCRIPTION OF WORLDCOM CAPITAL STOCK............................................... 84
Common Stock...................................................................... 84
Preferred Stock................................................................... 84
Series A Preferred Stock.......................................................... 85
Dividends...................................................................... 85
Mandatory Conversion of WorldCom Series A Preferred Stock...................... 86
Right to Redeem WorldCom Series A Preferred Stock.............................. 87
Conversion at Option of Holder................................................. 88
Conversion Adjustment.......................................................... 88
Adjustment for Consolidation or Merger......................................... 89
Fractional Shares.............................................................. 90
Notice to Holders of WorldCom Series A Preferred Stock......................... 90
Liquidation Rights............................................................. 91
Voting Rights.................................................................. 91
Reissuance..................................................................... 92
Listing........................................................................ 92
Registrar and Transfer Agent................................................... 92
Series B Preferred Stock.......................................................... 92
Dividends...................................................................... 92
Conversion at Option of Holder................................................. 93
Conversion Adjustment.......................................................... 94
Adjustment for Consolidation or Merger......................................... 94
Right to Redeem WorldCom Series B Preferred Stock.............................. 94
Liquidation Rights............................................................. 95
Notice to Holders of WorldCom Series B Preferred Stock......................... 95
Voting Rights.................................................................. 96
Reissuance..................................................................... 96
No Listing..................................................................... 96
Registrar and Transfer Agent................................................... 96
Depositary Shares................................................................. 97
Issuance of Depositary Receipts................................................ 97
Withdrawal of WorldCom Series A Preferred Stock................................ 97
Mandatory Conversion, or Call.................................................. 97
Conversion at the Option of Holder............................................. 98
Dividends and Other Distributions.............................................. 98
Record Date.................................................................... 99
Voting of WorldCom Series A Preferred Stock.................................... 99
Amendment and Termination of Deposit Agreement................................. 99
Charges of Depositary.......................................................... 100
General........................................................................ 100
WorldCom Series 3 Preferred Stock................................................. 100
Preferred Stock Purchase Rights................................................... 100
Certain Charter and Bylaw Provisions.............................................. 102
INFORMATION REGARDING MFS........................................................... 103
Business of MFS................................................................... 103
</TABLE>
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WORLDCOM PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.......................... 104
MFS ADJUSTED HISTORICAL FINANCIAL STATEMENTS........................................ 110
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS........................................................................ 114
COMPARATIVE RIGHTS OF SHAREHOLDERS.................................................. 116
Election of Directors............................................................. 116
Removal of Directors.............................................................. 117
Action By Written Consent......................................................... 117
Amendments to Charter............................................................. 117
Amendments to Bylaws.............................................................. 118
Special Meetings of Shareholders.................................................. 118
Vote on Extraordinary Corporate Transactions...................................... 118
Dividends......................................................................... 118
Appraisal Rights of Dissenting Shareholders....................................... 119
Indemnification and Limitation of Liability of Directors and Officers............. 120
Preemptive Rights................................................................. 122
Special Redemption Provisions..................................................... 122
MFS Preferred Stock............................................................... 122
General........................................................................ 122
MFS Series A Preferred Stock................................................... 123
MFS Series B Preferred Stock................................................... 124
MFS Series C Preferred Stock................................................... 124
WorldCom Preferred Stock....................................................... 124
Effect of Outstanding Preferred Stock............................................. 124
Preferred Stock Purchase Rights................................................... 125
Business Combination Restrictions................................................. 126
LEGAL MATTERS....................................................................... 129
EXPERTS............................................................................. 129
APPENDIX I -- Merger Agreement...................................................... I-1
APPENDIX II -- Services Agreement................................................... II-1
APPENDIX III -- WorldCom Option Agreement........................................... III-1
APPENDIX IV -- MFS Option Agreement................................................. IV-1
APPENDIX V -- Opinion of Salomon Brothers Inc ...................................... V-1
APPENDIX VI -- Opinion of Gleacher NatWest, Inc..................................... VI-1
APPENDIX VII -- Section 262 of the DGCL............................................. VII-1
APPENDIX VIII -- Terms of WorldCom Series A Preferred Stock......................... VIII-1
APPENDIX IX -- Terms of WorldCom Series B Preferred Stock........................... IX-1
</TABLE>
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INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
1993 Joint Proxy Statement/Prospectus...... ii
1994 Notes................................. 17
1996 Notes................................. 17
1997E P/E Ratio............................ 44
Accumulated Unpaid Dividends............... 86
Acquiring Person........................... 100
Acquisition Subsidiary..................... Cover Page
Adjusted Price............................. 55
Adjusted Shares............................ 56
Amendment.................................. 5
America Online............................. 23
Antitrust Division......................... 61
AT&T....................................... 22
ATM-based.................................. 2
Average Stock Price........................ 85
BBN........................................ 23
Big 3 Long Distance Companies.............. 44
BOC........................................ 2
Call Price................................. 87
CAPs....................................... 22
Change in Control Price.................... 56
CLEC....................................... 33
Code....................................... Cover Page
Commission................................. i
Common Equivalent Rate..................... 87
Common Exchange Ratio...................... Cover Page
CompuServe................................. 23
Conversion Date............................ 93
Credit Facility............................ 20
DCF........................................ 39
Deloitte................................... 26
Deposit Agreement.......................... 97
Depositary................................. 97
Depositary Receipts........................ 97
DGCL....................................... 10
DOJ........................................ 45
EBIT....................................... 38
EBITDA..................................... 38
Effective Time............................. 4
Exchange Act............................... i
Exchange Agent............................. 32
Factor..................................... 56
FCC........................................ 1
FCC Interconnect Order..................... 21
Firm Value................................. 38
FTC........................................ 45
GBCC....................................... 84
Gleacher NatWest........................... 7
Hart-Scott-Rodino Act...................... 10
IBES....................................... 44
IDB........................................ 1
IDB Merger................................. 1
ILEC....................................... 21
Initial Redemption Date.................... 87
Joint Proxy Statement/Prospectus........... Cover Page
Junior Stock............................... 86
LDDS....................................... ii
LECs....................................... 2
LQA Revenue................................ 38
LQA Revenues Multiple...................... 86
LTM........................................ 38
Mandatory Conversion Date.................. 86
MCI........................................ 22
Merger..................................... Cover Page
Merger Agreement........................... Cover Page
Merger Consideration....................... Cover Page
Merger Proposal............................ Cover Page
MFS........................................ Cover Page
MFS Board of Directors..................... Cover Page
MFS By-laws................................ 9
MFS Capital Stock.......................... Cover Page
MFS Certificate of Incorporation........... 9
MFS Common Stock........................... Cover Page
MFS Comparable Group....................... 38
MFS Depositary Shares...................... Cover Page
MFS Notes.................................. 17
MFS Options................................ Cover Page
MFS Outperformance Options................. Cover Page
MFS Period................................. 56
MFS Record Date............................ 8
MFS Rights Agreement....................... 67
MFS Series A Preferred Stock............... Cover Page
MFS Series B Preferred Stock............... Cover Page
MFS Shares................................. Cover Page
MFS Special Meeting........................ Cover Page
MFS Stock Option........................... 64
MFS Stock Option Agreement................. 64
MFS Superior Proposal...................... 52
MFS Warrants............................... Cover Page
Microsoft.................................. 11
Microsoft Agreement........................ 28
MPI........................................ 75
Multiple/Growth Index...................... 44
NAPs....................................... 2
NASD....................................... i
Net PP&E................................... 38
Non-Terminating Party...................... 56
Option Agreements.......................... 5
Optional Conversion Rate................... 88
PSI........................................ 23
PTTs....................................... 28
PUCs....................................... 9
Purchase Event............................. 64
R&D........................................ 108
Redemption Price........................... 94
Registration Statement..................... i
Resurgens.................................. ii
S&P........................................ 56
Salomon.................................... 6
Salomon Report............................. 38
Section 262................................ 10
Securities Act............................. i
Selling Shareholder........................ 66
Series A Articles of Amendment............. 85
Series A Exchange Ratio.................... Cover Page
Series B Articles of Amendment............. 92
Series B Conversion Rate................... 93
Series B Exchange Ratio.................... Cover Page
Service.................................... 62
Services Agreement......................... 5
Special Meetings........................... Cover Page
Sprint..................................... 22
</TABLE>
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<S> <C>
Stock Acquisition Date..................... 100
Stock Options.............................. 64
Stripped Firm Value........................ 38
Subdivision................................ 96
Surviving Corporation...................... 3
Surviving Corporation Material Adverse
Effect................................... 45
Takeover Proposal.......................... 49
TCP/IP..................................... 25
Telecom Act................................ 2
Termination Fee............................ 53
Terminating Party.......................... 56
TSLRIC..................................... 57
Units...................................... 56
U.S. Attorney's Office..................... 26
UUNET...................................... ii
UUNET Acquisition.......................... 2
WilTel..................................... ii
WilTel Acquisition......................... 1
WilTel Network Services.................... ii
WorldCom................................... Cover Page
WorldCom 1995 Form 10-K.................... ii
WorldCom Articles.......................... 4
WorldCom Board of Directors................ Cover Page
WorldCom Bylaws............................ 10
WorldCom Capital Stock..................... Cover Page
WorldCom Common Stock...................... Cover Page
WorldCom Comparable Group.................. 38
WorldCom Depositary Shares................. Cover Page
WorldCom Material Adverse Effect........... 46
WorldCom Options........................... Cover Page
WorldCom Record Date....................... 7
WorldCom Right............................. 100
WorldCom Rights Agreement.................. 29
WorldCom Rights Plan....................... 29
WorldCom Series A Preferred Stock.......... Cover Page
WorldCom Series B Preferred Stock.......... Cover Page
WorldCom Series 3 Preferred Stock.......... 100
WorldCom Shares............................ Cover Page
WorldCom Special Meeting................... Cover Page
WorldCom Stock Option...................... 64
WorldCom Stock Option Agreement............ 64
WorldCom Superior Proposal................. 52
WorldCom Warrants.......................... Cover Page
</TABLE>
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SUMMARY
The following is a summary of certain important terms of the proposed
Merger and related information discussed elsewhere in this Joint Proxy
Statement/Prospectus. This summary does not purport to be complete and is
qualified in its entirety by reference to the more detailed information included
in this Joint Proxy Statement/Prospectus and the appendices hereto, including,
but not limited to, the Merger Agreement set forth as Appendix I hereto.
Shareholders of each of WorldCom and MFS are urged to read this Joint Proxy
Statement/Prospectus and the appendices hereto in their entirety and to consider
carefully the information set forth under the headings "Cautionary Statement
Regarding Forward-Looking Statements" and "Risk Factors."
BUSINESS OF WORLDCOM
WorldCom, a Georgia corporation which conducts business under the name
"LDDS WorldCom," is one of the four largest long distance telecommunications
companies in the United States, based on 1995 revenues. WorldCom provides long
distance telecommunications services to business, consumer and other carrier
customers through its network of fiber optic cables, digital microwave, and
fixed and transportable satellite earth stations, with service to points
throughout the nation and the world. The products and services provided by
WorldCom include: switched and dedicated long distance products, 800 services,
calling cards, domestic and international private lines, broadband data
services, debit cards, conference calling, advanced billing systems, enhanced
faxed and data connections, television and radio transmission and mobile
satellite communications. Based on Federal Communications Commission ("FCC")
statistics as of December 31, 1995 (the most recent statistics available),
WorldCom's share of total toll service revenues for 1995 was 4.3%.
WorldCom's emphasis on acquisitions has taken WorldCom from a small
regional long distance carrier to one of the largest long distance
telecommunications companies in the industry, serving customers domestically and
internationally. On January 5, 1995, WorldCom completed the acquisition of the
network services operations of WilTel, a subsidiary of The Williams Companies,
Inc., for approximately $2.5 billion in cash (the "WilTel Acquisition"). Through
this purchase, WorldCom acquired a nationwide common carrier network of
approximately 11,000 miles of fiber optic cable and digital microwave
facilities.
On December 30, 1994, WorldCom, through a wholly owned subsidiary, merged
with IDB Communications Group, Inc., a Delaware corporation ("IDB"). IDB
operates a domestic and international communications network providing private
line and public switched long distance telecommunications services, facsimile
and data connections, television and radio transmission services, and mobile
satellite communications capabilities. As a result of this merger (the "IDB
Merger"), each share of common stock of IDB was converted into the right to
receive 0.476879 shares of WorldCom Common Stock, resulting in the issuance of
approximately 71,762,000 shares of WorldCom Common Stock. In addition, WorldCom
assumed, on a subordinated basis, jointly and severally with IDB, the
obligations of IDB to pay the principal of and interest on $195.5 million 5%
convertible subordinated notes due 2003, issued by IDB. On July 15, 1996,
WorldCom announced that it had exercised its option to redeem on August 16, 1996
all of the outstanding IDB notes. Prior to such redemption date, a majority of
the holders of the IDB notes elected to convert their notes into WorldCom Common
Stock, resulting in the issuance of approximately 10.3 million shares of
WorldCom Common Stock. The IDB Merger was accounted for as a
pooling-of-interests and, accordingly, the WorldCom financial statements for the
periods prior to the IDB Merger have been restated to include the results of IDB
for all periods presented.
WorldCom follows a four-point growth strategy, consisting of internal
growth, the selective acquisition of smaller long distance companies with
limited geographic service areas and market shares, the consolidation of certain
third tier long distance carriers with larger market shares, and international
expansion.
A predominant share of WorldCom's total revenues is derived from commercial
customers. Commercial customers typically use higher volumes of
telecommunications services than residential customers and concentrate usage on
weekdays during business hours, when rates are highest. Consequently, commercial
customers, on average, generate higher revenues per account than residential
customers. WorldCom has become a significant participant in the long distance
wholesale market and intends to pursue opportunities, if any, for continued
expansion in this area. While total revenues in the wholesale market are less
than from
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<PAGE> 17
commercial customers, expenses are generally reduced in servicing these
customers as the result of fewer invoices, fewer customer service personnel and
a smaller sales force.
The enactment of the Telecommunications Act of 1996 (the "Telecom Act") in
early February 1996 has made it possible for WorldCom to participate in both the
local and long distance markets. WorldCom has formed business associations to
provide long distance telecommunications services with certain local exchange
carriers ("LECs"), and WorldCom expects to pursue resale of local service in
those markets where it is both economically and technically feasible.
WorldCom's principal executive offices are located at 515 East Amite
Street, Jackson, Mississippi 39201-2702, and its telephone number is (601)
360-8600. See "Information Regarding WorldCom."
BUSINESS OF MFS
MFS provides facilities-based telecommunications services and systems to
business and government. MFS is organized as a holding company and operates
through its subsidiaries in two business segments: telecommunications services
and network systems integration. MFS provides telecommunications services
domestically and internationally in the form of: (i) dedicated special access
and private line circuits, local switched service and high speed data
communications to large business customers; (ii) single source integrated local
and long distance switched services, high speed data communications services and
facilities management to medium and small businesses; (iii) local access to long
distance companies; and (iv) local access, asynchronous-transfer-mode-based
("ATM-based") backbone service and interconnection via Network Access Points
("NAPs") to Internet service providers.
MFS provides telecommunications services by utilizing its international
network platform, which consists of MFS-owned transmission and switching
facilities and network capacity leased from other carriers primarily in the
United States and Western Europe.
On August 12, 1996, MFS acquired UUNET through a merger of a subsidiary of
MFS with and into UUNET (the "UUNET Acquisition"). UUNET is a leading worldwide
provider of a comprehensive range of Internet access options, applications, and
consulting services to businesses, professionals and on-line services providers.
UUNET provides both dedicated and dial-up Internet access, and other
applications and services which include Web server hosting and integration
services, client software and security products, training, and network
integration and consulting services. MFS estimates that UUNET's customer base
included over 35,000 business and professional accounts as of September 30,
1996.
UUNET makes available to customers a variety of products and services,
including Web server hosting and content development services, client software
and security products, and training, all of which can be integrated by UUNET
through its network integration and consulting services, through a single
source. UUNET's products and services are supported by a technical staff that is
highly experienced in Internet operations and services. UUNET's network
operations center monitors traffic across UUNET's network 24 hours per day,
seven days per week.
MFS has contacted 21 LECs to initiate the process of implementing the
"co-carrier" provisions of the Telecom Act and has established a co-carrier task
force consisting of approximately 100 personnel dedicated to facilitate the
negotiation and implementation of co-carrier arrangements with the LECs.
Beginning on May 22, 1996, MFS has entered into comprehensive co-carrier
agreements with each of Ameritech Corp., Southwestern Bell, Bell Atlantic, NYNEX
and Bell South, which involve the networks of those companies in the marketing
regions within the respective Bell Operating Company ("BOC") operating
territories in which MFS offers telecommunications services. These agreements
include, among other items, minimum points of interconnection, an equal,
identical and reciprocal rate for termination of local calls, interim number
portability with pass-through of terminating compensation, and terms for the
availability of unbundled loops. Certain of these agreements also contemplate
that loop rates will be set by state regulators through binding arbitration
according to a schedule and costing standards defined by the Telecom Act.
Interim loop rates have been established in a number of states in arbitration
decisions issued in early November 1996. Further proceedings will establish
permanent loop rates.
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<PAGE> 18
Initially created to design and build MFS' networks in a high quality and
cost-effective manner, MFS Network Technologies provides network systems
integration for MFS and third parties which desire to deploy sophisticated
networks, including intelligent transportation systems, voice and data networks,
interactive distance learning networks, security systems and combined cable
television-telephone networks.
The principal executive offices of MFS are located at 11808 Miracle Hills
Drive, Omaha, Nebraska 68154, and its telephone number is (402) 231-3000. See
"Information Regarding MFS."
THE PROPOSED MERGER
Subject to the satisfaction of the terms and conditions set forth in the
Merger Agreement described below, Acquisition Subsidiary, a wholly owned
subsidiary of WorldCom, will merge with and into MFS. Upon consummation of the
Merger, Acquisition Subsidiary's corporate existence will terminate and MFS will
continue as the surviving corporation (the "Surviving Corporation"), wholly
owned by WorldCom.
As a result of the Merger, each share of MFS Common Stock will be converted
into the right to receive 2.1 shares of WorldCom Common Stock, and each share of
MFS Series A Preferred Stock and MFS Series B Preferred Stock (other than those
held by holders of MFS Series B Preferred Stock exercising appraisal rights)
will be converted into the right to receive, respectively, one share of WorldCom
Series A Preferred Stock and one share of WorldCom Series B Preferred Stock. The
terms of the WorldCom preferred stock issued to MFS preferred stockholders are
substantially similar to the terms of the corresponding MFS preferred stock
(with such stock being convertible at the same conversion price into the same
number of shares of WorldCom Common Stock, in each case, as adjusted for the
Common Exchange Ratio), except that each share of WorldCom Series B Preferred
Stock (i) will be entitled to one vote per share on all matters on which holders
of WorldCom Common Stock are entitled to vote and (ii) in contrast to shares of
MFS Series B Preferred Stock, will not be subject to an irrevocable proxy with
respect to any voting rights of such series and will not be subject to
contractual restrictions on transfer. In addition, each depositary share
representing 1/100th of a share of MFS Series A Preferred Stock (previously
defined as the "MFS Depositary Shares") will be exchanged for a depositary share
representing 1/100th of a share of WorldCom Series A Preferred Stock (previously
defined as the "WorldCom Depositary Shares"). For additional information
regarding the Merger Consideration, including the terms of the WorldCom Capital
Stock and the WorldCom Depositary Shares, see "Plan of Merger -- General
Description of Merger" and "Description of WorldCom Capital Stock." No
fractional shares of WorldCom Common Stock will be issued; instead, MFS
stockholders who would otherwise be entitled to fractional shares of WorldCom
Common Stock will receive cash in lieu thereof. See "Plan of Merger -- General
Description of the Merger" and "-- Fractional Shares."
As a result of the Merger, MFS Options will be converted into WorldCom
Options having substantially the same terms and conditions as the MFS Options,
and the MFS Warrants will be converted into WorldCom Warrants having
substantially the same terms and conditions as the MFS Warrants, except that (i)
the exercise price and number of shares of WorldCom Common Stock issuable upon
exercise will be divided and multiplied, respectively, by the Common Exchange
Ratio, and (ii) the holder of each then outstanding and unexercised MFS
Outperformance Option will be instead entitled to receive the value of each such
MFS Outperformance Option in accordance with the terms of the MFS 1993 Stock
Plan. See "Plan of Merger -- Terms and Conditions of the Proposed Merger -- MFS
Options and Warrants."
Based on the capitalization of WorldCom and MFS as of November 13, 1996 and
assuming that all shares of MFS preferred stock are converted into shares of MFS
Common Stock prior to the consummation of the Merger, the stockholders of MFS
immediately prior to the consummation of the Merger will own securities
representing approximately 56% of the outstanding WorldCom Common Stock on a
fully diluted basis following consummation of the Merger, assuming that all
outstanding MFS Options and MFS Warrants are exercised, and approximately 54% of
the outstanding WorldCom Common Stock on a fully diluted basis following
consummation of the Merger, assuming that no outstanding MFS Options and MFS
Warrants are exercised, without adjustment in either case for shares acquired by
WorldCom shareholders in their capacities as stockholders of MFS.
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The Merger Agreement provides that the consummation of the Merger is
subject to certain terms and conditions, including: (i) receipt of the requisite
approval of the Merger and the transactions contemplated thereby by the
stockholders of MFS and the requisite approval by WorldCom shareholders of the
issuance of the WorldCom Capital Stock in the Merger and the transactions
contemplated thereby and the proposed amendment to WorldCom's Amended and
Restated Articles of Incorporation, as amended (the "WorldCom Articles"); (ii)
receipt by WorldCom and MFS of opinions from their respective tax counsel
regarding certain tax matters; (iii) approval of the shares of WorldCom Common
Stock comprising consideration for the Merger for quotation on the Nasdaq
National Market; (iv) receipt of all material consents or approvals of
governmental agencies or bodies required in connection with the Merger; and (v)
satisfaction of other conditions customary to transactions of this nature.
Certain of the terms and conditions of the Merger, other than the requirement of
shareholder approval, may be waived by the parties. The Merger will become
effective at the time of the filing, after satisfaction or waiver of all the
conditions to the Merger, of a Certificate of Merger with the Secretary of State
of the State of Delaware or at such later time as may be specified in the
Certificate of Merger (the "Effective Time"). The date on which the Effective
Time occurs is referred to herein as the "Closing Date." See "Plan of
Merger -- Terms and Conditions of the Proposed Merger -- Conditions of the
Merger."
Pursuant to the Merger Agreement, each of MFS and WorldCom has agreed not
to, nor to authorize or permit its subsidiaries or its officers, directors,
employees, or any investment banker, financial advisor, attorney, accountant or
other representatives, directly or indirectly, to (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other action
designed or reasonably likely to facilitate, any inquiries or the making of any
proposal which constitutes or may reasonably be expected to lead to, or (ii)
participate in any discussions or negotiations regarding, any inquiry, proposal
or offer from any person relating to (a) any direct or indirect acquisition or
purchase of 15% or more of the assets of such party and its subsidiaries or 15%
or more of any class of equity securities of such party or any of its
subsidiaries, (b) any tender offer or exchange offer that if consummated would
result in any person beneficially owning 15% or more of any class of equity
securities of such party or any of its subsidiaries, (c) any merger,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving such party or any of
its subsidiaries other than the transactions contemplated by the Merger
Agreement, or (d) any other transaction, the consummation of which could
reasonably be expected to impede, interfere with, prevent or materially delay
the Merger or which would reasonably be expected to dilute materially the
benefits to the other party of the transactions contemplated by the Merger
Agreement; provided, that if, at any time prior to the Effective Time, the Board
of Directors of such party determines in good faith, after consultation with
outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to its shareholders under applicable law, then such party may,
in response to a Takeover Proposal (as defined herein) which was not solicited
before August 25, 1996, (x) furnish information with respect to such party to
any person pursuant to a customary confidentiality agreement and (y) participate
in negotiations regarding such Takeover Proposal. See "Plan of
Merger -- Agreement Not to Solicit Other Offers."
The Merger Agreement may be amended at any time prior to the Effective Time
by the mutual written consent of the parties. The Merger Agreement may be
terminated at any time prior to the Effective Time (i) by the mutual consent of
the parties, (ii) if the Effective Time has not occurred on or before August 25,
1997, (iii) if the requisite approvals of the respective shareholders of either
MFS or WorldCom are not obtained at the Special Meetings or (iv) under certain
other circumstances. Termination by WorldCom or MFS under certain circumstances,
including, without limitation, failure to receive shareholder approval, will
require one party to make a $350 million payment to the other party as a
termination fee. In the event a party is entitled to such fee, such party will
also be entitled to receive certain communications services at a defined cost
from the other party for a period of three years. See "Plan of Merger -- Terms
and Conditions of the Proposed Merger -- Termination Fees" and "-- Description
of Services Agreement."
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<PAGE> 20
SERVICES AGREEMENT
On August 25, 1996, WorldCom and MFS entered into an agreement (the
"Services Agreement") pursuant to which, in the event the Merger Agreement is
terminated under certain specified circumstances, one party will be entitled to
receive up to $300 million of certain communications services at a defined cost
from the other party for a period of three years. The Services Agreement is
attached hereto as Appendix II. For a more detailed description of the Services
Agreement, see "Plan of Merger -- Description of Services Agreement."
RECIPROCAL STOCK OPTIONS
On August 25, 1996, pursuant to Stock Option Agreements dated the same day
between WorldCom and MFS (the "Option Agreements"), WorldCom granted an option
to MFS to purchase up to 81,224,137 shares, or approximately 19.9% of the then
outstanding shares, of WorldCom Common Stock at an exercise price of $26.375 per
share, and MFS granted an option to WorldCom to purchase up to 43,953,073
shares, or approximately 19.9% of the then outstanding shares, of MFS Common
Stock at an exercise price of $55.3875 per share, which options become
exercisable upon the occurrence of certain events. The Option Agreements are
attached hereto as Appendix III and Appendix IV, respectively. For a more
detailed description of the terms of the Option Agreements, see "Stock Option
Agreements."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Pursuant to the Merger Agreement, WorldCom has agreed to cause the WorldCom
Board of Directors as of the Effective Time to consist of an odd number of
directors, with MFS being entitled to designate one less director than WorldCom,
subject to consummation of the Merger. As of the date hereof, WorldCom's Board
of Directors is composed of 12 directors. It is anticipated that the WorldCom
Board of Directors will be composed of 15 directors and that Carl J. Aycock, Max
E. Bobbitt, Bernard J. Ebbers, Francesco Galesi, Stiles A. Kellett, Jr., John A.
Porter, and Scott D. Sullivan will continue to serve, and that Clyda Stokes Rent
will be appointed to serve, as directors of WorldCom after the Effective Time.
MFS has announced its intent to designate R. Douglas Bradbury, James Q. Crowe,
Richard R. Jaros, David C. McCourt, Walter Scott, Jr., John W. Sidgmore, and
Michael B. Yanney as directors of WorldCom. The Merger Agreement also provides
that membership on the compensation and stock option, audit and nominating
committees of the WorldCom Board of Directors will initially consist of an equal
number of designees of WorldCom and MFS. After the Merger, MFS as the Surviving
Corporation will operate as a subsidiary of WorldCom. See "Management of
WorldCom Following the Merger."
ACCOUNTING TREATMENT
WorldCom intends to account for the Merger using the purchase method.
Accordingly, the aggregate Merger Consideration will be allocated to the assets
and liabilities of MFS based on their estimated fair value. Any excess of cost
over the fair value of net tangible assets of MFS acquired will be recorded as
in-process research and development, goodwill and other intangible assets and
amortized over a period not to exceed 40 years. See "Plan of
Merger -- Accounting Treatment."
PROPOSED AMENDMENT OF WORLDCOM ARTICLES
The WorldCom Articles are proposed to be amended to increase the number of
authorized shares of WorldCom Common Stock that may be issued thereunder by
1,750,000,000 shares, to 2,500,000,000 shares (the "Amendment"). Approval of the
Amendment by the WorldCom shareholders is a condition precedent to the
consummation of the Merger. Unless both the issuance of the WorldCom Capital
Stock pursuant to the Merger Agreement and the Amendment are approved, neither
will be effected by WorldCom, and the Merger will not be consummated. See
"Proposed Amendment of the WorldCom Articles."
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<PAGE> 21
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinions of Skadden, Arps, Slate, Meagher & Flom LLP, special tax
counsel to MFS, and Bryan Cave LLP, counsel to WorldCom, based on the
representations and assumptions referred to in their opinions, the Merger will
qualify as a reorganization under Section 368(a) of the Code. Accordingly, no
gain or loss will be recognized for federal income tax purposes by MFS
stockholders on the exchange of their shares of MFS Capital Stock solely for
shares of WorldCom Capital Stock in the Merger (except for cash paid in lieu of
fractional shares). For a more complete description of the federal income tax
consequences of the Merger, see "Plan of Merger -- Certain Federal Income Tax
Consequences."
HOLDERS OF SHARES OF MFS CAPITAL STOCK SHOULD CONSULT WITH THEIR OWN TAX
ADVISORS REGARDING THE TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE
APPLICABILITY OF ANY FOREIGN TAX LAWS AS WELL AS OTHER FEDERAL, STATE AND LOCAL
TAX LAWS.
REASONS OF WORLDCOM AND MFS FOR THE MERGER
In reaching their decision to approve the Merger Agreement, the Board of
Directors of each of WorldCom and MFS consulted with its management team and
advisors and independently considered a variety of factors and the business and
operations of the other party. The Board of Directors of each of WorldCom and
MFS concluded that the Merger is in the best interests of such company and its
shareholders because the Merger would (1) enhance the combined entity's
opportunities for future growth, (2) create a stronger competitor in the
changing long distance and local telecommunications industry, (3) allow
provision of end-to-end bundled long distance, and local and Internet service
over a global network, and (4) provide the opportunity for significant cost
savings for the combined organization. See "Plan of Merger -- Reasons for the
Merger; Board Recommendations."
RECOMMENDATIONS OF THE WORLDCOM BOARD OF DIRECTORS
The directors of WorldCom unanimously approved the terms of the Merger
Agreement and the transactions contemplated thereby and believe the Merger is
fair to, and in the best interests of, WorldCom and its shareholders. THE
WORLDCOM BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF
WORLDCOM VOTE "FOR" THE PROPOSAL TO APPROVE THE ISSUANCE OF WORLDCOM CAPITAL
STOCK PURSUANT TO THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, AND "FOR" THE PROPOSAL TO AMEND THE WORLDCOM ARTICLES. For a discussion
of the factors considered by the directors of WorldCom in reaching their
decision, see "Plan of Merger -- Reasons for the Merger; Board Recommendations."
OPINION OF WORLDCOM'S FINANCIAL ADVISOR
Salomon Brothers Inc ("Salomon"), financial advisor to WorldCom, has
rendered its written opinion to the WorldCom Board of Directors that, based upon
and subject to various considerations set forth in such opinion, as of August
25, 1996, the Common Exchange Ratio was fair to the holders of WorldCom Common
Stock from a financial point of view. A copy of Salomon's opinion is attached as
Appendix V to this Joint Proxy Statement/Prospectus, and holders of WorldCom
Common Stock are urged to read the opinion in its entirety. See "Plan of
Merger -- Opinions of Financial Advisors -- WorldCom." Salomon's opinion was not
updated as of the date hereof nor will such opinion be updated as of the Closing
Date.
RECOMMENDATION OF THE MFS BOARD OF DIRECTORS
The MFS Board of Directors believes that the terms of the Merger are fair
to, and in the best interests of, MFS and its stockholders and has unanimously
approved the Merger Agreement and the related transactions. THE MFS BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT ITS STOCKHOLDERS APPROVE AND ADOPT THE
MERGER AGREEMENT AND THE AUTHORIZATION OF THE MERGER AND THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT. See
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"Plan of Merger -- Background of the Merger," "-- Reasons for the Merger; Board
Recommendations" and "-- Interests of Certain Persons in the Merger."
OPINION OF MFS' FINANCIAL ADVISOR
On August 24, 1996, Gleacher NatWest, Inc. ("Gleacher NatWest"), financial
advisor to MFS, rendered its written opinion to the MFS Board of Directors that,
on and as of the date of such opinion, based upon the procedures and subject to
the assumptions described in such opinion, the Common Exchange Ratio, the Series
A Exchange Ratio and the Series B Exchange Ratio are fair to the holders of MFS
Common Stock, MFS Series A Preferred Stock and MFS Series B Preferred Stock,
respectively, from a financial point of view. A copy of Gleacher NatWest's
opinion is attached as Appendix VI to this Joint Proxy Statement/Prospectus, and
holders of MFS Capital Stock are urged to read the opinion in its entirety. See
"Plan of Merger -- Opinions of Financial Advisors -- MFS." Gleacher NatWest's
opinion was not updated as of the date hereof nor will such opinion be updated
as of the Closing Date.
THE WORLDCOM SPECIAL MEETING
The WorldCom Special Meeting will be held on December 20, 1996 at 9:00
a.m., local time, at 515 East Amite Street, Jackson, Mississippi. At such
meeting, WorldCom shareholders will be asked to approve (i) the issuance of
WorldCom Capital Stock pursuant to the Merger Agreement and the transactions
contemplated thereby, (ii) the Amendment, (iii) the adjournment of the WorldCom
Special Meeting to solicit additional proxies or votes and (iv) the transaction
of such other business as may properly come before the WorldCom Special Meeting
or any adjournment or postponement thereof. The approval of the issuance of
WorldCom Capital Stock pursuant to the Merger Agreement and the Amendment are
each contingent upon approval of both proposals by WorldCom shareholders.
Therefore, a vote against the Amendment will have the same effect as a vote
against the issuance of WorldCom Capital Stock pursuant to the Merger Agreement.
Unless both proposals are approved, neither will be effected by WorldCom and the
Merger will not be consummated. See also "Proposed Amendment of the WorldCom
Articles" for a discussion of the proposal to amend the WorldCom Articles. The
WorldCom Board of Directors knows of no business that will be presented for
consideration at the WorldCom Special Meeting other than the matters described
in this Joint Proxy Statement/Prospectus.
Only the holders of record of WorldCom Common Stock as of the close of
business on November 13, 1996 (the "WorldCom Record Date") are entitled to
notice of and to vote at the WorldCom Special Meeting. At the close of business
on the WorldCom Record Date, there were 410,424,187 shares of WorldCom Common
Stock outstanding and entitled to vote at the WorldCom Special Meeting.
Holders of record of WorldCom Common Stock as of the close of business on
the WorldCom Record Date are entitled to one vote per share on any matter voted
on at the WorldCom Special Meeting. Approval of the issuance of WorldCom Capital
Stock pursuant to the Merger Agreement requires the affirmative vote of the
holders of at least a majority of the total votes cast by the holders of the
WorldCom Common Stock. Approval of the Amendment requires the affirmative votes
of a majority of the votes entitled to be cast on the Amendment. Approval of any
proposal to adjourn the WorldCom Special Meeting to allow for additional
solicitation of proxies or votes requires the affirmative vote of the holders of
at least a majority of the total votes present at the WorldCom Special Meeting.
The presence, either in person or by proxy, of the holders of a majority of
the votes entitled to be cast on the matter as of the WorldCom Record Date is
necessary to constitute a quorum at the WorldCom Special Meeting. Shares
represented by proxies that reflect abstentions and broker "non-votes" (i.e.,
shares held by a broker or nominee which are represented at the meeting, but
with respect to which such broker or nominee is not empowered to vote on a
particular proposal) will be counted as shares that are present at the meeting
but will have no effect on the outcome of the proposal to approve the issuance
of WorldCom Capital Stock. For approval of the Amendment and the proposal to
approve the adjournment of the WorldCom Special Meeting, both abstentions and
broker "non-votes" will be counted as shares that are present at the meeting and
will
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have the same effect as a vote against approval of the Amendment and the
proposal to approve the adjournment of the WorldCom Special Meeting.
As of the WorldCom Record Date, directors and executive officers of
WorldCom and their affiliates (as a group) were entitled to vote approximately
7% of the outstanding votes entitled to be cast at the WorldCom Special Meeting.
All such directors and executive officers and their affiliates have indicated
their intention to vote their shares for the approval of the issuance of
WorldCom Capital Stock pursuant to the Merger Agreement, for the Amendment and
for the approval of any proposal to adjourn the WorldCom Special Meeting to
solicit additional proxies or votes.
THE MFS SPECIAL MEETING
The MFS Special Meeting will be held on December 20, 1996, at 9:00 a.m.,
local time, at The Joslyn Art Museum, 2200 Dodge Street, Omaha, Nebraska. At
such meeting, MFS stockholders will be asked to approve (i) the Merger Agreement
and the authorization of the Merger and transactions contemplated by the Merger
Agreement, (ii) the adjournment of the MFS Special Meeting to allow for
additional solicitation of stockholder proxies or votes, if necessary, and (iii)
the transaction of such other business as may properly come before the MFS
Special Meeting or any adjournment or postponement thereof. The MFS Board of
Directors knows of no business that will be presented for consideration at the
MFS Special Meeting other than the matters described in this Joint Proxy
Statement/Prospectus.
Approval and adoption of the Merger Agreement requires the affirmative vote
of the holders of a majority of the votes entitled to be cast in respect of all
outstanding shares of MFS Capital Stock voting as a single class. The proposal
to adjourn the MFS Special Meeting to solicit additional proxies or votes
requires the approval of a majority of votes represented by the holders of MFS
Capital Stock present in person or by proxy at the MFS Special Meeting and
entitled to vote thereon. The MFS Board of Directors has fixed the close of
business on November 13, 1996 as the record date for determining holders
entitled to notice of and to vote at the MFS Special Meeting (the "MFS Record
Date"). As of the MFS Record Date, there were 222,297,610 shares of MFS Common
Stock, 94,992 shares of the MFS Series A Preferred Stock and 13,680,011 shares
of MFS Series B Preferred Stock outstanding. Each share of MFS Common Stock is
entitled to one vote, each share of Series A Preferred Stock is entitled to ten
votes, and each share of MFS Series B Preferred Stock is entitled to ten votes
on each matter to be voted upon at the MFS Special Meeting, representing a total
of 360,047,640 votes as of the MFS Record Date. The shares of MFS Series B
Preferred Stock, however, are held subject to an irrevocable proxy that has been
granted to the Secretary and Assistant Secretary of MFS to vote all shares of
MFS Series B Preferred Stock on all matters, other than the election of MFS
directors and matters as to which the holders of the MFS Series B Preferred
Stock vote as a separate class, in proportion to the vote of the holders of the
MFS Common Stock. Approval of the Merger Agreement does not require a separate
class vote by the holders of the MFS Series B Preferred Stock.
As of the MFS Record Date, directors and executive officers of MFS and
their affiliates (as a group) were entitled to vote shares of MFS Common Stock
and shares of MFS Series B Preferred Stock representing approximately 7% of the
voting power of MFS Capital Stock. All such persons have indicated their
intention to vote their shares for the approval of the Merger Agreement and the
transactions contemplated thereby and for the approval of the proposal to
adjourn the MFS Special Meeting to solicit additional proxies or votes at the
MFS Special Meeting.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Members of the MFS Board of Directors and certain members of MFS'
management, some of whom are also directors, have certain interests in the
Merger, in addition to those of the MFS stockholders generally. Pursuant to the
Merger Agreement, upon consummation of the Merger the WorldCom Board of
Directors will consist of an odd number of directors with MFS being entitled to
designate one less director than WorldCom. MFS has announced its intent to
designate certain of its existing directors and officers as directors of
WorldCom. The Merger Agreement also provides that membership on the compensation
and stock option,
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audit and nominating committees of WorldCom's Board of Directors initially will
consist of an equal number of designees of WorldCom and MFS.
Pursuant to the Merger Agreement, following consummation of the Merger,
WorldCom will arrange for each employee participating in any benefit plan of MFS
or a subsidiary of MFS as in effect on August 25, 1996 to participate in any
counterpart benefit plans of WorldCom in accordance with the eligibility
criteria of such plans, provided that (a) such participants will receive full
credit for years of service with MFS or its subsidiaries prior to the Merger for
all purposes for which such service was recognized under the MFS benefit plans,
including recognition of service for eligibility, vesting and, to the extent not
duplicative of benefits received under such MFS benefit plans, the amount of
benefits, (b) such participants will participate in the WorldCom benefit plans
on terms no less favorable than those offered by WorldCom to similarly situated
employees of WorldCom and (c) WorldCom will cause any and all pre-existing
condition limitations (to the extent such limitations did not apply to a
pre-existing condition under MFS' benefit plans) and eligibility waiting periods
under any group health plans to be waived with respect to such participants and
their eligible dependents. WorldCom and MFS have also acknowledged that the
Merger and transactions contemplated thereby will be treated as a "change in
control" for purposes of certain MFS benefit plans, option agreements and
employment agreements and agreed to honor the provisions of any such plans and
agreements which relate to a change in control, including the accelerated
vesting and/or payment of equity-based awards. WorldCom has agreed, and has
agreed to cause its subsidiaries to agree, to take the position that none of the
execution of the Merger Agreement, the approval of the Merger Agreement by MFS
stockholders or the consummation of the Merger will constitute a change in
control of MFS or a change in the ownership of a substantial portion of the
assets of MFS within the meaning of Section 280G of the Code and has agreed that
it will not withhold from any amounts payable to any MFS employee by reason of
consummation of the Merger any amounts in respect of the excise tax described in
Section 4999 of the Code unless such position ceases to be supported by a good
faith interpretation of relevant tax authority as a result of a change in such
relevant authority which occurs after August 25, 1996.
Certain members of the MFS Board of Directors who are also executive
officers of MFS and other executive officers of MFS are the holders of MFS
Outperformance Options. The members of the MFS Board of Directors were aware
that the MFS Outperformance Options, as well as the other MFS Options held by
these individuals, could appreciate in value as a result of the announcement of
the execution of the Merger Agreement. See "Plan of Merger -- Terms and
Conditions of the Proposed Merger -- MFS Options and Warrants."
The Merger Agreement provides that the indemnification provisions of the
Restated Certificate of Incorporation, as amended, of MFS (the "MFS Certificate
of Incorporation") and the By-laws of MFS (the "MFS By-laws") will not be
amended, repealed or otherwise modified for a period of six years after the
Effective Time in any manner that would adversely affect the rights of
individuals who were directors, officers, agents or employees of MFS immediately
prior to the Effective Time, unless required by applicable law. WorldCom and the
Surviving Corporation also will jointly and severally indemnify the directors,
officers and agents of MFS with respect to matters occurring through the
Effective Time. Further, WorldCom will cause the Surviving Corporation to
maintain directors' and officers' liability insurance policies comparable to
those of MFS for not less than three years after the Effective Time, within
certain limitations.
The MFS Board of Directors was aware of these interests when it considered
and approved the Merger and the Merger Agreement. See "Plan of
Merger -- Interests of Certain Persons in the Merger."
As of August 25, 1996, the date of execution of the Merger Agreement, a
director of WorldCom beneficially owned 368,430 shares of MFS Common Stock,
representing less than one percent of the issued and outstanding shares of MFS
Common Stock. As of such date, such director also beneficially owned 2,109,718
shares of WorldCom Common Stock. The WorldCom Board of Directors was aware of
such director's ownership of MFS Common Stock when it considered and unanimously
approved the Merger, the Merger Agreement and the transactions contemplated
thereby, and neither the WorldCom Board of Directors nor such director
considered such ownership a material factor in reaching its or his decision. As
of the MFS
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Record Date, the directors and executive officers of WorldCom, as a group,
beneficially owned an aggregate of 381,680 shares of MFS Common Stock. See "Plan
of Merger -- Interests of Certain Persons in the Merger."
REGULATORY FILINGS AND APPROVALS
Consummation of the Merger is contingent upon the receipt of approvals from
the FCC, various state public utility or service commissions ("PUCs") and
certain local government authorities with respect to the Merger and certain
related transactions. WorldCom and MFS have previously made the necessary
filings with these government agencies. In addition, consummation of the Merger
is subject to the condition that all consents of any governmental authority
required for consummation of the Merger and the transactions contemplated by the
Merger Agreement shall have been obtained by Final Order (as defined in the
Merger Agreement) except as waived by WorldCom or MFS or those consents the
failure of which to obtain will not have a Surviving Corporation Material
Adverse Effect (as defined therein). If all requisite consents have not been
received at such time as all other material conditions to the Merger have been
satisfied or waived, MFS and WorldCom may nonetheless determine to consummate
the Merger. Although MFS and WorldCom are seeking such consents, it is uncertain
whether such consents will be obtained in, among others, certain major
metropolitan areas. See "Risk Factors -- Risks Related to the Merger -- Risks
Associated With the Failure to Obtain Consents of Certain Governmental
Authorities." The consummation of the Merger is also contingent upon
notification to and/or approval by governmental authorities in certain foreign
countries where WorldCom and/or MFS conduct business. The applicable waiting
period for the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "Hart-Scott-Rodino Act"), has expired. See "Plan of
Merger -- Certain Regulatory Filings and Approvals."
APPRAISAL RIGHTS
Holders of MFS Series B Preferred Stock who properly demand and perfect
appraisal rights in accordance with the conditions established by Section 262
("Section 262") of the Delaware General Corporation Law (the "DGCL") will be
entitled to appraisal rights. However, it is uncertain, and counsel to MFS is
unable to express a definite view, to what extent appraisal rights will be
available to holders of MFS Series B Preferred Stock in connection with the
Merger. Section 262 requires that the holder of MFS Series B Preferred Stock who
desires to seek appraisal rights must not vote in favor of the Merger Agreement
or the Merger and must deliver a separate written demand for appraisal to MFS
prior to the vote by the stockholders of MFS on the Merger Agreement and the
Merger. Since the shares of MFS Series B Preferred Stock are held subject to an
irrevocable proxy that has been granted to the Secretary and Assistant Secretary
of MFS to vote the shares of MFS Series B Preferred Stock on the MFS Proposals
in proportion to the vote of the MFS Common Stock, it is uncertain to what
extent a holder of MFS Series B Preferred Stock will be able to satisfy the
requirement not to vote in favor of the Merger Agreement or the Merger that is
contained in Section 262. Stockholders of MFS who wish to seek appraisal are
advised to consult with their legal counsel regarding whether appraisal rights
would be available and how to demand and perfect such appraisal rights, if
available. See "Appraisal Rights."
COMPARISON OF SHAREHOLDER RIGHTS
The rights of MFS stockholders currently are governed by Delaware law, the
MFS Certificate of Incorporation and the MFS By-laws. Upon consummation of the
Merger, stockholders of MFS will become shareholders of WorldCom, which is a
Georgia corporation, and their rights as shareholders of WorldCom will be
governed by Georgia law, the WorldCom Articles and the Bylaws of WorldCom (the
"WorldCom Bylaws"). See "Comparative Rights of Shareholders" for a summary of
certain differences between the rights of the holders of MFS Capital Stock and
WorldCom Capital Stock.
RISK FACTORS
Holders of MFS Capital Stock and WorldCom Common Stock, in voting on the
proposals contained herein, should consider, among other factors, the following:
(i) risks associated with failure to obtain consents of certain governmental
authorities; (ii) the difficulty of integration of the companies; (iii) risks
associated
10
<PAGE> 26
with the repurchase of MFS' senior notes; (iv) substantial dilution of ownership
interest of current WorldCom shareholders; (v) the effect of stock price
fluctuations on the Merger Consideration and the opinions of financial advisors
having not been updated; (vi) the potential effect of shares eligible for future
sales and stock price volatility; (vii) the risks of the combined company's
acquisition strategy; (viii) operating losses; (ix) significant capital
requirements; (x) risks of financial leverage, debt service, interest rate
fluctuations and related matters; (xi) regulation; (xii) competition; (xiii)
risks of expansion and implementation; (xiv) dependence on availability of
transmission facilities; (xv) rapid technological changes; (xvi) dependence on
key personnel; (xvii) contingent liabilities; (xviii) potential liability of
on-line service providers; (xix) dependence on network infrastructure; (xx)
variability of quarterly operating results; (xxi) strategic relationship between
UUNET and Microsoft Corporation ("Microsoft"); (xxii) UUNET's dependence upon
suppliers; and (xxiii) WorldCom's and MFS' charter and bylaws anti-takeover
provisions. See "Risk Factors."
MARKET PRICES
Each of the WorldCom Common Stock, MFS Common Stock and the MFS Depositary
Shares is traded on the Nasdaq National Market under the symbol "WCOM," "MFST"
and "MFSTP," respectively. The following table sets forth the high and low
intra-day sales prices per share of such stock as reported on the Nasdaq
National Market based on published financial sources, for the periods indicated.
Neither WorldCom nor MFS has ever paid any cash dividends on its common stock.
WorldCom's existing credit facility restricts the payment of cash dividends on
the WorldCom Common Stock without the prior consent of the lenders. MFS has
similar restrictions on the payment of dividends under its existing credit
facilities. The per share information presented below and elsewhere in this
Joint Proxy Statement/Prospectus has been adjusted to reflect all stock splits
and stock dividends of WorldCom and MFS.
<TABLE>
<CAPTION>
WORLDCOM MFS MFS
COMMON STOCK COMMON STOCK DEPOSITARY SHARES
--------------- ---------------- ------------------------------
HIGH LOW HIGH LOW HIGH LOW DIVIDENDS(1)
------ ------ ------- ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994:
First Quarter.................... $14.75 $11.63 $ 20.63 $14.00 $ -- $ -- $ --
Second Quarter................... 12.63 7.00 17.00 10.25 -- -- --
Third Quarter.................... 12.75 8.25 18.38 12.25 -- -- --
Fourth Quarter................... 12.19 8.19 20.75 16.25 -- -- --
1995:
First Quarter.................... 13.13 9.56 19.50 15.38 -- -- --
Second Quarter................... 13.69 11.56 18.63 14.38 35.50 31.00 --
Third Quarter.................... 17.06 13.38 24.50 15.88 44.63 34.00 .81
Fourth Quarter................... 17.94 14.88 26.88 19.13 48.69 38.25 .74
1996:
First Quarter.................... 23.31 16.25 34.00 23.88 58.75 45.25 .74
Second Quarter................... 27.72 21.31 38.38 31.25 65.88 54.25 .74
Third Quarter.................... 28.88 18.38 48.00 28.00 79.50 50.44 .74
Fourth Quarter (through
November 13, 1996)............ 25.38 21.00 52.00 43.50 88.25 74.25 --
</TABLE>
- ---------------
(1) The MFS Depositary Shares are entitled to receive dividends, when, as and if
they are declared by the MFS Board of Directors, accruing at the rate of
$2.68 per share per annum, if paid in cash ($268.00 per share of MFS Series
A Preferred Stock), payable quarterly in arrears on each February 28, May
31, August 31 and November 30. Dividends are payable in cash or in shares of
MFS Common Stock, at the election of MFS. Since the August 31, 1995
quarterly dividend, MFS has paid such dividend in the form of MFS Common
Stock. Certain of MFS' debt agreements restrict MFS' ability to pay cash
dividends, and as a result, MFS does not anticipate that it will pay cash
dividends on the MFS Depositary Shares for the foreseeable future. The
number of shares of MFS Common Stock issued as a dividend on each MFS
Depositary Share was determined by dividing the total dividend payable on
each MFS Depositary Share by 90% of the average of the high and low sales
prices of the MFS Common Stock as reported by the Nasdaq National Market for
each of the ten consecutive trading days immediately preceding the fifth
business day preceding the record date for such dividend.
11
<PAGE> 27
There is no market for the MFS Series B Preferred Stock, as such shares
cannot be sold or transferred without the consent of MFS for six years from the
date of original issuance (September 30, 1995), except under limited
circumstances. Dividends on the MFS Series B Preferred Stock accrue at the rate
of 7 3/4% per annum and are payable in cash. Dividends will be paid only when
and as declared by the MFS Board of Directors. Certain of MFS' debt agreements
restrict MFS' ability to pay cash dividends, and as a result MFS anticipates
that, in the near future, dividends on the MFS Series B Preferred Stock will not
be declared but will continue to accrue. Upon conversion, accrued but unpaid
dividends are payable, at MFS' election, in cash or shares of MFS Common Stock.
WorldCom and MFS entered into the Merger Agreement on August 25, 1996. The
following table sets forth the closing prices for a share of WorldCom Common
Stock, a share of MFS Common Stock and an MFS Depositary Share as reported by
the Nasdaq National Market, on August 23, 1996, the last trading day preceding
the public announcement of the execution of the Merger Agreement, and on
November 13, 1996, the last practicable trading day before the printing of this
Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
CLOSING PRICE
OF
WORLDCOM COMMON CLOSING PRICE OF MFS CLOSING PRICE OF MFS
DATE STOCK COMMON STOCK DEPOSITARY SHARE
----------------------------- --------------- -------------------- --------------------
<S> <C> <C> <C>
August 23, 1996.............. $ 26.38 $34.88 $60.00
November 13, 1996............ 24.63 50.75 86.25
</TABLE>
Based on the Common Exchange Ratio, the pro forma equivalent per share value of
MFS Common Stock and MFS Depositary Shares on August 23, 1996 was $55.40 and
$110.80, respectively, and on November 13, 1996 was $51.72 and $103.45,
respectively. The pro forma equivalent per share value of MFS Common Stock and
MFS Depositary Shares on any date based on the Common Exchange Ratio of 2.1
equals the closing price of WorldCom Common Stock on such date multiplied by 2.1
and 4.2, respectively.
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET INFORMATION FOR WORLDCOM
COMMON STOCK, MFS COMMON STOCK AND MFS DEPOSITARY SHARES. NO ASSURANCE CAN BE
GIVEN AS TO THE MARKET PRICES OF WORLDCOM COMMON STOCK, MFS COMMON STOCK OR MFS
DEPOSITARY SHARES AT THE EFFECTIVE TIME OF THE MERGER. BECAUSE THE COMMON
EXCHANGE RATIO, THE SERIES A EXCHANGE RATIO AND THE SERIES B EXCHANGE RATIO ARE
FIXED IN THE MERGER AGREEMENT AND NEITHER WORLDCOM NOR MFS HAS THE RIGHT TO
TERMINATE THE MERGER AGREEMENT BASED ON CHANGES IN THE MARKET PRICES OF THEIR
RESPECTIVE CAPITAL STOCK, THE MARKET VALUE OF SHARES OF WORLDCOM CAPITAL STOCK
THAT HOLDERS OF MFS CAPITAL STOCK WILL RECEIVE UPON CONSUMMATION OF THE MERGER
MAY VARY SIGNIFICANTLY FROM THE MARKET VALUE OF THE SHARES OF WORLDCOM CAPITAL
STOCK THAT HOLDERS OF MFS CAPITAL STOCK WOULD RECEIVE IF THE MERGER WERE
CONSUMMATED ON THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
SHAREHOLDERS SHOULD ALSO NOTE THAT, DUE TO POSSIBLE DELAYS IN RECEIVING
REGULATORY APPROVALS OR IN SATISFYING OTHER CONDITIONS TO CONSUMMATION OF THE
MERGER, THERE MAY BE A SIGNIFICANT DELAY BETWEEN THE DATE OF THE SPECIAL
MEETINGS AND THE DATE OF CONSUMMATION OF THE MERGER. ACCORDINGLY, THE MARKET
VALUE OF SHARES OF WORLDCOM CAPITAL STOCK THAT HOLDERS OF MFS CAPITAL STOCK WILL
RECEIVE UPON CONSUMMATION OF THE MERGER MAY VARY SIGNIFICANTLY FROM THE MARKET
VALUE OF THE SHARES OF WORLDCOM CAPITAL STOCK THAT HOLDERS OF MFS CAPITAL STOCK
WOULD RECEIVE IF THE MERGER WERE CONSUMMATED ON THE DATE OF THIS JOINT
PROXY/STATEMENT PROSPECTUS OR THE DATE OF THE SPECIAL MEETINGS.
12
<PAGE> 28
COMPARATIVE PER SHARE DATA
The following table sets forth for WorldCom Common Stock and MFS Common
Stock, for the periods indicated, selected historical per share data and the
corresponding pro forma and pro forma equivalent per share amounts, giving
effect to the proposed Merger. The data presented are based upon the
consolidated financial statements and related notes of each of WorldCom and MFS
incorporated by reference in this Joint Proxy Statement/Prospectus, and the pro
forma condensed combined balance sheet and income statements, including the
notes thereto, appearing elsewhere herein. This information should be read in
conjunction with and is qualified in its entirety by the historical and pro
forma condensed combined financial statements and related notes thereto. The
assumptions used in the preparation of this table appear elsewhere in this Joint
Proxy Statement/Prospectus. See "Pro Forma Condensed Combined Financial
Statements." These data are not necessarily indicative of the results of the
future operations of the consolidated organization or the actual results that
would have occurred if the Merger had been consummated prior to the periods
indicated. See "Incorporation of Documents By Reference."
<TABLE>
<CAPTION>
MFS WORLDCOM/MFS MFS
WORLDCOM ADJUSTED PRO FORMA PRO FORMA
HISTORICAL HISTORICAL(1) COMBINED(1) EQUIVALENT(2)
-------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Book value per common share:
December 31, 1995......................... $ 5.58 $ 3.99 $14.26 $ 29.95
September 30, 1996........................ 5.98 16.26 14.19 29.80
Cash dividends per common share:
Year ended December 31, 1995.............. -- -- -- --
Nine months ended September 30, 1996...... -- -- -- --
Income (loss) per common share from
continuing operations:
Primary:
Year ended December 31, 1995........... 0.65 (3.95) (0.39) (0.82)
Nine months ended September 30, 1996... (0.12) (3.11) (0.57) (1.20)
Fully Diluted:
Year ended December 31, 1995........... 0.64 (3.95) (0.39) (0.82)
Nine months ended September 30, 1996... (0.12) (3.11) (0.57) (1.20)
</TABLE>
- ---------------
(1) See "Pro Forma Condensed Combined Financial Statements."
(2) The MFS pro forma equivalent represents the WorldCom/MFS pro forma combined
book value dividends and income (loss) per common share multiplied by a
Common Exchange Ratio of 2.1 shares of WorldCom Common Stock for each share
of MFS Common Stock so that the MFS pro forma equivalent amounts represent
the respective values of one share of MFS Common Stock.
13
<PAGE> 29
SELECTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following selected unaudited pro forma financial information
illustrates the effect of the proposed Merger as if the Merger had occurred at
the beginning of the earliest period presented. The pro forma information is not
necessarily indicative of the results of operations or the financial condition
that would have been reported had the Merger been in effect during those
periods, or as of those dates, or that may be reported in the future. Pro forma
combined per share data of WorldCom and MFS give effect to the exchange of each
share of MFS Common Stock for 2.1 shares of WorldCom Common Stock, and the
exchange of each share of MFS Series A Preferred Stock and MFS Series B
Preferred Stock for one share of WorldCom Series A Preferred Stock and WorldCom
Series B Preferred Stock, respectively.
This information should be read in conjunction with, and is qualified in
its entirety by, the consolidated financial statements of each of WorldCom, MFS
and UUNET, and the related notes thereto, incorporated by reference herein, and
the Pro Forma Condensed Combined Financial Statements and the accompanying notes
set forth elsewhere in this Joint Proxy Statement/Prospectus. See "Available
Information," "Incorporation of Documents by Reference," "Pro Forma Condensed
Combined Financial Statements," "MFS Adjusted Historical Financial Statements"
and "Management's Discussion and Analysis of the Pro Forma Condensed Combined
Financial Statements."
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -----------------
(IN THOUSANDS, EXCEPT PER SHARE
AND RATIO DATA)
<S> <C> <C>
Revenues.................................................... $4,267,024 $ 4,017,853
Income (loss) from continuing operations (after preferred
dividend requirement)
Total..................................................... (284,265) (461,213)
Per common share
Primary................................................ (0.39) (0.57)
Fully diluted.......................................... (0.39) (0.57)
Dividends per common share.................................. -- --
Total assets................................................ 19,064,120
Long-term debt.............................................. 4,664,752
Shareholders' investment.................................... 12,736,734
Ratio of earnings to combined fixed charges and preferred
stock dividends........................................... 0.41:1 N/A
Deficiency of earnings to combined fixed charges and
preferred stock dividends................................. (229,944) (440,382)
</TABLE>
14
<PAGE> 30
SUMMARY HISTORICAL FINANCIAL DATA
The following table presents selected historical financial data of WorldCom,
MFS and UUNET. The historical data for each of the years in the five-year period
ended December 31, 1995 are based on the audited historical financial statements
of the respective companies. The selected financial data for each of WorldCom,
MFS and UUNET for the nine month periods ended September 30, 1996 and 1995 have
been obtained from unaudited financial statements and, in the opinion of the
respective managements of WorldCom, MFS and UUNET, include all adjustments (of a
normal and recurring nature) which are necessary to present fairly the data for
such periods.
These data should be read in conjunction with and are qualified in their
entirety by the consolidated financial statements of each of WorldCom, MFS and
UUNET and the related notes thereto, incorporated by reference herein, and the
Pro Forma Condensed Combined Financial Statements and the accompanying notes set
forth elsewhere in this Joint Proxy Statement/Prospectus. See "Available
Information," "Incorporation of Documents by Reference," "Pro Forma Condensed
Combined Financial Statements," "MFS Adjusted Historical Financial Statements"
and "Management's Discussion and Analysis of the Pro Forma Condensed Combined
Financial Statements."
SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------------- ------------------------
1995 1994 1993 1992 1991 1996 1995
---------- ---------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
WORLDCOM -- HISTORICAL
Revenues......................... $3,639,875 $2,220,765 $1,474,257 $ 948,060 $719,214 $3,235,552 $2,706,060
Income (loss) from continuing
operations (after preferred
dividend requirement):
Total.......................... 234,469 (149,924) 112,638 6,232 39,592 (48,755) 153,612
Per common share:
Primary...................... 0.65 (0.48) 0.41 0.03 0.19 (0.12) 0.44
Fully diluted................ 0.64 (0.48) 0.40 0.03 0.19 (0.12) 0.44
Dividends per common share....... -- -- -- -- -- -- --
Total assets..................... 6,634,571 3,430,192 3,236,718 1,241,278 959,909 6,854,966 6,551,910
Long-term debt................... 3,389,928(1) 788,005 721,480 440,076 413,335 3,276,641 3,392,357
Shareholders' investment......... 2,187,286 1,827,170 1,911,800 478,823 347,940 2,442,342 2,084,486
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------ ------------------------
1995 1994 1993 1992 1991 1996 1995
---------- ---------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
MFS -- HISTORICAL
Revenues............................ $ 583,194 $ 286,747 $141,111 $108,707 $ 37,223 $ 724,044 $ 412,062
Income (loss) from continuing
operations (after preferred
dividend requirement):
Total............................. (282,962) (151,201) (15,769) (13,129) (28,244) (345,036) (203,676)
Per common share:
Primary......................... (2.21) (1.21) (0.15) (0.15) -- (2.34) (1.58)
Fully diluted................... (2.21) (1.21) (0.15) (0.15) -- (2.34) (1.58)
Dividends per common share.......... -- -- -- -- -- --
Total assets........................ 1,867,134 1,584,546 906,937 363,299 204,819 5,816,787 1,783,090
Long-term debt...................... 723,471 548,333 143 169 7,659 1,388,111 609,843
Stockholders' equity................ 830,332 770,103 811,105 298,516 162,538 3,937,025 900,203
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------ ------------------------
1995 1994 1993 1992 1991 1996(2) 1995
---------- ---------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
UUNET -- HISTORICAL
Revenues............................ $ 94,461 $ 33,138 $ 24,019 $ 20,396 $ 14,180 $ 129,047 $ 60,654
Income (loss) from continuing
operations (after preferred
dividend requirement):
Total............................. (18,257) (7,988) (2,026) 1,074 1,298 (14,373) (6,391)
Per common share (pro forma):
Primary......................... (0.63) (0.35) -- -- -- (0.42) (0.23)
Fully diluted................... (0.63) (0.35) -- -- -- (0.42) (0.23)
Dividends per common share.......... -- 0.01 -- 0.08 0.01 -- --
Total assets........................ 137,610 29,625 10,585 8,285 6,499 128,626
Long-term debt...................... 13,686 15,269 3,310 974 696 9,458
Stockholders' equity................ 80,667 279 425 2,567 1,191 92,267
</TABLE>
- ---------------
(1) 1995 amount of long-term debt for WorldCom historical includes $1.1 billion
related to WorldCom's previous credit facilities which were classified as a
current maturity on the December 31, 1995 balance sheet. In June 1996,
WorldCom replaced its then existing $3.41 billion credit facilities with a
new $3.75 billion revolving credit facility with no reduction of principal
for five years.
(2) MFS' acquisition of UUNET closed on August 12, 1996. Therefore, this column
represents UUNET's results of operations for the period from January 1, 1996
through August 12, 1996 and includes one-time merger related costs of $15.7
million. UUNET was consolidated with MFS at September 30, 1996 for balance
sheet purposes.
15
<PAGE> 31
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Risk Factors," "Plan of Merger -- Reasons
for the Merger; Board Recommendations" and "Management's Discussion and Analysis
of the Pro Forma Condensed Combined Financial Statements," as well as possible
or assumed future results of operations of WorldCom and MFS set forth under
"Plan of Merger -- Opinions of Financial Advisors," including any forecasts,
projections and synergies referred to therein, and certain statements
incorporated by reference from documents filed with the Commission by WorldCom
and MFS, including any statements contained herein or incorporated by reference
herein regarding the development of WorldCom's and MFS' businesses, the markets
for WorldCom's and MFS' services and products, anticipated capital expenditures,
regulatory reform and the effects of the Merger, and other statements contained
or incorporated by reference herein regarding matters that are not historical
facts, are or may constitute forward-looking statements (as such term is defined
in the Private Securities Litigation Reform Act of 1995). Because such
statements are subject to risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward-looking statements.
Factors that could cause actual results to differ materially include, but are
not limited to, those discussed under "Risk Factors."
RISK FACTORS
Holders of MFS Capital Stock and holders of WorldCom Common Stock should
consider carefully all of the information contained in this Joint Proxy
Statement/Prospectus, including the following factors:
RISKS RELATED TO THE MERGER
Risks Associated with Failure to Obtain Consents of Certain Governmental
Authorities
Consummation of the Merger is subject to the condition that all consents of
any governmental authority required for consummation of the Merger and the
transactions contemplated by the Merger Agreement shall have been obtained by
Final Order (as defined in the Merger Agreement) except as waived by WorldCom or
MFS or those consents the failure of which to obtain will not have a Surviving
Corporation Material Adverse Effect (as defined therein). If all requisite
consents have not been received at such time as all other material conditions to
the Merger have been satisfied or waived, MFS and WorldCom may nonetheless
determine to consummate the Merger. Although MFS and WorldCom are seeking such
consents, it is uncertain whether such consents will be obtained in, among
others, certain major metropolitan areas. If MFS and WorldCom determine to
consummate the Merger without having obtained such consents, no assurance can be
given that the resulting loss of that portion of MFS' business to which the
consents relate will not have a material adverse effect on the business,
prospects, financial condition or results of operations of WorldCom and MFS on a
combined basis.
Integration of the Companies
WorldCom and MFS have entered into the Merger Agreement with the
expectation that the Merger will result in certain benefits. Achieving the
benefits of the Merger will depend in part upon the integration of the
businesses of WorldCom and MFS, together with UUNET, in an efficient manner, and
there can be no assurance that this will occur. The transition to a combined
company will require substantial attention from management. The diversion of
management attention and any difficulties encountered in the transition process
could have an adverse effect on the revenues and operating results of the
combined company. In addition, the process of combining the three organizations
could cause the interruption of, or a disruption in, the activities of any or
all of the companies' businesses, which could have a material adverse effect on
their combined operations. There can be no assurance that the combined company
will realize any of the anticipated benefits of the Merger.
16
<PAGE> 32
Risks Associated with the Repurchase of MFS Senior Notes
MFS has outstanding two issuances of public debt: 9 3/8% Senior Discount
Notes Due 2004, which were issued on January 19, 1994 (the "1994 Notes"); and
8 7/8% Senior Discount Notes Due 2006, which were issued on January 18, 1996
(the "1996 Notes," and together with the 1994 Notes, the "MFS Notes"). Pursuant
to the terms of each of the MFS Notes, cash interest is not payable until
January 15, 1999 with respect to the 1994 Notes and January 15, 2001 with
respect to the 1996 Notes. As of September 30, 1996, the accreted value of the
1994 Notes was approximately $639.1 million and the accreted value of the 1996
Notes was approximately $636.7 million.
Pursuant to the terms of the Indentures governing the terms of the MFS
Notes, if the Merger is consummated, WorldCom will be required to give each
holder of the MFS Notes the option to have WorldCom repurchase such holder's MFS
Notes, for cash, at 101% of the accreted value thereof on the date of such
repurchase. Such offer to purchase must generally be made to the holders of the
MFS Notes within 30 days of the Effective Time with all cash payments completed
within 60 days of such offer. Assuming that the MFS Notes were repurchased as of
the MFS Record Date, the maximum cash that WorldCom would be required to pay if
all holders elect to require WorldCom to repurchase their MFS Notes would be
approximately $1.3 billion. Each of WorldCom and MFS believes that such
repurchase can be made by WorldCom after the consummation of the Merger without
materially adversely affecting the financial condition of the combined company.
See "Management's Discussion and Analysis of the Pro Forma Condensed Combined
Financial Statements."
Substantial Dilution of Ownership Interest of Current WorldCom Shareholders
Based on the capitalization of WorldCom and MFS as of November 13, 1996 and
assuming that all shares of MFS preferred stock are converted into shares of MFS
Common Stock prior to the consummation of the Merger, the current shareholders
of WorldCom will own securities representing approximately 44% of the
outstanding WorldCom Common Stock on a fully diluted basis following
consummation of the Merger, assuming that all outstanding MFS Options and MFS
Warrants are exercised, and approximately 46% of the outstanding WorldCom Common
Stock on a fully diluted basis following consummation of the Merger, assuming
that no outstanding MFS Options and MFS Warrants are exercised, without
adjustment in either case for shares acquired by WorldCom shareholders in their
capacities as stockholders of MFS. This represents substantial dilution of the
ownership interest in WorldCom of the current WorldCom shareholders.
The Effect of Stock Price Fluctuations on the Consideration to be Received by
the Holders of MFS Capital Stock in the Merger; Opinions of Financial
Advisors Not Updated
The relative stock prices of the MFS Common Stock, the MFS Depositary
Shares and the WorldCom Common Stock at the Effective Time may vary
significantly from the prices as of the date of execution of the Merger
Agreement, the date hereof or the date on which shareholders vote on the Merger
and the transactions contemplated thereby. These variances may be due to changes
in the business, operations and prospects of MFS or WorldCom, market assessments
of the likelihood that the Merger will be consummated and the timing thereof,
the effect of any conditions or restrictions imposed on or proposed with respect
to the combined companies by regulatory agencies in connection with or following
consummation of the Merger, general market and economic conditions, and other
factors. For example, between August 26, 1996 and November 13, 1996, the closing
sales price of the WorldCom Common Stock has ranged from a high of $25.38 to a
low of $18.38; the closing sales price of the MFS Common Stock during the same
period has ranged from a high of $52.00 to a low of $37.25; and the closing
sales price of the MFS Depositary Shares ranged from a high of $88.25 to a low
of $65.00. The Common Exchange Ratio, the Series A Exchange Ratio and the Series
B Exchange Ratio are fixed and will not be adjusted based on changes in the
relative stock prices of the WorldCom Common Stock, the MFS Common Stock or the
MFS Depositary Shares. Thus, the dollar value of the WorldCom Common Stock to be
received by the holders of MFS Common Stock or underlying the WorldCom preferred
stock to be issued in the Merger will not be determined until the Effective
17
<PAGE> 33
Time, and may be substantially more or less than the value of the WorldCom
Common Stock as of the date of execution of the Merger Agreement, the date
hereof or the date on which MFS stockholders vote on the Merger and the
transactions contemplated thereby.
The opinions of Salomon and Gleacher NatWest were rendered as of August 25,
1996 and August 24, 1996, respectively. Such opinions were not updated as of the
date of this Joint Proxy Statement/Prospectus nor will such opinions be updated
as of the Closing Date. Therefore, neither opinion reflects the occurrence of
events after the date of such opinion.
Shareholders should also note that, due to possible delays in receiving
regulatory approvals or in satisfying other conditions to consummation of the
Merger, there may be a significant delay between the date of the Special
Meetings and the date of consummation of the Merger. Accordingly, the market
value of shares of WorldCom Capital Stock that holders of MFS Capital Stock will
receive upon consummation of the Merger may vary significantly from the market
value of the shares of WorldCom Capital Stock that holders of MFS Capital Stock
would receive if the Merger were consummated on the date of this Joint Proxy
Statement/ Prospectus or the date of the Special Meetings.
Shares Eligible for Future Sale; Possible Volatility of Stock Prices
After the Merger and assuming the conversion of the 222,297,610 shares of
MFS Common Stock outstanding on the MFS Record Date to shares of WorldCom Common
Stock, approximately 434.1 million of the shares of WorldCom Common Stock issued
to MFS stockholders will be freely tradeable and an approximate additional 32.7
million shares of WorldCom Common Stock will be tradeable under Rule 145 under
the Securities Act. An approximate additional 34.0 million shares of WorldCom
Common Stock would be issuable upon conversion of the WorldCom preferred stock
issuable in the Merger. As a result, substantial sales of WorldCom Common Stock
could occur after the Merger. Sales of a substantial number of such shares of
WorldCom Common Stock could adversely affect or cause substantial fluctuations
in the market price of WorldCom Common Stock and impair WorldCom's ability to
raise additional capital through the sale of its equity securities. As of the
WorldCom Record Date, WorldCom had outstanding options and warrants to purchase
approximately 24.5 million shares of WorldCom Common Stock. As of the MFS Record
Date, MFS had outstanding 6.9 million vested options and 1.5 million vested
warrants, which, if outstanding upon consummation of the Merger, will convert to
options and warrants to purchase an aggregate of 17.6 million shares of WorldCom
Common Stock.
The market price for the WorldCom Common Stock is subject to significant
fluctuations in response to a number of factors, including variations in
WorldCom's quarterly operating results, changes in estimates of WorldCom's
results of operations, perceptions about market conditions in the
telecommunications industry and the effect of general economic conditions, many
of which are unrelated to WorldCom's operating performance. Since the
announcement of the Merger Agreement, the market price of WorldCom Common Stock
has been subject to significant fluctuation in response to factors affecting
MFS, UUNET and the telecommunications and Internet industries. In addition, the
stock market generally has experienced significant price and volume
fluctuations. These market fluctuations could have a material adverse effect on
the market price or liquidity of the WorldCom Capital Stock.
RISKS RELATED TO WORLDCOM, MFS AND THE COMBINED COMPANY
Acquisition Strategy
Both WorldCom and MFS have acquired complementary businesses as part of
their business strategies. WorldCom has recently acquired and integrated the
operations of WilTel and IDB. MFS is in the process of integrating the
operations of UUNET, which it recently acquired.
After the Merger, the combined company may continue to acquire
complementary businesses, and any future acquisitions will be accompanied by the
risks commonly associated with acquisitions. These risks include potential
exposure to unknown liabilities of acquired companies or to acquisition costs
and expenses, the difficulty and expense of integrating the operations and
personnel of the companies, the potential disruption to the business of the
combined company and potential diversion of management time and
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attention, the impairment of relationships with and the possible loss of key
employees and customers as a result of changes in management, incurring
amortization expenses if an acquisition is accounted for as a purchase and
dilution to the shareholders of the combined company if the acquisition is made
for stock of the combined company. There can be no assurance that products,
technologies or businesses of acquired companies will be effectively assimilated
into the business or product offerings of the combined company. In addition, the
combined company may incur significant expense to complete acquisitions and to
support the acquired products and businesses. There can be no assurance that any
acquired products, technologies or businesses will contribute to the combined
company's revenues or earnings to any material extent. Further, the challenge of
managing the integration of future acquisitions may distract management and may
interfere with the successful integration of WorldCom, MFS and UUNET.
Operating Losses
A substantial portion of the expenditures relating to the development of
MFS' business, the installation and expansion of its domestic and international
networks and the recently proposed linking of these networks through the
acquisition or construction of facilities, if not reevaluated as a result of the
Merger, will be incurred before the realization of revenues. These expenditures,
together with the associated up front operating expenses, will result in
negative cash flow until an adequate customer base is established. MFS reported
losses from operations of approximately $31.5 million, $136.1 million and $239.3
million for the years ended December 31, 1993, 1994 and 1995, respectively, and
$272.9 million for the nine months ended September 30, 1996. In addition, at
September 30, 1996, MFS had an accumulated deficit of approximately $978.3
million. Although its revenues have increased substantially in each of the last
three years and for the nine months ended September 30, 1996, MFS has incurred
significant increases in expenses associated with the development and expansion
of its fiber optic networks, services and customer base, which expenses are
expected to continue to grow for the foreseeable future.
Significant Capital Requirements
WorldCom has historically utilized cash flow from operations to finance
primary capital expenditures. Primary capital expenditures include purchases of
switching, transmission, communication and other equipment. WorldCom's current
capital expenditures outlook for 1996 approximates $400 million. In addition to
this amount, WorldCom has additional city pair network construction
opportunities which could approximate $700 million to $800 million over the next
two years.
The development of MFS' businesses and the installation and expansion of
its domestic and international networks require significant capital
expenditures. During the first nine months of 1996, MFS' capital expenditures,
which are primarily for the construction of networks and the purchase of related
equipment, were approximately $533.1 million. On May 7, 1996, MFS announced that
it intends to undertake certain initiatives designed to take advantage of
opportunities created by changes in telecommunications laws and the rapid
development of Internet technology-based communications networks. These
initiatives involve increasing the number of metropolitan areas served,
expanding its networks in existing metropolitan areas, accelerating central
office interconnection, deploying additional switches, providing high-speed
local Internet access and implementing UUNET's plan to expand its international
presence and acquiring complementary businesses, technologies or products.
Certain of these initiatives, including the proposed linking of networks, may be
re-evaluated as a result of the Merger.
Expenditures for the initiatives are subject to MFS' review of a number of
factors, including cost of any additional capital required, technological
developments and market conditions. In addition, each initiative may be
implemented in whole or in part, and independently of any other initiative,
ensuring that MFS retains maximum financial and operating flexibility.
MFS anticipates that implementation of these initiatives, including certain
of the Internet-related initiatives, will, together with currently anticipated
expenditures, result in total average annual capital expenditures of
approximately $1.0 billion to $1.3 billion over the period of implementation,
which MFS expects to be up to four years. Since a significant portion of MFS'
capital expenditures are success-based (that
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is, related directly to revenue growth), actual capital expenditures may vary
significantly from the above range depending on the level of incremental sales.
This range is also subject to a number of additional factors, including the
proposed Merger, the potential repurchase of the MFS Notes, the pace and extent
of network development, as well as regulatory actions by state, federal and
international authorities, which, individually or in the aggregate, could cause
material changes in capital expenditure requirements. Failure to have access to
sufficient funds for capital expenditures may require MFS to delay or abandon
some of its future expansion or expenditures, which could have a material
adverse effect on the growth of MFS and the combined company.
Risks of Financial Leverage; Debt Service, Interest Rate Fluctuations,
Possible Reduction in Liquidity, Dividend Restrictions, and Other
Restrictive Covenants
At September 30, 1996, WorldCom reported $3.3 billion of long-term debt
(including capital leases and excluding current maturities) and a long-term
debt-to-equity ratio of 1.3 to 1.0. On June 28, 1996, WorldCom replaced its then
existing $3.41 billion credit facilities with a new $3.75 billion five-year
revolving credit facility (the "Credit Facility"). As a result of the Merger,
the combined company would have long-term debt (including capital leases and
excluding current maturities) of $4.7 billion and a long-term debt-to-equity
ratio of 0.4 to 1.0. See "-- Risks Associated with the Repurchase of MFS Senior
Notes" and "Management's Discussion and Analysis of the Pro Forma Condensed
Combined Financial Statements."
Borrowings under the Credit Facility bear interest at rates that fluctuate
with prevailing short-term interest rates. Increases in interest rates, economic
downturns, and other adverse developments, including factors beyond WorldCom's
control, could impair its ability to service its indebtedness under the Credit
Facility. In addition, the cash flow required to service WorldCom's debt may
reduce its ability to fund internal growth, additional acquisitions and capital
improvements. In addition, the Credit Facility restricts the payment of cash
dividends and otherwise limits WorldCom's financial flexibility.
WorldCom is committed to a priority plan of accelerating operating cash
flow to reduce debt. Additional capital availability may be generated through a
combination of commercial bank debt and public market debt. Successful execution
of the priority plan would provide continued compliance with required operating
ratio covenants, improved interest rate spread pricing, and would eliminate any
type of equity financing other than equity issued in connection with
acquisitions. No assurance can be given that WorldCom will achieve its priority
plan. See "Management's Discussion and Analysis of the Pro Forma Condensed
Combined Financial Statements."
Regulation
WorldCom is subject to extensive regulation at the federal and state
levels, as well as in various foreign countries in connection with certain
overseas business activities. The regulatory environment varies substantially by
jurisdiction.
The regulation of the telecommunications industry is changing rapidly, and
the regulatory environment varies substantially from state to state. There can
be no assurance that future regulatory changes will not have a material adverse
impact on WorldCom. On February 8, 1996, President Clinton signed the Telecom
Act that: permits, without limitation, the BOCs to provide domestic and
international long distance services to customers located outside of the BOC's
home regions; permits a petitioning BOC to provide domestic and international
long distance service to customers within its home region upon a finding by the
FCC that a petitioning BOC has satisfied certain criteria for opening up its
local exchange network to competition and that its provision of long distance
services would further the public interest; and removes existing barriers to
entry into local service markets. Additionally there are significant changes in:
the manner in which carrier-to-carrier arrangements are regulated at the federal
and state level; procedures to revise universal service standards; and penalties
for unauthorized switching of customers. The FCC has instituted proceedings
addressing the implementation of this legislation.
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On August 1, 1996, the FCC announced its intention to conduct a proceeding
in the fall of 1996 leading to the reform of access charges. Such charges are a
principal component of WorldCom's line cost expense. WorldCom cannot predict
whether or not the result of such a proceeding will have a material impact upon
WorldCom.
On August 8, 1996, the FCC released its First Report and Order in the
Matter of Implementation of the Local Competition Provisions in the Telecom Act
(the "FCC Interconnect Order"). In the FCC Interconnect Order, the FCC
established nationwide rules designed to encourage new entrants to participate
in the local service markets through interconnection with the incumbent local
exchange carriers ("ILEC"), resale of the ILEC's retail services and unbundled
network elements. These rules set the groundwork for the statutory criteria
governing BOC entry into the long distance market. WorldCom cannot predict the
effect such legislation or the implementing regulations will have on WorldCom or
the industry. Motions to stay implementation of the FCC Interconnect Order were
filed with the FCC and federal courts of appeal. Appeals challenging, among
other things, the validity of the FCC Interconnect Order have been filed in
several federal courts of appeal and assigned to the Eighth Circuit Court of
Appeals for disposition. The Eighth Circuit Court of Appeals has stayed the
pricing provisions of the FCC Interconnect Order. WorldCom cannot predict either
the outcome of these challenges and appeals or the eventual effect on its
business or the industry in general.
FCC approval is required for the operation of WorldCom's international
facilities and services. WorldCom believes that it has all the necessary FCC
authorizations for its current operations. There can be no assurance, however,
that WorldCom will receive all authorizations or licenses necessary for new
communications services or that delays in the licensing process will not
adversely affect WorldCom's business.
WorldCom is or will be subject to the applicable laws and has obtained or
will need to obtain the approval of the regulatory authority of each overseas
country in which it provides or proposes to provide telecommunications services.
The laws and regulatory requirements vary from country to country. Some
countries have substantially deregulated various communications services, while
other countries have maintained strict regulatory regimes. The application
procedure to enter new markets can be time-consuming and costly, and terms of
licenses vary for different countries. There can be no assurance that WorldCom
will receive all authorizations or licenses necessary for new communications
services or that delays in the licensing process will not adversely affect
WorldCom's business.
MFS is subject to varying degrees of federal, state, local and
international regulation. In the United States, MFS is most heavily regulated by
the states, especially for the provision of local exchange services. MFS must be
separately certified in each state to offer local exchange and intrastate long
distance services. No state, however, subjects MFS to price cap or rate of
return regulation, nor is MFS currently required to obtain FCC authorization for
installation or operation of its network facilities used for domestic services.
FCC approval is required, however, for the installation and operation of its
international facilities and services. MFS is subject to varying degrees of
regulation in the foreign jurisdictions in which it conducts operations
including authorization for the installation and operation of its network
facilities. Although the trend in federal, state and international regulation
appears to favor increased competition, no assurance can be given that changes
in current or future regulations adopted by the FCC, state or foreign regulators
or legislative initiatives in the United States and abroad would not have a
material adverse effect on WorldCom or MFS.
Internet-related services are not currently subject to direct regulation by
the FCC or any other U.S. agency, other than regulation applicable to businesses
generally. The FCC recently requested comments on a petition filed by the
America's Carriers Telecommunication Association which requests that the FCC
regulate certain voice transmissions over the Internet as telecommunications
services. Changes in the regulatory environment relating to the
telecommunications or Internet-related services industry could have an adverse
effect on MFS' Internet-related services business. The Telecom Act may permit
telecommunications companies, BOCs or others to increase the scope or reduce the
cost of their Internet access services. Neither MFS nor WorldCom can predict the
effect that the Telecom Act or any future legislation, regulation or regulatory
changes may have on its business.
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Competition
Traditional Telecommunications Services. WorldCom faces intense competition
in providing long distance telecommunications services. Domestically, WorldCom
competes for interLATA and intraLATA services with AT&T Corp. ("AT&T"), MCI
Communications Corporation ("MCI"), Sprint Corporation ("Sprint"), the LECs and
other national and regional IXCs, where permissible. Internationally, WorldCom
competes for services with other IXCs, including AT&T, MCI and Sprint. Certain
of these companies have substantially greater market share and financial
resources than WorldCom, and some of them are the source of communications
capacity used by WorldCom to provide its own services. In overseas markets,
WorldCom faces intense competition from the incumbent provider, which typically
offers local, intercity and international services and often enjoys special
privileges, as well as from other new entrants.
WorldCom expects to encounter continued competition from major domestic and
international communications companies, including AT&T, MCI and Sprint. In
addition, WorldCom may be subject to additional competition due to the enactment
of the Telecom Act, the development of new technologies and increased
availability of domestic and international transmission capacity.
For example, even though fiber-optic networks, such as that of WorldCom,
are now widely used for long distance transmission, it is possible that the
desirability of such networks could be adversely affected by changing
technology. The telecommunications industry is in a period of rapid
technological evolution, marked by the introduction of new product and service
offerings and increasing satellite and fiber optic transmission capacity for
services similar to those provided by WorldCom. WorldCom cannot predict which of
many possible future product and service offerings will be important to maintain
its competitive position or what expenditures will be required to develop and
provide such products and services. See Item 1 -- "Business -- Competition"
contained in the WorldCom 1995 Form 10-K which is hereby incorporated herein by
reference.
Virtually all markets for telecommunications services are extremely
competitive, and WorldCom and MFS expect that competition will intensify in the
future. In each of the markets in which it offers telecommunications services,
MFS faces significant competition from larger, better financed incumbent
carriers. MFS competes, both domestically and internationally, with incumbent
providers, which have historically dominated their local telecommunications
markets, and long distance carriers, for the provision of long distance
services. In certain markets, especially international markets, the incumbent
provider offers both local and long distance services. The incumbent LECs
presently have numerous advantages as a result of their historic monopoly
control of the local exchange market. A continuing trend toward business
combinations and alliances in the telecommunications industry may create
significant new competitors to MFS. Many of MFS' existing and potential
competitors have financial, personnel and other resources significantly greater
than those of MFS. MFS also faces competition in most markets in which it
operates from one or more competitors, including competitive access providers
("CAPs") operating fiber optic networks, in some cases in conjunction with the
local cable television operator. Each of AT&T, MCI and Sprint has indicated its
intention to offer local telecommunications services in major U.S. markets using
its own facilities or by resale of the LECs' or other providers' services. Other
potential competitors include cable television companies, wireless telephone
companies, electric utilities, microwave carriers and private networks of large
end users. In addition, MFS competes with equipment vendors and installers and
telecommunications management companies with respect to certain portions of its
business.
Under the Telecom Act and ensuing federal and state regulatory initiatives,
barriers to local exchange competition are being removed. The introduction of
such competition, however, also establishes the predicate for the BOCs to
provide in-region interexchange long distance services. The BOCs are currently
allowed to offer certain "incidental" long distance service in-region and to
offer out-of-region long distance services. Once the BOCs are allowed to offer
in-region long distance services, both they and the three largest long distance
carriers (AT&T, MCI and Sprint) will be in a position to offer single source
local and long distance service similar to that being offered by MFS. WorldCom
and MFS expect that the increased competition made possible by regulatory reform
will result in certain pricing and margin pressures in the domestic
telecommunications services business.
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MFS competes in three international markets: international services from
the United States; international services from certain countries in continental
Europe and Hong Kong; and domestic services within, and international services
from, the United Kingdom, Germany and Sweden. MFS offers private line,
high-speed LAN interconnect data and voice services in each of these markets,
subject to varying governmental authorizations. MFS faces competition in
international service originating in the United States from, among others, AT&T,
MCI, Sprint and WorldCom. These companies own significant international
transmission capacity and have established operating agreements with
governmental and private telecommunications providers in Europe, Asia and
elsewhere, which greatly reduce their cost of providing service. In
international markets, MFS competes with the incumbent telecommunications
carrier, which generally offers both local and long distance services and
benefits from its status as an incumbent provider.
Internet-Related Services. The market for data communications services,
including Internet access and on-line services, is extremely competitive. There
are no substantial barriers to entry, and WorldCom and MFS expect that
competition will intensify in the future. WorldCom and MFS believe that their
ability to compete successfully depends on a number of factors, including:
market presence; the ability to execute a rapid expansion strategy; the
capacity, reliability and security of its network infrastructure; ease of access
to and navigation of the Internet; the pricing policies of its competitors and
suppliers; the timing of the introduction of new products and services by MFS
and its competitors; MFS' ability to support industry standards; and industry
and general economic trends. The success of MFS or the combined company in this
market will depend heavily upon its ability to provide high quality Internet
connectivity and value-added Internet services at competitive prices.
UUNET's current and potential competitors headquartered in the United
States generally may be divided into the following three groups: (1)
telecommunications companies, such as AT&T, MCI, Sprint, BOCs and @Home (a joint
venture between Tele-Communications, Inc. and a venture capital firm), and
various other cable companies; (2) other Internet access providers, such as BBN
Corporation ("BBN"), NETCOM On-Line Communication Services, Inc., PSINet Inc.
("PSI"), and other national and regional providers; and (3) on-line services
providers, such as America Online, Inc. ("America Online"), CompuServe
Corporation ("CompuServe"), Intuit Inc., Microsoft and Prodigy. Certain of these
competitors may have greater market presence, engineering and marketing
capabilities, and financial, technological and personnel resources than those
available to UUNET. As a result, they may be able to develop and expand their
communications and network infrastructures more quickly, adapt more swiftly to
new or emerging technologies and changes in customer requirements, take
advantage of acquisition and other opportunities more readily, and devote
greater resources to the marketing and sale of their services than can UUNET.
MFS expects that all of the major on-line services providers and
telecommunications companies will expand their current services to compete fully
in the Internet access market. MFS believes that new competitors, including
large computer hardware, software, media and other technology and
telecommunications companies will enter the Internet access market, resulting in
even greater competition for UUNET. Certain companies, including America Online,
AT&T, BBN and PSI, have obtained or expanded their Internet access products and
services as a result of acquisitions and strategic investments. Such
acquisitions may permit UUNET's competitors to devote greater resources to the
development and marketing of new competitive products and services and the
marketing of existing competitive products and services. WorldCom and MFS expect
these acquisitions and strategic investments to increase, thus creating
significant new competitors to MFS or the combined company. In addition, the
ability of some of UUNET's competitors to bundle other services and products
with Internet access services, such as the Internet service offerings recently
announced by AT&T and MCI, could place UUNET or the combined company at a
competitive disadvantage.
As MFS continues to expand UUNET's operations outside of the United States,
it will encounter competition from companies whose operating styles are
substantially different from those that it usually experiences. UUNET will be
forced to compete with and buy services from government owned or subsidized
telecommunications providers, some of which may enjoy an absolute monopoly on
telecommunications services essential to UUNET's business. For example, in the
United Kingdom, UUNET PIPEX competes
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directly with: (1) telecommunications companies, such as British
Telecommunications plc, Cable and Wireless plc, Mercury Communications Limited
and others; (2) other Internet access providers, such as Demon Internet Limited
and EUnet GB Limited; and (3) on-line services providers, such as CompuServe,
America Online/Bertelsmann, Microsoft and AT&T. In addition to the risks
ascribed to UUNET's previously described competitors, these foreign competitors
may possess a better understanding of their local markets and may have better
working relationships with local telecommunications companies. There can be no
assurance that MFS or the combined company can obtain similar levels of local
knowledge and failure to obtain that knowledge could place MFS or the combined
company at a serious competitive disadvantage.
As a result of increased competition in the industry, MFS expects that
UUNET will continue to encounter significant pricing pressure, which in turn
could result in significant reductions in the average selling price of UUNET's
services. UUNET has in the past reduced prices on certain of its Internet access
options and may do so in the future. There can be no assurance that UUNET will
be able to offset the effects of any such price reductions with an increase in
the number of its customers, higher revenue from enhanced services, cost
reductions or otherwise. In addition, MFS believes that the data communications
business, and in particular the Internet access and on-line services businesses,
are likely to encounter consolidation in the near future, which could result in
increased price and other competition in the industry. Increased price or other
competition could result in erosion of UUNET's market share and could have a
material adverse effect on the business, financial condition and results of
operations of MFS or the combined company. There can be no assurance that MFS or
the combined company will have the financial resources, technical expertise,
marketing and support capabilities or expansion and acquisition possibilities to
continue to compete successfully.
Network Systems Integration Services. MFS Network Technologies' primary
network systems integration competitors are the BOCs, long distance carriers,
equipment manufacturers and major independent telephone companies. In certain
circumstances, MFS Network Technologies may also compete with regional and local
systems integration and construction firms for integration and installation
projects. In the automatic vehicle identification market, MFS Network
Technologies competes with specific manufacturers and several of the aerospace
defense contractors that have indicated an intention to shift to commercial
markets.
Risks of Expansion and Implementation
WorldCom derives substantial revenues by providing international
communication services primarily to customers headquartered in the United
States. Such operations are subject to certain risks such as changes in foreign
government regulations and telecommunication standards, licensing requirements,
tariffs or taxes and other trade barriers and political and economic
instability. In addition, such revenues and cost of sales are sensitive to
changes in international settlement rates. International rates may decrease in
the future due to aggressiveness on the part of existing carriers,
aggressiveness on the part of new entrants into niche markets, the widespread
resale of international private lines, the consummation of joint ventures among
large international carriers that facilitate targeted pricing and cost
reductions, and the rapid growth of international circuit capacity due to the
deployment of new transatlantic and transpacific fiber optic cables.
MFS is engaged in the expansion and development of its networks and
services. The expansion and development of its networks will depend on, among
other things, its ability to assess markets, design fiber optic network backbone
routes, install facilities and obtain rights-of-way, building access and any
required government authorizations and/or permits, all in a timely manner, at
reasonable costs and on satisfactory terms and conditions, as well as its
ability to expand, train and manage its growing employee base. Such expansion
has placed, and is expected to continue to place, significant demands on MFS'
management and operational and financial resources. As a result, there can be no
assurance that MFS will be able to expand its existing networks or install new
networks. If MFS is not able to expand its networks or install or acquire new
networks, there will be a material adverse effect on its growth.
Foreign operations or investment may be adversely affected by local
political and economic developments, exchange controls, currency fluctuations,
royalty and tax increases, retroactive tax claims, expropria-
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tion, import and export regulations and other foreign laws or policies as well
as by laws and policies of the United States affecting foreign trade, taxation
and investment. In addition, in the event of a dispute arising from foreign
operations, WorldCom or MFS may be subject to the exclusive jurisdiction of
foreign courts or may not be successful in subjecting foreign persons to the
jurisdiction of courts in the United States. WorldCom or MFS may also be
hindered or prevented from enforcing its rights with respect to a governmental
instrumentality because of the doctrine of sovereign immunity.
There can be no assurance that laws or administrative practice relating to
taxation, foreign exchange or other matters of countries within which WorldCom
or MFS operates or will operate will not change. Any such change could have a
material adverse effect on the business, financial condition and results of
operations of WorldCom or MFS.
Dependence on Availability of Transmission Facilities
The future profitability of WorldCom will be dependent in part on its
ability to utilize transmission facilities leased from others on a
cost-effective basis. The recent acquisitions of WilTel and IDB have reduced the
leasing risk through the ownership of significant domestic and international
assets, however, due to the possibility of unforeseen changes in industry
conditions, the continued availability of leased transmission facilities at
historical rates cannot be assured. See Item 1 -- "Business -- Transmission
Facilities" contained in the WorldCom 1995 Form 10-K, which is hereby
incorporated herein by reference.
Rapid Technological Changes; Dependence Upon Product Development
The telecommunications industry is subject to rapid and significant changes
in technology. While neither WorldCom nor MFS believes that, for the foreseeable
future, these changes will either materially and adversely affect the continued
use of fiber optic cable or materially hinder its ability to acquire necessary
technologies, the effect of technological changes, including changes relating to
emerging wireline and wireless transmission and switching technologies, on the
businesses of WorldCom or MFS cannot be predicted.
The market for MFS' Internet-related products and services is characterized
by rapidly changing technology, evolving industry standards, emerging
competition and frequent new product and service introductions. There can be no
assurance that MFS will successfully identify new product and service
opportunities and develop and bring new products and services to market in a
timely manner. MFS is also at risk from fundamental changes in the way Internet
access services are marketed and delivered. MFS' Internet service strategy
assumes that the Transmission Control Protocol/Internet Protocol ("TCP/IP"),
utilizing fiber optic or copper-based telecommunications infrastructures, will
continue to be the primary protocol and transport infrastructure for
Internet-related services. Emerging transport alternatives include cable modems
and satellite delivery of Internet information; alternative open protocol and
proprietary protocol standards have been or are being developed. MFS' pursuit of
necessary technological advances may require substantial time and expense, and
there can be no assurance that MFS will succeed in adapting its Internet
services business to alternate access devices, conduits and protocols.
Dependence on Key Personnel
WorldCom's and MFS' businesses are managed by a number of key executive
officers, the loss of certain of whom, particularly Bernard J. Ebbers,
WorldCom's President and Chief Executive Officer, and James Q. Crowe, MFS'
Chairman of the Board and Chief Executive Officer, could have a material adverse
effect on the respective company. Each of WorldCom and MFS believes that its
future success will depend in large part on its continued ability to attract and
retain highly skilled and qualified personnel. Neither WorldCom nor MFS has
employment agreements with any of its key executive officers, with certain
limited exceptions.
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Contingent Liabilities
WorldCom is subject to a number of legal and regulatory proceedings,
including certain legal proceedings pending against IDB prior to its merger with
a wholly owned subsidiary of WorldCom on December 30, 1994. While WorldCom
believes that the probable outcome of these matters, or all of them combined,
will not have a material adverse effect on WorldCom's consolidated results of
operations or financial position, no assurance can be given that a contrary
result will not be obtained. See Item 3 -- "Legal Proceedings" contained in the
WorldCom 1995 Form 10-K and WorldCom's subsequent Quarterly Reports on Form
10-Q, which are hereby incorporated herein by reference.
In addition to a number of other pending legal proceedings described
therein, on May 23, 1994, Deloitte & Touche LLP ("Deloitte") resigned as IDB's
independent auditors. Deloitte has stated it resigned as a result of events
surrounding the release and reporting of IDB's financial results for the first
quarter of 1994. In submitting its resignation, Deloitte informed IDB management
and the Audit Committee of the IDB Board of Directors that there had been a
serious breakdown in IDB's process of identifying, analyzing and recording IDB's
business transactions which prohibited Deloitte from the satisfactory completion
of a quarterly review, and that Deloitte was no longer willing to rely on IDB
management's representations regarding IDB's interim financial statements. IDB
announced Deloitte's resignation on May 31, 1994. On June 24, 1994, upon the
recommendation of the independent members of IDB's Audit Committee, IDB retained
Arthur Andersen LLP as its new independent auditors. On August 1, 1994, IDB
announced that it would restate its reported financial results for the quarter
ended March 31, 1994 to eliminate approximately $6.0 million of pre-tax income,
approximately $5.0 million of which related to a sale of transponder capacity
and approximately $1.0 million of which related to purchase accounting
adjustments, and on August 22, 1994, IDB filed Amendment No. 1 on Form 10-Q/A
restating its 1994 first quarter results in order to eliminate previously
recorded items. Certain of these items were among those as to which Deloitte had
expressed disagreement. On November 21, 1994, IDB filed Form 10-Q/A amendments
to its reported first and second quarter financial results making the previously
announced changes and reflecting the effect of IDB's method of accounting for
international long distance traffic, thereby reducing its first quarter net
income from $0.12 per share, as originally reported, to $0.05 per share and,
when combined with adjustments for income tax effects, increasing its second
quarter net loss from $0.20 per share, as originally reported, to $0.27 per
share.
IDB is a party to indemnification agreements with IDB's former officers and
directors, certain selling shareholders and certain underwriters. IDB's former
officers and directors are not covered by any applicable liability insurance.
WorldCom agreed to provide indemnification to IDB's officers and directors under
certain circumstances pursuant to the agreement relating to the IDB Merger.
On June 9, 1994, the Commission issued a formal order of investigation
concerning certain matters, including IDB's financial position, books and
records and internal controls and trading in IDB securities on the basis of
non-public information. The Commission has issued subpoenas to IDB and others,
including certain former officers of IDB, in connection with its investigation.
The NASD and other self-regulatory bodies have also made inquiries of IDB
concerning similar matters.
The U.S. Attorney's Office for the Central District of California (the
"U.S. Attorney's Office") issued grand jury subpoenas to IDB and WorldCom in
1994 and 1995 seeking documents relating to IDB's first quarter of 1994 results,
the resignation of Deloitte as IDB's auditors, trading in IDB securities and
other matters. In October 1996, the U.S. Attorney's Office entered an agreement
with WorldCom not to criminally prosecute IDB with respect to IDB's financial
reporting on or before January 1, 1995 (including but not limited to the
resignation of Deloitte), trading in IDB securities, misuse of IDB's assets,
attempts to obstruct the proceedings of the Commission and other matters. The
Agreement does not cover potential violations of the Code and is expressly
contingent upon the cooperation of IDB and WorldCom with the U.S. Attorney's
Office, the Federal Bureau of Investigation and any other federal law
enforcement agency, including the Commission.
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The outcome of any of the foregoing litigation or investigations, or of
other pending legal proceedings, has not been determined. See Item 3 -- "Legal
Proceedings" contained in the WorldCom 1995 Form 10-K for more information
regarding the foregoing litigation and investigations, as well as other pending
legal proceedings.
Potential Liability of On-line Service Providers
The law in the United States relating to the liability of on-line services
providers and Internet access providers for information carried on, disseminated
through or hosted on their systems is currently unsettled. Several private
lawsuits seeking to impose such liability are currently pending. In one case
brought against an Internet access provider, Religious Technology Center v.
Netcom On-Line Communication Services, Inc., the United States District Court
for the Northern District of California ruled in a preliminary phase that under
certain circumstances Internet access providers could be held liable for
copyright infringement. The case has been settled by the parties. The Telecom
Act prohibits and imposes criminal penalties and civil liability for using an
interactive computer service for transmitting certain types of information and
content, such as indecent or obscene communications. On June 12, 1996, however,
a panel of three federal judges granted a preliminary injunction barring
enforcement of this portion of the Telecom Act to the extent that enforcement is
based upon allegations other than obscenity or child pornography as an
impermissible restriction on the First Amendment's right of free speech. In
addition, the U.S. Congress, in consultation with the U.S. Patent and Trademark
Office and the Administration's National Information Infrastructure Task Force,
is currently considering legislation to address the liability of on-line service
providers and Internet access providers, and numerous states have adopted or are
currently considering similar types of legislation. The imposition upon Internet
access providers or Web hosting sites of potential liability for materials
carried on or disseminated through their systems could require MFS to implement
measures to reduce its exposure to such liability, which may require the
expenditure of substantial resources or the discontinuation of certain product
or service offerings. MFS believes that it is currently unsettled whether the
Telecom Act prohibits and imposes liability for any services provided by UUNET
should the content or information transmitted be subject to the statute.
The law relating to the liability of on-line service providers and Internet
access providers in relation to information carried, disseminated or hosted also
is being discussed by the World Intellectual Property Organization in the
context of ongoing consideration of updating existing, and adopting new,
international copyright treaties. Similar developments are ongoing in the United
Kingdom and other jurisdictions. The scope of authority of various regulatory
bodies in relation to on-line services is at present uncertain. The Office of
Telecommunications in the United Kingdom has recently published a consultative
document setting out a number of issues for discussion, including the roles of
traditional telecommunications and broadcasting regulators with respect to
on-line services. The Securities Investment Board in the United Kingdom is
investigating the status of on-line services and the transmission of investment
information over networks controlled by access providers. Such transmissions may
make an access provider liable for any violation of securities and other
financial services legislation and regulations. Decisions regarding regulation,
enforcement, content liability and the availability of Internet access in other
countries may significantly affect the ability to offer certain services
worldwide and the development and profitability of companies offering Internet
and on-line services in the future. For example, CompuServe recently removed
certain content from its services worldwide in reaction to law enforcement
activities in Germany, and it has been reported that an Internet access provider
in Germany has been advised by prosecutors that it may have liability for
disseminating neo-Nazi writings by providing access to the Internet where these
materials are available.
The increased attention focused upon liability issues as a result of these
lawsuits, legislation and legislative proposals could affect the growth of
Internet use. Any costs incurred as a result of liability or asserted liability
for information carried on or disseminated through its systems could have a
material adverse effect on the business, financial condition and results of
operations of MFS or the combined company.
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Dependence upon Network Infrastructure; Risk of System Failure; Security Risks
The success of each of WorldCom and MFS in marketing its services to
business and government users requires that such company provide superior
reliability, capacity and security via its network infrastructure. The networks
of each of WorldCom and MFS are subject to physical damage, power loss, capacity
limitations, software defects, breaches of security (by computer virus,
break-ins or otherwise) and other factors, certain of which have caused, and
will continue to cause, interruptions in service or reduced capacity for the
customers of such company. Similarly, UUNET's business relies on the
availability of its network infrastructure for the provision of Internet access
services. Interruptions in service, capacity limitations or security breaches
could have a material adverse effect on the business, financial condition and
results of operations of WorldCom or MFS.
Variability of Quarterly Operating Results
As a result of the significant expenses associated with the expansion and
development of its networks and services, the operating results of the combined
entity could vary significantly from period to period. Additional factors
contributing to variability of operating results include the pricing and mix of
services and products sold by WorldCom or MFS, respectively, customer
terminations of service, the timing of the expansion of such company's network
infrastructure domestically and internationally, the timing and costs of
marketing and advertising efforts, and the timing and costs of any acquisitions
of businesses, products or technologies. In addition, MFS' network systems
integration revenues are, and generally will continue to be, dependent upon a
small number of large projects. Accordingly, these non-recurring revenues are
likely to fluctuate from period to period.
Strategic Relationship Between UUNET and Microsoft
In December 1994, UUNET and Microsoft entered into a strategic relationship
for the development, operation and maintenance of a large-scale high speed
dial-up and ISDN TCP/IP access network which is the primary Internet dial-up
network and infrastructure for Microsoft, including The Microsoft Network. The
parties entered into a TCP/IP Local Access Network Agreement (the "Microsoft
Agreement") and a loan agreement under which Microsoft agreed to lend UUNET up
to $26.0 million to cover the anticipated capital cost of the network equipment,
which amount was increased subsequent to March 31, 1996, by $22.2 million to a
total of $48.2 million. Revenues from Microsoft totaled approximately 20% and
40% of UUNET's consolidated revenues during the year ended December 31, 1995 and
the nine months ended September 30, 1996, respectively. MFS expects that UUNET
will continue to derive a significant portion of its revenues from Microsoft for
at least the next several years, and the Microsoft Agreement limits UUNET's
ability to enter into similar agreements for the development of other
large-scale dial-up networks prior to March 1997.
Although UUNET has met Microsoft's needs through September 30, 1996, there
can be no assurance that MFS or the combined company will be able to continue to
meet all future deployment commitments to Microsoft. After September 1996,
Microsoft may terminate the Microsoft Agreement if UUNET breaches certain
material terms of the Microsoft Agreement and is unable to cure, thereby causing
a sustained operational failure of the dial-up network. Termination of the
Microsoft Agreement by Microsoft for any reason could result in the loss of all
future revenues from Microsoft and the acceleration of UUNET's obligation to pay
to Microsoft amounts due under the loan agreement. Any such termination, loss or
acceleration or imposition of penalties would have a materially adverse effect
on the business of MFS or the combined company. In addition, any regulatory or
private party legal challenges to The Microsoft Network, including those in the
United States and Europe which have been threatened to date, could result in
termination or restructuring of the strategic relationship with Microsoft, which
would have a material adverse effect on MFS or the combined company. The terms
of construction, maintenance and operation (including the allocation of costs
and payment of fees) of international gateway hubs beyond the initial 14 such
hubs are subject to future agreement between Microsoft and UUNET. UUNET expects
that the terms of any funding or revenues from Microsoft relating to additional
international hubs, if any, will be different from those of the
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Microsoft Agreement. In addition, UUNET and Microsoft have an understanding that
providers of Internet access services (such as Post, Telephone and Telegraph
Administrations ("PTTs"), which regulate telecommunications in foreign
jurisdictions) will begin to bear certain of the costs of the 14 international
gateway hubs. As this begins, Microsoft's share of such costs will decrease, and
UUNET will become more dependent upon such providers and their customers for
revenues to support such costs. Microsoft continues to evolve its international
strategy for The Microsoft Network, and its final strategy may differ materially
from that originally anticipated.
Although UUNET is Microsoft's primary Internet access provider, there can
be no assurance that Microsoft will obtain additional Internet network
infrastructure or capacity it may require from UUNET, other than that specified
in the Microsoft Agreement. Microsoft has announced a relationship with MCI
under which MCI will resell The Microsoft Network, Microsoft's Internet Explorer
Web browser software and other Microsoft Internet-related software. Although the
terms of the relationship have not been fully disclosed, this relationship with
MCI may allow access to The Microsoft Network through MCI's dial-up network.
Further, Microsoft is developing relationships with other Internet service
providers to resell The Microsoft Network and the Internet Explorer. As
originally planned, Microsoft is developing relationships with foreign and
domestic telecommunications companies and Internet access providers to resell
access to The Microsoft Network. If Microsoft fully develops these resale
relationships, MFS' revenues may not increase beyond Microsoft's guaranteed
minimum payments. Any failure of such revenues to increase could have a material
adverse effect on the business, financial condition or results of operations of
MFS or the combined company.
UUNET's Dependence upon Suppliers; Sole and Limited Sources of Supply
MFS relies on other companies to supply certain key components of UUNET's
network infrastructure, including telecommunications services and networking
equipment, which, in the quantities and quality demanded by UUNET, are available
only from sole or limited sources. UUNET has from time to time experienced
delays in receiving telecommunications services, and there can be no assurance
that UUNET will be able to obtain such services on the scale and within the time
frames required by UUNET at an affordable cost, or at all. Any failure to obtain
such services or additional capacity on a timely basis at an affordable cost, or
at all, would have a material adverse effect on the business, financial
condition and results of operations of MFS or the combined company. MFS also is
dependent on UUNET's suppliers' ability to provide necessary products and
components that comply with various Internet and telecommunications standards,
interoperate with products and components from other vendors and function as
intended when installed as part of the network infrastructure. Any failure of
UUNET's sole or limited source suppliers to provide products or components that
comply with Internet standards, interoperate with other products or components
used by UUNET in its network infrastructure or by its customers or fulfill their
intended function as a part of the network infrastructure could have a material
adverse effect on the business, financial condition and results of operations of
MFS or the combined company.
Anti-Takeover Provisions
The WorldCom Articles contain provisions (a) requiring a 70% vote for
approval of certain business combinations with certain 10% shareholders unless
approved by a majority of the continuing Board of Directors or unless certain
minimum price, procedural and other requirements are met; (b) restricting
aggregate beneficial ownership of the capital stock of WorldCom by foreign
shareholders to 20% of the total outstanding capital stock, and subjecting
excess shares to redemption, and (c) authorizing the WorldCom Board of Directors
to issue preferred stock in one or more classes without any action on the part
of shareholders. In addition, WorldCom has adopted a rights plan (the "WorldCom
Rights Plan") and in connection therewith entered into the Rights Agreement
between WorldCom and The Bank of New York, as Rights Agent, dated as of August
25, 1996 (the "WorldCom Rights Agreement"), which will cause substantial
dilution to a person or group that attempts to acquire WorldCom on terms not
approved by the WorldCom Board of Directors. Further, the WorldCom Bylaws (a)
contain requirements regarding advance notice of nomination of directors by
shareholders and (b) restrict the calling of special meetings by
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shareholders to those owning shares representing not less than 40% of the votes
to be cast. These provisions, including the WorldCom Rights Plan, may have an
"anti-takeover" effect. See "Information Regarding Resurgens -- Amendments to
Resurgens' Restated Articles of Incorporation -- LDDS Merger Agreement,"
"Proposals No. 1 and 2 -- The Proposed Mergers -- Special Redemption Provisions"
contained in the 1993 Joint Proxy Statement/Prospectus, which are hereby
incorporated herein by reference, and "Description of WorldCom Capital Stock"
contained herein.
The MFS Certificate of Incorporation and the MFS By-laws contain provisions
that could delay, defer or prevent a change in control without the approval of
its incumbent Board of Directors. These provisions, among other things, (i)
divide the MFS Board of Directors into three classes, with members of each class
to be elected in staggered three-year terms, (ii) prohibit stockholder action by
written consent in lieu of a meeting, (iii) limit the right to call special
meetings of stockholders and (iv) authorize the MFS Board of Directors to issue
preferred stock in one or more classes or series without any action on the part
of stockholders. Such provisions could limit the price that investors might be
willing to pay in the future for shares of MFS Common Stock and significantly
impede the ability of the holders of MFS Common Stock to replace management. In
addition, the MFS Rights Agreement has certain anti-takeover effects and will
cause substantial dilution to a person or group that attempts to acquire MFS on
terms not approved by the MFS Board of Directors. Provisions and agreements that
inhibit or discourage takeover attempts could reduce the market value of the MFS
Common Stock.
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PLAN OF MERGER
The following is a summary of the material terms and conditions of the
Merger Agreement, a copy of which is attached as Appendix I to this Joint Proxy
Statement/Prospectus and incorporated herein by reference. The information
regarding the Merger Agreement in this Joint Proxy Statement/Prospectus does not
purport to be complete and is qualified in its entirety by reference to the full
text of the Merger Agreement.
GENERAL DESCRIPTION OF THE MERGER
Pursuant to the Merger Agreement, at the Effective Time, WorldCom will
acquire MFS through the merger of Acquisition Subsidiary with and into MFS. If
the issuance of WorldCom Capital Stock and the Amendment are approved by the
shareholders of WorldCom and the Merger Agreement and the transactions
contemplated thereby are approved by the stockholders of MFS, and if the other
conditions to the Merger are satisfied or waived, the Merger will become
effective upon the filing by the Surviving Corporation with the Secretary of
State of the State of Delaware of a duly executed Certificate of Merger or at
such later time as may be specified in the Certificate of Merger.
At the Effective Time, each holder of MFS Common Stock will be entitled to
receive the number of whole shares of WorldCom Common Stock equivalent to the
number of shares of MFS Common Stock owned immediately prior to the Effective
Time multiplied by 2.1. In addition, each holder of MFS Series A Preferred Stock
or MFS Series B Preferred Stock (other than holders of MFS Series B Preferred
Stock exercising appraisal rights) will be entitled to receive one share of
WorldCom Series A Preferred Stock and one share of WorldCom Series B Preferred
Stock for each share of MFS Series A Preferred Stock and MFS Series B Preferred
Stock, respectively. Shares of MFS Common Stock and MFS preferred stock held in
the treasury of MFS or by a wholly owned subsidiary of MFS will be cancelled as
of the Effective Time, and no payment will be made with respect thereto.
The terms of the WorldCom preferred stock issued to MFS preferred
stockholders are substantially similar to the terms of the corresponding MFS
preferred stock (with such stock being convertible at the same conversion price
into the same number of shares of WorldCom Common Stock, in each case, as
adjusted for the Common Exchange Ratio), except that each share of WorldCom
Series B Preferred Stock (i) will be entitled to one vote per share on all
matters on which holders of WorldCom Common Stock are entitled to vote and (ii)
in contrast to shares of MFS Series B Preferred Stock, will not be subject to an
irrevocable proxy with respect to any voting rights of such series and will not
be subject to contractual restrictions on transfer. See "Description of WorldCom
Capital Stock."
Based on the capitalization of WorldCom and MFS as of November 13, 1996 and
assuming that all shares of MFS preferred stock are converted into shares of MFS
Common Stock prior to the consummation of the Merger, the stockholders of MFS
immediately prior to the consummation of the Merger will own securities
representing approximately 56% of the outstanding WorldCom Common Stock on a
fully diluted basis following consummation of the Merger, assuming that all
outstanding MFS Options and MFS Warrants are exercised, and approximately 54% of
the outstanding WorldCom Common Stock on a fully diluted basis following
consummation of the Merger, assuming that no outstanding MFS Options and MFS
Warrants are exercised, without adjustment in either case for shares acquired by
WorldCom shareholders in their capacities as stockholders of MFS.
MFS Options and MFS Warrants will be converted into options and warrants,
respectively, to purchase shares of WorldCom Common Stock, with a proportional
adjustment being made to the exercise price of and the number of shares subject
to each such option or warrant, as the case may be, to reflect the Common
Exchange Ratio, except that the holder of each outstanding and unexercised MFS
Outperformance Option will be instead entitled to receive the value of such MFS
Outperformance Options, which will be cancelled as of the fifteenth day
preceding the Effective Time in accordance with the terms of the MFS 1993 Option
Plan. See "-- Terms and Conditions of the Proposed Merger -- MFS Options and
Warrants."
Following the Effective Time, each stockholder of MFS will be required to
surrender the certificates which theretofore represented shares of MFS Capital
Stock to The Bank of New York, or such other bank or
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trust company as may be designated by WorldCom (the "Exchange Agent"), together
with a duly completed and executed transmittal letter provided by the Exchange
Agent. See " -- Surrender of Stock Certificates and Receipt of Merger
Consideration." No fractional shares of WorldCom Common Stock will be issued in
the Merger, but cash will be paid in lieu of such fractional shares. See
" -- Fractional Shares." The shares of WorldCom Capital Stock to be issued
pursuant to the Merger will be freely transferable except by certain
stockholders of MFS who are deemed to be "affiliates" of MFS. The shares of
WorldCom Capital Stock issued to such affiliates will be restricted in their
transferability in accordance with rules and regulations promulgated by the
Commission. See " -- Status Under Federal Securities Laws." Until so surrendered
and exchanged, each outstanding certificate representing MFS Capital Stock after
the Effective Time will be deemed for all purposes to evidence the right to
receive that number of whole shares of WorldCom Common Stock or WorldCom
preferred stock into which the shares of MFS Common Stock or MFS preferred stock
(other than shares held by holders of MFS Series B Preferred exercising
appraisal rights) have been converted pursuant to the Merger Agreement.
As soon as practicable after the Effective Time, the Exchange Agent will
mail to each holder of MFS Capital Stock notification of the consummation of the
Merger and instructions as to the procedure for the surrender of the stock
certificates. The Exchange Agent will accept documentation acceptable to it in
lieu of lost or destroyed certificates and may also require the holder of a lost
or destroyed certificate to post an insurance bond acceptable to the Exchange
Agent. Each holder of MFS Capital Stock, upon surrender of a stock certificate
or certificates representing such stock, together with the transmittal letter
provided by the Exchange Agent duly completed and executed by such holder, will
be entitled to receive a stock certificate or certificates representing the
number of the whole shares of WorldCom Capital Stock (together with cash in lieu
of fractional shares of WorldCom Common Stock) to which such holder is entitled.
The Merger Agreement provides that neither MFS nor WorldCom nor the Exchange
Agent will be liable to any holder of MFS Common Stock or MFS preferred stock
for any shares of WorldCom Common Stock or WorldCom preferred stock (or
dividends or distributions with respect thereto), or cash delivered to a public
official pursuant to any abandoned property, escheat or similar law, rule,
regulation, statute, order, judgment or decree.
MFS STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL LETTER FROM THE EXCHANGE AGENT.
BACKGROUND OF THE MERGER
WorldCom and MFS, each on a regular basis, analyze other companies within
their industry for the purpose of evaluating potential commercial, joint
venture, strategic, acquisition or merger opportunities which may be available.
Under appropriate circumstances, representatives may establish direct or
indirect contact with potential candidates identified through this process.
Contact between WorldCom and MFS was precipitated in part by the enactment of
the Telecom Act and the opportunities and potential competitive challenges each
of the companies faced under the changing regulatory landscape. See "-- Reasons
for the Merger; Board Recommendations" and "Risk Factors -- Risks Related to
WorldCom, MFS and the Combined Company -- Regulation" and "-- Competition."
Initial contacts between WorldCom and MFS took place on August 14 and 15,
1995, when representatives of WorldCom (Bernard J. Ebbers, President and Chief
Executive Officer, Scott D. Sullivan, Chief Financial Officer, and Roy A.
Wilkens, Chief Executive Officer of WilTel, a division of WorldCom) and MFS
(James Q. Crowe, Chairman of the Board and Chief Executive Officer, Royce J.
Holland, President and Chief Operating Officer, and R. Douglas Bradbury,
Executive Vice President and Chief Financial Officer) met in Sandestin, Florida.
The purpose of the meeting was to establish informal contact between the senior
officers of the companies in light of the growing business relationships between
the two companies involving the provision of services offered by each company
over its respective network.
On May 16, 1996, Mr. Ebbers placed a telephone call to Mr. Crowe to suggest
that they meet at a future date to discuss possible commercial or strategic
opportunities. A meeting was scheduled for May 21, 1996 at MFS' executive
offices in Omaha, Nebraska. In preparation for the meeting with Messrs. Ebbers
and Sullivan
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on May 21, 1996, Mr. James Goodwin, a managing director of Gleacher NatWest,
discussed with Messrs. Crowe and Bradbury MFS' future strategy in the long
distance business.
On May 21, 1996, Mr. Ebbers and Mr. Sullivan met with Mr. Crowe, Frederick
W. Weidinger, a Vice President of MFS, and Ronald J. Vidal, a Vice President of
MFS, to discuss general commercial and strategic matters, including sharing
information and views regarding the competitive local exchange carrier ("CLEC")
business, the long distance business, international growth and the effect of the
Telecom Act, as well as the pending MFS/UUNET merger. The two companies agreed
to share information regarding traffic on their networks to determine if there
would be a basis for a business arrangement.
On July 11, 1996, Messrs. Ebbers and Sullivan met with Messrs. Crowe and
Bradbury in Omaha, Nebraska for the purpose of discussing general commercial and
strategic issues. The participants also discussed the methods by which the
market valued each company.
On August 5, 1996, Mr. Crowe met with Mr. Ebbers at WorldCom's headquarters
in Jackson, Mississippi, and they discussed the Telecom Act's implications on
both companies, their respective views on local telephone competition, the
implications of the Internet on both businesses, and general commercial and
strategic issues.
On August 6, 1996, Messrs. Crowe, Bradbury and Terrence J. Ferguson, MFS'
General Counsel, telephoned John S. D'Alimonte, a partner in the law firm of
Willkie Farr & Gallagher, MFS' outside counsel, and Mr. Goodwin to discuss MFS'
possible business relationship with WorldCom and to obtain advice in structuring
a possible transaction scenario for MFS to present to WorldCom. The participants
in the telephone call agreed to meet in Omaha, Nebraska on Friday, August 9,
1996 to continue discussions.
On August 9, 1996, Messrs. Crowe, Bradbury, Ferguson, D'Alimonte and
Goodwin, along with Andrew Gilman and Sureel Choksi, both of Gleacher NatWest,
met at the MFS headquarters in Omaha, Nebraska to discuss conditions for a
strategic relationship or business combination with WorldCom and to prepare a
preliminary transaction scenario for use by Messrs. Crowe and Bradbury in a
meeting with Messrs. Ebbers and Sullivan scheduled for Tuesday, August 13, 1996
in Omaha, Nebraska. Effective August 9, 1996, MFS engaged Gleacher NatWest to
act as its financial advisor and to deliver a fairness opinion in connection
with any proposed transaction.
In the morning of August 13, 1996, Mr. Ebbers contacted representatives of
Salomon to establish a meeting for later that day to discuss a potential
strategic relationship or a business combination with MFS. Mr. Ebbers also
confirmed with Mr. Crowe that a meeting was scheduled later that day in Omaha to
discuss a potential strategic relationship or a business combination.
Later in the morning of August 13, 1996, Messrs. Ebbers and Sullivan met
with representatives of Salomon in New York to discuss a potential strategic
relationship or a business combination involving WorldCom and MFS. Shortly after
this meeting, WorldCom contacted Salomon regarding its acting as a financial
advisor and delivering a fairness opinion in connection with such a proposed
transaction.
The first contact between management of WorldCom and MFS specifically
relating to a possible strategic relationship or business combination occurred
in Omaha, Nebraska during the evening of August 13, 1996. Messrs. Ebbers and
Sullivan met with Messrs. Crowe and Bradbury in Omaha, Nebraska. The meeting
covered several topics that were proposed by MFS for a possible transaction
between MFS and WorldCom. An exchange ratio of 2.1 shares of WorldCom Common
Stock for each share of MFS Common Stock was proposed but was preliminary
because neither company had commenced due diligence. Accordingly, the ratio was
therefore subject to change based on the results of such due diligence
investigation. MFS also proposed possible non-solicitation provisions,
termination fees and stock options. In addition, the parties discussed a
possible in-kind services agreement that would become effective in the event a
merger agreement was entered into but subsequently terminated. Effective as of
August 13, 1996, MFS and WorldCom executed a joint non-disclosure agreement.
On August 14, 1996, Mr. Ebbers convened an informal telephonic WorldCom
board meeting in order to advise the WorldCom Board of Directors of the
possibility of a business combination involving WorldCom and
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MFS, including the terms discussed at the August 13 meeting and proposed due
diligence activities to be undertaken with respect to the parties. Additionally,
WorldCom retained The Breckenridge Group as an additional financial advisor. The
Breckenridge Group had been engaged in the past by WorldCom, and Gleacher
NatWest had been engaged in the past by MFS, and each was thus knowledgeable of
the business, operations and management of their respective clients.
On August 15, 1996, each of WorldCom and MFS commenced a legal and business
due diligence review of the other's business in Omaha, Nebraska and Jackson,
Mississippi, respectively. During the next week, representatives of WorldCom and
MFS and their financial and legal advisors continued intensive due diligence
investigations, with particular focus on, among other things, possible cost
savings and synergies from the business combination. Effective August 15, 1996,
WorldCom formally engaged Salomon to act as a financial advisor and to deliver a
fairness opinion in connection with the proposed transaction.
On August 15, 1996, Mr. Crowe convened a special telephonic meeting of the
MFS Board of Directors to apprise the Directors of the discussions with
WorldCom, including the preliminary terms of the transaction, the proposed
exchange ratio, the commencement, scope and timing of due diligence by both
companies, the drafting and negotiation of definitive documentation of the
transaction, information about WorldCom and certain legal, tax and financial
aspects of the proposed transaction.
On August 20, 1996, representatives of WorldCom, Salomon, The Breckenridge
Group and MFS conducted due diligence investigations at the principal offices of
UUNET, in Fairfax, Virginia.
Concurrent with the due diligence process, representatives of WorldCom and
MFS began exchanging drafts of the Merger Agreement and conducting negotiations
regarding the terms of the Merger Agreement. On August 21, 1996, a meeting took
place in the New York offices of Willkie Farr & Gallagher, counsel to MFS,
between WorldCom, MFS and their respective financial and legal advisors to
discuss the proposed structure and terms of the proposed transaction. By August
22, 1996, negotiation of the principal terms of the Merger Agreement was
substantially complete, and the companies and their advisors prepared additional
information to present to their respective Boards of Directors. Also during that
period, the financial advisors provided from time to time to the companies
information regarding the proposed exchange ratio structure, stock price
performance for WorldCom and MFS and preliminary comparative valuations of
WorldCom, MFS and other telecommunications companies based upon various
multiples, growth rates and similar factors. Mr. Ebbers advised certain
individual members of the WorldCom Board of Directors from time to time of the
status of due diligence discussions with MFS and the status of the negotiations
during this period as well.
On August 22, 1996, the MFS Board of Directors held a regularly scheduled
meeting at its Omaha, Nebraska headquarters and considered the proposed Merger
Agreement and the transactions contemplated thereby. Members of MFS' management
and representatives of each of Gleacher NatWest and Willkie Farr & Gallagher
presented written materials and made presentations to the MFS Board of Directors
and discussed with members of the MFS Board of Directors their views and
analyses of various aspects of the proposed Merger and the effects thereof. All
of the members of the MFS Board of Directors were present at such meeting except
Mr. Bradbury (who was absent for family reasons). Representatives of Gleacher
NatWest also delivered its oral opinion to the MFS Board of Directors (which was
later confirmed in writing) that the proposed Common Exchange Ratio, Series A
Exchange Ratio and Series B Exchange Ratio were fair, from a financial point of
view, to the holders of MFS Common Stock, MFS Series A Preferred Stock and MFS
Series B Preferred Stock, respectively. Following the presentations and
discussions described above, all of the directors present concluded to postpone
any vote on the proposed Merger in order to give the directors additional time
to deliberate on the proposal until a special meeting of the MFS Board of
Directors scheduled for August 24, 1996. After the meeting was adjourned, Mr.
Ebbers addressed the Directors.
On August 23, 1996, the WorldCom Board of Directors held a special meeting
at the New York offices of Salomon, at which additional information regarding
the Merger was distributed by Salomon and WorldCom's management, and the
WorldCom Board of Directors met and discussed, among other things, the details
of the proposed Merger Agreement. All of the members of the WorldCom Board of
Directors were present at such meeting except John W. Kluge, who was absent due
to out-of-town commitments. At this meeting, the results of the due diligence
investigations were discussed and reviewed. Additionally, presentations were
given by
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management and the financial and legal advisors to WorldCom, including Bryan
Cave LLP, outside legal counsel. Salomon presented its analysis of the Merger
and delivered its oral opinion to the WorldCom Board of Directors that, as of
August 23, 1996, the proposed Common Exchange Ratio was fair to the holders of
WorldCom Common Stock from a financial point of view. Members of WorldCom
management made a presentation to the WorldCom Board of Directors regarding the
terms of the proposed Merger, the business reasons for approving the Merger,
including the effects of the Telecom Act and the strategic fit of the companies,
and the new revenue opportunities and areas where cost efficiencies could be
achieved. During and following the presentations, questions were asked by
members of the WorldCom Board of Directors and answered regarding financial
issues, including the potential impact of developments on the financial markets,
the risks and benefits of the proposed Merger and other matters. The WorldCom
Board of Directors also reviewed the proposed Merger Agreement (the final terms
of which are described more fully elsewhere herein). Additionally,
representatives of Bryan Cave LLP discussed in detail a possible rights plan and
responded to questions from members of the WorldCom Board of Directors regarding
such a plan. Following the presentations and discussions described above, the
directors present concluded to postpone any vote on the proposed Merger and
rights plan in order to give the directors additional time to deliberate on the
proposals until a special meeting of the WorldCom Board of Directors scheduled
for August 25, 1996.
On August 24, 1996, the MFS Board of Directors held a special telephonic
meeting and reviewed the proposed terms of the Merger Agreement. Representatives
of Gleacher NatWest reaffirmed its oral opinion to the MFS Board of Directors
that as of August 24, 1996 the proposed Common Exchange Ratio, Series A Exchange
Ratio and Series B Exchange Ratio were fair, from a financial point of view, to
the holders of MFS Common Stock, MFS Series A Preferred Stock and MFS Series B
Preferred Stock, respectively. Following significant discussion, the MFS Board
of Directors concluded that the Merger was in the best interest of MFS and its
stockholders and, by a unanimous vote of all directors, approved the Merger
Agreement and the transactions contemplated thereby and authorized the officers
of MFS to enter into the Merger Agreement and related agreements.
On August 25, 1996, the WorldCom Board of Directors held a special
telephonic meeting, and management and the financial and legal advisors to
WorldCom, including representatives of Salomon and Bryan Cave LLP, presented
additional information regarding the proposed Merger. Representatives of Salomon
reaffirmed its oral opinion to the WorldCom Board of Directors that, as of
August 25, 1996, the proposed Common Exchange Ratio was fair to the holders of
WorldCom Common Stock from a financial point of view. After additional
discussion among the directors, all of the directors present concluded that the
Merger was fair to, and in the best interests of, WorldCom and its shareholders
and unanimously approved the Merger Agreement and the transactions contemplated
thereby and authorized the officers of WorldCom to execute the Merger Agreement
and related agreements. In addition, representatives of management and the
financial and legal advisors to WorldCom presented additional information
regarding the proposed rights plan. After reviewing the terms of the proposed
rights plan (the terms of which are described herein more fully under
"Description of WorldCom Capital Stock -- Preferred Stock Purchase Rights") and
further discussion, the WorldCom Board of Directors unanimously approved the
proposed rights plan.
On August 25, 1996, WorldCom and MFS executed the Merger Agreement and
related agreements. During the evening of August 25, 1996, Mr. Crowe informed
certain members of the MFS Board of Directors that the WorldCom Board of
Directors had approved the Merger and that Messrs. Crowe and Ebbers had executed
the Merger Agreement and the related agreements, including the Option
Agreements. On August 26, 1996, prior to the opening of trading on the Nasdaq
National Market, WorldCom and MFS issued a joint press release announcing the
Merger. See " -- Reasons for the Merger; Board Recommendations" and
" -- Opinions of Financial Advisors."
REASONS FOR THE MERGER; BOARD RECOMMENDATIONS
In reaching their decision to approve the Merger Agreement, the Board of
Directors of each of WorldCom and MFS consulted with their respective management
teams and advisors and independently considered the proposed Merger Agreement,
including the material factors described below. Based upon their respective
independent reviews of such factors and the business and operations of the other
party, the Board of
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Directors of WorldCom and MFS each approved the Merger Agreement and the
transactions contemplated thereby. There can be no assurance, however, that any
of the efficiencies or opportunities described in the following reasons for the
Merger will be achieved through the consummation of the Merger. See "Cautionary
Statement Regarding Forward-Looking Statements" and "Risk Factors."
The Board of Directors of each of WorldCom and MFS concluded that the
Merger is in the best interests of such company and its shareholders because the
Merger would (1) enhance the combined entity's opportunities for future growth,
(2) create a stronger competitor in the changing long distance and local
telecommunications industry, (3) allow provision of end-to-end bundled long
distance and local and Internet service over a global network, and (4) provide
the opportunity for significant cost savings for the combined organization. See
"Information Regarding WorldCom -- Business of WorldCom" and "Information
Regarding MFS -- Business of MFS." The Board of Directors of each of WorldCom
and MFS concluded that the Merger would further such objectives in part because
of its belief that: (i) the combined company would have the ability to take
advantage of the Congressional intent behind the Telecom Act as well as the
recently released FCC Interconnect Order; (ii) the combined company would have
the ability to increase customer retention by offering a combination of local,
long distance and international calling and Internet-based services to its
customers; (iii) the combined company would be better positioned to meet the
demand for corporate "Intranets" by utilizing technology and facilities
available from a single source; and (iv) the customer bases of the companies are
complementary to each other. In addition, each of WorldCom and MFS believes that
the Merger would result in incremental revenue growth and network cost savings,
resulting from: (a) the cross-selling of MFS facilities-based local and UUNET
Internet access services to WorldCom's existing long distance customer base; (b)
reduced line and access costs by migrating voice, data and Internet traffic onto
each other's domestic and international networks; (c) avoidance of access charge
payments for originating and terminating both local and long distance calls; and
(d) the avoidance of capital spending related to redundant inter-city networks.
In reaching its conclusions, each Board of Directors also considered, among
other things, the following factors: (i) its knowledge of the business,
operations, properties, assets, financial condition, operating results and
prospects of MFS and WorldCom; (ii) current industry, economic and market
conditions; (iii) presentations by its management and its financial advisors,
with respect to the other company; (iv) the opinion of its financial advisor as
to the fairness, from a financial point of view, of the Common Exchange Ratio,
the Series A Exchange Ratio and the Series B Exchange Ratio to holders of MFS
Common Stock, MFS Series A Preferred Stock and MFS Series B Preferred Stock,
respectively, in the case of Gleacher NatWest's opinion, and of the Common
Exchange Ratio to the holders of WorldCom Common Stock, in the case of Salomon's
opinion (see " -- Opinions of Financial Advisors"); (v) the terms of the Merger
Agreement (see " -- Terms and Conditions of the Proposed Merger"); (vi) the
compatibility of the respective business philosophies of MFS and WorldCom; and
(vii) the opportunity for its shareholders to participate in a larger, more
diversified company.
In view of the variety of factors considered in connection with its
evaluation of the Merger, the Board of Directors of each of WorldCom and MFS did
not find it practicable to and did not quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination.
The WorldCom Board of Directors believes that the Merger is fair to, and in
the best interests of, WorldCom and its shareholders. FOR THE REASONS DISCUSSED
ABOVE, THE DIRECTORS OF WORLDCOM HAVE UNANIMOUSLY APPROVED THE TERMS OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY
RECOMMEND THAT WORLDCOM'S SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO APPROVE THE
ISSUANCE OF WORLDCOM CAPITAL STOCK PURSUANT TO THE MERGER AGREEMENT AND "FOR"
THE AMENDMENT.
The MFS Board of Directors believes that the Merger is fair to, and in the
best interests of, MFS and its stockholders. THE MFS BOARD OF DIRECTORS HAS
APPROVED THE TERMS OF THE MERGER BY A UNANIMOUS VOTE OF THE DIRECTORS AND
UNANIMOUSLY RECOMMENDS THAT MFS' STOCKHOLDERS APPROVE AND ADOPT THE MERGER
AGREEMENT AND THE
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AUTHORIZATION OF THE MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT.
OPINIONS OF FINANCIAL ADVISORS
WorldCom. Salomon has acted as financial advisor to WorldCom in connection
with the Merger. In connection with such engagement, at the August 23, 1996
meeting of the WorldCom Board of Directors Salomon delivered its oral opinion
that, as of August 23, 1996, the Common Exchange Ratio was fair to the holders
of WorldCom Common Stock from a financial point of view. This opinion was
confirmed by Salomon's oral opinion delivered at the August 25, 1996 meeting of
the WorldCom Board of Directors, subsequently confirmed in writing, to the
effect that, based upon and subject to various considerations set forth in such
opinion, as of August 25, 1996 the Common Exchange Ratio was fair to the holders
of WorldCom Common Stock from a financial point of view. No limitations were
imposed by the WorldCom Board of Directors upon Salomon with respect to the
investigations made or the procedures followed by Salomon in rendering its
opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SALOMON DATED AUGUST 25, 1996,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX V TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. WORLDCOM
SHAREHOLDERS ARE URGED TO READ SUCH OPINION CAREFULLY AND IN ITS ENTIRETY.
SALOMON'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE COMMON EXCHANGE RATIO
FROM A FINANCIAL POINT OF VIEW, HAS BEEN PROVIDED TO THE WORLDCOM BOARD OF
DIRECTORS IN CONNECTION WITH ITS EVALUATION OF THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY WORLDCOM SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE. THE SUMMARY OF THE OPINION OF SALOMON SET FORTH IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION. SALOMON'S OPINION WAS NOT UPDATED AS OF THE DATE
OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR WILL SUCH OPINION BE UPDATED AS OF
THE CLOSING DATE.
In arriving at its opinion, Salomon reviewed certain publicly available
information concerning WorldCom and MFS and certain other financial information
concerning WorldCom and MFS, including financial forecasts, that were provided
to Salomon by WorldCom and MFS, respectively. Salomon discussed the business
operations and financial condition of WorldCom and MFS as well as other matters
Salomon believed to be relevant to its inquiry, including matters relating to
the obtaining of regulatory approvals for the Merger, with certain officers and
employees of WorldCom and MFS, respectively. Salomon also considered such other
information, financial studies, analyses, investigations and financial, economic
and market criteria as it deemed relevant.
Salomon assumed and relied on the accuracy and completeness of the
financial and other information (including information relating to the obtaining
of regulatory approvals for the Merger) reviewed by it for the purpose of its
opinion and Salomon did not assume any responsibility for independent
verification of such information. With respect to the financial forecasts of
WorldCom and MFS, Salomon assumed that they had been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
respective managements of WorldCom or MFS as to the future financial performance
of WorldCom or MFS, respectively, and Salomon expressed no opinion with respect
to such forecasts or the assumptions on which they were based. Salomon did not
make or obtain or assume any responsibility for making or obtaining any
independent valuations or appraisals of any of the assets (including properties
and facilities) or liabilities of WorldCom or MFS.
The forecasts and projections furnished to Salomon for each of WorldCom and
MFS and estimates of synergies resulting from the Merger were prepared by the
respective managements of each company. As a matter of policy, neither WorldCom
nor MFS publicly discloses internal management forecasts, projections or
estimates of the type furnished to Salomon in connection with its analysis of
the Merger, and such forecasts, projections and estimates were not prepared with
a view towards public disclosure. These forecasts, projections and estimates
were based on numerous variables and assumptions which are inherently uncertain
and which may not be within the control of management, including, without
limitation, factors related to the integration of WorldCom, MFS and UUNET and
general economic, regulatory and competitive conditions. Accordingly,
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actual results could vary materially from those set forth in such forecasts,
projections and estimates. See "Cautionary Statement Regarding Forward-Looking
Statements" and "Risk Factors."
Salomon's opinion was necessarily based upon conditions as they existed and
could be evaluated on the date of its opinion. Salomon's opinion did not imply
any conclusion as to the likely trading range for the WorldCom Common Stock
following the consummation of the Merger, which may vary depending upon, among
other factors, changes in interest rates, dividend rates, market conditions,
general economic conditions and other factors that generally influence the price
of securities. Salomon's opinion did not address WorldCom's underlying business
decision to effect the Merger. In rendering its opinion, Salomon assumed that in
the course of obtaining the necessary regulatory approvals for the Merger no
restrictions would be imposed that would have a material adverse effect on the
contemplated benefits of the Merger to WorldCom following the Merger.
The following is a summary of the report (the "Salomon Report") presented
and discussed by Salomon with the WorldCom Board of Directors at its meetings on
August 23 and August 25, 1996, in connection with the delivery of the Salomon
fairness opinion.
Comparable Public Company Analysis. Salomon reviewed and compared the
financial and market performance of the following group of three publicly traded
competitive access providers with those of MFS: Brooks Fiber Properties, Inc.,
IntelCom Group (U.S.A.), Inc. and Teleport Communications Group Inc.
(collectively, the "MFS Comparable Group"). For MFS (without giving effect to
the acquisition of UUNET) and each company in the MFS Comparable Group, Salomon
calculated multiples of firm value (calculated as debt value plus equity value
less cash) ("Firm Value") to last quarter annualized revenue ("LQA Revenue") and
net property plant and equipment ("Net PP&E"), and equity value to book value.
This analysis yielded the following multiple ranges and means for the MFS
Comparable Group and multiples for MFS (based on the unaffected trading price):
Firm Value to LQA Revenue (6.6x to 29.4x, with a mean of 18.5x, compared to an
MFS multiple of 7.1x), Firm Value to Net PP&E (3.9x to 6.9x, with a mean of
5.3x, compared to an MFS multiple of 4.1x) and equity value to book value (3.4x
to 3.7x, with a mean of 3.6x, compared to an MFS multiple of 4.5x). Salomon also
computed ratios of Firm Value to each of route miles, buildings connected, fiber
miles and voice grade equivalent circuits for the MFS Comparable Group and
compared them to similar ratios for MFS, and compared certain other financial
and operating statistics of the MFS Comparable Group to those of MFS. This
analysis resulted in an equity value reference range per share of MFS Common
Stock (excluding UUNET) of $33.88 to $45.00.
Salomon performed a similar analysis with respect to WorldCom. Salomon
reviewed and compared the financial and market performance of the following
group of five publicly traded long distance companies with those of WorldCom:
AT&T Corp., MCI Communications Corporation, Sprint Corporation, Frontier
Corporation and LCI International, Inc. (collectively, the "WorldCom Comparable
Group"). For WorldCom and each company in the WorldCom Comparable Group, Salomon
calculated the estimated 5-year earnings per share growth rate, the ratio of
current stock market price to estimated 1996 earnings, the ratio of current
stock market price to estimated 1997 earnings and the current dividend yield.
Estimated figures were based on published research reports of certain analysts
covering the WorldCom Comparable Group. This analysis yielded the following
multiple and percentage ranges and medians for the WorldCom Comparable Group and
multiples and percentages for WorldCom (based on the unaffected trading price):
estimated 5-year earnings per share growth rate (12% to 30%, with a median of
13.0%, compared to 20.0% for WorldCom), ratio of current stock market price to
estimated 1996 earnings (13.5x to 40.8x, with a median of 15.3x, compared to
29.7x for WorldCom), ratio of current stock market price to estimated 1997
earnings (13.3x to 28.4x, with a median of 13.5x, compared to 22.9x for
WorldCom) and current dividend yield (0.0% to 2.8%, with a median of 2.4%,
compared to 0.0% for WorldCom). Salomon also calculated the Firm Value and
certain financial information for the long distance businesses of the companies
in the WorldCom Comparable Group by eliminating the value of and financial
results relating to the non-long distance businesses of such companies. Based on
such information for each of such companies, Salomon calculated multiples of
"stripped" Firm Value ("Stripped Firm Value") to the latest 12 months ("LTM")
ending June 30, 1996 revenue, earnings before interest, taxes, depreciation and
amortization ("EBITDA") and earnings before interest and taxes ("EBIT"). This
analysis yielded the following multiple ranges and medians for the "stripped"
companies in
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the WorldCom Comparable Group and multiples for WorldCom: Stripped Firm Value to
LTM revenue (0.9x to 3.3x, with a median of 1.2x, compared to 3.6x for
WorldCom), Stripped Firm Value to LTM EBITDA (4.7x to 17.8x, with a median of
6.1x, compared to 13.2x for WorldCom) and Stripped Firm Value to LTM EBIT (8.0x
to 26.5x, with a median value of 11.2x, compared to 19.4x for WorldCom). This
comparable company analysis resulted in an equity value reference range per
share of WorldCom Common Stock of $25.00 to $30.00.
Discounted Cash Flow Analysis. Using a discounted cash flow ("DCF")
analysis, Salomon calculated the present value of the estimated unlevered cash
flows of MFS (on a stand-alone basis, without giving effect to any operating or
other efficiencies arising from the Merger and without giving effect to the
acquisition of UUNET or any operating or other efficiencies arising therefrom)
from 1996 through 2005 based on forecasts developed by MFS management through
2005, as adjusted by WorldCom management. Salomon determined certain equity
market value reference ranges for MFS based upon the sum of (i) the discounted
value (using various discount rates ranging from 13% to 15%) of the estimated
unlevered free cash flows of MFS, plus (ii) the discounted value (using various
discount rates ranging from 13% to 15%) of the product of (a) estimated EBITDA
for 2005 and (b) various terminal value multiples (ranging from 8.5x to 9.5x),
less (iii) debt net of cash and minority interests. This analysis resulted in an
equity value reference range per share of MFS Common Stock (without UUNET) of
$53.00 to $60.00.
Salomon performed a similar DCF analysis with respect to UUNET. Salomon
calculated the present value of the estimated unlevered cash flows of UUNET (on
a stand-alone basis, without giving effect to the acquisition of UUNET by MFS or
any operating or other efficiencies arising therefrom) from 1996 through 2000
based on forecasts developed by MFS and UUNET management, as adjusted by
WorldCom management. Salomon determined certain equity market value reference
ranges for UUNET based upon the sum of (i) the discounted value (using various
discount rates ranging from 18% to 20%) of the estimated unlevered free cash
flows of UUNET, plus (ii) the discounted value (using various discount rates
ranging from 18% to 20%) of the product of (a) estimated EBITDA for 2000 and (b)
various terminal value multiples (ranging from 11.5x to 12.5x), less (iii) debt
net of cash. This analysis resulted in a UUNET equity value reference range (per
share of MFS Common Stock) of $6.25 to $7.75.
Salomon also performed a similar DCF analysis with respect to WorldCom.
Salomon calculated the present value of the estimated unlevered cash flows of
WorldCom (on a stand-alone basis, without giving effect to any operating or
other efficiencies arising from the Merger) from 1996 through 2005 based on
forecasts developed by WorldCom management through 2005. Salomon determined
certain equity market value reference ranges for WorldCom based upon the sum of
(i) the discounted value (using various discount rates ranging from 12% to 14%)
of the estimated unlevered free cash flows of WorldCom, plus (ii) the discounted
value (using various discount rates ranging from 12% to 14%) of the product of
(a) estimated EBITDA for 2005 and (b) various terminal value multiples (ranging
from 6.5x to 7.5x), plus (iii) the value of certain other non-material items
that were excluded from the cash flow estimates, less (iv) debt net of cash.
This analysis resulted in an equity value reference range per share of WorldCom
Common Stock of $33.00 to $37.00.
Analysis of Synergies. Salomon reviewed the estimates of the various
categories of synergies resulting from the Merger prepared by the managements of
WorldCom and MFS and calculated the net present value of a high synergy case, a
medium synergy case and a low synergy case, which took into account 100%, 75%
and 50%, respectively, of such estimated potential synergies. Salomon determined
that the net present value of the synergies per share of WorldCom Common Stock
(post-Merger) for the high synergy case, the medium synergy case and the low
synergy case were $12.09, $9.07 and $6.04, respectively.
Pro Forma Combination Analysis. Salomon analyzed certain estimated pro
forma effects on WorldCom resulting from the Merger (both with and without
estimated synergies), based on financial projections and estimates of synergies
provided by the managements of WorldCom and MFS. The estimated pro forma effects
analyzed were the effects on revenue, EBITDA, earnings per share, free cash
flow, revenue and EBITDA growth rates and ratios of EBITDA to interest expense,
debt to EBITDA and debt to capitalization.
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Exchange Ratio Analysis. Salomon reviewed and analyzed the historical ratio
of the weekly closing prices of MFS Common Stock to WorldCom Common Stock during
the period from September 15, 1993 through August 16, 1996. The exchange ratios
of the weekly closing price of one share of MFS Common Stock to one share of
WorldCom Common Stock ranged from a low of 1.11 to a high of 2.26 over the
period analyzed, as compared to the Common Exchange Ratio of 2.1 shares of
WorldCom Common Stock to each share of MFS Common Stock in the Merger.
Other Factors and Analyses. In rendering its opinion, Salomon also (i)
reviewed the historical and projected financial results of WorldCom, UUNET and
MFS, (ii) reviewed the historical trading prices and volumes for the WorldCom
Common Stock, the MFS Common Stock and the UUNET Common Stock, and the
performance of the WorldCom Common Stock and the MFS Common Stock relative to
certain comparable companies and the WorldCom Comparable Group, respectively,
and (iii) analyzed the relevant implied WorldCom and MFS trading multiples at
various prices of each.
In arriving at its opinion and in preparing the Salomon Report, Salomon
performed a variety of financial analyses, the material portions of which are
summarized above. The summary set forth above does not purport to be a complete
description of the analyses performed by Salomon or of Salomon's presentation to
the WorldCom Board of Directors. In addition, Salomon believes that its analyses
must be considered as a whole and that selecting portions of such analyses and
the factors considered by it, without considering all such analyses and factors,
could create an incomplete view of the process underlying its analyses set forth
in the opinion and the Salomon Report. The preparation of a fairness opinion is
a complex process and is not necessarily susceptible to partial analysis or
summary description. With regard to the comparable public company analysis
summarized above, Salomon selected comparable public companies on the basis of
various factors, including the size of the public company and similarity of the
line of business; however, no public company utilized as a comparison is
identical to WorldCom or MFS. Accordingly, an analysis of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the acquisition or
public trading value of the comparable companies to which WorldCom and MFS are
being compared.
In performing its analyses, Salomon made numerous assumptions with respect
to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of WorldCom
or MFS. Any estimates contained in such analyses are not necessarily indicative
of actual past or future results or values, which may be significantly more or
less than such estimates. Actual values will depend upon several factors,
including events affecting the local, long distance and internet industries,
general economic, market and interest rate conditions and other factors which
generally influence the price of securities.
Salomon is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. The WorldCom
Board of Directors selected Salomon to act as its financial advisor on the basis
of Salomon's international reputation and Salomon's familiarity with WorldCom,
MFS, UUNET and the local, long distance and internet industries. In the ordinary
course of its business, Salomon actively trades the debt and equity securities
of WorldCom and MFS for Salomon's own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities. Salomon has previously rendered investment banking and financial
advisory services to MFS (including underwritings of MFS Common Stock) for which
it has received customary compensation.
Pursuant to a letter agreement dated August 15, 1996, between WorldCom and
Salomon, Salomon agreed to act as financial advisor to WorldCom in connection
with the Merger. WorldCom paid Salomon $500,000 upon the execution of such
letter agreement, and Salomon became entitled to receive $2,000,000 upon the
delivery of the fairness opinion. WorldCom has also agreed to pay Salomon
$5,000,000 upon the consummation of the Merger. WorldCom has agreed to reimburse
Salomon for its reasonable out-of-pocket expenses, including reasonable fees and
disbursements of counsel, and to indemnify Salomon and its affiliates, their
respective directors, officers, agents and employees and each person, if any,
controlling Salomon or any of
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its affiliates against certain liabilities, including liabilities under the
Federal securities laws, relating to, or arising out of, its engagement.
As noted under the caption "-- Reasons for the Merger; Board
Recommendations" above, the fairness opinion of Salomon was only one of many
factors considered by the WorldCom Board of Directors in determining to approve
the Merger Agreement.
MFS. MFS retained Gleacher NatWest to act as MFS' financial advisor in
connection with the Merger and related matters based upon its qualifications,
expertise and reputation, as well as Gleacher NatWest's prior investment banking
relationship and familiarity with MFS. At the August 22, 1996 meeting of the MFS
Board of Directors, Gleacher NatWest delivered an oral opinion, which was
confirmed by a written opinion dated as of August 24, 1996, to the MFS Board of
Directors to the effect that, as of such date, the Common Exchange Ratio, the
Series A Exchange Ratio and the Series B Exchange Ratio, respectively, is, in
each case, fair from a financial point of view to the holders of shares of MFS
Common Stock, MFS Series A Preferred Stock and MFS Series B Preferred Stock.
THE FULL TEXT OF GLEACHER NATWEST'S OPINION, WHICH SETS FORTH, AMONG OTHER
THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX VI TO THIS JOINT
PROXY STATEMENT/PROSPECTUS. MFS STOCKHOLDERS ARE URGED TO READ THE GLEACHER
NATWEST OPINION CAREFULLY AND IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF
GLEACHER NATWEST SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. GLEACHER
NATWEST'S OPINION WAS NOT UPDATED AS OF THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR WILL SUCH OPINION BE UPDATED AS OF THE CLOSING DATE.
GLEACHER NATWEST'S OPINION IS ADDRESSED TO THE MFS BOARD OF DIRECTORS AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF MFS CAPITAL STOCK AS TO
HOW SUCH STOCKHOLDER SHOULD VOTE AT THE MFS SPECIAL MEETING.
In connection with rendering its opinion, Gleacher NatWest, among other
things: (i) analyzed the historical publicly filed financial statements of MFS
and WorldCom; (ii) discussed the past and current operations, the financial
condition and the prospects of WorldCom and MFS with the management of WorldCom
and the management of MFS, respectively, and reviewed with the management of MFS
its due diligence of WorldCom; (iii) reviewed with the management of WorldCom
certain business plans of WorldCom, and reviewed with the management of MFS
certain business plans of MFS and WorldCom, certain projections prepared by and
pertaining to WorldCom and certain projections prepared by and pertaining to
MFS, and certain estimates of financial synergies occurring from the business
combination resulting from the Merger as prepared by the management of MFS and
WorldCom; (iv) reviewed the historical market prices and reported trading
volumes of MFS Common Stock and WorldCom Common Stock; (v) compared the
financial performance of WorldCom with, and reviewed the prices and reported
trading activity of the securities of, certain publicly traded companies whose
operating characteristics and/or industry focus resemble those of WorldCom; (vi)
reviewed the premiums paid in selected precedent transactions involving publicly
held companies; and (vii) reviewed such other information and performed such
other analyses as it deemed appropriate.
In rendering its opinion, Gleacher NatWest assumed and relied upon, without
assuming responsibility for independent verification, the accuracy and
completeness of the information reviewed by it. With respect to the financial
projections provided to it, Gleacher NatWest assumed that they had been
reasonably prepared and reflected the best currently available estimates and
judgments of the senior management of WorldCom and MFS as to the future
financial performance of WorldCom and MFS. Gleacher NatWest also assumed based
upon the information which had been provided to it and without assuming
responsibility for independent verification thereof that no material undisclosed
or contingent liability existed with respect to WorldCom or MFS. Gleacher
NatWest did not make any independent evaluation or appraisal of the assets or
liabilities of MFS or WorldCom, nor was it furnished with any such evaluation or
appraisal. Gleacher NatWest's opinion was based necessarily on the economic,
market and other conditions as in effect on the date of its opinion and the
information made available to it.
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The forecasts or projections furnished to Gleacher NatWest for each of
WorldCom and MFS and estimates of synergies resulting from the Merger were
prepared by the respective managements of each company. As a matter of policy,
neither WorldCom nor MFS publicly discloses internal management forecasts,
projections or estimates of the type furnished to Gleacher NatWest in connection
with its analysis of the Merger, and such forecasts, projections and estimates
were not prepared with a view towards public disclosure. These forecasts,
projections and estimates were based on numerous variables and assumptions which
are inherently uncertain and which may not be within the control of management,
including, without limitation, factors related to the integration of WorldCom,
MFS and UUNET and general economic, regulatory and competitive conditions.
Accordingly, actual results could vary materially from those set forth in such
forecasts, projections and estimates. See "Cautionary Statement Regarding
Forward-Looking Statements" and "Risk Factors."
The following is a summary of the analyses presented by Gleacher NatWest to
the MFS Board of Directors on August 22, 1996 in connection with rendering its
opinion.
Transaction Summary. Gleacher NatWest reviewed the principal terms of the
proposed transaction, noting that it is based upon an exchange ratio of 2.1
shares of WorldCom Common Stock for each outstanding share of MFS Common Stock.
Gleacher NatWest explained that based upon WorldCom's closing stock price of
$26.63 on August 20, 1996, each holder of MFS Common Stock would receive $55.91
in value per share, representing an approximate 60% premium to the MFS closing
stock price of $34.88 on August 20, 1996. Gleacher NatWest also explained that
each share of MFS Series A Preferred Stock would be converted in the Merger into
one share of WorldCom Series A Preferred Stock, having terms substantially
similar to the terms of the MFS Series A Preferred Stock (as adjusted to reflect
the Common Exchange Ratio) and that each share of MFS Series B Preferred Stock
would be converted in the Merger into one share of WorldCom Series B Preferred
Stock, having terms substantially similar to the terms of the MFS Series B
Preferred Stock (as adjusted to reflect the Common Exchange Ratio), except that
voting rights would be reduced from ten votes to one vote per share. Gleacher
NatWest also noted that the Board of Directors of the combined company would be
composed of an odd number of nominees, with MFS having one less nominee than
WorldCom.
Analysis of Combined Company. Gleacher NatWest reviewed selected pro forma
operating statistics for the combined company and noted that following the
transaction WorldCom would need to transform itself from an earnings-oriented
stock to an EBITDA-oriented stock. Gleacher NatWest explained that MFS
stockholders would own approximately 54% (assuming 396.2 million shares of
WorldCom Common Stock outstanding prior to the Merger and the issuance of 2.1
shares of WorldCom Common Stock for each of the 222.0 million shares of MFS
Common Stock in conjunction with the Merger) of the combined company, which
would have a pro forma common stock market capitalization of approximately $23
billion (assuming no reduction in the current market price of the WorldCom
Common Stock based upon the premium being paid in the Merger) compared to a
current combined common stock market capitalization for MFS and WorldCom of
approximately $18.3 billion. Gleacher NatWest reviewed various sensitivity
analyses in which the market attributed various ranges of value to the WorldCom
shares from the potential synergies that could be achieved from the combination
as had been identified by the management of WorldCom and MFS. Gleacher NatWest
calculated the present value of potential synergies as identified by management
using a 12% discount rate and applying an 8x and 10x terminal multiple to the
incremental EBITDA generated by such synergies at year end 2001. This analysis
yielded a range of present values of approximately $9.6 billion to $11.7 billion
when all potential synergies were considered. Gleacher NatWest then calculated
an imputed value for the 2.1 shares of WorldCom Common Stock that would be
exchanged for each share of MFS Common Stock in the Merger using the then
current aggregate market capitalization of the WorldCom and MFS shares
(approximately $18.3 billion) as a starting valuation point and assuming the
market ascribed 0%, 50% and 100%, respectively, of the midpoint of such present
value range (approximately $10.7 billion) to the aggregate market value of the
combined company. This analysis yielded a range of values for the consideration
to be received per share of MFS Common Stock of $44.50 to $70.50 per share.
Review of Relative WorldCom and MFS Market Price Performance. Gleacher
NatWest reviewed the market trading history of the WorldCom Common Stock between
September 17, 1993 and August 20, 1996
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and compared the ratio of the market price of the MFS Common Stock to the
WorldCom Common Stock during that same period. This analysis showed that the
average ratio of the MFS Common Stock price to the WorldCom Common Stock price
was 1.48 during the period and that the ratio was approximately 1.31 as of
August 20, 1996. Gleacher NatWest also analyzed the rate at which the MFS Common
Stock price would have to outperform the WorldCom Common Stock price in the
future for MFS stockholders to realize greater value for their current MFS
shares compared to the value of 2.1 shares of WorldCom Common Stock using the
then respective current stock prices as the starting point and assumed growth
rates of 5%, 10% and 15% for the WorldCom shares on a combined basis. This
analysis showed that the MFS share price would have to significantly outperform
the pro forma combined company's share price over the next 2 to 5 years (with
the required growth rate differential diminishing over time) for the MFS shares
on a stand-alone basis to provide equivalent value relative to the current value
of 2.1 WorldCom shares determined based upon the then current share price of
$26.63 per share grown at the assumed growth rates of 5%, 10% and 15% per year.
Relative Valuation Analysis. Gleacher NatWest analyzed the relative value
of the MFS Common Stock and WorldCom Common Stock on the basis of: (i) their
relative current market prices; (ii) various Wall Street research analysts'
target stock prices for each company over a 12-month period; and (iii) the
discounted cash flow value implied by each company's 5-year internal plan. This
analysis showed that (i) the implied value of 2.1 shares of WorldCom Common
Stock based on the last 20 trading days' average closing market price was $54
compared to an average market price of $32 per share of MFS Common Stock during
the same period; (ii) the Wall Street research analysts' target stock prices for
the shares of WorldCom Common Stock were in the range of $30 to $33 per share
yielding an imputed value of $63 to $69 at a 2.1 Exchange Ratio compared to
target stock prices for the MFS Common Stock on a stand-alone basis of $45 to
$50 per share; and (iii) the present value of 2.1 shares of WorldCom Common
Stock, computed by taking the projected EBITDA for WorldCom at year end 2001
based upon WorldCom's 5-year internal plan on a stand-alone basis, applying a
9x-10x terminal EBITDA multiple and discounting such terminal value at a 12%
discount rate, ranged from $78 to $86, compared to a range of $56 to $62 per
share for the discounted present value of the MFS Common Stock using a 10x-11x
terminal EBITDA multiple discounted at 14% based upon MFS' 5-year internal plan
on a stand-alone basis. Gleacher NatWest also calculated the present value of
the WorldCom Common Stock using projections based on Wall Street analysts'
consensus estimates for WorldCom EBITDA growth rate on a stand-alone basis,
discount rates of 11% and 12% and a year 2001 terminal EBITDA multiple of
9x-10x. This analysis showed a range of values for the WorldCom Common Stock of
$26 to $31 per share, which Gleacher NatWest noted was in line with WorldCom's
then current trading levels. This analysis did not purport to be indicative of
actual values or expected values of the shares of MFS Common Stock or WorldCom
Common Stock before or after the Merger.
Analysis of Premiums Paid in Selected Transactions. Gleacher NatWest
analyzed the premiums paid to the target company's pre-announcement stock price
in 15 selected negotiated transactions involving stock-for-stock exchanges with
transaction values in excess of $3 billion over the past several years,
excluding so-called merger of equals transactions. This analysis showed that
there was a range of premiums paid to the target company's pre-announcement
stock price calculating the premium paid based upon the acquiring company's
pre-announcement stock price of (i) 12% to 58%, with a mean of 30%, for the
selected transactions, based upon the target company's stock price one week
prior to announcement, compared to a premium of 61% in the proposed transaction;
and (ii) 17% to 61%, with a mean of 34%, for the selected transactions, based
upon the target company's stock price 4 weeks prior to announcement, compared to
a premium of 89% in the proposed transaction. The transactions included in this
analysis were Westinghouse Electric's acquisition of Infinity Broadcasting;
Hilton Hotel's acquisition of Bally Entertainment; Cisco Systems' acquisition of
StrataCom; SBC Communications' acquisition of Pacific Telesis; Baltimore Gas and
Electric's acquisition of Potomac Electric Power; Time Warner's acquisition of
Turner Broadcasting System; First Data's acquisition of First Financial
Management; Columbia/HCA Healthcare's acquisition of HealthTrust; Martin
Marietta's acquisition of Lockheed; Burlington Northern's acquisition of Santa
Fe Pacific; Viacom's acquisition of Blockbuster Entertainment; Columbia
Healthcare's acquisition of HCA-Hospital Corp of America; AT&T's acquisition of
McCaw Cellular Communications; Columbia Hospital's acquisition of Galen Health
Care; and Enron's acquisition of Portland General.
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Gleacher NatWest also reviewed the average multiples and premiums paid in
seven recent acquisitions of publicly traded, high-growth technology companies,
including MFS' recent acquisition of UUNET. This analysis showed that (i) the
mean premium paid to the Institutional Brokers' Estimate System ("IBES") 5-year
projected earnings growth rate for the target company as of the announcement
date was 40% for the selected transactions compared to 45% based upon the 2.1
Common Exchange Ratio and the then current share price of the WorldCom Common
Stock in the proposed transaction; (ii) the mean multiple paid to the target
company's revenues for the quarter prior to the announcement date multiplied by
four (the "LQA Revenues Multiple") was 8.7x for the selected transactions
compared with 11.5x based upon the 2.1 Common Exchange Ratio in the proposed
transaction; and (iii) the mean LQA Revenues Multiple divided by the IBES
projected 5-year earnings growth rate times 100 (the "Multiple/Growth Index")
for the selected transactions was 22.4 compared with 25.6 based upon the 2.1
Common Exchange Ratio in the proposed transaction. The transactions included in
this analysis were MFS' acquisition of UUNET Technologies; Cisco Systems'
acquisition of StrataCom; CUC International's acquisition of Sierra On-Line; CUC
International's acquisition of Davidson & Associates; IBM's acquisition of
Tivoli Systems; Advanced Micro Devices' acquisition of NexGen; and Sybase's
acquisition of Powersoft.
Summary of Current Trading Statistics for Selected Long Distance Service
Providers. Gleacher NatWest compared selected summary current trading statistics
for WorldCom with those of AT&T, MCI and Sprint (the "Big 3 Long Distance
Companies") and of LCI International. This analysis showed that (i) the ratio of
WorldCom's then current market price to IBES 1996 expected earnings was 28.3
compared to a mean ratio of 14.3 for the Big 3 Long Distance Companies and 39.2
for LCI International; (ii) the ratio of WorldCom's then current market price to
IBES 1997 expected earnings (the "1997E P/E Ratio) was 21.6 compared to a mean
of 13.2 for the Big 3 Long Distance Companies and 27.6 for LCI International,
and (iii) the ratio of WorldCom's 1997E P/E Ratio to its IBES projected earnings
per share growth rate on a stand-alone basis was 1.08 compared to 1.10 for the
Big 3 Long Distance Companies and 0.92 for LCI International.
No company or transaction used in the comparable company and comparable
transaction analyses is identical to WorldCom, MFS or the Merger. Accordingly,
an analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of WorldCom and other factors that could affect the public
trading value of the companies to which they are being compared. Mathematical
analysis (such as determining the average or median) is not in itself a
meaningful method of using comparable transaction data or comparable company
data.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. Gleacher
NatWest believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion and the
presentation to the MFS Board of Directors. Gleacher NatWest has not indicated
that any of the analyses which it performed had a greater significance than any
other. In addition, Gleacher NatWest may have deemed various assumptions more or
less probable than other assumptions, so that the ranges of valuations resulting
from any particular analysis described above should not be taken to be Gleacher
NatWest's view of the actual value of WorldCom or MFS.
In performing its analyses, Gleacher NatWest made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of WorldCom or MFS. The
analyses performed by Gleacher NatWest are not necessarily indicative of actual
values, which may be significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely as a part of Gleacher NatWest's
analysis of the fairness of the respective exchange ratios to holders of MFS
Capital Stock and were provided to the MFS Board of Directors in connection with
the delivery of Gleacher NatWest's opinion. The analyses do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
might actually be sold, which are inherently subject to uncertainty. In
addition, as described above, Gleacher NatWest's opinion and presentation to the
MFS Board of Directors was one of many factors taken into consideration by the
MFS Board of Directors in making its determination to approve the Merger.
Consequently, the Gleacher NatWest analyses described above should not be viewed
as determinative of the MFS Board of Directors' or MFS management's opinion with
respect to the value of WorldCom or MFS.
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Gleacher NatWest is an internationally recognized investment banking and
advisory firm that regularly engages in the valuation of businesses and their
securities in connection with mergers and acquisitions.
In the past, Gleacher NatWest and its affiliates have provided financial
advisory services to MFS. Pursuant to an engagement letter dated August 9, 1996,
MFS agreed to pay Gleacher NatWest a fee of $17.5 million, payable upon the
closing of the Merger. Pursuant to an engagement letter dated June 8, 1993, MFS
has previously paid Gleacher NatWest a fee in the form of warrants to acquire
1.5 million shares of MFS Common Stock at an exercise price of $13.125 per share
for advisory services rendered during the period from June 8, 1993 to June 8,
1996. Pursuant to the terms of the Merger Agreement, in the Merger, each MFS
Warrant will be converted into a WorldCom Warrant to acquire 2.1 shares of
WorldCom Common Stock at an adjusted exercise price of $6.25. Pursuant to the
June 1993 engagement letter, MFS also agreed to sell 72,000 shares of MFS Common
Stock to Gleacher NatWest at a price equal to $11.15 per share (representing 85%
of the closing per share price of $13.25 on June 7, 1993). In connection with
the UUNET Acquisition, MFS also paid Gleacher NatWest a cash fee of $1.0 million
as a supplement to the June 1993 engagement letter. MFS has agreed, among other
things, to reimburse Gleacher NatWest for all reasonable out-of-pocket expenses
incurred in connection with the services provided by Gleacher NatWest, and to
indemnify and hold harmless Gleacher NatWest and certain related parties from
and against certain liabilities and expenses, including certain liabilities
under the federal securities laws, in connection with its engagement.
TERMS AND CONDITIONS OF THE PROPOSED MERGER
Set forth below is a description of the primary terms and conditions of the
Merger Agreement, which description does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, a copy of which
is attached hereto as Appendix I.
Conditions of the Merger. Set forth below is a description of the principal
conditions of WorldCom, MFS and Acquisition Subsidiary to consummate the Merger.
Mutual Conditions. The respective obligations of WorldCom, MFS and
Acquisition Subsidiary to effect the Merger are subject to the fulfillment or
waiver of the following conditions: (i) the Merger, the Merger Agreement and the
transactions contemplated thereby shall have been approved by the stockholders
of MFS in accordance with Delaware law; (ii) the Amendment and the issuance of
the WorldCom Capital Stock in the Merger and the other transactions contemplated
thereby shall have been approved by the shareholders of WorldCom in accordance
with applicable law and the rules of the NASD; (iii) no order, statute, rule,
regulation, executive order, stay, decree, judgment or injunction shall have
been enacted, entered, promulgated or enforced by any court or other
governmental authority which prohibits or prevents the consummation of the
Merger which has not been vacated, dismissed or withdrawn by the Effective Time;
(iv) all consents of any governmental authority regarding MFS or WorldCom
required for the consummation of the Merger and the transactions contemplated by
the Merger Agreement shall have been obtained by Final Order (as defined in the
Merger Agreement) except as may be waived by WorldCom or MFS or those consents
the failure of which to obtain will not have a material adverse effect on the
business, assets (including, but not limited to, intangible assets), prospects,
condition (financial or otherwise), properties (including, but not limited to,
intangible properties), liabilities or the result of operations of the Surviving
Corporation and its subsidiaries taken as a whole (a "Surviving Corporation
Material Adverse Effect"); (v) any waiting period applicable to the Merger under
the Hart-Scott-Rodino Act shall have expired or earlier termination shall have
been granted, and no action, suit, proceeding or investigation shall have been
instituted by either the U.S. Department of Justice ("DOJ") or the Federal Trade
Commission (the "FTC") to prevent the consummation of the transactions
contemplated by the Merger Agreement or to materially modify or amend such
transactions, or such action, if instituted, shall have been withdrawn or final
judgment entered against the DOJ or the FTC; (vi) any required consents of any
person to the Merger or the transactions contemplated thereby (including the
consents of the respective lenders of MFS and WorldCom) shall have been obtained
and be in full force and effect, except for those the failure of which to obtain
will not have a Surviving Corporation Material Adverse Effect or a material
adverse effect on the business, assets (including, but not limited to,
intangible assets), prospects, condition (financial or otherwise), properties
(including, but not limited to, intangible properties), liabilities or the
results of operations of WorldCom and its subsidiaries taken as a whole
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(a "WorldCom Material Adverse Effect"); (vii) the registration statement
relating to the Merger shall have been declared effective and no stop order
shall have been issued, and no action, suit, proceeding or investigation for
that purpose shall have been initiated or threatened by any governmental
authority; (viii) WorldCom shall have received applicable securities law
authorizations necessary to consummate the transactions contemplated by the
Merger Agreement; (ix) WorldCom and MFS shall have received opinions from their
respective tax counsel substantially to the effect that, if the Merger is
consummated in accordance with the provisions of the Merger Agreement, under
current law, for federal income tax purposes, the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code (see "-- Certain
Federal Income Tax Consequences"); and (x) the shares of WorldCom Common Stock
comprising consideration for the Merger shall have been approved for quotation
on the Nasdaq National Market.
WorldCom's Conditions. WorldCom's obligation to consummate the Merger is
subject to the satisfaction at or prior to the Effective Time, unless waived, of
the following conditions: (i) certain representations and warranties of MFS made
in the Merger Agreement shall be true and correct in all respects as of the
Effective Time, and certain other representations and warranties of MFS made in
the Merger Agreement shall be true and correct in all material respects on the
date of the Merger Agreement and, except for changes not prohibited by the
Merger Agreement, as of the Effective Time as if made at the Effective Time;
(ii) MFS shall have performed and complied with all covenants and agreements in
the Merger Agreement in all material respects and satisfied in all material
respects all the conditions required by the Merger Agreement to be performed or
complied with or satisfied by MFS at or prior to the Effective Time; (iii) no
event that has or reasonably could be expected to have a Surviving Corporation
Material Adverse Effect or a material adverse effect on the business, assets
(including, but not limited to, intangible assets), prospects, condition
(financial or otherwise), properties (including, but not limited to, intangible
properties), liabilities or the results of operations of MFS and its
subsidiaries taken as a whole shall have occurred; (iv) MFS shall have delivered
to WorldCom (a) an officer's certificate to the effect that the conditions set
forth in clauses (i), (ii) and (iii) have been satisfied, (b) a certificate of
good standing from the Secretary of State of the State of Delaware stating that
MFS is a validly existing corporation in good standing, (c) duly adopted
resolutions of the Board of Directors and stockholders of MFS approving the
execution, delivery and performance of the Merger Agreement, the transactions
contemplated thereby and the agreements referred to in the Merger Agreement to
which MFS will be a party or a signatory, certified by MFS' Secretary, (d) a
true and complete copy of the MFS Certificate of Incorporation certified by the
Secretary of State of the State of Delaware, and a true and complete copy of the
By-laws of MFS certified by MFS' Secretary, (e) a duly executed Tax Opinion
Certificate (as defined in the Merger Agreement) and (f) such other documents
and instruments as WorldCom may reasonably request; (v) WorldCom shall have
received an opinion of counsel of MFS regarding certain matters; and (vi) each
person who is or may be an affiliate of MFS within the meaning of Rule 145 under
the Securities Act shall have entered into an agreement in the form attached to
the Merger Agreement.
MFS' Conditions. MFS' obligation to consummate the Merger is subject to the
satisfaction at or prior to the Effective Time, unless waived, of the following
conditions: (i) certain representations and warranties of WorldCom made in the
Merger Agreement shall be true and correct in all respects as of the Effective
Time, and certain other representations and warranties of WorldCom made in the
Merger Agreement shall be true and correct in all material respects on the date
of the Merger Agreement and, except for changes not prohibited by the Merger
Agreement, as of the Effective Time as if made at the Effective Time; (ii)
WorldCom shall have performed and complied with all covenants and agreements in
the Merger Agreement in all material respects and satisfied in all material
respects all the conditions required by the Merger Agreement to be performed or
complied with or satisfied by WorldCom at or prior to the Effective Time; (iii)
no event that has or reasonably could be expected to have a WorldCom Material
Adverse Effect shall have occurred; (iv) WorldCom shall have delivered to MFS
(a) an officer's certificate to the effect that the conditions set forth in
clauses (i), (ii) and (iii) have been satisfied, (b) a certificate of existence
from the Secretary of State of the State of Georgia stating that WorldCom is a
validly existing corporation, (c) duly adopted resolutions of the Board of
Directors of each of WorldCom and Acquisition Subsidiary and the stockholder of
Acquisition Subsidiary approving the execution, delivery and performance of the
Merger Agreement, the transactions contemplated thereby and the agreements
referred to in the Merger Agreement
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to which WorldCom will be a party or a signatory and of the WorldCom
shareholders approving the amendment of the WorldCom Articles to increase the
number of authorized shares of WorldCom Common Stock and to approve the issuance
of WorldCom Capital Stock in the Merger and the other transactions contemplated
by the Merger Agreement, each certified by its Secretary, (d) a duly executed
Tax Opinion Certificate, (e) the supplemental agreement referred to in the last
sentence of Section 1.6(a) of the Merger Agreement and (f) such other documents
and instruments as MFS may reasonably request; (v) MFS shall have received an
opinion of counsel of WorldCom regarding certain matters; and (vi) WorldCom
shall have taken all action necessary to cause the nominees designated by MFS to
become members of the WorldCom Board of Directors as of the Effective Time (see
"-- Certain Covenants" and "Management of WorldCom Following the Merger").
Certain Covenants. WorldCom and MFS have each agreed to give prompt notice
to the other of the occurrence of certain events, including, without limitation,
the following: (i) any notice of a default or an event which, with notice or the
lapse of time or both, would become a default under any material contract or
which would have a material adverse effect; (ii) receipt of any notice or any
other written communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by the Merger Agreement, provided such consent would have been
required to be disclosed pursuant to the Merger Agreement; (iii) receipt of any
material notice or other communication from any governmental authority in
connection with the transactions contemplated by the Merger Agreement; (iv) the
occurrence of any event which would have a material adverse effect; (v) the
commencement or threat of any litigation involving or threatening such party or
any of its subsidiaries, or any of their respective properties or assets, or, to
its knowledge, its employees, agents, directors or officers, in their capacity
as such, which, if pending on the date of the Merger Agreement, would have been
required to be disclosed, or which relates to the consummation of the Merger or
any material development in connection with any litigation disclosed in or
pursuant to the Merger Agreement or such party's public filings under the
Exchange Act; and (vi) the occurrence of any event which could cause a breach of
any provision of the Merger Agreement or any agreements referred to in the
Merger Agreement to which WorldCom or MFS, as the case may be, will be a party
or signatory.
WorldCom and MFS have each agreed to use their reasonable business efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the Merger and the transactions contemplated thereby.
Such actions include obtaining the consent of either MFS' or WorldCom's lenders
or others to the Merger Agreement, defending any litigation against either MFS,
WorldCom of any of their subsidiaries challenging the Merger Agreement or the
consummation of the transactions contemplated thereby, obtaining all consents
from governmental authorities required for the consummation of the Merger and
the transactions contemplated thereby and timely making all necessary filings
under the Hart-Scott-Rodino Act.
WorldCom and MFS have each agreed to take all steps necessary to call, give
notice of, convene and hold a meeting of its shareholders for the purposes
described herein, to recommend to its shareholders that they approve the
respective proposals and to use its reasonable best efforts to obtain the
necessary shareholder approval, including the voting of such shares held by such
directors in favor thereof.
Conduct of MFS Business Prior to the Merger. Except as expressly
contemplated by the Merger Agreement, MFS has agreed, until the Effective Time,
to conduct, and to cause its subsidiaries to conduct, its or their businesses in
the ordinary course and consistent with past practice, subject to the
limitations contained in the Merger Agreement, and to use its or their
reasonable business efforts to preserve intact its business organization, to
keep available the services of its officers and employees and to maintain
satisfactory relationships with all persons with whom it does business. Until
the Effective Time, except as otherwise contemplated by the Merger Agreement,
without the prior written consent of WorldCom, neither MFS nor any of its
subsidiaries will: (i) amend or propose to amend its certificate or articles of
incorporation or by-laws in any material respect; (ii) authorize for issuance,
issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge
or dispose of any shares of, or any options, warrants, commitments,
subscriptions or rights of any kind to acquire or sell any shares of, the
capital stock or other securities of MFS or any of its subsidiaries, except for
the issuance of shares of MFS Common Stock pursuant to the exercise of stock
options or warrants
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or the conversion of convertible securities outstanding on the date of the
Merger Agreement in accordance with their present terms and except for the grant
of employee stock options and the issuance of MFS Common Stock pursuant to the
exercise thereof, in the ordinary course of business consistent with past
practice, and except for the issuance of shares of MFS Common Stock in
accordance with the terms of acquisitions approved by WorldCom; (iii) split,
combine or reclassify any shares of its capital stock or declare, pay or set
aside any dividend or other distribution in respect of its capital stock, other
than dividends or distributions to MFS or a subsidiary of MFS and dividends
required under the present terms of the MFS Series A Preferred Stock or MFS
Series B Preferred Stock, or directly or indirectly redeem, purchase or
otherwise acquire or offer to acquire any shares of MFS Capital Stock or other
securities; (iv) other than as contemplated by its May 6, 1996 business plans or
in the ordinary course of business consistent with past practice, (A) create,
incur or assume any debt or obligations in respect of capital leases, except
refinancings of existing obligations on terms that are no less favorable to MFS
or its subsidiaries than the existing terms, (B) assume, guarantee, endorse or
otherwise become liable or responsible for the obligations of any person, (C)
make any capital expenditures or make any loans, advances or capital
contributions to, or investments in, any other person (other than to an MFS
subsidiary and customary travel, relocation or business advances to employees
made in the ordinary course of business consistent with past practice), (D)
acquire the stock or assets of, or merge or consolidate with, any other person,
(E) voluntarily incur any material liability or obligation, or (F) sell,
transfer, mortgage, pledge or otherwise dispose of or encumber, or agree to
sell, transfer, mortgage, pledge or otherwise dispose of or encumber, any assets
or properties, real, personal or mixed, material to MFS and its subsidiaries
taken as a whole, other than to secure debt permitted under the Merger
Agreement; (v) increase in any manner the compensation of any of its officers or
employees or enter into, establish, amend or terminate any employment,
consulting, retention, change of control, collective bargaining, bonus or other
incentive compensation, profit sharing, health or other welfare, stock option or
other equity, pension, retirement, vacation, severance, deferred compensation or
other compensation or benefit plan, policy, agreement, trust, fund or
arrangement with, for or in respect of, any shareholder, officer, director,
other employee, agent, consultant or affiliate other than as required pursuant
to the terms of agreements in effect on the date of the Merger Agreement and
such as are in the ordinary course of business consistent with past practice;
(vi) enter into any lease or amend any lease of real property other than in the
ordinary course of business consistent with past practice; or (vii) consent to
the transfer of any shares of the MFS Series B Preferred Stock. MFS also agreed
that from and after the date of the Merger Agreement, unless WorldCom otherwise
expressly consents in writing, MFS would, and would cause each of its
subsidiaries to, use its or their reasonable business efforts to comply in all
material respects with all laws applicable to it or any of its properties,
assets or business and maintain in full force and effect all permits necessary
for, or otherwise material to, such business.
Conduct of WorldCom Business Prior to the Merger. Except as expressly
contemplated by the Merger Agreement, WorldCom has agreed, until the Effective
Time, to conduct, and to cause its subsidiaries to conduct, its or their
businesses in the ordinary course and consistent with past practice, subject to
the limitations contained in the Merger Agreement, and to use its or their
reasonable business efforts to preserve intact its business organization, to
keep available the services of its officers and employees and to maintain
satisfactory relationships with all persons with whom it does business. Until
the Effective Time, except as otherwise contemplated by the Merger Agreement,
without the prior written consent of MFS, neither WorldCom nor any of its
subsidiaries will: (i) amend or propose to amend its certificate or articles of
incorporation or by-laws in any material respect; (ii) authorize for issuance,
issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge
or dispose of any shares of, or any options, warrants, commitments,
subscriptions or rights of any kind to acquire or sell any shares of, the
capital stock or other securities of WorldCom or any of its subsidiaries, except
for the issuance of shares of WorldCom Common Stock pursuant to the exercise of
stock options outstanding on the date of the Merger Agreement in accordance with
their present terms and except for the grant of employee stock options and the
issuance of WorldCom Common Stock pursuant to the exercise thereof, in the
ordinary course of business consistent with past practice, and except for the
issuance of shares of WorldCom Common Stock in accordance with the terms of
acquisitions approved by MFS, or pursuant to the terms of rights or obligations
referred to in the Merger Agreement; (iii) split, combine or reclassify any
shares of its capital stock or declare, pay or set aside any dividend or other
distribution in respect of its capital stock, other than dividends or
distributions to WorldCom or a subsidiary of
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WorldCom, or directly or indirectly redeem, purchase or otherwise acquire or
offer to acquire any shares of WorldCom Capital Stock or other securities; (iv)
sell, transfer, mortgage, pledge or otherwise dispose of or encumber, or agree
to sell, transfer, mortgage, pledge or otherwise dispose of or encumber, any
assets or properties, real, personal or mixed, material to WorldCom and its
subsidiaries taken as a whole, other than in the ordinary course of business
consistent with past practice; or (v) increase in any manner the compensation of
any of its officers or employees or enter into, establish, amend or terminate
any employment, consulting, retention, change of control, collective bargaining,
bonus or other incentive compensation, profit sharing, health or other welfare,
stock option or other equity, pension, retirement, vacation, severance, deferred
compensation or other compensation or benefit plan, policy, agreement, trust,
fund or arrangement with, for or in respect of, any shareholder, officer,
director, other employee, agent, consultant or affiliate other than as required
pursuant to the terms of agreements in effect on the date of the Merger
Agreement and such as are in the ordinary course of business consistent with
past practice. WorldCom also agreed that from and after the date of the Merger
Agreement, unless MFS otherwise expressly consents in writing, WorldCom would,
and would cause each of its subsidiaries to, use its or their reasonable
business efforts to comply in all material respects with all laws applicable to
it or any of its properties, assets or business and maintain in full force and
effect all permits necessary for, or otherwise material to, such business.
Agreement Not To Solicit Other Offers. Pursuant to the Merger Agreement,
each of the parties has agreed to, and agreed to direct and use reasonable
efforts to cause its officers, directors, employees, representatives and agents
to, immediately cease any discussions or negotiations with any parties that may
have been ongoing as of August 25, 1996 with respect to a Takeover Proposal (as
hereinafter defined). Further, pursuant to the Merger Agreement, MFS and
WorldCom have agreed not to, nor permit any of their respective subsidiaries to,
nor to authorize or permit its officers, directors, employees, or any investment
banker, financial advisor, attorney, accountant or other representatives,
directly or indirectly, to (i) solicit, initiate or encourage (including by way
of furnishing information), or take any other action designed or reasonably
likely to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, a Takeover Proposal (as
defined herein) or (ii) participate in any discussions or negotiations regarding
any inquiry, proposal or offer except as expressly contemplated by the Merger
Agreement from any person relating to (a) any direct or indirect acquisition or
purchase of 15% or more of the assets of such party and its subsidiaries or 15%
or more of any class of equity securities of such party or any of its
subsidiaries, (b) any tender offer or exchange offer that if consummated would
result in any person beneficially owning 15% or more of any class of equity
securities of such party or any of its subsidiaries, (c) any merger,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving such party or any of
its subsidiaries other than transactions contemplated by the Merger Agreement,
or (d) any other transaction, the consummation of which could reasonably be
expected to impede, interfere with, prevent or materially delay the Merger or
which would reasonably be expected to dilute materially the benefits to the
other party of the transactions contemplated by the Merger Agreement (each such
inquiry, proposal or offer being hereinafter referred to as a "Takeover
Proposal"); provided, that if, at any time prior to the Effective Time, the
Board of Directors of such party determines in good faith, after consultation
with outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to its shareholders under applicable law, then such party may,
in response to such a Takeover Proposal which was not solicited subsequent to
August 25, 1996, (x) furnish information with respect to such party to any
person pursuant to a customary confidentiality agreement and (y) participate in
negotiations regarding such Takeover Proposal.
The Merger Agreement additionally provides that neither the MFS or WorldCom
Board of Directors nor any committee thereof shall (i) withdraw or modify in a
manner adverse to the other party, or propose publicly so to do, its approval or
recommendation relating to the Merger, the Merger Agreement or any transactions
related thereto, (ii) approve or recommend, or propose publicly to approve or
recommend, any Takeover Proposal or (iii) cause MFS or WorldCom, as the case may
be, to enter into any letter of intent, agreement in principle, acquisition
agreement or similar agreement relating to a Takeover Proposal; provided that,
in the event that prior to the Effective Time, the Board of Directors of either
party determines, in good faith, after consultation with outside counsel that it
is necessary to do so to comply with its fiduciary duties to its shareholders
under applicable law, such Board of Directors may withdraw or modify its
approval or
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recommendation of the Merger and the Merger Agreement or approve or recommend a
WorldCom or MFS Superior Proposal (as defined below in "-- Termination of the
Merger Agreement"), as the case may be, or terminate the Merger Agreement, but
in each case only at a time that is after 10 business days following written
notice to the other party of such Superior Proposal, its material terms and
conditions and the identity of the party making such Superior Proposal.
In addition to the foregoing obligations, each party has the obligation (i)
to immediately advise the other party 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 persons making such
request or Takeover Proposal and (ii) to keep the other party fully informed of
the status and details of any such request or Takeover Proposal.
The Merger Agreement provides that neither MFS nor WorldCom is prohibited
from taking and disclosing to its respective shareholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making
any disclosure to its shareholders if, in the good faith judgment of its Board
of Directors, after consultation with outside counsel, failure so to disclose
would be inconsistent with its fiduciary duties to its shareholders under
applicable law. Neither MFS nor WorldCom nor their respective Boards of
Directors nor any committee thereof may, however, except as permitted by the
Merger Agreement, withdraw or modify or propose publicly to withdraw or modify,
its position with respect to the Merger, the Merger Agreement and the
transactions contemplated thereby or approve or recommend, or propose publicly
to approve or recommend, a Takeover Proposal.
Confidentiality. Subject to certain limitations, any information or
documents furnished in connection with the Merger is required to be kept
strictly confidential by MFS, WorldCom and their respective officers, directors,
employees and agents unless otherwise required to comply with accounting,
Commission and other disclosure obligations imposed by applicable law. Subject
to certain limitations, in the event the Merger is not consummated, each party
is required to return to the other any documents furnished by the other and all
copies thereof any of them may have made and to hold in absolute confidence any
information obtained from the other party.
Other Covenants. In addition to the foregoing, WorldCom has agreed after
the Effective Time, to arrange for each employee participating in any benefit
plans of MFS or a subsidiary of MFS as are in effect on August 25, 1996 to
participate in any counterpart benefit plans of WorldCom in accordance with the
eligibility criteria thereof, provided that (a) such participants will receive
full credit for years of service with MFS or its subsidiaries prior to the
Merger for all purposes for which such service was recognized under the MFS
benefit plans, including recognition of service for eligibility, vesting and, to
the extent not duplicative of benefits received under such MFS benefit plans,
the amount of benefits; (b) such participants will participate in the benefit
plans of WorldCom on terms no less favorable than those offered by WorldCom to
similarly situated employees of WorldCom; and (c) WorldCom will cause any and
all pre-existing condition limitations (to the extent such limitations did not
apply to a pre-existing condition under MFS' benefit plans) and eligibility
waiting periods under any group health plans to be waived with respect to such
participants and their eligible dependents. WorldCom and MFS acknowledged that
the Merger and transactions contemplated thereby will be treated as a "change in
control" for purposes of certain MFS benefit plans, option agreements and
employment agreements and agreed to honor the provisions of any such plans and
agreements which relate to a change in control, including the accelerated
vesting and/or payment of equity-based awards. WorldCom has agreed, and has
agreed to cause its subsidiaries to agree, to take the position that none of the
execution of the Merger Agreement, the approval of the Merger Agreement by MFS
stockholders or the consummation of the Merger will constitute a change in
control of MFS or a change in the ownership of a substantial portion of the
assets of MFS within the meaning of Section 280G of the Code and has agreed that
it will not withhold from any amounts payable to any MFS employee by reason of
consummation of the transactions contemplated by the Merger Agreement any
amounts in respect of the excise tax described in Section 4999 of the Code
unless such position ceases to be supported by a good faith interpretation of
relevant tax authority as a result of a change in such relevant authority which
occurs after August 25, 1996.
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The Merger Agreement provides that the indemnification provisions of the
By-laws and the Certificate of Incorporation of MFS, as the Surviving
Corporation in the Merger, will not be amended, repealed or otherwise modified
for a period of six years after the Effective Time in any manner that would
adversely affect the rights of individuals who were directors, officers, agents
or employees of MFS immediately prior to the Effective Time unless required by
applicable law. The Merger Agreement provides that, with respect to matters
occurring through the Effective Time, WorldCom and the Surviving Corporation
will jointly and severally indemnify, defend and hold harmless the directors,
officers and agents of MFS as provided in the MFS Certificate of Incorporation,
MFS By-laws or indemnification agreements, as in effect as of August 25, 1996.
WorldCom also agreed to cause the Surviving Corporation to maintain in effect
for not less than three years after the Effective Time, policies of directors'
and officers' liability insurance comparable to those maintained by MFS with
carriers comparable to MFS' existing carriers and containing terms and
conditions which are no less advantageous in any material respect to the
officers, directors and employees of MFS to the extent that such policies are
obtainable at an annual cost of not greater than two times MFS' last annual
premium prior to August 25, 1996; provided that if such coverage is not
available for such amount, WorldCom shall purchase as much coverage as possible
for such amount.
Pursuant to the terms of the Merger Agreement, WorldCom has agreed to cause
the WorldCom Board of Directors as of the Effective Time to consist of an odd
number of directors, with MFS being entitled to designate one less director than
WorldCom, subject to the consummation of the Merger. As of the date hereof,
WorldCom's Board of Directors is composed of 12 directors. It is anticipated
that the WorldCom Board of Directors will be composed of 15 directors and that
Carl J. Aycock, Max W. Bobbitt, Bernard J. Ebbers, Francesco Galesi, Stiles A.
Kellett, Jr., John A. Porter, and Scott D. Sullivan will continue to serve, and
that Clyda Stokes Rent will be appointed to serve, as directors of WorldCom
after the Effective Time. MFS has announced its intent to designate R. Douglas
Bradbury, James Q. Crowe, Richard R. Jaros, David C. McCourt, Walter Scott, Jr.,
John W. Sidgmore and Michael B. Yanney as directors of WorldCom. The Merger
Agreement also provides that membership on the compensation and stock option,
audit and nominating committees of WorldCom's Board of Directors will initially
consist of an equal number of designees of WorldCom and MFS. See "Management of
WorldCom Following the Merger."
Termination of the Merger Agreement. The Merger Agreement may be terminated
at any time prior to the Effective Time, whether before or after approval of the
stockholders of MFS and the shareholders of WorldCom, by the mutual consent of
MFS and WorldCom.
In addition, the Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the stockholders of MFS
and the shareholders of WorldCom, by either MFS or WorldCom if: (i) the Merger
shall not have been consummated on or prior to August 25, 1997, provided,
however, that the right to so terminate is not available to any party whose
failure to perform any of its obligations under the Merger Agreement results in
the failure of the Merger to be consummated by such time; (ii) the requisite
approval of the respective shareholders of either MFS or WorldCom is not
obtained at the Special Meetings or at any adjournments or postponements
thereof; or (iii) any governmental authority shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the consummation of the Merger and such order, decree or
ruling or other action shall have become final and nonappealable.
Further, the Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the stockholders of MFS and
the shareholders of WorldCom, by WorldCom if (i) MFS shall have breached in any
material respect any of its representations, warranties, covenants or other
agreements in the Merger Agreement, which breach or failure to perform is
incapable of being cured or has not been cured within 20 days after the giving
of written notice to MFS; (ii) prior to the Effective Time, the WorldCom Board
of Directors, after determining in good faith, after consultation with outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to WorldCom's shareholders under applicable law, determines to terminate
the Merger Agreement, but only at a time that is after the tenth business day
following receipt by MFS of written notice advising MFS that the WorldCom Board
of Directors has received a bona fide proposal made by a third party to acquire,
directly or indirectly, for consideration consisting of cash and/or securities,
more than 15% of the combined voting power of the shares of WorldCom Common
Stock
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and WorldCom preferred stock then outstanding or all or substantially all of the
assets of WorldCom and otherwise on terms which the WorldCom Board of Directors
determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation) to be materially more favorable to
WorldCom's shareholders than the Merger and for which financing, to the extent
required, is then committed or which, in the good faith judgment of WorldCom's
Board of Directors, is capable of being financed by such third party (a
"WorldCom Superior Proposal"), specifying the material terms and conditions of
such WorldCom Superior Proposal and identifying the party making such WorldCom
Superior Proposal; provided that WorldCom complies with the applicable
requirements relating to the payment (including the timing of any payment) of
the Termination Fee (discussed below under "-- Termination Fees") to MFS; (iii)
MFS (a) shall have breached in any material respect, and MFS shall have failed
to promptly terminate the activity giving rise to such breach and use its best
efforts to cure such breach upon notice thereof from WorldCom, relating to any
covenant of MFS not to continue discussions relating to, or to solicit any,
Takeover Proposals relating to MFS (see "-- Agreement Not To Solicit Other
Offers") or (b) shall have failed to immediately advise WorldCom orally or in
writing of any request for information or of any Takeover Proposal relating to
MFS, the material terms and conditions of such request or Takeover Proposal and
the identity of the persons making such request or Takeover Proposal; (iv) the
MFS Board of Directors or any committee thereof (a) shall have (I) withdrawn or
modified in a manner adverse to WorldCom its approval or recommendation of the
Merger and the Merger Agreement, (II) failed to reconfirm its recommendation
with fifteen business days after a written request from WorldCom to do so, or
(III) approved or recommended any Takeover Proposal with respect to MFS, or (b)
shall have resolved to take any of the actions described in clause (iv)(a)
above; or (v) MFS or any of its officers, directors, employees, representatives
or agents shall have furnished information with respect to MFS to any person
pursuant to a customary confidentiality agreement or participated in
negotiations regarding a Takeover Proposal relating to MFS in response to a
Takeover Proposal which was not solicited subsequent to August 25, 1996, which
the MFS Board of Directors has determined in good faith, after consultation with
outside counsel, is necessary in order to comply with its fiduciary duties to
the stockholders of MFS under applicable law.
Further, the Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the stockholders of MFS and
the shareholders of WorldCom, by MFS if (i) WorldCom shall have breached in any
material respect any of its representations, warranties, covenants or other
agreements in the Merger Agreement, which breach or failure to perform is
incapable of being cured or has not been cured within 20 days after the giving
of written notice to WorldCom; (ii) prior to the Effective Time, the MFS Board
of Directors, after determining in good faith, after consultation with outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to MFS' stockholders under applicable law, determines to terminate the
Merger Agreement, but only at a time that is after the tenth business day
following receipt by WorldCom of written notice advising WorldCom that the MFS
Board of Directors has received a bona fide proposal made by a third party to
acquire, directly or indirectly, for consideration consisting of cash and/or
securities, more than 15% of the combined voting power of the shares of MFS
Common Stock and MFS preferred stock then outstanding or all or substantially
all of the assets of MFS and otherwise on terms which the MFS Board of Directors
determines in its good faith judgment (based on the advice of a financial
advisor of nationally recognized reputation) to be materially more favorable to
MFS' stockholders than the Merger and for which financing, to the extent
required, is then committed or which, in the good faith judgment of MFS' Board
of Directors, is capable of being financed by such third party (a "MFS Superior
Proposal"), specifying the material terms and conditions of such MFS Superior
Proposal and identifying the party making such MFS Superior Proposal; provided
that MFS complies with the applicable requirements relating to the payment
(including the timing of any payment) of the Termination Fee (discussed below
under "-- Termination Fees") to WorldCom in connection therewith; (iii) WorldCom
(a) shall have breached in any material respect, and WorldCom shall have failed
to promptly terminate the activity giving rise to such breach and use its best
efforts to cure such breach upon notice thereof from MFS, relating to any
covenant of WorldCom not to continue discussions relating to, or to solicit any,
Takeover Proposals relating to WorldCom (see "-- Agreement Not To Solicit Other
Offers") or (b) shall have failed to immediately advise MFS orally or in writing
of any request for information or of any Takeover Proposal relating to WorldCom,
the material terms and conditions of such request or Takeover Proposal and the
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identity of the persons making such request or Takeover Proposal; (iv) the
WorldCom Board of Directors or any committee thereof (a) shall have (I)
withdrawn or modified in a manner adverse to MFS its approval or recommendation
of the Merger and the Merger Agreement, (II) failed to reconfirm its
recommendation within fifteen business days after a written request from MFS to
do so, or (III) approved or recommended any Takeover Proposal with respect to
WorldCom or (b) shall have resolved to take any of the actions described in
clause (iv)(a) above; (v) WorldCom or any of its officers, directors, employees,
representatives or agents shall have furnished information with respect to
WorldCom to any person pursuant to a customary confidentiality agreement or
participated in negotiations regarding a Takeover Proposal relating to WorldCom
in response to a Takeover Proposal which was not solicited subsequent to August
25, 1996, which the WorldCom Board of Directors has determined in good faith,
after consultation with outside counsel, is necessary in order to comply with
its fiduciary duties to the shareholders of WorldCom under applicable law; or
(vi) any person (other than MFS or any of its affiliates or associates) shall
have acquired beneficial ownership of, or any group (other than a group in which
MFS or any of its affiliates or associates is a member) shall have been formed
which beneficially owns, 25% or more of the voting power of WorldCom.
Termination Fees. The Merger Agreement provides that MFS shall promptly,
but in no event later than two days after the date of such termination, pay to
WorldCom a fee equal to $350 million (the "Termination Fee"), payable by wire
transfer of same day funds, in the event that: (i) the Merger Agreement shall
have been terminated by either WorldCom or MFS because the stockholders of MFS
shall not have approved the Merger and the Merger Agreement at the MFS Special
Meeting; (ii) a bona fide Takeover Proposal relating to MFS shall have been made
known to MFS or any of its subsidiaries and made known to its stockholders
generally or shall have been made directly to its stockholders generally or any
person shall have publicly announced an intention (whether or not conditional)
to make a bona fide Takeover Proposal relating to MFS and such Takeover Proposal
or announced intention shall not have been withdrawn and thereafter the Merger
Agreement is terminated by either WorldCom or MFS because the Merger shall not
have been consummated on or prior to August 25, 1997 (but not by reason of the
fault on the part of the party so terminating), or (iii) the Merger Agreement is
terminated (x) by MFS because the MFS Board of Directors, after determining in
good faith, after consultation with outside counsel, that it is necessary to do
so in order to comply with its fiduciary duties to the stockholders of MFS under
applicable law, after 10 business days notice to WorldCom of the material terms
of and identity of the third party making an MFS Superior Proposal, as described
above under "-- Termination of the Merger Agreement," or (y) by WorldCom
pursuant to its right to terminate because (I) MFS shall have breached in any
material respect and shall have failed to promptly terminate the activity giving
rise to such breach and to use its best efforts to cure such breach upon notice
thereof from WorldCom, relating to any covenant of MFS not to continue
discussions relating to, or to solicit, any Takeover Proposals relating to MFS
(see "-- Agreement Not To Solicit Other Offers") or shall have failed to
immediately advise WorldCom orally or in writing of any request for information
or of any Takeover Proposal relating to MFS, (II) the MFS Board of Directors
shall have withdrawn or modified in a manner adverse to WorldCom its approval or
recommendation with respect to the Merger Agreement or failed to reconfirm its
recommendation after a request from WorldCom, or shall have approved or
recommended any Takeover Proposal with respect to MFS or shall have resolved to
take any of the foregoing actions, or (III) MFS or any of its officers,
directors, employees, representatives or agents shall have furnished information
with respect to MFS, to any person pursuant to a customary confidentiality
agreement or participated in negotiations regarding a Takeover Proposal relating
to MFS in response to a Takeover Proposal which was not solicited subsequent to
August 25, 1996, which the MFS Board of Directors has determined in good faith,
after consultation with outside counsel, is necessary in order to comply with
its fiduciary duties to the stockholders of MFS under applicable law; provided,
however, that no Termination Fee shall be payable to WorldCom pursuant to a
termination by WorldCom described in clause (iii)(y)(III) above unless and until
within 18 months of such termination, MFS or any of its subsidiaries enters into
an acquisition agreement with a third party or consummates any Takeover
Proposal. MFS also agreed it would reimburse WorldCom for its costs and expenses
(including attorneys' fees), together with interest on the amount of the
Termination Fee at the prime rate of Citibank N.A., if MFS fails to promptly pay
the Termination Fee and, in order to obtain such payment, WorldCom commences a
suit which results in a judgment against MFS for the Termination Fee. If
WorldCom terminates pursuant to clause (iii)(y)(III) above, MFS shall promptly
pay, upon
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WorldCom's request, all out-of-pocket charges and expenses incurred by WorldCom
in connection with the Merger Agreement and the transactions contemplated
thereby in an amount not to exceed $10 million, which payments shall be credited
against any Termination Fee that may subsequently become payable.
The Merger Agreement further provides that WorldCom shall promptly, but in
no event later than two days after the date of such termination, pay to MFS the
Termination Fee, payable by wire transfer of same day funds, in the event that:
(i) the Merger Agreement shall have been terminated by either MFS or WorldCom
because the shareholders of WorldCom shall not have approved the Merger and the
Merger Agreement at the WorldCom Special Meeting; (ii) a bona fide Takeover
Proposal relating to WorldCom shall have been made known to WorldCom or any of
its subsidiaries and made known to its shareholders generally or shall have been
made directly to its shareholders generally or any person shall have publicly
announced an intention (whether or not conditional) to make a bona fide Takeover
Proposal relating to WorldCom and such Takeover Proposal or announced intention
shall not have been withdrawn and thereafter the Merger Agreement is terminated
by either MFS or WorldCom because the Merger shall not have been consummated on
or prior to August 25, 1997 (but not by reason of the fault on the part of the
party so terminating); (iii) the Merger Agreement is terminated (x) by WorldCom
because the WorldCom Board of Directors, after determining in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to the shareholders of WorldCom under
applicable law, after 10 business days notice to MFS of the material terms of
and identity of the third party making a WorldCom Superior Proposal, as
described above under "-- Termination of the Merger Agreement," or (y) by MFS
pursuant to its right to terminate because (I) WorldCom shall have breached in
any material respect and shall have failed to promptly terminate the activity
giving rise to such breach and to use its best efforts to cure such breach upon
notice thereof from MFS, relating to any covenant of WorldCom not to continue
discussions relating to, or to solicit, any Takeover Proposals relating to MFS
(see "-- Agreement Not To Solicit Other Offers") or shall have failed to
immediately advise MFS orally or in writing of any request for information or of
any Takeover Proposal relating to WorldCom, (II) the WorldCom Board of Directors
shall have withdrawn or modified in a manner adverse to MFS its approval or
recommendation with respect to the Merger Agreement or failed to reconfirm its
recommendation after a request from MFS, or shall have approved or recommended
any Takeover Proposal with respect to WorldCom, or shall have resolved to take
any of the foregoing actions, or (III) WorldCom or any of its officers,
directors, employees, representatives or agents shall have furnished information
with respect to WorldCom to any person pursuant to a customary confidentiality
agreement or participated in negotiations regarding a Takeover Proposal relating
to WorldCom in response to a Takeover Proposal which was not solicited
subsequent to August 25, 1996, which the WorldCom Board of Directors has
determined in good faith, after consultation with outside counsel, is necessary
in order to comply with its fiduciary duties to the shareholders of WorldCom
under applicable law, or (IV) any person (other than MFS or its affiliates or
associates) shall have acquired beneficial ownership of, or any group (other
than a group in which MFS or any of its affiliates or associates is a member)
shall have been formed which beneficially owns, 25% or more of the voting power
of WorldCom; provided, however, that no Termination Fee shall be payable to MFS
pursuant to a termination by MFS described in clause (iii)(y)(III) above unless
and until within 18 months of such termination, WorldCom or any of its
subsidiaries enters into an acquisition agreement with a third party or
consummates any Takeover Proposal. WorldCom also agreed it would reimburse MFS
for its costs and expenses (including attorneys' fees), together with interest
on the amount of the Termination Fee at the prime rate of Citibank N.A., if
WorldCom fails to promptly pay the Termination Fee and, in order to obtain such
payment, MFS commences a suit which results in a judgment against WorldCom for
the Termination Fee. If MFS terminates pursuant to clause (iii)(y)(III) above,
WorldCom shall promptly pay, upon MFS' request all out-of-pocket charges and
expenses incurred by MFS in connection with the Merger Agreement and the
transactions contemplated thereby in an amount not to exceed $10 million, which
payments shall be credited against any Termination Fee that may subsequently
become payable.
In addition, in the event the Merger Agreement is terminated under
circumstances in which either WorldCom or MFS is entitled to receive the
Termination Fee, the party entitled to receive the Termination Fee shall also be
entitled to receive, at its sole election, the services described in the
Services Agreement on the terms and conditions described in such Agreement. See
"-- Description of Services Agreement." In
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addition, under certain circumstances, such party may also be entitled to
exercise its Option Agreement. See "Stock Option Agreements."
Non-Survival of Representations and Covenants. The respective
representations, warranties, covenants and agreements of MFS and WorldCom
contained in the Merger Agreement or in any certificates or other documents
delivered prior to or upon consummation of the Merger shall terminate at the
Effective Time, except for WorldCom's obligations with respect to (i) the
composition of the WorldCom Board of Directors at the Effective Time (see
"Management of WorldCom Following the Merger"), (ii) employee benefit plans of
MFS and its subsidiaries and (iii) the indemnification provisions of the MFS
Certificate of Incorporation and MFS By-laws, and except for certain agreements
delivered by each of MFS' "affiliates" (see "-- Status Under Federal Securities
Laws") and certain officer's certificates of MFS and of WorldCom setting forth
factual representations and covenants that serve as the basis for opinions of
counsel of MFS and of WorldCom as to certain federal income tax consequences of
the Merger (see "-- Certain Federal Income Tax Consequences").
Amendment of the Merger Agreement. To the extent permitted by applicable
law, the Merger Agreement may be amended, modified or supplemented only by a
written agreement among MFS, WorldCom and Acquisition Subsidiary, whether before
or after approval of the Merger Agreement by the stockholders of MFS and
Acquisition Subsidiary or approval of the transactions contemplated by the
Merger Agreement by the shareholders of WorldCom.
Closing Date. The Merger shall become effective at the time of filing of a
Certificate of Merger with the Secretary of State of Delaware in accordance with
the applicable provisions of the DGCL or at such later time as may be specified
in the Certificate of Merger. WorldCom and MFS shall mutually determine the time
of such filing of the Certificate of Merger, which will be filed as soon as
practicable after all the conditions set forth in the Merger Agreement have been
satisfied or waived by the party entitled to the benefit of the condition or
conditions. The time when the Merger becomes effective is the Effective Time,
and the date on which the Effective Time occurs will be the Closing Date.
Expenses. All costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby will be paid by the party
incurring such costs or expenses, subject to the provisions described in
"-- Termination Fees."
MFS Options and Warrants. At the Effective Time of the Merger, WorldCom
shall cause each holder of a then outstanding and unexercised MFS Option or MFS
Warrant to receive, by virtue of the Merger and without any action on the part
of the holder thereof, options or warrants, respectively, exercisable for shares
of WorldCom Common Stock having the same terms and conditions as the MFS Options
and MFS Warrants, including such terms and conditions as may be incorporated by
reference into the agreements evidencing the MFS Options and MFS Warrants
pursuant to the plans or arrangements pursuant to which such MFS Options and MFS
Warrants were granted and taking into account the provisions in the Merger
Agreement regarding change in control (see "-- Other Covenants" above), except
(i) that the exercise price and the number of shares issuable upon exercise
shall be divided and multiplied, respectively, by the Common Exchange Ratio, and
(ii) the MFS Options which are MFS Outperformance Options will be cancelled
pursuant to the terms of the MFS 1993 Stock Plan and the holders will receive
the value of such Options, calculated as described below. WorldCom has agreed to
use all reasonable efforts to ensure that the MFS Options which qualified as
incentive stock options under Section 422 of the Code prior to the Effective
Time continue to so qualify after the Effective Time. Immediately after the
Effective Time, WorldCom will file or cause to be filed all registration
statements on Form S-8 or other appropriate form as may be necessary in
connection with the purchase and sale of WorldCom Common Stock contemplated by
the MFS Options subsequent to the Effective Time and shall maintain the
effectiveness of such registration statements for so long as any of the options
registered thereunder remain outstanding.
MFS Outperformance Options had an initial exercise price equal to the per
share fair market value of MFS Common Stock on the date of grant, at which price
an optionee may purchase a designated number of shares of MFS Common Stock.
Immediately prior to the time of any exercise, the initial exercise price with
respect to the shares being exercised will adjust automatically (the "Adjusted
Price"), upward or downward, by a percentage equal to the annualized percentage
increase or decrease in the Standard & Poor's 500 Index
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(the "S&P") over the period beginning on the date of grant and ending on the
last day of the month coincident with or immediately preceding the date of
exercise (calculated pursuant to the terms of the MFS 1993 Stock Plan).
Depending on the extent to which such MFS Common Stock "outperforms the S&P,"
the initial number of shares of MFS Common Stock covered by the portion of the
option being exercised is increased (the "Adjusted Shares") by a pre-established
factor (the "Factor"), which Factor will in no event be greater than eight (8)
(which maximum occurs only in the event that the annualized percentage increase
in MFS Common Stock exceeds the annualized percentage increase in the S&P over a
period (the "MFS Period") by eleven or more percentage points). The Factor is
determined on the date of exercise. The MFS Period reflects a period of time
beginning on the date of grant and ending on the day immediately preceding the
date of exercise. As of November 11, 1996, due to the fair market value of the
MFS Common Stock, the Factor for all MFS Outperformance Options equalled eight
(8).
Each MFS Outperformance Option contains a tandem right to a number of units
("Units") equal to the number of Adjusted Shares, which entitles the holder,
only in the event of a Change in Control (as defined in the MFS 1993 Stock Plan
and which includes the Merger) and the cancellation of the tandem MFS
Outperformance Option, to an amount determined as described below. Pursuant to
the terms of the MFS Outperformance Options, unless otherwise determined by the
Compensation Committee of MFS, all MFS Outperformance Options will be cancelled
as of the fifteenth day preceding a Change in Control such as the Merger and,
upon the occurrence of a Change in Control, the number of Units corresponding to
each such MFS Outperformance Option will be deemed to equal the product of the
Factor and the number of shares relating to such Option had such Option been
exercised in full on the date of the Change in Control and there shall be paid
to the holder of each such Unit, in cancellation of such Unit and of any such
corresponding Option which had not previously been cancelled, an amount equal to
the difference between the "Change in Control Price" (as hereinafter defined)
and the Adjusted Price (determined as if such Option had been exercised in full
on the date of the Change in Control), the value of such amount to be paid no
later than twenty (20) days following the Change in Control. The Change in
Control Price is defined as the higher of (i) the highest price paid per share
of MFS Common Stock in the Change in Control transaction, or (ii) the highest
closing price per share of MFS Common Stock on the Nasdaq National Market during
the sixty (60) day period immediately preceding the Change in Control.
MFS Outperformance Options are exercisable upon grant; provided, that
unless otherwise determined by the Compensation Committee, such options are not
exercisable (i) within the fifteen-day period preceding a Change in Control and
(ii) at any time unless (1) the fair market value of a share of MFS Common Stock
has increased from the time of grant until the time of purported exercise, and
(2) the annualized percentage increase in the MFS Common Stock is greater than
the annualized percentage increase in the S&P as of the last day of the month
coincident with or immediately preceding the date of purported exercise (each
calculated pursuant to the terms of the MFS 1993 Stock Plan). As of November 13,
1996, the conditions described in (1) and (2) of the foregoing sentence had been
satisfied for each grant of MFS Outperformance Options and, thus, all MFS
Outperformance Options were exercisable. However, by virtue of the Merger, such
MFS Outperformance Options will be cancelled (as described in the preceding
paragraph) as of the fifteenth day prior to the Effective Time. Since the
Effective Time may be delayed due to various reasons, the Compensation Committee
of the MFS Board of Directors will hold all notices of intent to exercise MFS
Outperformance Options that it receives which it believes could fall into such
fifteen-day period. If the Effective Time is delayed, the Committee will honor
each notice of intent to exercise which then falls out of such fifteen day
period as of the date such notice was received.
DESCRIPTION OF SERVICES AGREEMENT
The Merger Agreement provides that in the event the Merger Agreement is
terminated under circumstances in which either WorldCom or MFS is entitled to a
Termination Fee, the party entitled to receive the Termination Fee (the
"Terminating Party") will be entitled to receive, at its sole election, from the
other party (the "Non-Terminating Party") certain services described in the
Services Agreement.
Under the terms of the Services Agreement, the Non-Terminating Party agrees
to provide certain communications services to the Terminating Party at Transfer
Cost (as hereinafter defined) for a period of three years, commencing 180 days
after the date of termination of the Merger Agreement. The communica-
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tions services to be provided by the Non-Terminating Party under the Services
Agreement are the communication products sold by that party to an independent
third-party customer under an arms' length arrangement. These services include
the transport and switching of telecommunications and data traffic, but do not
include any ancillary or value-added services such as facilities management.
The "Transfer Cost" consists of the total service long-run incremental cost
(the "TSLRIC") of providing a communications service, excluding any measure of
costs of capital, common costs and profits, and any retail related costs, such
as sales, marketing, billing, collection (other than carrier-to-carrier billing
and collection) and other costs associated with offering communications services
directly to end users. The TSLRIC shall be based upon the forward-looking
economic costs of the total quantity of the facilities and functions that are
directly attributable to, or reasonably identifiable as incremental to, the
provision of the service. A reasonable allocation of shared costs of facilities
directly attributable or incremental to the provision of a particular service
may be included in the TSLRIC. The TSLRIC will be revised annually and will be
computed, to the extent possible and subject to the foregoing exclusions, in a
manner consistent with certain specified FCC standards.
The Non-Terminating Party will determine the Transfer Cost for each type of
service provided. If the Terminating Party wishes to dispute a Transfer Cost, it
may propose a different Transfer Cost. The dispute will be resolved by a third
party, to be selected as provided for in the Services Agreement, who will choose
the Transfer Cost which such third party determines to be more consistent with
the proper Transfer Cost as defined above.
The Non-Terminating Party will provide up to $300 million in services over
the three-year period, with a maximum annual service commitment of $150 million.
Due to the scope of services requested, the Terminating Party shall provide to
the Non-Terminating Party a 6-month rolling forecast of requirements. During the
first 12 months of the Services Agreement, the Non-Terminating Party will not be
obligated to install more that $500,000 of gross incremental service per month.
For the remaining term of the Services Agreement, the Non-Terminating Party will
not be obligated to install more than $1,000,000 in gross incremental service
per month.
The Non-Terminating Party will make available to the Terminating Party up
to one-third of all available capacity in its switches and networks. Where
sufficient capacity does not exist to satisfy the Terminating Party's
requirements, the Non-Terminating Party will commence a good faith effort to
construct the additional capacity in a timely manner. The Non-Terminating Party
must undertake such capacity construction where the requested capacity is in a
market or route in which the Non-Terminating Party normally operates and the
capacity is for services offered by the Non-Terminating Party to third parties.
If capacity construction is required, the Non-Terminating Party can construct as
much or as little capacity as it sees fit to satisfy the request. Therefore, for
this new construction, the limit of 1/3 available capacity will not govern. For
purposes of the Services Agreement, available capacity will be determined after
taking into account constraints placed on the delivering party by underlying
service or network suppliers. If as a result of capacity constraints, the
Non-Terminating Party is not able to deliver at least 75% of its requested
installation amount for the first two years (subject to the limitation described
in the preceding paragraph), the Non-Terminating Party will extend the term of
its obligation under the Services Agreement by one year.
The quality of services provided by the Non-Terminating Party is required
generally to meet the standards of, and not be of a materially lower quality
than, the service provided to third parties purchasing similar services during
the same period of time. Should the Non-Terminating Party fail to deliver
services that meet such quality standards (other than for reasons beyond its
reasonable control), the Terminating Party will be entitled to service credits
equal to 1/96th of a day's bill for each 15 minutes of interrupted service. This
service credit will be calculated on a circuit-by-circuit basis. The sum of
service credits cannot exceed 24 hours in any one day, nor more than 30 days in
any one calendar month. Alternatively, if the overall quality of service
provided in aggregate for one month is materially less than the aggregate
quality of service provided by the Non-Terminating Party to its third-party
customers purchasing similar services for that same month (other than for
reasons beyond the reasonable control of the Non-Terminating Party), the
Non-Terminating Party will be liable to the Terminating Party for liquidated
damages equal to the value of one-half times the total bill for the month for
any service with materially substandard quality.
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All services turned up will be on a circuit-by-circuit basis. Circuit
installation and disconnect charges will be calculated according to the Transfer
Cost definition above. Should the Terminating Party cancel service prior to one
year, the Terminating Party will be liable for any reasonable termination
charges resulting from the cancellation.
At the end of the term of the Services Agreement, the parties will
negotiate the service rates to be charged by the Non-Terminating Party to the
Terminating Party thereafter. If the parties cannot agree on such rates, in
order to effect an orderly transition of service, the Non-Terminating Party will
be obligated to support all existing services for up to 18 months from the
termination date of the Services Agreement at rates equal to those in effect at
the time for other customers purchasing similar types and quantities of
services.
The Services Agreement is intended to increase the likelihood that the
Merger will be consummated in accordance with the terms set forth in the Merger
Agreement. Consequently, certain aspects of the Services Agreement may have the
effect of discouraging persons who, prior to the Effective Time, might be
interested in acquiring all of, or a significant interest in, MFS or WorldCom
from considering or proposing such an acquisition, even if such persons were
prepared to offer to pay consideration to stockholders of MFS which had a value
greater than the Merger Consideration or to pay consideration to shareholders of
WorldCom which had a value greater than the expected value of the shares of
WorldCom Common Stock upon consummation of the Merger.
The Services Agreement is attached hereto as Appendix II and incorporated
by reference herein and reference is made thereto for the complete terms of the
Services Agreement. The foregoing discussion is qualified in its entirety by
reference to the Services Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
MFS. In considering the recommendation of the MFS Board of Directors with
respect to the Merger, holders of MFS Capital Stock should be aware that certain
members of MFS' management, some of whom are members of the MFS Board of
Directors, and the members of the MFS Board of Directors have certain interests
in the Merger, in addition to those of the stockholders generally. The MFS Board
of Directors was aware of these interests when it considered and approved the
Merger and the Merger Agreement.
Pursuant to the terms of the Merger Agreement, WorldCom has agreed to cause
the WorldCom Board of Directors as of the Effective Time to consist of an odd
number of directors, with MFS being entitled to designate one less director than
WorldCom, subject to the consummation of the Merger. As of the date hereof,
WorldCom's Board of Directors is composed of 12 directors. It is anticipated
that the WorldCom Board of Directors will be composed of 15 directors and that
Carl J. Aycock, Max E. Bobbitt, Bernard J. Ebbers, Francesco Galesi, Stiles A.
Kellett, Jr., John A. Porter, and Scott D. Sullivan will continue to serve, and
that Clyda Stokes Rent will be appointed to serve, as directors of WorldCom
after the Effective Time. MFS has announced its intent to designate R. Douglas
Bradbury, James Q. Crowe, Richard R. Jaros, David C. McCourt, Walter Scott, Jr.,
John W. Sidgmore, and Michael B. Yanney as directors of WorldCom. The Merger
Agreement also provides that membership on the compensation and stock option,
audit and nominating committees of WorldCom's Board of Directors will initially
consist of an equal number of designees of WorldCom and MFS. See "Management of
WorldCom Following the Merger."
Pursuant to the Merger Agreement, following consummation of the Merger,
WorldCom will arrange for each employee participating in any benefit plans of
MFS or a subsidiary of MFS as in effect on August 25, 1996 to participate in any
counterpart benefit plans of WorldCom in accordance with the eligibility
criteria of such plans, provided that (a) such participants will receive full
credit for years of service with MFS or its subsidiaries prior to the Merger for
all purposes for which such service was recognized under the MFS benefit plans,
including recognition of service for eligibility, vesting and, to the extent not
duplicative of benefits received under such MFS benefit plans, the amount of
benefits, (b) such participants will participate in the WorldCom benefit plans
on terms no less favorable than those offered by WorldCom to similarly situated
employees of WorldCom, and (c) WorldCom will cause any and all pre-existing
condition limitations (to the extent such limitations did not apply to a
pre-existing condition under MFS' benefit plans) and eligibility waiting periods
under any group health plans to be waived with respect to such participants and
their eligible
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dependents. WorldCom and MFS have also acknowledged that the Merger and
transactions contemplated thereby will be treated as a "change in control" for
purposes of certain MFS benefit plans, option agreements and employment
agreements and agreed to honor the provisions of any such plans and agreements
which relate to a change in control, including the accelerated vesting and/or
payment of equity-based awards. Pursuant to the employment agreement of John W.
Sidgmore, President and Chief Operating Officer of MFS, approximately 200,000
restricted shares of MFS Common Stock will fully vest as a result of the Merger.
WorldCom has agreed, and has agreed to cause its subsidiaries to agree, to take
the position that none of the execution of the Merger Agreement, the approval of
the Merger Agreement by MFS stockholders or the consummation of the Merger will
constitute a change in control of MFS or a change in the ownership of a
substantial portion of the assets of MFS within the meaning of Section 280G of
the Code and has agreed that it will not withhold from any amounts payable to
any MFS employee by reason of consummation of the Merger any amounts in respect
of the excise tax described in Section 4999 of the Code unless such position
ceases to be supported by a good faith interpretation of relevant tax authority
as a result of a change in such relevant authority which occurs after August 25,
1996. See "-- Terms and Conditions of the Proposed Merger -- Other Covenants."
Certain members of the MFS Board of Directors who are also executive
officers of MFS and other executive officers of MFS are the holders of MFS
Outperformance Options. The members of the MFS Board of Directors were aware
that the MFS Outperformance Options, as well as the other MFS Options held by
these individuals, could appreciate in value as a result of the announcement of
the execution of the Merger Agreement. See "-- Terms and Conditions of the
Proposed Merger -- MFS Options and Warrants" and "Management of WorldCom
Following the Merger."
The Merger Agreement provides that the indemnification provisions of the
By-laws and the Certificate of Incorporation of MFS, as the Surviving
Corporation in the Merger, will not be amended, repealed or otherwise modified
for a period of six years after the Effective Time in any manner that would
adversely affect the rights of individuals who were directors, officers, agents
or employees of MFS immediately prior to the Effective Time unless required by
applicable law. The Merger Agreement provides that, with respect to matters
occurring through the Effective Time, WorldCom and the Surviving Corporation
will jointly and severally indemnify, defend and hold harmless the directors,
officers and agents of MFS as provided in the MFS Certificate of Incorporation
or the MFS By-laws or indemnification agreements, as in effect as of August 25,
1996. WorldCom also agreed to cause the Surviving Corporation to maintain in
effect for not less than three years after the Effective Time, policies of
directors' and officers' liability insurance comparable to those maintained by
MFS with carriers comparable to MFS' existing carriers and containing terms and
conditions which are no less advantageous in any material respect to the
officers, directors and employees of MFS to the extent that such policies are
obtainable at an annual cost of not greater than two times MFS' last annual
premium prior to August 25, 1996; provided that if such coverage is not
available for such amount, WorldCom will purchase as much coverage as possible
for such amount. "-- Terms and Conditions of the Proposed Merger -- Other
Covenants."
WorldCom. As of August 25, 1996, the date of execution of the Merger
Agreement, Stiles A. Kellett, Jr., a director of WorldCom, beneficially owned
368,430 shares of MFS Common Stock, representing less than one percent of the
issued and outstanding shares of MFS Common Stock. As of August 25, 1996, Mr.
Kellett also beneficially owned 2,109,718 shares of WorldCom Common Stock. The
WorldCom Board of Directors was aware of Mr. Kellett's ownership of MFS Common
Stock when it considered and unanimously approved the Merger, the Merger
Agreement and the transactions contemplated thereby, and neither the WorldCom
Board of Directors nor Mr. Kellett considered such ownership a material factor
in reaching its or his decision. As of the MFS Record Date, the directors and
executive officers of WorldCom, as a group, beneficially owned an aggregate of
381,680 shares of MFS Common Stock.
SURRENDER OF STOCK CERTIFICATES AND RECEIPT OF MERGER CONSIDERATION
On the Closing Date, WorldCom will instruct the Exchange Agent to mail to
each holder of MFS Capital Stock (other than the holders of MFS Series B
Preferred Stock exercising appraisal rights) within five business days of
receiving from MFS a list of such holders of record (i) a letter of transmittal
(which will specify that delivery will be effected, and risk of loss and title
will pass, only upon delivery of the certificates to the Exchange Agent and will
be in such form and have such other provisions as WorldCom may reasonably
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specify), including notification of the consummation of the Merger, and (ii)
instructions as to the procedure for the surrender of the stock certificates in
exchange for certificates representing the Merger Consideration. The Exchange
Agent will accept documentation acceptable to it in lieu of lost or destroyed
certificates and may also require the holder of a lost or destroyed certificate
to post an insurance bond acceptable to the Exchange Agent. Each holder of MFS
Capital Stock (other than holders of shares of MFS Series B Preferred Stock
exercising appraisal rights), upon surrender of a stock certificate or
certificates representing such stock, together with the transmittal letter
provided by the Exchange Agent duly completed and executed by such holder, will
be entitled to receive a stock certificate or certificates representing the
number of the whole shares of WorldCom Capital Stock (together with cash in lieu
of fractional shares) to which such holder is entitled, provided, that holders
of MFS Depositary Shares will receive WorldCom Depositary Shares in exchange
therefor. For additional information regarding the WorldCom Capital Stock
issuable in the Merger, see "Description of WorldCom Capital Stock."
MFS STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL LETTER FROM THE EXCHANGE AGENT.
At the Effective Time, the stock transfer books of MFS shall be closed, and
there shall be no further transfers on the stock transfer books of MFS of any
MFS Capital Stock, other than transfers of MFS Capital Stock that have occurred
prior to the Effective Time. In the event that, after the Effective Time,
certificates evidencing MFS Capital Stock are presented to the Surviving
Corporation, they shall be cancelled and exchanged for shares of WorldCom Common
Stock or WorldCom preferred stock, as the case may be, and cash in lieu of
fractional shares.
No dividends or other distributions, if any, in respect of the shares of
WorldCom Common Stock or WorldCom preferred stock, declared after the Effective
Time and payable to holders of record after the Effective Time, shall be paid to
the holders of any unsurrendered certificates representing MFS Capital Stock
until such certificates representing MFS Capital Stock and transmittal letters
are surrendered and delivered as provided in the Merger Agreement. Subject to
applicable law, after the surrender and exchange of the certificates
representing MFS Capital Stock, the record holders thereof will be entitled to
receive any such dividends or other distributions without interest thereon,
which theretofore have become payable with respect to the number of shares of
WorldCom Common Stock or WorldCom preferred stock for which such certificates
representing MFS Capital Stock were exchangeable. Holders of any unsurrendered
certificates representing MFS Capital Stock will not be entitled to vote the
WorldCom Capital Stock to which they are entitled until such certificates are
exchanged for certificates representing WorldCom Capital Stock.
FRACTIONAL SHARES
No fractional shares of WorldCom Common Stock will be issued in connection
with the Merger. Where the Merger Consideration would otherwise require the
issuance of a fractional share, cash equal to the value of such fractional
interest will be paid to the holder of such interest in lieu of such fractional
share. The value of such fractional interest will be the product of such
fraction multiplied by $26.375, subject to appropriate adjustment in the event
of a stock split, stock dividend or recapitalization after August 25, 1996
applicable to shares of WorldCom Common Stock.
CERTAIN REGULATORY FILINGS AND APPROVALS
Consummation of the Merger is contingent upon the receipt of approvals from
the FCC with respect to the Merger and certain related transactions. See "Plan
of Merger -- Terms and Conditions of the Proposed Merger -- Mutual Conditions."
All of the applications necessary to obtain FCC approval for the consummation of
the Merger were filed with the FCC on September 13, 1996. The applications were
placed on public notice on September 27, 1996. The deadline for the public to
file comments or oppositions to the applications expired on October 28, 1996.
Time Warner Cable of New York City, Paragon Communications and Westside
Associates, Ltd. filed oppositions to the applications. Time Warner and Paragon
have withdrawn their oppositions. WorldCom and MFS filed their replies to the
Westside Associates, Ltd. opposition on November 12, 1996. No party is entitled
to file any further pleadings, and the applications are now ripe for
consideration by the FCC. Consummation of the Merger is conditioned upon FCC
grant of the applications and such grant no longer being subject to
administrative or judicial reconsideration, review or appeal.
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Consummation of the Merger is also contingent upon notification to and/or
approval by various state PUCs and certain local government authorities. All of
the notifications and/or requests for approval of the Merger and certain related
transactions to WorldCom have been filed with the relevant PUCs and these local
government authorities.
Under the Hart-Scott-Rodino Act and the rules promulgated thereunder by the
FTC, the Merger may not be consummated until notifications have been given and
certain information has been furnished to the FTC and the Antitrust Division of
the DOJ (the "Antitrust Division") and specified waiting period requirements
have been satisfied. WorldCom and MFS filed notification and report forms under
the Hart-Scott-Rodino Act with the FTC and the Antitrust Division in October
1996 and certain stockholders of MFS, who may be deemed acquirors of WorldCom by
virtue of their MFS Common Stock ownership, also filed Premerger Notification
and Report Forms under the Hart-Scott-Rodino Act. The required waiting periods
for the filings by WorldCom and MFS under the Hart-Scott-Rodino Act expired on
October 31, 1996 and the latest required waiting period for such individuals is
expected to expire on November 21, 1996. However, at any time before or after
the Effective Time of the Merger, and notwithstanding that the Hart-Scott-Rodino
Act waiting period has expired, the FTC, the Antitrust Division or any state
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest. Such action could include seeking to enjoin
the consummation of the Merger or seeking divestiture of MFS or businesses of
WorldCom or MFS acquired as a result of the Merger.
The consummation of the Merger is also contingent upon notification to
and/or approval by government authorities in certain foreign countries where
WorldCom and/or MFS conduct business. Pre-Merger approvals will be required in
at least two foreign countries. However, the approval process in such countries
is administrative in nature and no delays are anticipated.
Consummation of the Merger is subject to the condition that all consents of
any governmental authority required for consummation of the Merger and the
transactions contemplated by the Merger Agreement shall have been obtained by
Final Order (as defined in the Merger Agreement) except as waived by WorldCom or
MFS or those consents the failure of which to obtain will not have a Surviving
Corporation Material Adverse Effect (as defined therein). If all requisite
consents have not been received at such time as all other material conditions to
the Merger have been satisfied or waived, MFS and WorldCom may nonetheless
determine to consummate the Merger. Although MFS and WorldCom are seeking such
consents, it is uncertain whether such consents will be obtained in, among
others, certain major metropolitan areas. If MFS and WorldCom determine to
consummate the Merger without having obtained such consents, no assurance can be
given that the resulting loss of that portion of MFS' business to which the
consents relate will not have a material adverse effect on the business,
prospects, financial condition or results of operations of WorldCom and MFS on a
combined basis.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase for financial accounting
purposes in accordance with generally accepted accounting principles. For
purposes of preparing WorldCom's consolidated financial statements, WorldCom
will establish a new accounting basis for MFS' assets and liabilities based upon
the fair values thereof, the Merger Consideration and the costs of the Merger.
Any excess of cost over the fair value of the net tangible assets of MFS will be
recorded as in-process research and development, goodwill and other intangible
assets and amortized over a period not to exceed 40 years. A final determination
of required purchase accounting adjustments, including the allocation of the
purchase price to the assets acquired and liabilities assumed based on their
respective fair values, has not yet been made. Accordingly, the purchase
accounting adjustments made in connection with the development of the pro forma
condensed combined financial information appearing elsewhere in this Joint Proxy
Statement/Prospectus are preliminary and have been made solely for purposes of
developing such pro forma condensed combined financial information. WorldCom has
undertaken a study to determine the fair value of certain of MFS' assets and
liabilities and will make appropriate purchase accounting adjustments upon
completion of that study. For financial reporting purposes, the results of
operations of MFS will be included in the WorldCom consolidated statement of
income following the Effective Time. The WorldCom financial statements for prior
periods will not be restated
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as a result of the Merger or related transactions. See "Pro Forma Condensed
Combined Financial Statements."
PUBLIC TRADING MARKET
WorldCom and MFS anticipate that the shares of WorldCom Common Stock to be
issued and reserved for issuance in connection with the Merger and upon exercise
of the WorldCom Options and WorldCom Warrants will be traded on the Nasdaq
National Market and approval of such trading in the case of WorldCom Common
Stock by the Nasdaq National Market is a condition precedent to the
effectiveness of the Merger. WorldCom intends to apply to list the WorldCom
Depositary Shares on the Nasdaq National Market (provided there are a sufficient
number of holders and available market makers to meet applicable requirements)
but does not intend to apply to list the WorldCom Series B Preferred Stock on
the Nasdaq National Market or any other established securities market.
STATUS UNDER FEDERAL SECURITIES LAWS
The shares of WorldCom Capital Stock to be issued to stockholders of MFS
pursuant to the Merger Agreement have been registered under the Securities Act,
thereby allowing such shares to be freely traded without restriction by persons
who will not be "affiliates" of WorldCom after the Merger or who were not
"affiliates" of MFS on the date of the MFS Special Meeting. All directors and
certain officers and stockholders of MFS may be deemed to have been "affiliates"
of MFS within the meaning of such rules. Any such person may resell the WorldCom
Capital Stock received by him or her in the Merger only if such shares are
registered under the Securities Act or an exemption from registration under the
Securities Act is available. Such persons may be able to effect resales under
the safe harbor provisions of Rule 145 under the Securities Act (or Rule 144 in
the case of such persons who become "affiliates" of WorldCom) or as otherwise
permitted under the Securities Act. Persons who may be deemed affiliates of MFS
or WorldCom generally include individuals or entities that control, are
controlled by, or are under common control with, such party, and may include
certain officers and directors of such party as well as principal stockholders
of such party. It is recommended that any such person obtain advice of
securities counsel prior to effecting any resales.
The Merger Agreement requires, as a condition to closing, that each of MFS'
"affiliates" execute a written agreement to the effect that such person will not
offer or sell or otherwise dispose of any of the WorldCom Capital Stock received
in the Merger in violation of the Securities Act or the rules and regulations
thereunder.
This Joint Proxy Statement/Prospectus does not cover resales of WorldCom
Capital Stock received by any person who may be deemed to be an affiliate of
WorldCom or MFS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discusses only the federal income tax consequences of the
Merger to United States persons who hold shares of MFS Capital Stock as capital
assets. It does not discuss all the tax consequences that might be relevant to
MFS stockholders entitled to special treatment under the federal income tax law
or to MFS stockholders who acquired their shares of MFS Capital Stock or
WorldCom Capital Stock through the exercise or cancellation of employee stock
options or otherwise as compensation.
WorldCom has received an opinion from Bryan Cave LLP, and MFS has received
an opinion from Skadden, Arps, Slate, Meagher & Flom LLP (special tax counsel to
MFS), to the effect that, if the Merger is consummated in accordance with the
terms of the Merger Agreement and as described in this Joint Proxy
Statement/Prospectus, under current law, for federal income tax purposes, the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Code. The opinions are conditioned upon the receipt and accuracy of
customary representations made to Skadden, Arps, Slate, Meagher & Flom LLP and
Bryan Cave LLP with respect to certain factual matters required to qualify the
Merger as a reorganization under the Code. Moreover, the opinions are based on
the Code, regulations and rulings in effect as of the date of such opinions,
current administrative rulings and practice and judicial precedent, all of which
are subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences discussed
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herein. Such opinions neither bind the Internal Revenue Service (the "Service")
nor preclude the Service from adopting a contrary position. The parties will not
request and the Merger is not conditioned upon a ruling from the Service with
respect to any of the federal income tax consequences of the Merger.
Accordingly, if the Merger qualifies as a reorganization under the Code,
(i) no gain or loss will be recognized by the stockholders of MFS with respect
to the shares of WorldCom Capital Stock received in the Merger, (ii) the tax
basis of the shares of WorldCom Capital Stock received by an MFS stockholder
(including any fractional interest) will be equal to the tax basis of the shares
of MFS Capital Stock exchanged therefor, (iii) for purposes of determining
whether a gain or loss on a disposition of shares of WorldCom Capital Stock is
long-term or short-term, the holding period of the shares of WorldCom Capital
Stock received pursuant to the Merger by the MFS stockholders will include the
holding period of the MFS Capital Stock exchanged therefor, provided the shares
of MFS Capital Stock were held as a capital asset on the date of the Merger, and
(iv) the receipt of cash in lieu of fractional shares of WorldCom Capital Stock
by a stockholder of MFS will be treated as if the fractional shares were
distributed as part of the exchange and then were redeemed by WorldCom.
The receipt of cash in lieu of a fractional share of WorldCom Capital Stock
by an MFS stockholder pursuant to the Merger or receipt of cash in respect of
shares of MFS Series B Preferred Stock as to which appraisal rights have been
perfected in connection with the Merger by a holder thereof will generally
result in taxable gain or loss to such stockholder for federal income tax
purposes based on the difference between the amount of cash received by such
stockholder and such stockholder's basis in such fractional share as set forth
above or such stockholder's basis in such dissenting shares of MFS Series B
Preferred Stock, as the case may be. Such gain or loss should be a capital gain
or loss, provided the shares of MFS Capital Stock were held as a capital asset
on the date of the Merger.
The exchange of the MFS Options and MFS Warrants for WorldCom Options and
WorldCom Warrants pursuant to the terms of the Merger should be treated as a
nontaxable event to the holders thereof.
BECAUSE OF THE COMPLEXITY OF THE TAX LAWS, AND BECAUSE THE TAX CONSEQUENCES
OF ANY PARTICULAR MFS STOCKHOLDER MAY BE AFFECTED BY MATTERS NOT DISCUSSED
HEREIN, IT IS RECOMMENDED THAT EACH MFS STOCKHOLDER, OPTION HOLDER AND WARRANT
HOLDER CONSULT HIS OR HER PERSONAL TAX ADVISOR CONCERNING THE APPLICABILITY OF
ANY FOREIGN LAWS AS WELL AS OTHER FEDERAL, STATE AND LOCAL INCOME TAX
CONSEQUENCES OF THE MERGER. HOLDERS OF MFS OUTPERFORMANCE OPTIONS, IN
PARTICULAR, SHOULD CONSIDER THE CURRENT TAX CONSEQUENCES OF RECEIVING THE CHANGE
IN CONTROL PAYMENT IN CANCELLATION OF THEIR MFS OUTPERFORMANCE OPTIONS. SEE
"-- TERMS AND CONDITIONS OF THE PROPOSED MERGER -- MFS OPTIONS AND WARRANTS."
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STOCK OPTION AGREEMENTS
As an inducement to the other party to enter into the Merger Agreement,
each of MFS and WorldCom entered into the Option Agreements in favor of the
other party as described herein.
MFS (as issuer) entered into a Stock Option Agreement (the "MFS Stock
Option Agreement") dated as of August 25, 1996 with WorldCom (as grantee),
pursuant to which MFS granted the irrevocable option (the "MFS Stock Option") to
WorldCom to purchase from MFS up to 43,953,073 shares of MFS Common Stock
(subject to adjustment in certain circumstances, and which represented 19.9% of
the then outstanding shares of MFS Common Stock as of the date thereof) at a
price of $55.3875 per share. The $55.3875 exercise price was determined through
negotiations and reflects the product of the Common Exchange Ratio multiplied by
the closing sale price of WorldCom Common Stock on August 23, 1996, the last
trading day preceding announcement of the Merger.
WorldCom (as issuer) entered into a Stock Option Agreement (the "WorldCom
Stock Option Agreement") dated as of August 25, 1996 with MFS (as grantee),
pursuant to which WorldCom granted the irrevocable option (the "WorldCom Stock
Option"; collectively with the MFS Stock Option, the "Stock Options") to MFS to
purchase from WorldCom up to 81,224,137 shares of WorldCom Common Stock (subject
to adjustment in certain circumstances, and which represented 19.9% of the then
outstanding shares of WorldCom Common Stock as of the date thereof) at a price
of $26.375 per share. The $26.375 exercise price was determined through
negotiations and reflects the closing sale price of WorldCom Common Stock on
August 23, 1996, the last trading day preceding announcement of the Merger.
In the following discussion, the "Issuer" shall mean MFS with respect to
the MFS Stock Option Agreement and WorldCom with respect to the WorldCom Stock
Option Agreement, and the "Grantee" shall mean WorldCom with respect to the MFS
Stock Option Agreement and MFS with respect to the WorldCom Stock Option
Agreement.
If no injunction or other court order against delivery of the shares
covered by the applicable Stock Option is in effect, the Grantee may exercise
the MFS Stock Option or the WorldCom Stock Option, as the case may be, in whole
or in part, at any time and from time to time following the happening of certain
events (each a "Purchase Event"), including:
(i) the Issuer shall have recommended to its shareholders, or the
Issuer or any person (other than the Grantee or any of its affiliates or
associates) shall have publicly proposed or publicly announced a bona fide
Takeover Proposal (as defined in "Plan of Merger -- Agreement Not To
Solicit Other Offers") for the Issuer that shall not have been withdrawn at
the time of the exercise of the Stock Option;
(ii) any third party shall have acquired or shall have the right to
acquire beneficial ownership (as defined in the Exchange Act) of, or any
group (as defined in the Exchange Act) (other than a group in which the
Grantee or any of its affiliates or associates is a member) shall have been
formed which beneficially owns or has the right to acquire beneficial
ownership of, securities representing 15% or more of the voting power of
the Issuer; or
(iii) the Issuer's Board of Directors shall have withdrawn or modified
in a manner adverse to the Grantee its approval or recommendation with
respect to the Merger, the Merger Agreement and the transactions
contemplated thereby (or the increase in the authorized WorldCom Common
Stock with respect to WorldCom as Issuer);
provided that the Stock Option will terminate: (a) upon consummation of the
Merger; (b) if the Merger Agreement is terminated for any reason and a Purchase
Event has occurred prior to such termination, upon eighteen months after the
occurrence of such Purchase Event; (c) if the Merger Agreement is terminated
pursuant to certain enumerated provisions of the Merger Agreement (including,
without limitation, termination (I) by mutual written consent of the Issuer and
Grantee, (II) by either the Issuer or the Grantee if (A) the Merger shall not
have been consummated on or prior to August 25, 1997 (but not by reason of the
fault of the party so terminating the Merger Agreement), (B) the approval of the
shareholders of either the Issuer or Grantee shall not have been obtained at the
Special Meetings, (C) any governmental authority shall
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have taken any action permanently enjoining or prohibiting the consummation of
the Merger by a final nonappealable order, (D) the Grantee shall have breached
in any material respect its obligations under the Merger Agreement and the same
shall not have been cured in 20 days, (E) the Grantee shall have breached its
obligations regarding soliciting other offers (see "-- Agreement Not To Solicit
Other Offers"), (F) the Grantee's Board of Directors, or a committee thereof
shall have modified or withdrawn its approval or recommendation of the Merger,
the Merger Agreement and the related transactions contemplated thereby (or
failed to reconfirm the same upon request so to do) or (G) the officers,
directors, employees, representatives or agents of the Grantee shall take any
action with regard to furnishing information or participating in negotiations
relating to a Takeover Proposal), and a Purchase Event has not occurred prior to
such termination, upon such termination; (d) if the Merger Agreement is
terminated for any reason other than those enumerated in (c) above and a
Purchase Event has not occurred prior to such termination, upon eighteen months
after such termination; or (e) on August 25, 1999 if the Merger has not been
consummated and the Merger Agreement has not been terminated by such date.
To the knowledge of WorldCom and MFS, no Purchase Event has occurred as of
the date of this Joint Proxy Statement/Prospectus.
The Grantee, with respect to any shares acquired by it on or prior to the
record date for the Issuer's Special Meeting, is deemed to have appointed the
Issuer as its proxy to vote in favor of the Issuer's proposals described herein
at the Issuer's Special Meeting and against any transaction in conflict with the
transactions contemplated by the Merger Agreement. Such proxy is irrevocable and
is deemed coupled with an interest sufficient in law to support an irrevocable
power.
In the event of any change in the Issuer's common stock by reason of a
stock dividend, stock split, split-up, recapitalization, combination, exchange
of shares or similar transaction, the type and number of shares or securities
subject to the applicable Stock Option and the exercise price therefor shall be
adjusted appropriately so that the Grantee or holder of the Grantee's Stock
Option shall receive, upon exercise, the number and class of shares or other
securities or property that the Grantee or holder would have received as if the
Stock Option had been exercised immediately prior to such event. If any
additional shares of Common Stock of the Issuer are issued after the date of the
respective Option Agreement (other than pursuant to the preceding sentence, upon
exercise of any option to purchase Common Stock of the Issuer outstanding on the
date of such Option Agreement or upon conversion into the Common Stock of the
Issuer of any convertible security of the Issuer outstanding on the date of such
Option Agreement), the number of shares of Common Stock of the Issuer subject to
the Stock Option shall be adjusted so that, after such issuance, it, together
with any shares of Common Stock of the Issuer previously issued pursuant to such
Option Agreement, equals 19.9% of the number of shares of the Common Stock of
the Issuer then issued and outstanding, without giving effect to any shares
subject to or issued pursuant to the Stock Option.
In the event that prior to the termination of the Option Agreements, the
Issuer enters into an agreement (i) to consolidate with or merge into any
person, other than the Grantee or one of its subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger; (ii) to
permit any person, other than the Grantee or one of its subsidiaries, to merge
into the Issuer with the Issuer as the continuing or surviving corporation, but,
in connection therewith, the then outstanding shares of the Issuer's common
stock are changed into or exchanged for stock or other securities of the Issuer
or any other person or cash or any other property, or the outstanding shares of
the Issuer's common stock immediately prior to such merger shall after such
merger represent less than 50% of the outstanding shares and share equivalents
of the merged company; or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than the Grantee or one of
its subsidiaries, then such agreement shall provide that the applicable Stock
Options be converted into, or exchanged for, an option to acquire the number and
class of shares or other securities or property the holder of the Stock Options
would have received in respect of the Issuer's common stock if the applicable
Stock Option had been exercised immediately prior to such consolidation, merger,
sale or transfer, on the record date therefor, as applicable.
The Issuer is required (but not more than once during any calendar year and
subject to certain other conditions described in the Option Agreements), if
requested by any holder, including the Grantee and any
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permitted transferee acquiring at least 10% of the shares of the Issuer's common
stock represented by the applicable Stock Options (a "Selling Shareholder"), as
expeditiously as possible to prepare and file a registration statement under the
Securities Act if such registration is necessary in order to permit the sale or
other disposition of any or all shares of the Issuer's common stock or other
securities that have been acquired by or are issuable to the Selling Shareholder
upon exercise of the Stock Options in accordance with the intended method of
sale or other disposition stated by the Selling Shareholder in such request, and
the Issuer is required to use its best efforts to qualify such shares or other
securities for sale under applicable state securities laws, subject to certain
exceptions. The Selling Shareholder also has the right, subject to certain
conditions, as described in the Option Agreements, to include the Selling
Shareholder's shares in certain underwritten public offerings of the Issuer's
common stock by the Issuer after the exercise of the Stock Options. Except where
applicable state law prohibits such payments, the Issuer will pay all expenses
(including without limitation registration fees, qualification fees, blue sky
fees and expenses, legal expenses, including the reasonable fees and expenses of
one counsel to the holders whose shares issued pursuant to the Stock Options are
being registered (not to exceed $15,000), printing expenses and the costs of
special audits or "cold comfort" letters, expenses of underwriters, excluding
discounts and commissions but including liability insurance if the Issuer so
desires or the underwriters so require and the reasonable fees and expenses of
any necessary special experts), in connection with each registration described
above.
The Issuer also is required to indemnify the Selling Shareholder, and each
underwriter thereof, including each person who controls such Selling Shareholder
or underwriter, in connection with any registration pursuant to the respective
Option Agreement against all expenses, losses, claims, damages and liabilities
caused by any untrue or alleged untrue, statement of a material fact contained
in any registration statement or prospectus or notification or offering circular
or any preliminary prospectus, or caused by any omission, or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except to the extent that such expenses,
losses, claims, damages or liabilities are caused by an untrue statement or
alleged untrue statement that was included by the Issuer in reliance upon and in
conformity with, information furnished in writing to the Issuer by such
indemnified party expressly for use therein, in which instance, such Selling
Shareholder agrees to indemnify the Issuer.
The Option Agreements are intended to increase the likelihood that the
Merger will be consummated in accordance with the terms set forth in the Merger
Agreement. Consequently, certain aspects of the Option Agreements may have the
effect of discouraging persons who might now, or prior to the Effective Time, be
interested in acquiring all of, or a significant interest in, the Issuer from
considering or proposing such an acquisition, even if such persons were prepared
to offer to pay consideration to stockholders of MFS which had a higher current
market price than the shares of WorldCom Capital Stock to be received for each
share of the MFS Capital Stock pursuant to the Merger Agreement or to pay any
consideration to shareholders of WorldCom which had a value greater than the
value of the shares of WorldCom Common Stock upon consummation of the Merger.
The Option Agreements are attached hereto as Appendix III and Appendix IV,
respectively, and are incorporated by reference herein and reference is made
thereto for the complete terms of the Option Agreements and the Stock Options.
The foregoing discussion is qualified in its entirety by reference to the Option
Agreements.
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CERTAIN RELATED TRANSACTIONS
RIGHTS AGREEMENTS
In connection with the adoption of the WorldCom Rights Agreement prior to
execution of the Merger Agreement, WorldCom provided that none of the approval,
execution or delivery of the Merger Agreement or the WorldCom Option Agreement,
the consummation of the Merger or the acquisition of shares of WorldCom Common
Stock by MFS pursuant to the WorldCom Option Agreement will cause the rights
issued thereunder to become exercisable. See "Description of WorldCom Capital
Stock -- Preferred Stock Purchase Rights" and "Comparative Rights of
Shareholders -- Preferred Stock Purchase Rights."
In connection with the execution of the Merger Agreement, on August 24,
1996, the MFS Board of Directors amended the Rights Agreement between MFS and
Continental Stock Transfer & Trust Company, as Rights Agent, dated as of
September 30, 1995 and as amended as of August 24, 1996 (the "MFS Rights
Agreement") to provide, in part, that the acquisition of MFS Common Stock
pursuant to the Merger, the execution of the Merger Agreement, the acquisition
of the MFS Stock Option (or any part thereof) to acquire shares of MFS Common
Stock pursuant to the MFS Stock Option Agreement or the acquisition of shares of
MFS Common Stock pursuant to the exercise of the MFS Stock Option would not
cause the occurrence of a Distribution Date under the MFS Rights Agreement.
Immediately prior to the Effective Time, MFS intends to amend the MFS Rights
Agreement to provide that the rights issued under the MFS Rights Agreement shall
expire at the Effective Time. See "Comparative Rights of
Shareholders -- Preferred Stock Purchase Rights."
The foregoing summary of the WorldCom Rights Agreement and the MFS Rights
Agreement is qualified in its entirety by reference to such agreements.
OTHER
As of the date hereof, neither WorldCom nor MFS is aware of any material
relationship between WorldCom or its directors or executive officers and MFS or
its directors or executive officers, except as contemplated by the Merger
Agreement or as described herein or in the documents incorporated by reference
herein.
WorldCom and MFS are parties to certain interconnection or other services
agreements entered into with each other and certain of their affiliates in the
ordinary course of their businesses. In fiscal 1995 and the nine months ended
September 30, 1996, WorldCom received revenues from MFS of $31.6 million and
$31.5 million, respectively, and from UUNET of $7.6 million and $20.6 million,
respectively. In fiscal 1994, WorldCom received revenues from MFS of $14.7
million and from UUNET of $0.6 million. In fiscal 1993, it is believed that
WorldCom received revenues from MFS of approximately $5.0 million. Each of
WorldCom, MFS and UUNET believe that the terms and conditions of such
interconnection or other services agreements were no less favorable to WorldCom,
MFS or UUNET than those that would have been available to WorldCom, MFS or UUNET
in comparable, arm's-length transactions at the date of such agreements.
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PROPOSED AMENDMENT OF THE WORLDCOM ARTICLES
The WorldCom Board of Directors has proposed an amendment to the WorldCom
Articles (previously defined as the "Amendment") and directed that the Amendment
be submitted to the shareholders of WorldCom for approval. The Amendment would
increase the number of authorized shares of WorldCom Common Stock from
750,000,000 to 2,500,000,000. The approval of the issuance of WorldCom Capital
Stock pursuant to the Merger Agreement and the proposed Amendment are each
contingent upon approval of both proposals by WorldCom shareholders. Therefore,
a vote against the proposed Amendment will have the same effect as a vote
against the issuance of WorldCom Capital Stock pursuant to the Merger Agreement.
See "Plan of Merger -- Terms and Conditions of Proposed Merger -- Mutual
Conditions."
The full text of the proposed resolution and Amendment is as follows:
"RESOLVED, that Section A of Article Four of the Amended and Restated
Articles of Incorporation of WorldCom be amended by deleting said Section A
in its entirety and substituting in lieu thereof a new Section A of Article
Four that reads as follows:
"A. Common Stock. The authorized voting common stock of the
Corporation is two billion five hundred million (2,500,000,000) shares, par
value $.01 per share."
As of the WorldCom Record Date, there were 410,424,187 shares of WorldCom
Common Stock issued and outstanding. This number does not include 24,450,223
shares reserved for issuance under outstanding options and warrants to purchase
shares of WorldCom Common Stock. As of such date, therefore, there were
315,125,590 shares of authorized WorldCom Common Stock not reserved for such
purposes and available for issuance. Holders of WorldCom Common Stock have no
preemptive rights to acquire additional issuances of shares of WorldCom Common
Stock or preferred stock. Additionally, there were 50,000,000 shares of
authorized preferred stock, of which 750,000 shares were reserved for issuance
of the Series 3 Preferred Stock (see "Description of WorldCom Capital Stock").
As of the WorldCom Record Date and based on the number of shares of MFS
Common Stock issued and outstanding as of the MFS Record Date (assuming that
none of the outstanding shares of MFS preferred stock is converted into MFS
Common Stock and that none of the MFS Options and MFS Warrants outstanding as of
the Effective Time will have been exercised), upon consummation of the Merger:
(i) 877,249,168 shares of WorldCom Common Stock will be issued and outstanding;
(ii) 75,044,372 shares of WorldCom Common Stock will be reserved for issuance
under the WorldCom Options and the WorldCom Warrants; (iii) 32,703,275 shares of
WorldCom Common Stock will be reserved for issuance upon conversion of the
WorldCom Series A Preferred Stock and 1,332,314 shares of WorldCom Common Stock
will be reserved for issuance upon conversion of the WorldCom Series B Preferred
Stock; and (iv) 2,033,600 shares of WorldCom Common Stock will be reserved for
issuance in payment of accrued but unpaid dividends on the WorldCom Depositary
Shares and 262,899 shares of WorldCom Common Stock issuable in respect of
accrued dividends upon conversion of WorldCom Series B Preferred Stock. After
giving effect to the foregoing and assuming the approval by WorldCom
shareholders of the Amendment as proposed, as of the Effective Time, there will
be 1,511,374,372 shares of WorldCom Common Stock not reserved for the foregoing
purposes and available for issuance.
The WorldCom Board of Directors has deemed it advisable and in the best
interests of WorldCom to amend Article Four of the WorldCom Articles to increase
the authorized number of shares of WorldCom Common Stock to 2,500,000,000. The
purpose of such increase is to permit WorldCom to issue the shares of WorldCom
Common Stock in the Merger, to reserve a sufficient number of shares of WorldCom
Common Stock for issuance upon conversion of the WorldCom Series A Preferred
Stock and the WorldCom Series B Preferred Stock and for issuance upon exercise
of the WorldCom Options and the WorldCom Warrants issued in exchange for the MFS
Options and the MFS Warrants, and to place WorldCom in a position where it will
continue to have a sufficient number of shares of authorized and unissued
WorldCom Common Stock which can be issued for or in connection with such other
corporate purposes as may, from time to time, be considered advisable by the
WorldCom Board of Directors. Having such shares available for issuance in the
future will give WorldCom greater flexibility and will allow such shares to be
issued as determined by the WorldCom
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Board of Directors without the expense and delay of a special shareholders'
meeting to approve such additional authorized capital stock. Such corporate
purposes could include, without limitation: (a) issuance in connection with any
desirable acquisitions which may be presented to WorldCom; (b) the payment of
stock dividends or issuance pursuant to stock splits; (c) the issuance of
WorldCom Common Stock upon exercise of options granted under WorldCom's various
stock option plans or in connection with other employee benefit plans; (d) the
issuance of WorldCom Common Stock upon the conversion of any preferred stock,
the exercise of warrants or the conversion of other securities convertible into
WorldCom Common Stock which may be outstanding from time to time; and (e)
issuance in connection with an offering to raise capital for WorldCom.
The authorized shares of WorldCom Common Stock in excess of those presently
issued will be available for issuance at such times and for such purposes as the
WorldCom Board of Directors may deem advisable without further action by
WorldCom's shareholders, except as may be required by the WorldCom Articles and
applicable laws and regulations. Any future issuance of shares will be subject
to the rights of holders of shares of any then outstanding preferred stock.
The Amendment, if adopted, may have the result of making it more difficult
for any persons or group of persons, other than the current principal
shareholders and management, to acquire control of WorldCom by expanding the
ability of WorldCom to issue shares and thereby dilute the voting power of any
person or group that might accumulate shares in order to attempt to effect a
change in control. Although the Amendment might have such effect, the Amendment
has been proposed by the WorldCom Board of Directors for the reasons set forth
above and not for anti-takeover reasons. WorldCom is not aware of any present
effort to accumulate shares of WorldCom Common Stock or to attempt to change
control of WorldCom. WorldCom has no present plan to issue additional shares of
WorldCom Common Stock either to the current principal shareholders, the
directors, the executive officers or any other person or entity except pursuant
to the Merger or under WorldCom's or MFS' stock option plans, pursuant to the
conversion or exercise of outstanding preferred stock, warrants and convertible
securities or in connection with acquisitions.
The WorldCom Articles contain provisions (a) requiring a 70% vote for
approval of certain business combinations with certain 10% shareholders unless
approved by a majority of the continuing Board of Directors or certain minimum
price, procedural and other requirements are met; and (b) restricting aggregate
beneficial ownership of the capital stock of WorldCom by certain foreign
shareholders to 20% of the total outstanding capital stock, and subjecting
excess shares to redemption. In addition, WorldCom has adopted the WorldCom
Rights Plan, which will cause substantial dilution to a person or group that
attempts to acquire WorldCom on terms not approved by the WorldCom Board of
Directors. Further, the WorldCom Bylaws (a) contain the requirement regarding
nomination by shareholders of persons for election as directors summarized under
"The WorldCom Special Meeting -- Future Proposals of WorldCom Security Holders,"
and (b) restrict the calling of special meetings by shareholders to those owning
not less than 40% of the votes to be cast. These provisions, including the
WorldCom Rights Plan, may have an anti-takeover effect. See "Description of
WorldCom Capital Stock -- Certain Charter and Bylaw Provisions" and
"-- Preferred Stock Purchase Rights."
THE WORLDCOM BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL OF THE AMENDMENT.
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MANAGEMENT OF WORLDCOM FOLLOWING THE MERGER
Pursuant to the terms of the Merger Agreement, WorldCom has agreed to cause
the WorldCom Board of Directors as of the Effective Time to consist of an odd
number of directors, with MFS being entitled to designate one less director than
WorldCom, subject to the consummation of the Merger. As of the date hereof,
WorldCom's Board of Directors is composed of 12 directors. It is anticipated
that the WorldCom Board of Directors will be composed of 15 directors and that
Carl J. Aycock, Max E. Bobbitt, Bernard J. Ebbers, Francesco Galesi, Stiles A.
Kellett, Jr., John A. Porter, and Scott D. Sullivan will continue to serve, and
that Clyda Stokes Rent will be appointed to serve, as directors of WorldCom
after the Effective Time. Silvia Kessel, John W. Kluge, Stuart Subotnick,
Lawrence C. Tucker and Roy A. Wilkens, each of whom voted in favor of the
Merger, have agreed to resign as directors of WorldCom effective as of the
Effective Time. MFS has announced its intent to designate R. Douglas Bradbury,
James Q. Crowe, Richard R. Jaros, David C. McCourt, Walter Scott, Jr., John W.
Sidgmore and Michael B. Yanney as directors of WorldCom. If, prior to the
Effective Time, any of the persons named by either WorldCom or MFS to serve on
the WorldCom Board of Directors as of the Effective Time declines or is unable
to serve as a director, the party that designated such individual may name a
replacement to become a director. The directors of WorldCom will be elected
annually. See "Information Regarding WorldCom" for certain information regarding
the current management of WorldCom.
The following table sets forth information as to the persons who are
expected to serve as directors of WorldCom following the Merger:
<TABLE>
<CAPTION>
NAME AND YEAR FIRST BECAME A DIRECTOR BUSINESS EXPERIENCE DURING
OF WORLDCOM OR MFS, AS APPLICABLE AGE PAST FIVE YEARS AND OTHER INFORMATION
- -------------------------------------- --- -------------------------------------------------
<S> <C> <C>
Carl J. Aycock, 1983 47 Director of WorldCom since 1983. Mr. Aycock
served as Secretary of WorldCom from 1987 to 1995
and was the Secretary and Chief Financial Officer
of Master Corporation, a motel management and
ownership company, from 1989 until 1992.
Subsequent to 1992, Mr. Aycock has been self
employed as a financial administrator.
Max E. Bobbitt, 1992 51 Director of WorldCom since December 1992. Mr.
Bobbitt was a director of Advanced
Telecommunications Corporation ("ATC") until its
merger with WorldCom in December 1992 (the "ATC
Merger"). Mr. Bobbitt held various positions
including President and Chief Operating Officer
and director of ALLTEL Corporation, a
telecommunications company, from 1970 until his
retirement in January 1995.
R. Douglas Bradbury, 1994 45 Chief Financial Officer of MFS since January
1992, Executive Vice President since August 1995,
Senior Vice President from September 1992 to
August 1996 and a Director since August 1994.
Previously, Mr. Bradbury was Senior Vice
President -- Corporate Affairs for MFS Telecom,
Inc. ("MFS Telecom"). Before joining MFS in 1988,
he was Executive Vice President and Chief
Operating Officer at American Pioneer Telephone,
Inc., a regional long-distance carrier based in
Orlando, Florida, and a Vice President of
Manufacturers Hanover Trust Company in New York
City and Milan, Italy.
James Q. Crowe, 1988 46 Chief Executive Officer and Chairman of the Board
of MFS. Mr. Crowe has been the Chief Executive
Officer of MFS since its inception, has served as
Chairman of the Board of MFS since 1988 and Chief
Executive Officer since November 1991 and was
President of MFS (January 1988 - June 1989 and
April 1990 - January 1992).
</TABLE>
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<PAGE> 86
<TABLE>
<CAPTION>
NAME AND YEAR FIRST BECAME A DIRECTOR BUSINESS EXPERIENCE DURING
OF WORLDCOM OR MFS, AS APPLICABLE AGE PAST FIVE YEARS AND OTHER INFORMATION
- -------------------------------------- --- -------------------------------------------------
<S> <C> <C>
Bernard J. Ebbers, 1983 55 Chief Executive Officer and President of
WorldCom. Mr. Ebbers has been President and Chief
Executive Officer since April 1985 and has served
as director of WorldCom since 1983.
Francesco Galesi, 1992 66 Director of WorldCom since December 1992. Mr.
Galesi was a director of ATC until the ATC
Merger. He is the Chairman and Chief Executive
Officer of the Galesi Group, which includes
companies engaged in distribution, manufacturing,
real estate and telecommunications.
Richard R. Jaros, 1992 44 Director of MFS since January 1992. He was the
Chairman of the Board of CalEnergy Company, Inc.
("CEC"), a geothermal energy producer, from April
1993 to April 1994, and the President and Chief
Operating Officer from January 1992 until April
1993. Mr. Jaros has been an Executive Vice
President of Peter Kiewit Sons', Inc. ("PKS")
since June 1993 and Chief Financial Officer since
September 1995, and was a Vice President of PKS
from September 1990 to August 1992. Mr. Jaros has
been President of Kiewit Diversified Group Inc.
("KDG") since July 1996 and was a Vice President
from 1986 to 1990. Mr. Jaros is a director of
PKS, KDG, RCN Corporation, a wholly owned
subsidiary of KDG ("RCN"), CEC, C-TEC Corporation
("C-TEC"), United Infrastructure Company and
Megacable S.A. de C.V.
Stiles A. Kellett, Jr., 1981 52 Director of WorldCom since 1981. From 1978 to
January 1996, Mr. Kellett served as Chairman of
the Board of Directors of Convalescent Services,
Inc., a long-term health care company in Atlanta,
Georgia. He serves as director of Frederica Bank
& Trust Company, St. Simons Island, Georgia and
Mariner Health Group, Inc., New London,
Connecticut.
David C. McCourt, 1992 39 Director of MFS since January 1992 and Chairman
of the Board and Chief Executive Officer of C-TEC
since October 1993. Mr. McCourt is also the
President and Chief Executive Officer, as well as
a director of RCN. He has been a director of MFS
Telecom from July 1990 to October 1992 and a
director and President of Metropolitan Fiber
Systems/McCourt, Inc., a subsidiary of MFS
Telecom, since 1988.
</TABLE>
71
<PAGE> 87
<TABLE>
<CAPTION>
NAME AND YEAR FIRST BECAME A DIRECTOR BUSINESS EXPERIENCE DURING
OF WORLDCOM OR MFS, AS APPLICABLE AGE PAST FIVE YEARS AND OTHER INFORMATION
- -------------------------------------- --- -------------------------------------------------
<S> <C> <C>
John A. Porter, 1988 52 Vice Chairman of the Board of WorldCom since
September 1993. Served as Chairman of the Board
of Directors of WorldCom from 1988 until
September 1993. From May 1995 to the present, Mr.
Porter has served as Chairman of the Board of
Directors and Chief Executive Officer of
Industrial Electric Manufacturing, Inc., a
manufacturer of electrical power distribution
products. Mr. Porter also serves as Chairman of
the Board of Directors of Phillips &
Brooks/Gladwin, Inc., a manufacturer of pay
telephone enclosures and equipment and is also a
director of Uniroyal Technology Corporation and
Intelligent Electronics, Inc. Mr. Porter is
President and sole shareholder of P.M. Restaurant
Group, Inc., which filed for protection under
Chapter 11 of the U.S. Bankruptcy Code in March
1995.
Clyda Stokes Rent, Ph.D. 54 President of Mississippi University for Women
since 1989. Dr. Rent is a director of Trustmark
National Bank and the American Association of
State Colleges and Universities.
Walter Scott, Jr., 1992 65 Director of MFS since January 1992. He has been
the Chairman of the Board and President of PKS
for more than the last five years. He also is a
director of Berkshire Hathaway, Inc., Burlington
Resources Inc., CEC, ConAgra, Inc., First Bank
System, Inc. and Valmont Industries, Inc. Mr.
Scott is also a director of KDG, RCN, and C-TEC.
John W. Sidgmore, 1996 45 President and Chief Operating Officer of MFS
since August 1996 and a director of MFS since
October 1996. Mr. Sidgmore was President, Chief
Executive Officer and a director of UUNET from
June 1994 through August 1996. Mr. Sidgmore has
been Chief Executive Officer and a director of
UUNET since August 1996. From 1989 to 1994, Mr.
Sidgmore was President and Chief Executive
Officer of CSC Intelicom, a telecommunications
software company. Mr. Sidgmore is a director of
Saville Systems PLC, a provider of billing
software for the telecommunications industry.
Scott D. Sullivan, 1996 35 Chief Financial Officer and Secretary of WorldCom
since December 1994 and a director of WorldCom
since March 1996. From 1992 until December 1994,
Mr. Sullivan served as Vice President and
Assistant Treasurer of WorldCom. From 1989 until
1992, Mr. Sullivan served as an executive officer
of two long-distance companies, including ATC.
From 1983 to 1989, Mr. Sullivan served in various
capacities with KPMG Peat Marwick LLP.
Michael B. Yanney, 1993 62 Director of MFS since March 1993. Mr. Yanney has
been the Chairman and Chief Executive Officer of
America First Companies L.L.C., Omaha, Nebraska,
since 1984. Mr. Yanney also serves as a director
of Burlington Northern Santa Fe Corporation,
C-Tec Corporation, Lozier Corporation, Forest Oil
Corporation, Freedom Communications, Inc.,
Mid-America Apartment Communities, Inc. and PKS
Information Services, Inc. and was formerly a
director of Freddie Mac and Durham Resources,
Inc.
</TABLE>
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<PAGE> 88
Dr. Rent beneficially owned 400 shares of WorldCom Common Stock as of the
WorldCom Record Date. None of the director designees of MFS beneficially owned
any shares of WorldCom Common Stock as of such date. Additional information
about such persons, other than Dr. Rent, is contained in WorldCom's Proxy
Statement for its 1996 Annual Meeting, relevant portions of which are
incorporated by reference in this Joint Proxy Statement/Prospectus pursuant to
WorldCom's Annual Report on Form 10-K for the year ended December 31, 1995 and
MFS' Annual Report on Form 10-K, as amended, for the year ended December 31,
1995. See "Incorporation of Documents by Reference" and "Available Information."
See "Certain Related Transactions -- Other" for certain information
regarding certain transactions between WorldCom, MFS and UUNET. As of November
11, 1996, Messrs. Bradbury, Crowe and Sidgmore held 52,500, 200,000 and 25,000
MFS Outperformance Options, respectively. Such options that are not previously
exercised will be cancelled and paid out in the Merger as described in "Plan of
Merger -- Terms and Conditions of the Proposed Merger -- MFS Options and
Warrants." The value of such options is highly variable, as described above;
however, as of November 11, 1996, the value of such options was approximately
$6.7 million, $21.3 million and $1.1 million, respectively. The value of such
options was approximately $73.6 million for all MFS executive officers and
directors as a group. For additional information concerning certain interests of
directors of MFS and WorldCom in the Merger, see "Plan of Merger -- Interests of
Certain Persons in the Merger."
COMPENSATION OF DIRECTORS
WorldCom's directors are paid fees of $22,500 per year and $1,000 per
meeting of the Board plus certain expenses. Committee members are paid a fee of
$750 for any committee meeting on the same day as a Board meeting and $1,000 for
any other committee meeting, plus certain expenses. The chairman of each
committee receives an additional $3,000 per year. During 1995, directors were
paid fees of $6,000 per year and $1,000 per meeting of the Board attended plus
certain expenses. Committee members were paid a fee of $300 for any committee
meeting attended on the same day as a Board meeting and $500 for any other
committee meeting attended, plus certain expenses. The chairman of each
committee received an additional $1,000.
Pursuant to WorldCom's Third Amended and Restated 1990 Stock Option Plan,
each non-employee director receives annually a non-discretionary grant of
options to purchase 5,000 shares of WorldCom Common Stock at the fair market
value of such stock on the date of grant. Such options are immediately
exercisable and expire on the earliest to occur of (a) ten years following the
date of grant, (b) three months following retirement, (c) 12 months following
termination of service due to disability or death, (d) upon cessation of service
for reasons other than retirement, death or disability, or (e) the date of
consummation of a specified change in control transaction, defined generally to
include the dissolution or liquidation of WorldCom, a reorganization, merger or
consolidation of WorldCom in which WorldCom is not the surviving corporation, or
a sale of substantially all of the assets or 80% or more of the outstanding
stock of WorldCom to another entity. The exercise price may be paid in cash or,
in the discretion of the committee which administers the plan, WorldCom Common
Stock. In the discretion of such committee, shares receivable on exercise may be
withheld to pay applicable taxes on the exercise.
COMMITTEES OF THE BOARD OF DIRECTORS
Pursuant to the Merger Agreement, WorldCom and MFS have agreed that it is
the intent of the parties that membership on the compensation and stock option,
audit and nominating committees of the WorldCom Board of Directors, after the
Effective Time, will initially consist of an equal number of designees of
WorldCom and MFS.
OTHER
The WorldCom Board of Directors has determined to take appropriate action
so that as of the Effective Time, Mr. Crowe will be Chairman of the WorldCom
Board of Directors and Mr. Ebbers will continue as President and Chief Executive
Officer of WorldCom.
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<PAGE> 89
THE WORLDCOM SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
WorldCom Common Stock in connection with the solicitation of proxies by the
WorldCom Board of Directors for use at the WorldCom Special Meeting and any
adjournment or postponement thereof. At the WorldCom Special Meeting, the
shareholders of WorldCom will consider and vote upon (1) a proposal to approve
the issuance of WorldCom Capital Stock pursuant to the Merger Agreement and the
transactions contemplated thereby, (2) a proposal to amend the WorldCom Articles
in order to increase the number of authorized shares of WorldCom Common Stock,
(3) a proposal to adjourn the WorldCom Special Meeting to allow for additional
solicitation of shareholder proxies or votes in the event that the number of
proxies or votes sufficient to obtain a quorum or to approve the first two
proposals has not been received by the date of the WorldCom Special Meeting and
(4) any other business which may properly be brought before the WorldCom Special
Meeting or any adjournment or postponement thereof. Each copy of this Joint
Proxy Statement/Prospectus which is being mailed or delivered to WorldCom
shareholders is accompanied by a WorldCom proxy card and a Notice of Special
Meeting.
The issuance of WorldCom Capital Stock pursuant to the Merger Agreement is
being submitted for the approval of the shareholders of WorldCom pursuant to the
requirements of the NASD applicable to companies whose securities are quoted on
the Nasdaq National Market. Pursuant to these requirements, the issuance of
WorldCom Capital Stock pursuant to the Merger Agreement must be approved by a
majority of the total votes cast by WorldCom shareholders on such proposal at
the WorldCom Special Meeting. See "Proposed Amendment of the WorldCom Articles"
for a discussion of the proposal to amend the WorldCom Articles (previously
defined as the "Amendment").
DATE, TIME AND PLACE
The WorldCom Special Meeting will be held at 515 East Amite Street,
Jackson, Mississippi, on December 20, 1996 at 9:00 a.m., local time.
RECORD DATE; VOTE REQUIRED
The WorldCom Board of Directors has fixed the close of business on November
13, 1996, as the WorldCom Record Date. On the WorldCom Record Date, 410,424,187
shares of WorldCom Common Stock were outstanding and entitled to vote at the
WorldCom Special Meeting and held by approximately 6,000 shareholders of record.
Holders of record of WorldCom Common Stock as of the close of business on the
WorldCom Record Date are entitled to one vote per share on any matter voted on
at the WorldCom Special Meeting. The presence, either in person or by proxy, of
the holders of a majority of the votes entitled to be cast on the matter as of
the WorldCom Record Date is necessary to constitute a quorum at the WorldCom
Special Meeting. Approval of the issuance of WorldCom Capital Stock pursuant to
the Merger Agreement requires the affirmative vote of the holders of at least a
majority of the total votes cast by the holders of the WorldCom Common Stock.
Approval of the Amendment requires the affirmative votes of a majority of the
votes entitled to be cast on the Amendment. Approval of any proposal to adjourn
the WorldCom Special Meeting to allow for additional solicitation of proxies or
votes requires the affirmative vote of the holders of at least a majority of the
total votes present at the WorldCom Special Meeting. The approval of the
issuance of WorldCom Capital Stock pursuant to the Merger Agreement and the
proposed Amendment are each contingent upon approval of both proposals by
WorldCom shareholders. Therefore, a vote against the proposed Amendment will
have the same effect as a vote against the issuance of WorldCom Capital Stock
pursuant to Merger Agreement.
Shares represented by proxies that reflect abstentions and broker
"non-votes" (i.e., shares held by a broker or nominee which are represented at
the meeting, but with respect to which such broker or nominee is not empowered
to vote on a particular proposal) will be counted as shares that are present at
the meeting but will have no effect on the outcome of the proposal to approve
the issuance of WorldCom Capital Stock. For approval of the Amendment and any
proposal to adjourn the WorldCom Special Meeting, both abstentions
74
<PAGE> 90
and broker "non-votes" will be counted as shares that are present at the meeting
and will have the same effect as a vote against approval of the Amendment and
any proposal to adjourn the WorldCom Special Meeting.
As of the WorldCom Record Date, directors and executive officers of
WorldCom and their affiliates (as a group) were entitled to vote approximately
7% of the outstanding votes entitled to be cast at the WorldCom Special Meeting.
All such directors and executive officers and their affiliates have indicated
their intention to vote their shares at the WorldCom Special Meeting for the
approval of the issuance of WorldCom Capital Stock pursuant to Merger Agreement,
for the approval of the Amendment and for the approval of the adjournment of the
WorldCom Special Meeting to solicit additional proxies or votes.
VOTING AND REVOCATION OF PROXIES
Shares of WorldCom Common Stock which are represented by a proxy properly
executed and received prior to the vote at the WorldCom Special Meeting will be
voted at the WorldCom Special Meeting in the manner directed on the proxy card,
unless such proxy is revoked in advance of such vote. ANY WORLDCOM SHAREHOLDER
RETURNING A BLANK EXECUTED PROXY CARD WILL BE DEEMED TO HAVE AUTHORIZED THE
PROXIES TO VOTE THE SHARES COVERED BY THE PROXY CARD (I) IN FAVOR OF THE
ISSUANCE OF WORLDCOM CAPITAL STOCK PURSUANT TO THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, (II) IN FAVOR OF THE PROPOSAL TO APPROVE THE
AMENDMENT, (III) IN FAVOR OF ANY PROPOSAL TO ADJOURN THE WORLDCOM SPECIAL
MEETING TO SOLICIT ADDITIONAL PROXIES OR VOTES AND (IV) IN THEIR DISCRETION WITH
RESPECT TO SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE WORLDCOM SPECIAL
MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
Any shareholder of WorldCom giving a proxy may revoke it at any time prior
to the vote at the WorldCom Special Meeting. Shareholders of WorldCom wishing to
revoke a proxy prior to the time it is voted may do so by delivering to the
Secretary of WorldCom at 515 East Amite Street, Jackson, Mississippi 39201-2702,
a written notice of revocation bearing a later date than the proxy or a later
dated proxy relating to the same shares or by attending the WorldCom Special
Meeting and voting in person. Attendance at the WorldCom Special Meeting will
not in itself constitute the revocation of a proxy.
The WorldCom Board of Directors is not currently aware of any business to
be brought before the WorldCom Special Meeting other than that described herein.
If, however, other matters are properly brought before the WorldCom Special
Meeting or any adjournment or postponement thereof, the persons appointed as
proxies will have discretionary authority to vote the shares represented by duly
executed proxies in accordance with their discretion and judgment as to the best
interest of WorldCom.
SOLICITATION OF PROXIES
WorldCom will bear the costs of soliciting proxies. Proxies will initially
be solicited by WorldCom by mail, but directors, officers and selected other
employees of WorldCom may also solicit proxies by personal interview, telephone,
telegraph or e-mail. Directors, executive officers and any other employees of
WorldCom who solicit proxies will not be specially compensated for such
services, but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward soliciting materials to beneficial
owners and will be reimbursed for their reasonable out-of-pocket expenses
incurred in sending proxy materials to beneficial owners. In addition, MacKenzie
Partners, Inc. ("MPI") has been retained by WorldCom to assist in the
solicitation of proxies. MPI may contact holders of shares of WorldCom Common
Stock by mail, telephone, facsimile, telegraph and personal interviews and may
request brokers, dealers and other nominee shareholders to forward materials to
beneficial owners of shares of WorldCom Common Stock. MPI will receive
reasonable and customary compensation for its services (estimated at $5,000),
will be reimbursed for certain reasonable out-of-pocket expenses and will be
indemnified against certain liabilities and expenses in connection therewith,
including certain liabilities under the federal securities laws.
HOLDERS OF WORLDCOM COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING WORLDCOM PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
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<PAGE> 91
ADJOURNMENT OF THE WORLDCOM SPECIAL MEETING
A vote (i) in person by a shareholder for adjournment of the WorldCom
Special Meeting, or (ii) for the third proposal on the proxy card of WorldCom
authorizing the named proxies to vote the shares covered by such proxy to
adjourn the WorldCom Special Meeting, would allow for additional solicitation of
shareholder votes in order to obtain a quorum or in order to obtain more votes
in favor of the WorldCom proposals. Consequently, it is not likely to be in the
interest of shareholders who intend to vote against the WorldCom proposals to
vote in person to adjourn the WorldCom Special Meeting or to vote for the third
proposal on the proxy card.
The WorldCom Board of Directors unanimously recommends that the WorldCom
shareholders vote in favor of any adjournment of the WorldCom Special Meeting
suggested by the Board in order to solicit additional votes in favor of the
WorldCom proposals, or in favor of the third proposal on the proxy card.
FUTURE PROPOSALS OF WORLDCOM SECURITY HOLDERS
All proposals of security holders intended to be presented at the 1997
annual meeting of shareholders must be received by WorldCom not later than
December 23, 1996, for inclusion in WorldCom's 1997 proxy statement and form of
proxy relating to the 1997 annual meeting. Upon timely receipt of any such
proposal, WorldCom will determine whether or not to include such proposal in the
proxy statement and proxy in accordance with applicable regulations and
provisions governing the solicitation of proxies.
Under the WorldCom Bylaws, shareholders entitled to vote in the election of
directors may nominate one or more persons for election as directors only if
written notice of such shareholder's intent to make such nomination or
nominations has been given either by personal delivery or by United States mail,
postage prepaid, to the Secretary of WorldCom not later than 90 days prior to
the anniversary date of the immediately preceding annual meeting. Such notice
must set forth: (a) the name and address of the shareholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the shareholder is a holder of record of stock of WorldCom
entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
shareholder; (d) such other information regarding each nominee proposed by such
shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Commission; and (e) the consent of each
nominee to serve as a director of WorldCom if so elected.
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<PAGE> 92
THE MFS SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of MFS
Capital Stock in connection with the solicitation of proxies by the MFS Board of
Directors for use at the MFS Special Meeting and any adjournment or postponement
thereof. At the MFS Special Meeting, the stockholders of MFS will consider and
vote upon (i) a proposal to approve the Merger Agreement and the transactions
contemplated thereby (previously defined as the "Merger Proposal"), (ii) a
proposal to adjourn the MFS Special Meeting to allow for additional solicitation
of stockholder proxies or votes in the event that the number of proxies or votes
sufficient to obtain a quorum or to approve the Merger Proposal has not been
received by the date of the MFS Special Meeting and (iii) any other business
which may properly be brought before the MFS Special Meeting or any adjournment
or postponement thereof. Each copy of this Joint Proxy Statement/Prospectus
which is being mailed or delivered to MFS stockholders is accompanied by an MFS
proxy card and a Notice of Special Meeting.
THE MFS BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
AUTHORIZATION OF THE MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT AND FOR APPROVAL OF THE ADJOURNMENT OF THE MFS SPECIAL MEETING TO
SOLICIT ADDITIONAL PROXIES OR VOTES.
DATE, TIME AND PLACE
The MFS Special Meeting will be held at The Joslyn Art Museum, 2200 Dodge
Street, Omaha, Nebraska on December 20, 1996 at 9:00 a.m., local time.
RECORD DATE; VOTING RIGHTS; PROXIES
The MFS Board of Directors has fixed the close of business on November 13,
1996 as the record date for determining holders entitled to notice of and to
vote at the MFS Special Meeting.
As of the MFS Record Date, there were 222,297,610 shares of MFS Common
Stock outstanding, 94,992 shares of MFS Series A Preferred Stock outstanding and
13,680,011 shares of MFS Series B Preferred Stock outstanding. Each share of MFS
Common Stock is entitled to one vote, each share of MFS Series A Preferred Stock
is entitled to ten votes and each share of MFS Series B Preferred Stock is
entitled to ten votes on each matter to be voted upon at the MFS Special
Meeting. All shares of MFS Capital Stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. IF NO INSTRUCTIONS
ARE INDICATED, SUCH SHARES OF MFS CAPITAL STOCK WILL BE VOTED FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE AUTHORIZATION OF THE MERGER AND THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, FOR APPROVAL OF THE
ADJOURNMENT OF THE MFS SPECIAL MEETING TO SOLICIT ADDITIONAL PROXIES OR VOTES
AND IN THE DISCRETION OF THE PROXIES WITH RESPECT TO SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MFS SPECIAL MEETING OR ANY ADJOURNMENT OR POSTPONEMENT
THEREOF.
As stated above, each share of MFS Series B Preferred Stock is entitled to
ten votes per share. The shares of MFS Series B Preferred Stock, however, are
held subject to an irrevocable proxy that has been granted to the Secretary and
Assistant Secretary of MFS to vote all shares of MFS Series B Preferred Stock on
all matters, other than the election of MFS directors and matters as to which
the holders of the MFS Series B Preferred Stock vote as a separate class, in
proportion to the vote of the holders of the MFS Common Stock. Approval of the
Merger Agreement does not require a separate class vote by the holders of the
MFS Series B Preferred Stock.
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<PAGE> 93
MFS does not know of any matters other than as described in the Notice of
Special Meeting that are to come before the MFS Special Meeting. If any other
matter or matters are properly presented for action at the MFS Special Meeting,
the persons named in the enclosed form of proxy and acting thereunder will have
the discretion to vote on such matters in accordance with their best judgment,
unless such authorization is withheld. A stockholder who has given a proxy may
revoke it at any time prior to its exercise by giving written notice thereof to
the Secretary of MFS, by signing and returning a later dated proxy, or by voting
in person at the MFS Special Meeting; however, mere attendance at the MFS
Special Meeting will not in and of itself have the effect of revoking the proxy.
Votes cast by proxy or in person at the MFS Special Meeting will be
tabulated by the election inspectors appointed for the meeting who will
determine whether or not a quorum is present. Where, as to any matter submitted
to the stockholders for a vote, proxies are marked as abstentions (or
stockholders appear in person but abstain from voting), such abstentions will be
treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as unvoted for purposes of determining
the approval of any matter submitted to the stockholders for a vote. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as entitled to vote with respect to that matter.
SOLICITATION OF PROXIES
MFS will bear its own cost of solicitation of proxies. In addition to the
use of the mails, proxies may be solicited by the directors, officers and other
selected employees of MFS by personal interview, telephone, telegram or e-mail.
Such directors and officers will not receive additional compensation for such
solicitation but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Arrangements may also be made with brokerage firms and
other custodians, nominees and fiduciaries to forward solicitation materials to
the beneficial owners of shares of MFS Capital Stock held of record by such
persons, in which case MFS will reimburse such brokerage firms, custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection therewith.
In addition, MPI has been retained by MFS to assist in the solicitation of
proxies. MPI may contact holders of shares of MFS Capital Stock by mail,
telephone, facsimile, telegraph and personal interviews and may request brokers,
dealers and other nominee stockholders to forward materials to beneficial owners
of shares of MFS Capital Stock. MPI will receive reasonable and customary
compensation for its services (estimated at $5,000), will be reimbursed for
certain reasonable out-of-pocket expenses and will be indemnified against
certain liabilities and expenses in connection therewith, including certain
liabilities under the federal securities laws.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of MFS Capital Stock entitled to
vote as of the MFS Record Date is necessary to constitute a quorum at the MFS
Special Meeting. Under applicable Delaware law, abstentions and "broker
non-votes" (that is, proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owner or other
persons entitled to vote shares as to a matter with respect to which the brokers
or nominees do not have discretionary power to vote) will be treated as present
for purposes of determining the presence of a quorum at the MFS Special Meeting.
REQUIRED VOTE
The approval of the Merger Agreement and related transactions requires the
affirmative vote of a majority of votes entitled to be cast by the holders of
all outstanding shares of MFS Capital Stock voting as a single class. The
proposal to adjourn the MFS Special Meeting to solicit additional proxies
requires the approval of a majority of votes represented by the holders of MFS
Capital Stock present in person or by proxy at the MFS Special Meeting and
entitled to vote thereon. However, if less than a quorum but more than one-third
of all shares eligible to vote is present at the MFS Special Meeting, a majority
of the shares present may
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adjourn the MFS Special Meeting. As of the MFS Record Date, there were
outstanding and entitled to vote, 222,297,610 shares of MFS Common Stock held by
approximately 2,500 stockholders of record, 94,992 shares of MFS Series A
Preferred Stock held by one stockholder of record and 13,680,011 shares of MFS
Series B Preferred Stock held by approximately 1,500 stockholders of record. As
of the MFS Record Date, all directors and executive officers of MFS and their
affiliates as a group were entitled to vote approximately 7% of the voting power
of the MFS Capital Stock at that date.
Since the affirmative vote of a majority of votes entitled to be cast by
the holders of all outstanding shares of MFS Capital Stock is required to
approve and adopt the Merger Agreement and related transactions, abstentions and
broker non-votes will have the effect of a vote against the approval and
adoption of the Merger Agreement and related transactions. Abstentions, but not
broker non-votes, will have the effect of a vote against adjournment of the MFS
Special Meeting.
THE MATTERS TO BE CONSIDERED AT THE MFS SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF MFS. ACCORDINGLY, STOCKHOLDERS OF MFS ARE
URGED TO READ AND CONSIDER CAREFULLY THE INFORMATION PRESENTED IN THIS JOINT
PROXY STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
ADJOURNMENT OF THE MFS SPECIAL MEETING
A vote (i) in person by a stockholder for adjournment of the MFS Special
Meeting, or (ii) for the second proposal on the proxy card of MFS authorizing
the named proxies to vote the shares covered by such proxy to adjourn the MFS
Special Meeting, would allow for additional solicitation of stockholder votes in
order to obtain a quorum or in order to obtain more votes in favor of the Merger
Agreement. Consequently, it is not likely to be in the interest of stockholders
who intend to vote against the Merger Agreement to vote in person to adjourn the
MFS Special Meeting or to vote for the second proposal on the proxy card.
The MFS Board of Directors unanimously recommends that the MFS stockholders
vote in favor of any adjournment of the MFS Special Meeting suggested by the
Board in order to solicit additional votes in order to obtain a quorum or to
obtain more votes in favor of the Merger Agreement and related transactions, or
in favor of the second proposal on the proxy card.
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APPRAISAL RIGHTS
Holders of MFS Series B Preferred Stock who properly demand and perfect
appraisal rights in accordance with the conditions established by Section 262 of
the DGCL will be entitled to appraisal rights. However, it is uncertain, and
counsel to MFS is unable to express a definite view, to what extent appraisal
rights will be available to holders of MFS Series B Preferred Stock in
connection with the Merger. Section 262 requires that the holder of MFS Series B
Preferred Stock who desires to seek appraisal rights must not vote in favor of
the Merger Agreement or the Merger and must deliver a separate written demand
for appraisal to MFS prior to the vote by the stockholders of MFS on the Merger
Agreement and the Merger. Since the shares of MFS Series B Preferred Stock are
held subject to an irrevocable proxy that has been granted to the Secretary and
Assistant Secretary of MFS to vote the shares of MFS Series B Preferred Stock on
the proposals to be voted on at the MFS Special Meeting in proportion to the
vote of the MFS Common Stock, it is uncertain to what extent a holder of MFS
Series B Preferred Stock will be able to satisfy the requirement not to vote in
favor of the Merger Agreement or the Merger that is contained in Section 262.
Stockholders of MFS who wish to seek appraisal are advised to consult with their
legal counsel regarding whether appraisal rights would be available and how to
demand and perfect such appraisal rights, if available.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the DGCL and is qualified in its entirety by the full
text of Section 262 which is reprinted in its entirety as Appendix VII to this
Joint Proxy Statement/Prospectus. Except as set forth herein, stockholders of
MFS and the shareholders of WorldCom will not be entitled to appraisal rights in
connection with the Merger. See "Comparative Rights of Shareholders -- Appraisal
Rights of Dissenting Shareholders."
Under the DGCL, record holders of shares of MFS Series B Preferred Stock
who follow the procedures set forth in Section 262 and who have not voted in
favor of the Merger may, for the reasons outlined above, be entitled to have
their shares of MFS Series B Preferred Stock appraised by the Delaware Court of
Chancery and to receive payment of the "fair value" of such shares, exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, as determined by such court.
Under Section 262, where a merger agreement is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the MFS Special
Meeting, not less than 20 days prior to the meeting, MFS must notify each of the
holders of MFS Capital Stock to whom Section 262 is applicable at the close of
business on the MFS Record Date that such appraisal rights are available and
must include in each such notice a copy of Section 262. This Joint Proxy
Statement/Prospectus constitutes such notice. Any such stockholder who wishes to
exercise appraisal rights should review the following discussion and Appendix
VII carefully because failure to timely and properly comply with the procedures
specified in Section 262 will result in the loss of appraisal rights under the
DGCL.
A holder of record of shares of MFS Series B Preferred Stock wishing to
exercise appraisal rights must deliver to MFS, before the vote on the approval
and adoption of the Merger Agreement at the MFS Special Meeting, a written
demand for appraisal of such holder's shares of MFS Series B Preferred Stock. In
addition, a holder of shares of MFS Series B Preferred Stock wishing to exercise
appraisal rights must hold of record such shares on the date the written demand
for appraisal is made and must continue to hold such shares through the
Effective Time.
Only a holder of record of shares of MFS Series B Preferred Stock is
entitled to assert appraisal rights for the shares of MFS Series B Preferred
Stock registered in that holder's name. A demand for appraisal should be
executed by or on behalf of the holder of record fully and correctly, as the
holder's name appears on the stock certificates.
If the shares of MFS Series B Preferred Stock are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity, and if the shares of MFS Series B
Preferred Stock are owned of record by more than one person, as in a joint
tenancy or tenancy in common, the demand should be executed by or on behalf of
all joint owners. An authorized agent, including one or more joint owners, may
execute a demand for appraisal on behalf of a holder of record; however, the
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agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is agent for such owner or owners. A
record holder such as a broker who holds MFS Series B Preferred Stock as nominee
for several beneficial owners may exercise appraisal rights with respect to the
MFS Series B Preferred Stock held for one or more beneficial owners while not
exercising such rights with respect to the MFS Series B Preferred Stock held for
other beneficial owners; in such case, the written demand should set forth the
number of shares as to which appraisal is sought and where no number of shares
is expressly mentioned the demand will be presumed to cover all MFS Series B
Preferred Stock held in the name of the record owner. Holders of MFS Series B
Preferred Stock who hold their shares in brokerage accounts or other nominee
forms (for example through a central depository such as Cede & Co.) and who wish
to exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal by
such nominee. All written demands for appraisal of MFS Series B Preferred Stock
should be mailed or delivered to MFS Communications Company, Inc., 11808 Miracle
Hills Drive, Omaha, Nebraska 68154, Attn.: Corporate Secretary, so as to be
received before the vote on the approval and adoption of the Merger Agreement
and related transactions at the MFS Special Meeting.
Within 10 days after the Effective Time, the Surviving Corporation must
send a notice as to the effectiveness of the Merger to each person who has
satisfied the appropriate provisions of Section 262. Within 120 days after the
Effective Time, but not thereafter, the Surviving Corporation, or any holder of
shares of MFS Series B Preferred Stock who is entitled to appraisal rights under
Section 262 and who has complied with the foregoing procedures, may file a
petition in the Delaware Court of Chancery demanding a determination of the fair
value of such shares. The Surviving Corporation is not under any obligation, and
MFS has no present intention, to file a petition with respect to the appraisal
of the fair value of the shares of MFS Series B Preferred Stock. Accordingly, it
is the obligation of the stockholder to initiate all necessary action to perfect
its appraisal rights within the time prescribed in Section 262.
Within 120 days after the Effective Time, any holder of record of shares of
MFS Series B Preferred Stock who has complied with the requirements for exercise
of appraisal rights will be entitled, upon written request, to receive from the
Surviving Corporation a statement setting forth (i) the aggregate number of
shares of MFS Series B Preferred Stock not voted in favor of the Merger and with
respect to which demands for appraisal have been received and (ii) the aggregate
number of holders of such shares. Such statements must be mailed within 10 days
after a written request therefor has been received by the Surviving Corporation.
If a petition for an appraisal is timely filed, after a hearing on such
petition the Delaware Court of Chancery will determine the holders of shares of
MFS Series B Preferred Stock entitled to appraisal rights and will appraise the
"fair value" of the MFS Series B Preferred Stock exclusive of any element of
value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value. Holders considering seeking appraisal should be aware that
the fair value of their shares of MFS Series B Preferred Stock as determined
under Section 262 could be more than, the same as or less than the value of the
Merger Consideration that they would otherwise receive. The Delaware Supreme
Court has stated that "proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in the appraisal proceedings. More
specifically, the Delaware Supreme Court has stated that: "Fair value, in an
appraisal context, measures 'that which has been taken from [the shareholder],
viz., his proportionate interest in a going concern.' In the appraisal process
the corporation is valued 'as an entity,' not merely as a collection of assets
or by the sum of the market price of each share of its stock. Moreover, the
corporation must be viewed as an on-going enterprise, occupying a particular
market position in the light of future prospects." In addition, Delaware courts
have decided that the statutory appraisal remedy, depending on factual
circumstances, may or may not be a dissenter's exclusive remedy. The Court will
also determine the amount of interest, if any, to be paid upon the amounts to be
received by persons whose shares of MFS Series B Preferred Stock have been
appraised. The costs of the action may be determined by the Court and taxed upon
the parties as the Court deems equitable. The Court may also order that all or a
portion of the expenses incurred by any holder of record of shares of MFS Series
B Preferred Stock in connection with an appraisal, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts
utilized
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in the appraisal proceeding, be charged pro rata against the value of all of the
shares of MFS Series B Preferred Stock entitled to appraisal.
Any holder of record of shares of MFS Series B Preferred Stock who has duly
demanded an appraisal in compliance with Section 262 will not, after the
Effective Time, be entitled to vote the shares of MFS Series B Preferred Stock
subject to such demand for any purpose or be entitled to the payment of
dividends or other distributions on those shares (except dividends or other
distributions payable to holders of record of shares of MFS Series B Preferred
Stock as of a date prior to the Effective Time).
If any holder of record of shares of MFS Series B Preferred Stock who
demands appraisal of shares under Section 262 fails to perfect, or effectively
withdraws or loses, the right to appraisal, as provided in the DGCL, the shares
of MFS Series B Preferred Stock of such holder will be converted into Merger
Consideration in accordance with the Merger Agreement. A holder of shares of MFS
Series B Preferred Stock will fail to perfect, or effectively lose, the right to
appraisal if no petition for appraisal is filed within 120 days after the
Effective Time. A holder may withdraw a demand for appraisal by delivering to
the Surviving Corporation a written withdrawal of the demand for appraisal and
acceptance of the Merger, except that (i) any such attempt to withdraw made more
than 60 days after the Effective Time will require the written approval of the
Surviving Corporation and (ii) no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without approval of the Court of
Chancery, and such approval may be conditioned upon such terms as the Court of
Chancery deems just.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR
PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
The foregoing is a summary of certain of the provisions of Section 262 of
the DGCL and is qualified in its entirety by reference to the full text of such
section, a copy of which is attached hereto as Appendix VII.
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INFORMATION REGARDING WORLDCOM
The following briefly describes the business of WorldCom. Additional
information regarding WorldCom is contained in its filings with the Commission
pursuant to the Exchange Act. See "Available Information" and "Incorporation of
Documents by Reference."
BUSINESS OF WORLDCOM
WorldCom is one of the four largest long distance telecommunications
companies in the United States, based on 1995 revenues. WorldCom provides long
distance telecommunications services to business, consumer and other carrier
customers, through its network of fiber optic cables, digital microwave, and
fixed and transportable satellite earth stations, with service to points
throughout the nation and the world. The products and services provided by
WorldCom include: switched and dedicated long distance products, 800 services,
calling cards, domestic and international private lines, broadband data
services, debit cards, conference calling, advanced billing systems, enhanced
faxed and data connections, television and radio transmission and mobile
satellite communications. Based on FCC statistics as of December 31, 1995 (the
most recent statistics available), WorldCom's share of total toll service
revenues for 1995 was 4.3%.
WorldCom's emphasis on acquisitions has taken WorldCom from a small
regional long distance carrier to one of the largest long distance
telecommunications companies in the industry, serving customers domestically and
internationally. On January 5, 1995, WorldCom completed the WilTel Acquisition
for approximately $2.5 billion in cash. Through this purchase, WorldCom acquired
a nationwide common carrier network of approximately 11,000 miles of fiber optic
cable and digital microwave facilities.
On December 30, 1994, WorldCom, through a wholly owned subsidiary, merged
with IDB. IDB operates a domestic and international communications network
providing private line and public switched long distance telecommunications
services, facsimile and data connections, television and radio transmission
services, and mobile satellite communications capabilities. As a result of the
IDB Merger, each share of common stock of IDB was converted into the right to
receive 0.476879 shares of WorldCom Common Stock, resulting in the issuance of
approximately 71,762,000 shares of WorldCom Common Stock. In addition, WorldCom
assumed, on a subordinated basis, jointly and severally with IDB, the
obligations of IDB to pay the principal of and interest on $195.5 million 5%
convertible subordinated notes due 2003, issued by IDB. On July 15, 1996,
WorldCom announced that it had exercised its option to redeem on August 16, 1996
all of the outstanding IDB notes. Prior to such redemption date, a majority of
the holders of the notes elected to convert their notes to WorldCom Common
Stock, resulting in the issuance of approximately 10.3 million shares of
WorldCom Common Stock. The IDB Merger was accounted for as a
pooling-of-interests and, accordingly, the WorldCom financial statements for the
periods prior to the IDB Merger have been restated to include the results of IDB
for all periods presented.
WorldCom follows a four-point growth strategy, consisting of internal
growth, the selective acquisition of smaller long distance companies with
limited geographic service areas and market shares, the consolidation of certain
third tier long distance carriers with larger market shares, and international
expansion.
A predominant share of WorldCom's total revenues is derived from commercial
customers. Commercial customers typically use higher volumes of
telecommunications services than residential customers and concentrate usage on
weekdays during business hours, when rates are highest. Consequently, commercial
customers, on average, generate higher revenues per account than residential
customers. WorldCom has become a significant participant in the long distance
wholesale market and intends to pursue opportunities, if any, for continued
expansion in this area. While total revenues in the wholesale market are less
than from commercial customers, expenses are generally reduced in servicing
these customers as the result of fewer invoices, fewer customer service
personnel and a smaller sales force.
The enactment of the Telecom Act has made it possible for WorldCom to
participate in both the local and long distance markets. WorldCom has formed
business associations to provide long distance telecommunications services with
certain LECs, and WorldCom expects to pursue resale of local service in those
markets where it is both economically and technically feasible.
WorldCom's principal executive offices are located at 515 East Amite
Street, Jackson, Mississippi 39201-2702, and its telephone number is (601)
360-8600.
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DESCRIPTION OF WORLDCOM CAPITAL STOCK
The following summary does not purport to be complete and is subject in all
respects to the applicable provisions of the Georgia Business Corporation Code
(the "GBCC"), the WorldCom Articles, including the terms of the WorldCom
preferred stock to be issued in the Merger, copies of which are attached hereto
as Appendix VIII and Appendix IX for the WorldCom Series Series A Preferred
Stock and WorldCom Series B Preferred Stock, respectively, the Deposit Agreement
(referred to below), and the WorldCom Rights Agreement (referred to below).
Articles of Amendment to the WorldCom Articles will be filed with the Secretary
of State of the State of Georgia at or prior to the Effective Time to establish
the WorldCom Series A Preferred Stock and the WorldCom Series B Preferred Stock
as series of WorldCom preferred stock. The WorldCom Board of Directors also
intends to file with the Secretary of State of the State of Georgia, at or prior
to the Effective Time, an amendment to its Articles of Amendment previously
establishing the Series 3 Junior Participating Preferred Stock (as described in
"-- Preferred Stock Purchase Rights" below) in order to increase the number of
shares of such preferred stock issuable upon exercise of the WorldCom Rights
associated with the WorldCom Common Stock. The WorldCom Articles, the Deposit
Agreement and the WorldCom Rights Agreement are included in or incorporated by
reference as exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part.
The authorized capital stock of WorldCom consists of 750,000,000 shares of
common stock, par value $.01 per share, and 50,000,000 shares of preferred
stock, par value $.01 per share. Prior to consummation of the Merger, and
subject to receipt of approval of holders of record of MFS Capital Stock sought
herein, the WorldCom Articles will be amended to increase the number of
authorized shares of MFS Capital Stock to 2,500,000,000. See "Proposed Amendment
of the WorldCom Articles."
COMMON STOCK
All of the outstanding shares of WorldCom Common Stock are fully paid and
nonassessable. Subject to the prior rights of the holders of preferred stock
which may be issued and outstanding, the holders of Common Stock are entitled to
receive dividends as and when declared by the Board of Directors out of funds
legally available therefor, and, in the event of liquidation, dissolution or
winding up of WorldCom, to share ratably in all assets remaining after payment
of liabilities. Subject to the prior rights of the holders of preferred stock,
each holder of WorldCom Common Stock is entitled to one vote for each share held
of record on all matters presented to a vote of shareholders, including the
election of directors. Holders of WorldCom Common Stock have no cumulative
voting rights or preemptive rights to purchase or subscribe for any stock or
other securities and there are no conversion rights or redemption or sinking
fund provisions with respect to such stock. Additional shares of authorized
WorldCom Common Stock may be issued without shareholder approval.
The transfer agent and registrar for the WorldCom Common Stock is The Bank
of New York, 101 Barclay Street -- 12W, New York, NY 10286.
PREFERRED STOCK
Subject to the satisfaction of the terms and conditions set forth in the
Merger Agreement, the MFS Series A Preferred Stock and MFS Series B Preferred
Stock will be exchanged for the WorldCom Series A Preferred Stock and Worldcom
Series B Preferred Stock, respectively. Below is a discussion of the terms of
each series of WorldCom preferred stock. See "Comparative Rights of
Shareholders -- MFS Preferred Stock" for a comparison of the rights of the MFS
preferred stock and the corresponding WorldCom preferred stock.
The authorized but unissued preferred stock of WorldCom is available for
issuance from time to time at the discretion of the WorldCom Board of Directors
without shareholder approval. The WorldCom Board of Directors has the authority
to prescribe for each series of preferred stock it establishes the number,
designation, preferences, limitations and relative rights of the shares of such
series, subject to applicable law and the provisions of any outstanding series
of preferred stock. The terms of any series of preferred stock including, but
not limited to, dividend rate, redemption price, liquidation rights, sinking
fund provisions, conversion rights and voting rights, and any corresponding
effect on other shareholders, will be dependent
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largely on factors existing at the time of issuance. Such terms and effects
could include restrictions on dividends on the WorldCom Common Stock if
dividends on the preferred stock are in arrears, dilution of the voting power of
other shareholders to the extent a series of the preferred stock has voting
rights, and reduction of amounts available on liquidation as a result of any
liquidation preference granted to any series of preferred stock.
SERIES A PREFERRED STOCK
The following description of WorldCom Series A Preferred Stock represented
by the WorldCom Depositary Shares does not purport to be complete and is subject
to, and qualified in its entirety by, the provisions of the WorldCom Articles
and the Articles of Amendment creating the WorldCom Series A Preferred Stock
(the "Series A Articles of Amendment"), the relevant terms of which are attached
hereto as Appendix VIII. Based on the number of shares of MFS Series A Preferred
Stock outstanding as of the MFS Record Date, a total of 94,992 shares of the
WorldCom Series A Preferred Stock will be issued at the Effective Time along
with 9,499,200 WorldCom Depositary Shares. Each of the WorldCom Depositary
Shares will represent a one one-hundredth interest in a share of WorldCom Series
A Preferred Stock and entitles the owner to such proportion of all the rights,
preferences and privileges of the shares of WorldCom Series A Preferred Stock
represented thereby. See "-- WorldCom Depositary Shares" below.
Dividends
The holders of WorldCom Series A Preferred Stock are entitled to receive,
when, as and if dividends on the WorldCom Series A Preferred Stock are declared
by the Board of Directors out of funds legally available therefor, cumulative
preferential dividends from the issue date of the WorldCom Series A Preferred
Stock, accruing at the rate per share of $268.00 per annum or $67.00 per quarter
(equivalent to $2.68 per annum or $.67 per quarter for each WorldCom Depositary
Share), payable quarterly in arrears on each February 28, May 31, August 31 and
November 30 or, if any such date is not a business day, on the next succeeding
business day; provided, however, that with respect to any dividend period during
which a redemption occurs, WorldCom may, at its option, declare accrued
dividends to, and pay such dividends on, the date fixed for redemption, in which
case such dividends would be payable in shares of WorldCom Common Stock to the
holders of WorldCom Series A Preferred Stock as of the record date for such
dividend payment and would not be included in the calculation of the related
Call Price as set forth below. If the Merger is consummated prior to the record
date for the February 28, 1997 payment date, then the first dividend payment of
$67.00 will be for the period from the issue date of the WorldCom Series A
Preferred Stock to and including February 27, 1997 and will be payable on
February 28, 1997. Dividends (or amounts equal to accrued and unpaid dividends)
payable on the WorldCom Series A Preferred Stock for any period other than a
quarterly dividend period will be computed on the basis of a 360-day year of
twelve 30-day months. Dividends are payable in cash or in shares of WorldCom
Common Stock, at the election of the WorldCom Board of Directors. WorldCom
intends to pay dividends in shares of WorldCom Common Stock on each dividend
payment date to the extent that it is unable to pay dividends in cash. If the
dividends are paid in shares of WorldCom Common Stock, the number of shares of
WorldCom Common Stock to be issued on each dividend payment date will be
determined by dividing the total dividend to be paid on each WorldCom Depositary
Share by 90% of the average of the average of the high and low sales prices of
the WorldCom Common Stock as reported by the Nasdaq National Market or any
national securities exchange upon which the WorldCom Common Stock is then
listed, for each of the ten consecutive trading days immediately preceding the
fifth business day preceding the record date for such dividend (the "Average
Stock Price"). If the Average Stock Price is greater than 11.1% higher than the
market value for the WorldCom Common Stock on the dividend payment date and the
holder sells such shares of WorldCom Common Stock received in payment of the
dividend on the WorldCom Series A Preferred Stock at such lower price on such
date, then the holder's actual dividend yield would be lower than the stated
dividend yield on the WorldCom Series A Preferred Stock. In addition, the holder
is likely to incur commissions and other transaction costs in connection with
the sale of such WorldCom Common Stock.
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The following example is provided to illustrate the calculation of the
number of shares of WorldCom Common Stock a holder of WorldCom Depositary Shares
would receive if the WorldCom Board of Directors declares a dividend payable in
shares of WorldCom Common Stock: Assume that an investor owns 100 WorldCom
Depositary Shares (that is, one share of WorldCom Series A Preferred Stock) and
the Board of Directors declares a dividend of $268 per WorldCom Series A
Preferred Stock, payable in shares of WorldCom Common Stock. Assume also that
the Average Stock price is $40. In such event, the investor would be entitled to
receive 7.444 shares of WorldCom Common Stock ($268 divided by $36 (90% of
$40)). However, since fractional shares will not be issued, the investor will be
entitled to receive 7 shares of WorldCom Common Stock and cash in lieu of the
fractional share.
Dividends on the WorldCom Series A Preferred Stock will accrue, whether or
not WorldCom has earnings, whether or not there are funds legally available for
the payment of such dividends and whether or not such dividends are declared, on
a daily basis from the previous dividend payment date. Dividends accumulate to
the extent they are not paid on the dividend payment date for the quarter for
which they accrue ("Accumulated Unpaid Dividends"). Accumulated Unpaid Dividends
will not bear interest.
No dividend whatsoever shall be declared or paid upon, or any sum set apart
for the payment of dividends upon, any outstanding share of the WorldCom Series
A Preferred Stock or any shares of any other series of WorldCom preferred stock
of equal rank for any dividend period unless all dividends for all past dividend
periods have been declared and paid upon, or declared and a sufficient sum set
apart for the payment of such dividend upon, all outstanding shares of the
WorldCom Series A Preferred Stock and all outstanding shares of all other series
of WorldCom preferred stock of equal rank other than the WorldCom Series B
Preferred Stock. Unless full cumulative dividends on all outstanding shares of
the WorldCom Series A Preferred Stock and (to the extent that the amount thereof
shall have become determinable) any outstanding shares of any other series of
WorldCom preferred stock of equal rank due for all past dividend periods shall
have been declared and paid, or declared and a sufficient sum for the payment
thereof set apart, then, subject to the rights of holders of shares of
previously issued series of WorldCom preferred stock: (i) no dividend (other
than a dividend payable solely in shares of any class of stock ranking junior to
the WorldCom Series A Preferred Stock as to the payment of dividends or as to
rights in liquidation, dissolution, or winding up of the affairs of WorldCom
("Junior Stock")) shall be declared or paid upon, or any sum set apart for the
payment of dividends upon, any shares of Junior Stock; (ii) no other
distribution shall be made upon any shares of Junior Stock; (iii) no shares of
Junior Stock or any series of WorldCom preferred stock shall be purchased,
redeemed, or otherwise acquired for cash or other property (excluding Junior
Stock or the WorldCom Series B Preferred Stock) by WorldCom or any of its
subsidiaries; and (iv) no monies shall be paid into or set apart or made
available for a sinking or other like fund for the purchase, redemption or other
acquisition for value of any shares of Junior Stock by WorldCom or any of its
subsidiaries. The Series A Articles of Amendment do not restrict WorldCom's
ability to repurchase or redeem on and after the Initial Redemption Date (as
defined below) any shares of the WorldCom Series A Preferred Stock while there
is an arrearage in the payment of dividends. Holders of shares of WorldCom
Series A Preferred Stock shall not be entitled to any dividends, whether payable
in cash, property or stock, in excess of full cumulative dividends, as herein
described.
Mandatory Conversion of WorldCom Series A Preferred Stock
On May 31, 1999 ("the Mandatory Conversion Date"), each outstanding share
of WorldCom Series A Preferred Stock (and the related WorldCom Depositary
Shares) will convert automatically into shares of WorldCom Common Stock at the
Common Equivalent Rate (as defined below) in effect on such date and the right
to receive, out of funds legally available therefor, an amount equal to all
accrued and unpaid dividends on such WorldCom Series A Preferred Stock to the
Mandatory Conversion Date, whether or not declared (payable in cash or in shares
of WorldCom Common Stock on the same basis as that used to determine dividends),
subject to the right of WorldCom to redeem the WorldCom Series A Preferred Stock
on or after the Initial Redemption Date (as defined below) and prior to the
Mandatory Conversion Date, as described below, and subject to the conversion of
the WorldCom Series A Preferred Stock (and the related WorldCom Depositary
Shares) at the option of the holder at any time prior to the Mandatory
Conversion Date. Notwithstanding the foregoing, if the Mandatory Conversion Date
occurs after a record date for a quarterly
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dividend and before the corresponding payment date, such dividend shall be paid,
out of funds legally available therefor, on the payment date rather than on the
Mandatory Conversion Date. The "Common Equivalent Rate" is initially four
hundred twenty shares (420) of WorldCom Common Stock for each share of WorldCom
Series A Preferred Stock (equivalent to 4.2 shares of WorldCom Common Stock for
each WorldCom Depositary Share), subject to adjustment as described below.
Because the price of the WorldCom Common Stock is subject to market
fluctuations, the value of the WorldCom Common Stock received by a holder of
WorldCom Depositary Shares upon Mandatory Conversion may be more or less than
the value of the consideration exchanged for the WorldCom Depositary Shares.
Dividends will cease to accrue on the Mandatory Conversion Date in respect of
the WorldCom Series A Preferred Stock (and related WorldCom Depositary Shares)
then outstanding.
Right to Redeem WorldCom Series A Preferred Stock
The WorldCom Series A Preferred Stock (and the related WorldCom Depositary
Shares) are not redeemable by WorldCom prior to May 31, 1998 (the "Initial
Redemption Date"). At any time and from time to time on or after the Initial
Redemption Date and prior to the Mandatory Conversion Date, WorldCom may redeem
the outstanding shares of WorldCom Series A Preferred Stock (and thereby the
WorldCom Depositary Shares), in whole or in part. Upon any such redemption, the
holder of record of shares of WorldCom Series A Preferred Stock will receive, in
exchange for each WorldCom Series A Preferred Stock so called, a number of
shares of WorldCom Common Stock equal to the call price of the WorldCom Series A
Preferred Stock in effect on the date of redemption (the "Call Price") divided
by the Current Market Price of the WorldCom Common Stock determined as of the
date which is one trading day prior to the public announcement of the call for
redemption. The Call Price of each WorldCom Series A Preferred Stock is an
amount equal to the sum of (i) $3,417.00 ($34.170 per WorldCom Depositary Share)
on and after the Initial Redemption Date through August 30, 1998, $3,400.25
($34.003 per WorldCom Depositary Share) on and after August 31, 1998 through
November 29, 1998, $3,383.50 ($33.835 per WorldCom Depositary Share) on and
after November 30, 1998 through February 27, 1999, $3,366.75 ($33.668 per
WorldCom Depositary Share) on and after February 28, 1999 through April 29,
1999, and $3,350.00 ($33.500 per WorldCom Depositary Share) on and after April
30, 1999 until the Mandatory Conversion Date, plus (ii) all accrued and unpaid
dividends thereon to the date fixed for redemption. Notwithstanding the
foregoing, if the date fixed for redemption occurs after a record date for a
quarterly dividend and prior to the corresponding payment date, such dividend
shall be paid, out of funds legally available therefor, on the payment date, and
the Call Price shall not include the amount of the dividend to be so paid. A
public announcement of any call for redemption shall be made before the mailing
of the notice of such call to holders of the WorldCom Series A Preferred Stock
as described below. Dividends will cease to accrue on the WorldCom Series A
Preferred Stock on the date fixed for their redemption. If fewer than all of the
outstanding shares of the WorldCom Series A Preferred Stock are to be redeemed,
the shares to be redeemed will be selected by lot, pro-rata or in such other
manner as the WorldCom Board of Directors may determine to be fair and proper.
The term "Current Market Price" per share of the WorldCom Common Stock on
any date of determination means the lesser of (x) the average of the average of
the high and low sales prices of the WorldCom Common Stock as reported on the
Nasdaq National Market or any national securities exchange upon which the
WorldCom Common Stock is then listed, for each of the ten consecutive trading
days ending on and including such date of determination and (y) the closing sale
price of the WorldCom Common Stock as reported on the Nasdaq National market or
any national securities exchange upon which the WorldCom Common Stock is then
listed, for such date of determination; provided, however, that, with respect to
any redemption of the WorldCom Series A Preferred Stock, if any event that
results in an adjustment of the Common Equivalent Rate occurs during the period
beginning on the first day of such ten-day period and ending on the applicable
redemption date, the Current Market Price as determined pursuant to the
foregoing will be appropriately adjusted to reflect the occurrence of such
event.
The opportunity for equity appreciation afforded by an investment in the
WorldCom Series A Preferred Stock is less substantial than the opportunity for
equity appreciation afforded by an investment in the WorldCom Common Stock
because WorldCom may, at its option, call for redemption the WorldCom
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Series A Preferred Stock at any time on or after the Initial Redemption Date and
before the Mandatory Conversion Date, and may be expected to do so before the
Mandatory Conversion Date if the Current Market Price of the WorldCom Common
Stock exceeds the conversion price. In such event, holders of the WorldCom
Series A Preferred Stock will receive less than four hundred twenty (420) shares
of WorldCom Common Stock for each share of WorldCom Series A Preferred Stock
(equivalent to less than 4.2 shares of WorldCom Common Stock for each WorldCom
Depositary Share). Holders of WorldCom Series A Preferred Stock called for
redemption, however, will have the option to surrender WorldCom Series A
Preferred Stock for conversion at the conversion price up to the close of
business on the redemption date (and may be expected to do so if the Current
Market Price of the WorldCom Common Stock exceeds the conversion price). A
holder of WorldCom Series A Preferred Stock that elects to convert will receive
344.274 shares of WorldCom Common Stock for each WorldCom Series A Preferred
Stock (equivalent to 3.443 shares of WorldCom Common Stock for each WorldCom
Depositary Share). In no event will a holder of WorldCom Depositary Shares
receive less than 3.443 shares of WorldCom Common Stock (equivalent to a
conversion price of $9.73 per share of WorldCom Common Stock). Because the
number of shares of WorldCom Common Stock to be delivered in payment of the Call
Price will be determined on the basis of the Current Market Price, the value per
share of the shares of WorldCom Common Stock to be delivered may be more or less
than the Call Price on the date of delivery.
Conversion at Option of Holder
The WorldCom Series A Preferred Stock (and thereby the WorldCom Depositary
Shares) are convertible, in whole or in part, at the option of the holder
thereof, at any time prior to the Mandatory Conversion Date, unless previously
redeemed, into shares of WorldCom Common Stock at a rate of 344.274 shares of
WorldCom Common Stock for each WorldCom Series A Preferred Stock (equivalent to
3.443 shares of WorldCom Common Stock for each WorldCom Depositary Share and
equivalent to a conversion price of $9.73 per share of WorldCom Common Stock),
subject to adjustment as described below (the "Optional Conversion Rate"). The
right to convert WorldCom Series A Preferred Stock called for redemption will
terminate at the close of business on the redemption date.
Conversion of WorldCom Series A Preferred Stock (and thereby the related
WorldCom Depositary Shares) may be effected by delivering certificates
evidencing such WorldCom Series A Preferred Stock (or the Depositary Receipts
evidencing such WorldCom Depositary Shares), together with written notice of
conversion and a proper assignment of such certificates to WorldCom or in blank,
to the office or agency to be maintained by WorldCom for that purpose, and
otherwise in accordance with conversion procedures established by WorldCom. Each
conversion shall be deemed to have been effected immediately prior to the close
of business on the date on which the foregoing requirements shall have been
satisfied. The conversion shall be at the Optional Conversion Rate in effect at
such time and on such date.
Holders of WorldCom Series A Preferred Stock at the close of business on a
record date for any payment of dividends will be entitled to receive the
dividend payable on such WorldCom Series A Preferred Stock on the corresponding
dividend payment date notwithstanding the optional conversion of such WorldCom
Series A Preferred Stock following such record date and prior to such dividend
payment date. WorldCom will make no other payment or allowance for unpaid
dividends, whether or not in arrears, on converted WorldCom Series A Preferred
Stock or for dividends or distributions on the shares of WorldCom Common Stock
issued upon such conversion.
Conversion Adjustment
The Common Equivalent Rate and the Optional Conversion Rate are subject to
adjustment if WorldCom shall (i) pay a dividend or make a distribution with
respect to WorldCom Common Stock in shares of such stock, (ii) subdivide or
split its outstanding shares of WorldCom Common Stock into a greater number of
shares, (iii) combine its outstanding shares of WorldCom Common Stock into a
smaller number of shares, (iv) issue by reclassification of its shares of
WorldCom Common Stock any shares of common stock of WorldCom, (v) issue rights
or warrants to all holders of its WorldCom Common Stock entitling them (for a
period not exceeding 45 days from the date of such issuance) to subscribe for or
purchase shares of WorldCom
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Common Stock at a price per share less than the market price of the WorldCom
Common Stock or (vi) pay a dividend or make a distribution to all holders of the
WorldCom Common Stock of evidence of its indebtedness, securities of a
subsidiary, or other assets (excluding any dividends or distributions referred
to in clause (i) above or any cash dividends (other than Extraordinary Cash
Distributions, as defined below)) or issue to all holders of its WorldCom Common
Stock rights or warrants to subscribe for or purchase any of its securities
(other than those referred to in clause (v) above). WorldCom will also be
entitled to make upward adjustments in the Common Equivalent Rate, the Optional
Conversion Rate and the Call Price, as the WorldCom Board of Directors in its
good faith discretion shall determine to be advisable, so that any stock
dividends, subdivision of shares, distribution of rights to purchase stock or
securities, or distribution of securities convertible into or exchangeable for
stock (or any transaction which could be treated as any of the foregoing
transactions pursuant to Section 305 of the Code) hereafter made by WorldCom to
its shareholders will not be taxable. "Extraordinary Cash Distributions" means,
with respect to any cash dividend or distribution paid on any date, the amount,
if any, by which all cash dividends and cash distributions on the WorldCom
Common Stock paid during the consecutive 12-month period ending on and including
such date (other than cash dividends and cash distributions for which an
adjustment to the Common Equivalent Rate and the Optional Conversion Rate was
previously made) exceeds, on a per share of WorldCom Common Stock basis, 10
percent of the average daily closing sales price of the WorldCom Common Stock
over such 12-month period. All adjustments to the Common Equivalent Rate and the
Optional Conversion Rate will be calculated to the nearest 1/1000th of a share
of WorldCom Common Stock or if there is not a nearest 1/1000th of a share to the
next lower 1/1000th of a share. No adjustment in the Common Equivalent Rate and
the Optional Conversion Rate shall be required unless such adjustment would
require an increase or decrease of at least one percent therein; provided,
however, that any adjustments which by reason of the foregoing are not required
to be made shall be carried forward and taken into account in any subsequent
adjustment.
Adjustment for Consolidation or Merger
In case of any consolidation or merger to which WorldCom is a party (other
than a merger or consolidation in which WorldCom is the continuing corporation
and in which the WorldCom Common Stock outstanding immediately prior to the
merger or consolidation remains unchanged), or in case of any sale or transfer
to another corporation of the property of WorldCom as an entirety or
substantially as an entirety, or in case of any statutory exchange of securities
with another corporation (other than in connection with a merger or
acquisition), proper provision shall be made so that each share of WorldCom
Series A Preferred Stock shall, after consummation of such transaction, be
subject to (i) conversion at the option of the holder into the kind and amount
of securities, cash or other property receivable upon consummation of such
transaction by a holder of the number of shares of WorldCom Common Stock into
which such WorldCom Series A Preferred Stock might have been converted
immediately before consummation of such transaction, (ii) conversion on the
Mandatory Conversion Date into the kind and amount of securities, cash or other
property receivable upon consummation of such transaction by a holder of the
number of shares of WorldCom Common Stock into which such WorldCom Series A
Preferred Stock would have been converted if the conversion on the Mandatory
Conversion Date had occurred immediately prior to the date of consummation of
such transaction and (iii) redemption on any redemption date in exchange for the
kind and amount of securities, cash or other property receivable upon
consummation of such transaction by a holder of the number of shares of WorldCom
Common Stock that would have been issuable at the Call Price in effect on such
redemption date upon a redemption of such shares immediately prior to
consummation of such transaction, assuming that the public announcement of such
redemption had been made on the last possible date permitted by the terms of the
WorldCom Series A Preferred Stock and applicable law; assuming in each case that
such holder of WorldCom Series A Preferred Stock failed to exercise rights of
election, if any, as to the kind or amount of securities, cash or other property
receivable upon consummation of such transaction (provided that if the kind or
amount of securities, cash or other property receivable upon consummation of
such transaction is not the same for each non-electing share, then the kind and
amount of securities, cash or other property receivable upon consummation of
such transaction for each non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the non-electing shares). The
kind and amount of securities into which the WorldCom Series A Preferred Stock
shall be convertible after the consummation of such
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transaction shall be subject to adjustment as described in the immediately
preceding paragraph following the date of consummation of such transaction.
WorldCom shall not, without the affirmative vote of more than the holders of
two-thirds of all the outstanding shares of the WorldCom Series A Preferred
Stock, become a party to any such transaction unless the terms thereof are
consistent with the foregoing.
Fractional Shares
No fractional shares of WorldCom Common Stock will be issued upon
redemption or conversion of the WorldCom Series A Preferred Stock or in respect
of any dividend paid in shares of WorldCom Common Stock. In lieu of any
fractional share otherwise issuable in respect of all shares of WorldCom Series
A Preferred Stock of any holder which are redeemed or converted on any
redemption date or upon Mandatory Conversion or any optional conversion or in
respect of any stock dividend, WorldCom will, in its discretion, either (i)
aggregate such fractional shares and will sell such shares in the public market
to provide funds to be distributed to the holders of WorldCom Series A Preferred
Stock that would otherwise receive fractional shares, net of any discounts,
commissions, fees or expenses associated with such sale, or (ii) pay to the
holders of WorldCom Series A Preferred Stock that would otherwise receive
fractional shares an amount in cash equal to the current value of such fraction,
calculated to the nearest one-hundredth ( 1/100th) of a share.
Notice to Holders of WorldCom Series A Preferred Stock
WorldCom will provide notice of any call for redemption of the WorldCom
Series A Preferred Stock to holders of record of the WorldCom Series A Preferred
Stock (and thereby the WorldCom Depositary Shares) to be called for redemption
not less than 15 nor more than 60 days before the date fixed for redemption.
Such notice shall be provided by mailing notice of such redemption to the
holders of record of the WorldCom Series A Preferred Stock to be called for
redemption. Each holder of WorldCom Series A Preferred Stock to be called for
redemption shall surrender the certificate evidencing such WorldCom Series A
Preferred Stock to WorldCom at the place designated in such notice and shall be
entitled to receive certificates for shares of WorldCom Common Stock following
such surrender and the date of such redemption.
In the event that (1) WorldCom declares a dividend (or any other
distribution) on the WorldCom Common Stock, excluding cash dividends, (2)
WorldCom authorizes the issuance to all holders of WorldCom Common Stock of
rights or warrants to subscribe for or purchase shares of WorldCom Common Stock
or of any other subscription rights or warrants, (3) WorldCom authorizes any
reclassification of WorldCom Common Stock (other than a subdivision or
combination thereof) or of any consolidation or merger to which WorldCom is a
party and for which approval of any WorldCom shareholders is required (subject
to certain exceptions), or of the sale or transfer of all or substantially all
of the assets of WorldCom, or (4) a voluntary or involuntary dissolution,
liquidation or winding up of WorldCom is commenced, then in accordance with such
event WorldCom shall give to the holders of shares of WorldCom Series A
Preferred Stock, at least ten days notice of:
(i) the date on which a record is to be taken for the purpose of such
dividend, distribution, rights or warrants, or if a record is not to be
taken, the date as of which the holders of WorldCom Common Stock of record
to be entitled to such dividend, distribution, rights or warrants are to be
determined; or
(ii) the date on which any such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that holders
of WorldCom Common Stock of record shall be entitled to exchange their
WorldCom Common Stock for securities or other property (including cash), if
any, deliverable upon such reclassifications, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up.
For a description of notices to holders of WorldCom Depositary Shares, see
"-- WorldCom Depositary Shares -- Record Date" below.
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Liquidation Rights
In the event of the liquidation, dissolution, or winding up of the business
of WorldCom, whether voluntary or involuntary, the holders of WorldCom Series A
Preferred Stock, after payment or provision for payment of the debts and other
liabilities of WorldCom and the payment or provision for payment of any
distribution on any shares of WorldCom's capital stock having a preference and
priority over the WorldCom Series A Preferred Stock on liquidation, and before
any distribution to the holders of the WorldCom Common Stock, or any other stock
ranking junior to the WorldCom Series A Preferred Stock with respect to
distributions upon liquidation, dissolution or winding up, will be entitled to
receive for each share of WorldCom Series A Preferred Stock an amount equal to
the greater of (i) the sum of (a) $3,350 and (b) all accrued and unpaid
dividends thereon to the date of liquidation, dissolution or winding up and (ii)
the value of the shares of WorldCom Common Stock into which such shares of
WorldCom Series A Preferred Stock are convertible on the date of such
liquidation, dissolution or winding up. If the assets of WorldCom available for
distribution to the holders of the WorldCom Series A Preferred Stock upon a
dissolution, liquidation or winding up of WorldCom shall be insufficient to pay
in full the liquidation payments payable to the holders of outstanding WorldCom
Series A Preferred Stock and any shares of WorldCom capital stock ranking on a
parity with the WorldCom Series A Preferred Stock upon liquidation, then the
holders of all such WorldCom Series A Preferred Stock and such shares shall
share ratably in such distribution of assets in accordance with the amount which
would be payable on such distribution if the amounts to which the holders of
outstanding shares of WorldCom Series A Preferred Stock and the holders of
outstanding shares of WorldCom preferred stock ranking on a parity with the
WorldCom Series A Preferred Stock upon liquidation are entitled were paid in
full.
Voting Rights
Each share of WorldCom Series A Preferred Stock is entitled to ten votes
per share (equivalent to 0.1 of a vote for each WorldCom Depositary Share) with
respect to all matters. The holders of the WorldCom Series A Preferred Stock and
the holders of WorldCom Common Stock will vote together as a single class,
unless otherwise provided by law or the WorldCom Articles. The approval of more
than two-thirds of the votes entitled to be cast by the holders of issued and
outstanding shares of WorldCom Series A Preferred Stock is required for any
amendment to the WorldCom Articles that materially adversely changes the rights,
preferences or privileges of the WorldCom Series A Preferred Stock. The holders
of the outstanding shares of WorldCom Series A Preferred Stock shall also have
the right, voting together with the holders of any other outstanding shares of
Voting Preferred Stock (as hereinafter defined) as a separate voting group, to
elect two members of the WorldCom Board of Directors at any time six or more
quarterly dividends on any shares of Voting Preferred Stock shall be in arrears
and unpaid, in whole or in part, whether or not declared and whether or not any
funds shall be or have been legally available for payment thereof. For this
purpose, "Voting Preferred Stock" shall mean the shares of WorldCom Series A
Preferred Stock and each other series of WorldCom preferred stock which shall
have substantially similar voting rights (including voting as one voting group
with other shares of Voting Preferred Stock) with respect to the election of
directors upon substantially similar arrearages of dividends. In such event, the
number of directors of WorldCom shall be increased by two, and, unless a regular
meeting of the shareholders of WorldCom is to be held within 60 days thereof for
the purpose of electing directors, within 30 days thereafter, WorldCom shall
call a special meeting of the holders of the outstanding shares of Voting
Preferred Stock for the purpose of electing such directors to take place at the
time specified in the notice of the meeting, to be not more than 60 days after
such holders become so entitled to elect two directors and not less than 10 days
nor more than 50 days after the date on which such notice is mailed. If such
special meeting shall not have been so called by WorldCom, or such regular
meeting shall not be so held, a special meeting may be called for such purpose
at the expense of WorldCom by the holders of not less than 10% of the
outstanding shares of any series of Voting Preferred Stock; and notice of any
such special meeting shall be given by the person or persons calling the same to
the holders of the outstanding shares of the Voting Preferred Stock. At any such
special meeting the holders of the outstanding shares of Voting Preferred Stock
(voting separately as a class with each share having one vote) shall elect two
members of the WorldCom Board of Directors. If a regular meeting of the
shareholders of WorldCom for the purpose of electing directors is to be held
within 60 days after the time the holders of the outstanding shares of
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Voting Preferred Stock become so entitled to elect two directors, then at such
regular meeting, the holders of the outstanding shares of Voting Preferred Stock
(voting separately as a class with each share having one vote) shall elect two
members of the Board of Directors. The right of the holders of the Voting
Preferred Stock (voting separately as a class) to elect two members of the
WorldCom Board of Directors shall continue until such time as no dividends on
any outstanding shares of Voting Preferred Stock are in arrears and unpaid, in
whole or in part, at which time (i) the voting power of the holders of the
outstanding shares of Voting Preferred Stock so to elect two directors shall
cease, but always subject to the vesting of such voting power upon the
occurrence of each and every like arrearage of dividends, and (ii) the term of
office of each member of the Board of Directors who was elected pursuant to this
provision shall automatically expire.
Reissuance
Shares of WorldCom Series A Preferred Stock redeemed for or converted into
WorldCom Common Stock or otherwise acquired by WorldCom will assume the status
of authorized but unissued WorldCom preferred stock undesignated as to series
and may thereafter be redesignated or reissued in the same manner as other
authorized but unissued WorldCom preferred stock.
Listing
WorldCom intends to apply to include the WorldCom Depositary Shares on the
Nasdaq National Market under the symbol "WCOMP" (provided there are a sufficient
number of holders and available market makers to meet applicable requirements).
Registrar and Transfer Agent
The Bank of New York will serve as registrar and transfer agent for the
WorldCom Series A Preferred Stock (and the WorldCom Depositary Shares).
SERIES B PREFERRED STOCK
The following description of WorldCom Series B Preferred Stock does not
purport to be complete and is subject to, and qualified in its entirety by, the
provisions of the WorldCom Articles and the Articles of Amendment creating the
WorldCom Series B Preferred Stock (the "Series B Articles of Amendment"), the
relevant terms of which are attached hereto as Appendix IX. Based on the number
of shares of MFS Series B Preferred Stock outstanding as of the MFS Record Date,
a total of 13,680,011 shares of the WorldCom Series B Preferred Stock will be
issued at the Effective Time.
Dividends
The holders of WorldCom Series B Preferred Stock are entitled to receive,
when and as declared, out of funds legally available therefor, dividends from
the issue date of the WorldCom Series B Preferred Stock, accruing at the rate
per share of $.0775 per annum, payable when and as the WorldCom Board of
Directors may determine in cash, before any dividends shall be set apart for or
paid upon the WorldCom Common Stock or any other stock ranking as to dividends
junior to the WorldCom Series B Preferred Stock in any year. All dividends
declared upon WorldCom Series B Preferred Stock will be pro rata per share and
will be payable to holders of record as they appear on the stock books of
WorldCom on such record dates as shall be fixed by the WorldCom Board of
Directors. Notwithstanding the foregoing, WorldCom may declare, set apart and
pay dividends on shares of the WorldCom Series A Preferred Stock whether or not
dividends have been declared, set apart or paid on the shares of WorldCom Series
B Preferred Stock. The WorldCom Board of Directors is not required to declare
any dividends on the WorldCom Series B Preferred Stock, and the failure to
declare any such dividends will not constitute a default or otherwise vest the
holders of shares of WorldCom Series B Preferred Stock with any right, other
than the right to receive amounts in respect of accrued but unpaid dividends.
Dividends (or amounts equal to accrued and unpaid dividends) payable on the
WorldCom Series B Preferred Stock will be computed on the basis of a 360-day
year of twelve 30-day months. Dividends are only
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payable in cash, except for payment of accrued but unpaid dividends upon
conversion, redemption or liquidation of the WorldCom Series B Preferred Stock,
as the case may be, as described below.
Dividends on the WorldCom Series B Preferred Stock are cumulative and will
accrue on a daily basis whether or not WorldCom has net profits or surplus
available for the payment of dividends in such fiscal year. Dividends accumulate
as against the holders of any stock ranking junior as to dividends to the
WorldCom Series B Preferred Stock to the extent they are not paid in any fiscal
year or years for which they accrue. Accrued but unpaid dividends will not bear
interest.
WorldCom is not permitted to set apart for or pay upon the WorldCom Common
Stock any Extraordinary Cash Dividend (as defined below) unless, at the same
time, WorldCom shall have set apart for or paid upon all shares of WorldCom
Series B Preferred Stock an amount of cash per share of WorldCom Series B
Preferred Stock equal to the Extraordinary Cash Dividend that would have been
paid in respect of such share if the holder of such share of WorldCom Series B
Preferred Stock had converted such share into shares of WorldCom Common Stock
immediately prior to the record date for such Extraordinary Cash Dividend. The
term "Extraordinary Cash Dividend" means, with respect to any cash dividend or
distribution paid on any date, the amount, if any, by which all cash dividends
and cash distributions on the WorldCom Common Stock paid during the consecutive
12-month period ending on and including such date exceeds, on a per share of
WorldCom Common Stock basis, 10% of the average daily closing price of the
WorldCom Common Stock over such 12-month period.
Conversion at Option of Holder
The shares of WorldCom Series B Preferred Stock are convertible, in whole
or in part, at the option of the holder thereof, at any time, unless previously
redeemed, into shares of WorldCom Common Stock at a rate of 0.0973912 shares of
WorldCom Common Stock for each share of WorldCom Series B Preferred Stock
(equivalent to an initial conversion price of $10.268 per share of WorldCom
Common Stock), subject to adjustment as described below (the "Series B
Conversion Rate"). Shares of WorldCom Series B Preferred Stock may not be
converted after the close of business on the business day preceding the date
fixed for redemption of such shares.
No fractional shares of WorldCom Common Stock will be issued upon
conversion of WorldCom Series B Preferred Stock or scrip in lieu thereof. If any
fraction of a share of WorldCom Common Stock would be issuable upon conversion
of any WorldCom Series B Preferred Stock, WorldCom will, at its election, either
(i) sell such fractional share and distribute the proceeds of such sale to the
person entitled to same, net of any discounts, commissions, fees or expenses
associated with such sale or (ii) pay to the person entitled thereto an amount
in cash equal to the current value of such fraction, calculated to the nearest
one-hundredth ( 1/100th) of a share.
Conversion of WorldCom Series B Preferred Stock may be effected by
surrendering certificates evidencing such WorldCom Series B Preferred Stock,
together with written notice of conversion and a proper assignment of such
certificates to WorldCom in form satisfactory to WorldCom, to the principal
office of the transfer agent for the WorldCom Series B Preferred Stock and
otherwise in accordance with conversion procedures established by WorldCom. Each
conversion shall be deemed to have been effected on the date on which the
foregoing requirements shall have been satisfied (the "Conversion Date"). The
conversion shall be at the Series B Conversion Rate in effect at such time and
on such date. As soon as practicable after receipt of such notice and the
surrender of the certificate or certificates representing shares of the WorldCom
Series B Preferred Stock as aforesaid, WorldCom will issue and deliver to such
holder a certificate or certificates for the number of full shares of WorldCom
Common Stock issuable on such conversion and cash in lieu of any fractional
shares of WorldCom Common Stock otherwise issuable upon such conversion.
Upon any such conversion, WorldCom shall pay, out of funds legally
available therefor, to the person entitled thereto an amount equal to all
accrued but unpaid dividends to, but not including, the Conversion Date in
respect of the shares of WorldCom Series B Preferred Stock surrendered for
conversion, which amount shall be payable, at the election of WorldCom, in cash
or shares of WorldCom Common Stock. In the event WorldCom elects to pay such
amount in shares of WorldCom Common Stock, the number of shares of
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WorldCom Common Stock to be issued in respect of unpaid dividends on each share
of WorldCom Series B Preferred Stock surrendered for conversion will be
determined by dividing (x) the total amount of accrued but unpaid dividends to
be paid on each such share of WorldCom Series B Preferred Stock by (y) the Fair
Market Value of a share of WorldCom Common Stock. The term "Fair Market Value"
means (i) if the WorldCom Common Stock is listed on any national securities
exchange or the Nasdaq National Market, the average of the last sales price (or
the quoted closing bid price if there shall have been no sales) of the WorldCom
Common Stock on such exchange or the Nasdaq National Market (as the case may be)
for a period of 30 trading days prior to the Conversion Date, or (ii) if the
WorldCom Common Stock is not so listed, on the basis of the average of the mean
between the closing bid and asked prices for the WorldCom Common Stock for each
day in the 30 trading day period prior to the Conversion Date, as reported by
Nasdaq, or its successor, or (iii) if the WorldCom Common Stock is not so listed
and if there are no such closing bid and asked prices, on the basis of the fair
market value per share as determined by the WorldCom Board of Directors.
Conversion Adjustment
In case WorldCom shall at any time (x) subdivide (whether by stock
dividend, stock split or otherwise) its outstanding shares of WorldCom Common
Stock into a greater number of shares or (y) combine its outstanding shares of
WorldCom Common Stock into a smaller number of shares, the Series B Conversion
Rate in effect immediately prior thereto will be proportionately adjusted so
that the holder of any shares of WorldCom Series B Preferred Stock thereafter
surrendered for conversion will be entitled to receive the number of shares of
WorldCom capital stock which the holder would have owned or have been entitled
to receive after the happening of any of the events described above had such
shares of WorldCom Series B Preferred Stock been converted immediately prior to
the happening of such event.
Adjustment for Consolidation or Merger
In case any capital reorganization or reclassification of the capital stock
of WorldCom, or consolidation or merger of WorldCom with another company, or the
sale of all or substantially all of its assets to another company shall be
effected in such a way that holders of WorldCom Common Stock are entitled to
receive stock, securities, cash or other property with respect to or in exchange
for WorldCom Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
will be made whereby the holders of the WorldCom Series B Preferred Stock shall
have the right to acquire and receive upon conversion of the WorldCom Series B
Preferred Stock, which right shall be prior to the rights of the holders of
stock ranking junior to the WorldCom Series B Preferred Stock (but after and
subject to the rights of holders of preferred stock, if any, ranking senior to
the WorldCom Series B Preferred Stock and on parity with the rights of holders
of WorldCom Series A Preferred Stock), such shares of stock, securities, cash or
other property issuable or payable (as part of the reorganization,
reclassification, consolidation, merger or sale) with respect to or in exchange
for such number of outstanding shares of WorldCom Common Stock as would have
been received upon conversion of the WorldCom Series B Preferred Stock at the
Series B Conversion Rate then in effect. WorldCom will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor company (if other than WorldCom) resulting from such consolidation or
merger or the company purchasing such assets assumes, by written instrument, the
obligation to deliver to each holder of shares of WorldCom Series B Preferred
Stock such shares of stock, securities, cash or other property as such holder
may be entitled to purchase.
Right to Redeem WorldCom Series B Preferred Stock
The WorldCom Series B Preferred Stock is not redeemable by WorldCom prior
to September 30, 2001. Thereafter, WorldCom has the right, at its sole option
and election, out of funds legally available therefor, to redeem the shares of
WorldCom Series B Preferred Stock, in whole or in part, at any time and from
time to time at a redemption price of $1.00 per share plus an amount equal to
all accrued and unpaid dividends thereon (the "Redemption Price"), whether or
not declared, to the redemption date; provided, that any amount due in respect
of all or any portion of the Redemption Price, including accrued dividends, may
be paid
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in cash or shares of WorldCom Common Stock as determined by the WorldCom Board
of Directors. In the event the WorldCom Board of Directors elects to pay any
portion of the Redemption Price in shares of WorldCom Common Stock, the number
of shares of WorldCom Common Stock to be issued will be determined in the same
manner as provided for in the event of an optional conversion as described
above. If less than all of the outstanding shares of WorldCom Series B Preferred
Stock are to be redeemed, the shares to be redeemed will be selected by lot,
pro-rata or in such other manner as the WorldCom Board of Directors may
determine to be fair and proper. In order to facilitate the redemption of the
WorldCom Series B Preferred Stock, the WorldCom Board of Directors may fix a
record date for the determination of holders of WorldCom Series B Preferred
Stock to be redeemed, or may cause the transfer books of WorldCom to be closed
for the transfer of the WorldCom Series B Preferred Stock, not more than 60 days
prior to the date fixed for such redemption.
Liquidation Rights
In the event of the liquidation, dissolution, or winding up of the business
of WorldCom, whether voluntary or involuntary, the holders of WorldCom Series B
Preferred Stock, after payment or provision for payment of the debts and other
liabilities of WorldCom and the payment or provision for payment of any
distribution on any shares of WorldCom's capital stock having a preference and
priority over the WorldCom Series B Preferred Stock on liquidation, and before
any distribution to the holders of the WorldCom Common Stock, or any other stock
ranking junior to the WorldCom Series B Preferred Stock with respect to
distributions upon liquidation, dissolution or winding up, will be entitled to
receive for each share of WorldCom Series B Preferred Stock an amount equal to
the sum of $1.00 plus all accrued and unpaid dividends thereon to the date of
liquidation, dissolution or winding up. If the assets of WorldCom available for
distribution to the holders of the WorldCom Series B Preferred Stock upon a
dissolution, liquidation or winding up of WorldCom shall be insufficient to pay
in full the liquidation payments payable to the holders of outstanding WorldCom
Series B Preferred Stock and any shares of WorldCom capital stock ranking on a
parity with the WorldCom Series B Preferred Stock upon liquidation, then the
holders of all such WorldCom Series B Preferred Stock and such shares of
WorldCom capital stock ranking on a parity with the WorldCom Series B Preferred
Stock shall share ratably in such distribution of assets in accordance with the
amount which would be payable on such distribution if the amounts to which the
holders of outstanding shares of WorldCom Series B Preferred Stock and the
holders of outstanding shares of WorldCom preferred stock ranking on a parity
with the WorldCom Series B Preferred Stock upon liquidation are entitled were
paid in full. The WorldCom Series A Preferred Stock ranks on a parity with the
WorldCom Series B Preferred Stock upon liquidation.
Notice to Holders of WorldCom Series B Preferred Stock
WorldCom will provide notice of any call for redemption of the WorldCom
Series B Preferred Stock (including notice of whether such redemption shall be
paid in cash or shares of WorldCom Common Stock) to holders of record of the
WorldCom Series B Preferred Stock to be called for redemption not less than 30
nor more than 60 days before the date fixed for redemption.
In the event that (1) WorldCom declares any dividend upon its WorldCom
Common Stock payable in stock or makes any special dividend or other
distribution to the holders of WorldCom Common Stock; (2) there is any capital
reorganization or reclassification of the WorldCom capital stock, including any
subdivision or combination of its outstanding shares of WorldCom Common Stock,
or consolidation or merger of WorldCom with, or sale of all or substantially all
of its assets to, another company; or (3) there is a voluntary or involuntary
dissolution, liquidation or winding up of WorldCom, then, in accordance with
such event, WorldCom shall give to the holders of shares of WorldCom Series B
Preferred Stock:
(i) at least twenty (20) days prior written notice of the date on
which the books of WorldCom shall close or a record shall be taken for such
dividend or distribution or for determining rights to vote in respect of
any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up; and
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(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least twenty (20) days prior written notice of the date when the same shall
take place.
A notice in accordance with the foregoing clause (i) shall also specify, in
the case of any such dividend or distribution, the date on which the holders of
WorldCom Common Stock shall be entitled thereto, and a notice in accordance with
the foregoing clause (ii) shall also specify the date on which the holders of
WorldCom Common Stock shall be entitled to exchange their WorldCom Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Each such written notice will be sent by mail,
first class, postage prepaid, addressed to the holders of the WorldCom Series B
Preferred Stock at the address of each such holder as shown on the books of
WorldCom.
Notice of any redemption of the WorldCom Series B Preferred Stock
(including notice of whether such redemption will be paid in cash or shares of
WorldCom Common Stock) will be mailed at least 30 days, but not more than 60
days prior to the date fixed for redemption to each holder of WorldCom Series B
Preferred Stock to be redeemed, at such holder's address as it appears on the
books of WorldCom.
Voting Rights
Each share of WorldCom Series B Preferred Stock is entitled to one vote per
share with respect to all matters. The holders of the WorldCom Series B
Preferred Stock and the holders of WorldCom Common Stock (and WorldCom Series A
Preferred Stock) will vote together as a single class, unless otherwise provided
by law or the WorldCom Articles. The approval of at least a majority of the
votes entitled to be cast by the holders of issued and outstanding shares of
WorldCom Series B Preferred Stock is required to adversely change the rights,
preferences or privileges of the WorldCom Series B Preferred Stock. For this
purpose, the authorization or issuance of any series of preferred stock with
preference or priority over, or being on a parity with the WorldCom Series B
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of WorldCom shall not
be deemed to affect adversely the WorldCom Series B Preferred Stock. In case
WorldCom shall at any time prior to March 23, 1999 subdivide (whether by stock
dividend, stock split or otherwise) its outstanding shares of WorldCom Common
Stock into a greater number of shares (each a "Subdivision"), the voting rights
of each share of WorldCom Series B Preferred Stock will be adjusted to provide
that the percentage of the aggregate voting power of the WorldCom Common Stock
represented by the WorldCom Series B Preferred Stock, shall be the same as such
percentage immediately prior to such Subdivision, with the holder of each share
of WorldCom Series B Preferred Stock being entitled to the number of votes
proportionate to such adjustment. Such adjustments made pursuant to a
Subdivision will become effective immediately after the effective date of the
Subdivision.
Reissuance
Shares of WorldCom Series B Preferred Stock redeemed for or converted into
WorldCom Common Stock or otherwise acquired by WorldCom will be retired and
cancelled and will not be reissued, and WorldCom may from time to time take such
appropriate action as may be necessary to reduce the authorized WorldCom Series
B Preferred Stock accordingly.
No Listing
WorldCom does not intend to apply to list the WorldCom Series B Preferred
Stock on the Nasdaq National Market or any other established securities market.
Registrar and Transfer Agent
The Bank of New York will serve as registrar and transfer agent for the
WorldCom Series B Preferred Stock.
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DEPOSITARY SHARES
Pursuant to the Merger, each MFS Depositary Share will be exchanged for one
WorldCom Depositary Share, resulting in a total of 9,499,200 WorldCom Depositary
Shares outstanding as of the Effective Time, based on the number of MFS
Depositary Shares outstanding as of the MFS Record Date. Each WorldCom
Depositary Share will represent a one-hundredth interest in a share of WorldCom
Series A Preferred Stock deposited under the Deposit Agreement ("Deposit
Agreement"), to be entered into among WorldCom, The Bank of New York, as
Depositary ("Depositary"), and the holders from time to time of Depositary
Receipts issued thereunder. Subject to the terms of the Deposit Agreement, each
owner of a WorldCom Depositary Share is entitled proportionately to all of the
rights and preferences of the shares of WorldCom Series A Preferred Stock
represented thereby (including dividend, voting, redemption and liquidation
rights) contained in the WorldCom Articles and summarized above under
"Description of WorldCom Capital Stock -- Preferred Stock -- Series A Preferred
Stock." WorldCom does not expect that there will be any public trading market
for the WorldCom Series A Preferred Stock except as represented by the WorldCom
Depositary Shares.
The WorldCom Depositary Shares will be evidenced by depositary receipts
issued pursuant to the Deposit Agreement ("Depositary Receipts"). The following
description of WorldCom Depositary Shares does not purport to be complete and is
subject to, and qualified in its entirety by, the provisions of the Deposit
Agreement (which contains the form of Depositary Receipt), a copy of which has
been filed as an exhibit to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part.
Issuance of Depositary Receipts. Immediately following the issuance of the
WorldCom Series A Preferred Stock, WorldCom will deposit the WorldCom Series A
Preferred Stock with the Depositary. Each holder of MFS Depositary Shares upon
surrender, to the Exchange Agent, of a depositary receipt or receipts
representing such shares together with the transmittal letter provided by the
Exchange Agent duly completed and executed by such holder, will then be issued
Depositary Receipts representing the number of WorldCom Depositary Shares to
which such holder is entitled. See "Plan of Merger -- Surrender of Stock
Certificates and Receipt of Merger Consideration." Depositary Receipts will be
issued evidencing only whole WorldCom Depositary Shares.
Withdrawal of WorldCom Series A Preferred Stock. Upon surrender of the
WorldCom Depositary Receipts at the Corporate Trust Office of the Depositary,
the owner of the WorldCom Depositary Shares evidenced thereby is entitled to
delivery at such office the number of whole shares of WorldCom Series A
Preferred Stock represented by such WorldCom Depositary Shares. Owners of
WorldCom Depositary Shares will be entitled to receive only whole shares of
WorldCom Series A Preferred Stock on the basis of one share of WorldCom Series A
Preferred Stock for one hundred WorldCom Depositary Shares. In no event will
fractional shares of WorldCom Series A Preferred Stock (or cash in lieu thereof)
be distributed by the Depositary. If the Depositary Receipts delivered by the
holder evidence a number of WorldCom Depositary Shares in excess of the number
of WorldCom Depositary Shares representing the number of whole shares of
WorldCom Series A Preferred Stock to be withdrawn, the Depositary will deliver
to such holder at the same time a new Depositary Receipt evidencing such excess
number of WorldCom Depositary Shares.
The WorldCom Series A Preferred Stock will not be qualified for inclusion
in the Nasdaq National Market or in any other exchange or organized trading
market. Accordingly, there may be significant disadvantages to holding WorldCom
Series A Preferred Stock rather than the WorldCom Depositary Shares.
Mandatory Conversion, or Call. As described under "Description of WorldCom
Capital Stock -- Preferred Stock -- Series A Preferred Stock," the WorldCom
Series A Preferred Stock is subject to mandatory conversion into shares of
WorldCom Common Stock on the Mandatory Conversion Date, and to the right of
WorldCom to call the WorldCom Series A Preferred Stock at WorldCom's option, for
redemption on or after the Initial Redemption Date and before the Mandatory
Conversion Date. The WorldCom Depositary Shares are subject to mandatory
conversion or call upon substantially the same terms and conditions (including
as to notice to the owners of WorldCom Depositary Shares) as the WorldCom Series
A Preferred Stock, except that the number of shares of Common Stock received
upon mandatory conversion or redemption of each WorldCom Depositary Share will
be equal to the number of shares of WorldCom
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Common Stock received upon mandatory conversion or redemption of each share of
WorldCom Series A Preferred Stock divided by one hundred.
If fewer than all of the WorldCom Depositary Shares are to be redeemed, the
WorldCom Depositary Shares to be redeemed will be selected by lot or pro rata or
by any other equitable method determined by the Depositary to be consistent with
the method determined by the WorldCom Board of Directors with respect to the
WorldCom Series A Preferred Stock. If fewer than all of the WorldCom Depositary
Shares evidenced by a Depositary Receipt are called for redemption, the
Depositary will deliver to the holder of such Depositary Receipt upon its
surrender to the Depositary, together with the redemption consideration, a new
Depositary Receipt evidencing the WorldCom Depositary Shares evidenced by such
prior Depositary Receipt and not called for redemption.
Conversion at the Option of Holder. As described under "Description of
WorldCom Capital Stock -- Preferred Stock -- Series A Preferred Stock," the
WorldCom Series A Preferred Stock may be converted, in whole or in part, into
shares of WorldCom Common Stock at the option of the holders of WorldCom Series
A Preferred Stock at any time before the Mandatory Conversion Date, unless
previously redeemed. The WorldCom Depositary Shares may, at the option of
holders thereof, be converted into shares of WorldCom Common Stock upon the same
terms and conditions as the WorldCom Series A Preferred Stock, except that the
number of shares of WorldCom Common Stock received upon conversion of each
WorldCom Depositary Share will be equal to the number of shares of WorldCom
Common Stock received upon conversion of each share of WorldCom Series A
Preferred Stock divided by one hundred. To effect such an optional conversion, a
holder of WorldCom Depositary Shares must deliver Depositary Receipts evidencing
the WorldCom Depositary Shares to be converted, together with a written notice
of conversion and a proper assignment of the Depositary Receipts to WorldCom or
in blank, to the Depositary or its agent. Each optional conversion of WorldCom
Depositary Shares shall be deemed to have been effected immediately before the
close of business on the date on which the foregoing requirements shall have
been satisfied. The conversion shall be at the Optional Conversion Rate in
effect at such time and on such date, adjusted to reflect the fact that one
hundred WorldCom Depositary Shares are the equivalent of one WorldCom Series A
Preferred Stock.
If only a portion of the WorldCom Depositary Shares evidenced by a
Depositary Receipt is to be converted, a new Depositary Receipt or Receipts will
be issued for any WorldCom Depositary Shares not converted. No fractional shares
of WorldCom Common Stock will be issued upon conversion or redemption of
WorldCom Depositary Shares or upon payment of stock dividends or distributions,
and, if such conversion, redemption, dividend or distribution would otherwise
result in a fractional share of WorldCom Common Stock being issued, the
Depositary will sell the total number of shares of WorldCom Common Stock that
would have been represented by such fractional shares at public or private sale
at such place or places and upon such terms it deems proper and the Depositary
shall distribute the net proceeds of such sale after deduction of applicable
expenses and taxes to the record holders entitled to such fractional shares, as
set forth in the Deposit Agreement.
After the date fixed for conversion or redemption, the WorldCom Depositary
Shares so converted or called for redemption will no longer be deemed to be
outstanding, and all rights of the holders of such WorldCom Depositary Shares
will cease, except the redemption and any money or other property to which the
holders of such WorldCom Depositary Shares were entitled upon such conversion or
redemption, upon surrender to the Depositary of the Depositary Receipt or
Receipts evidencing such WorldCom Depositary Shares.
Dividends and Other Distributions. The Depositary will distribute all
dividends or other distributions in respect of the WorldCom Series A Preferred
Stock to the record holders of Depositary Receipts in proportion to the number
of WorldCom Depositary Shares owned by such holders.
No fractional shares of WorldCom Common Stock will be issued in respect of
any stock dividend paid in respect of the WorldCom Series A Preferred Stock. If
such stock dividend would otherwise result in a fractional share of WorldCom
Common Stock being issued, an amount will be paid in cash in lieu thereof as
described in "Description of WorldCom Capital Stock -- Preferred Stock -- Series
A Preferred Stock" and as set forth in the Deposit Agreement.
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The amount distributed in any of the foregoing cases will be reduced by any
amount required to be withheld by WorldCom or the Depositary on account of
taxes.
Record Date. Whenever (i) any cash dividend or other cash distribution
shall become payable, any distribution other than cash shall be made, or any
rights, preferences or privileges shall be offered with respect to the WorldCom
Series A Preferred Stock, or (ii) the Depositary shall receive notice of any
meeting at which holders of WorldCom Series A Preferred Stock are entitled to
vote or of which holders of WorldCom Series A Preferred Stock are entitled to
notice, or of any election on the part of WorldCom to call for redemption any
WorldCom Series A Preferred Stock, the Depositary shall in each such instance
fix a record date (which shall be the same date as the record date for the
WorldCom Series A Preferred Stock) for the determination of the holders of
Depositary Receipts (x) who shall be entitled to receive such dividend,
distribution, rights, preferences or privileges or the net proceeds of the sale
thereof, (y) who shall be entitled to give instructions for the exercise of
voting rights at any such meeting or to receive notice of such meeting or (z)
who shall be subject to such redemption, subject to the provisions of the
Deposit Agreement.
Voting of WorldCom Series A Preferred Stock. Upon receipt of notice of any
meeting at which holders of WorldCom Series A Preferred Stock are entitled to
vote, the Depositary will mail the information contained in such notice of
meeting to the record holders of Depositary Receipts. Each record holder of
Depositary Receipts on the record date (which will be the same date as the
record date for the WorldCom Series A Preferred Stock) will be entitled to
instruct the Depositary as to the exercise of the voting rights pertaining to
the number of WorldCom Series A Preferred Stock represented by such holder's
WorldCom Depositary Shares. The Depositary will endeavor, insofar as
practicable, to vote the number of WorldCom Series A Preferred Stock represented
by such WorldCom Depositary Shares in accordance with such instructions, and
WorldCom has agreed to take all reasonable action which may be deemed necessary
by the Depositary in order to enable the Depositary to do so. The Depositary
will abstain from voting WorldCom Series A Preferred Stock to the extent it does
not receive specific written voting instructions from the holders of Depositary
Receipts representing such WorldCom Series A Preferred Stock. To the extent any
such instructions request the voting of a fraction of a share of WorldCom Series
A Preferred Stock, the Depositary shall aggregate such fraction with all other
fractions resulting from requests with the same voting instructions and shall
vote the number of whole shares resulting from such aggregation in accordance
with the instructions received in such requests.
Amendment and Termination of Deposit Agreement. The form of Depositary
Receipts and any provision of the Deposit Agreement may at any time be amended
by agreement between WorldCom and the Depositary. However, any amendment that
imposes any fees, taxes or other charges payable by holders of Depositary
Receipts (other than taxes and other governmental charges, fees and other
expenses payable by such holders as stated under "Charges of Depositary"), or
that otherwise prejudices any substantial existing right of holders of
Depositary Receipts, will not take effect as to outstanding Depositary Receipts
until the expiration of 90 days after notice of such amendment has been mailed
to the record holders of outstanding Depositary Receipts. Every holder of
Depositary Receipts at the time any such amendment becomes effective will be
deemed to consent and agree to such amendment and to be bound by the Deposit
Agreement, as so amended. In no event may any amendment impair the right of any
owner of WorldCom Depositary Shares, subject to the conditions specified in the
Deposit Agreement, upon surrender of the Depositary Receipts evidencing such
WorldCom Depositary Shares to receive WorldCom Series A Preferred Stock or, upon
conversion of the WorldCom Series A Preferred Stock represented by the
Depositary Receipts, to receive shares of WorldCom Common Stock, and in each
case any money or other property represented thereby, except in order to comply
with mandatory provisions of applicable law.
Whenever so directed by WorldCom, the Depositary will terminate the Deposit
Agreement after mailing notice of such termination to the record holders of all
Depositary Receipts then outstanding at least 30 days before the date fixed in
such notice for such termination. The Depositary may likewise terminate the
Deposit Agreement if at any time 45 days shall have expired after the Depositary
shall have delivered to WorldCom a written notice of its election to resign and
a successor depositary shall not have been appointed and accepted its
appointment. If any Depositary Receipts remain outstanding after the date of
termination, the Depositary thereafter will discontinue the transfer of
Depositary Receipts, will suspend the distribution of dividends to the
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holders thereof, and will not give any further notices (other than notice of
such termination) or perform any further acts under the Deposit Agreement except
as provided below and except that the Depositary will continue (i) to collect
dividends on the WorldCom Series A Preferred Stock and any other distributions
with respect thereto and (ii) to deliver the WorldCom Series A Preferred Stock
and any money and other property represented by Depositary Shares upon surrender
thereof by the holders thereof. At any time after the expiration of two years
from the date of termination, the Depositary may sell the WorldCom Series A
Preferred Stock then held by it at public or private sale, at such places and
upon such terms as its deems proper and may thereafter hold the net proceeds of
any such sale, together with any money and other property then held by it,
without liability for interest thereon, for the pro rata benefit of the holders
of Depositary Receipts which have not been surrendered. The Company does not
intend to terminate the Deposit Agreement or to permit the resignation of the
Depositary without appointing a successor depositary. In the event the Deposit
Agreement is terminated, WorldCom agrees to use its best efforts to list the
WorldCom Series A Preferred Stock on the Nasdaq National Market.
Charges of Depositary. WorldCom will pay all charges of the Depositary
including charges in connection with the initial deposit of the WorldCom Series
A Preferred Stock, the initial execution and delivery of the Depositary
Receipts, the distribution of information to the holders of Depositary Receipts
with respect to matters on which WorldCom Series A Preferred Stock are entitled
to vote, withdrawals of the WorldCom Series A Preferred Stock by the holders of
Depositary Receipts or redemption or conversion of the WorldCom Series A
Preferred Stock, except for taxes (including transfer taxes, if any) and other
governmental charges and such other charges as are provided in the Deposit
Agreement to be at the expense of the holders of Depositary Receipts or persons
depositing WorldCom Series A Preferred Stock.
General. The Depositary will make available for inspection by holders of
Depositary Receipts at its Corporate Office all reports and communications from
WorldCom that are delivered to the Depositary and made generally available to
the holders of the WorldCom Series A Preferred Stock.
Neither the Depositary nor WorldCom will be liable if it is prevented or
delayed by law or by any circumstance beyond its control from or in performing
its obligations under the Deposit Agreement.
WORLDCOM SERIES 3 PREFERRED STOCK
In connection with the implementation of the WorldCom Rights Plan, the
WorldCom Board of Directors authorized 750,000 shares of preferred stock to be
issued as Series 3 Junior Participating Preferred Stock (the "WorldCom Series 3
Preferred Stock"), a description of the terms of which is set forth below under
"-- Preferred Stock Purchase Rights." The WorldCom Board of Directors also
intends to file with the Secretary of State of the State of Georgia, at or prior
to the Effective Time, an amendment to its Articles of Amendment previously
establishing the Series 3 Junior Participating Preferred Stock (as described in
"-- Preferred Stock Purchase Rights" below) in order to increase the number of
shares of such preferred stock issuable upon exercise of the WorldCom Rights
associated with the WorldCom Common Stock.
PREFERRED STOCK PURCHASE RIGHTS
On August 25, 1996, WorldCom adopted the WorldCom Rights Plan and in
connection therewith entered into the WorldCom Rights Agreement. To implement
the WorldCom Rights Plan, the WorldCom Board of Directors authorized the
issuance of one preferred share purchase right (a "WorldCom Right") for each
outstanding share of WorldCom Common Stock outstanding as of September 6, 1996
and issued thereafter until the Distribution Date (as defined in the WorldCom
Rights Agreement). Each WorldCom Right entitles the registered holder to
purchase from WorldCom one one-thousandth of a share of Series 3 Preferred Stock
at an initial price of $160.00 per one one-thousandth of such share, subject to
adjustment as described in the WorldCom Rights Agreement.
The WorldCom Rights will be evidenced by the WorldCom Common Stock and a
Distribution Date will occur upon the earlier of ten business days following
public disclosure or the date on which WorldCom first determines that certain
persons or groups (an "Acquiring Person") have become the beneficial owner of
15% or more of the outstanding shares of voting stock of WorldCom (the "Stock
Acquisition Date") or ten
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business days (or such later date as may be determined by action of the Board of
Directors but not later than the Stock Acquisition Date) following the
commencement of a tender offer or exchange offer that would result in certain
persons or groups becoming an Acquiring Person. The WorldCom Rights are not
exercisable until the Distribution Date and will expire, if not previously
exercised, on September 6, 2006, unless such final expiration date is extended
or unless the WorldCom Rights are earlier redeemed or exchanged by WorldCom.
Upon the occurrence of a Distribution Date, each holder of a WorldCom
Right, except for an Acquiring Person, has the right to acquire, upon exercise
of the WorldCom Right, WorldCom Common Stock having a value equal to two times
the exercise price of the WorldCom Right. If a person becomes an Acquiring
Person and (i) WorldCom is acquired in a merger or other business combination
transaction in which either WorldCom is not the surviving corporation or
WorldCom Common Stock is exchanged or changed, or (ii) 50% or more of WorldCom's
assets or earnings power is sold in one or several transactions, each holder of
a WorldCom Right, except for an Acquiring Person, would acquire, upon exercise
of the WorldCom Right, such number of shares of the acquiring company's common
stock as shall be equal to the result obtained by multiplying the then current
exercise price for a WorldCom Right by the number one one-thousandths of a share
of WorldCom Series 3 Preferred Stock for which a WorldCom Right is then
exercisable and dividing that product by 50% of the then current market price
per share of the common stock of the acquiring company on the date of such
merger or other business combination transaction.
If a certain person or group acquires more than 15% but less than 50% of
the outstanding WorldCom Common Stock, WorldCom can exchange each WorldCom
Right, except those held by such persons, for one share of WorldCom Common
Stock.
The WorldCom Series 3 Preferred Stock will be nonredeemable and junior to
any other series of WorldCom preferred stock (unless otherwise provided in the
terms of such WorldCom preferred stock). Each share of WorldCom Series 3
Preferred Stock will have a preferential dividend in an amount equal to 1,000
times any dividend declared on each share of WorldCom Common Stock. In the event
of liquidation, the holders of the WorldCom Series 3 Preferred Stock will
receive a preferred liquidation payment equal to the greater of $1,000 or 1,000
times the payment made per share of WorldCom Common Stock. Each share of
WorldCom Series 3 Preferred Stock will have 1,000 votes, voting together with
the WorldCom Common Stock. In the event of any merger, consolidation or other
transaction in which shares of WorldCom Common Stock are converted or exchanged,
each share of WorldCom Series 3 Preferred Stock will be entitled to receive
1,000 times the amount and type of consideration received per share of WorldCom
Common Stock. The rights of the WorldCom Series 3 Preferred Stock as to
dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions.
At any time prior to the time an Acquiring Person becomes such, WorldCom
may redeem the WorldCom Rights in whole, but not in part, at a price of $.01 per
WorldCom Right. The redemption of the WorldCom Rights may be made effective at
such time, on such basis and with such conditions as the WorldCom Board of
Directors, in its sole discretion, may establish. Immediately upon any
redemption of the WorldCom Rights, the right to exercise the WorldCom Rights
will terminate and the only right of the holders of WorldCom Rights will be to
receive the redemption price.
The terms of the WorldCom Rights may be amended by the WorldCom Board of
Directors without the consent of the holders of the WorldCom Rights, including
an amendment to lower certain thresholds described above to not less than the
greater of (i) any percentage greater than the largest percentage of the voting
power of all securities of WorldCom then known to WorldCom to be beneficially
owned by certain persons or groups and (ii) 10%, except that from and after such
time as any person or group of affiliated or associated persons becomes an
Acquiring Person no such amendment may adversely affect the interests of the
holders of the WorldCom Rights.
The WorldCom Rights Agreement provides that the execution of the Merger
Agreement and the WorldCom Option Agreement and the consummation of the
transactions contemplated thereby will not result in the occurrence of a
Distribution Date or the WorldCom Rights becoming exercisable.
101
<PAGE> 117
The WorldCom Rights have certain anti-takeover effects. The WorldCom Rights
will cause substantial dilution to a person or group that attempts to acquire or
merge with WorldCom in certain circumstances. Accordingly, the existence of the
WorldCom Rights may deter certain potential acquirors from making certain
takeover proposals or tender offers. The WorldCom Rights should not interfere
with any merger or other business combination approved by the WorldCom Board of
Directors since WorldCom may redeem the WorldCom Rights as described above.
CERTAIN CHARTER AND BYLAW PROVISIONS
In addition to the WorldCom Rights Agreement described above, the WorldCom
Articles and the WorldCom Bylaws contain certain provisions, which are referred
to below and which may have the effect of discouraging certain types of
transactions that involve an actual or threatened change of control of WorldCom.
Reference is made to the full text of the WorldCom Articles and the WorldCom
Bylaws, which are incorporated by reference as exhibits to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part. See "Risk
Factors -- Risks Related to WorldCom, MFS and the Combined
Company -- Anti-Takeover Provisions" and "Comparative Rights of
Shareholders -- Election of Directors," " -- Special Meetings of Shareholders,"
" -- Special Redemption Provisions," and "-- Business Combination Restrictions."
In addition, one of the effects of the existence of unissued and unreserved
WorldCom Common Stock and preferred stock may be to enable the Board of
Directors to issue shares to persons friendly to current management, which could
render more difficult or discourage an attempt to obtain control of WorldCom by
means of a merger, tender offer, proxy contest or otherwise, and thereby protect
the continuity of WorldCom's management and possibly deprive the shareholders of
opportunities to sell their shares of WorldCom Capital Stock at prices higher
than the prevailing market prices. Such additional shares also could be used to
dilute the stock ownership of persons seeking to obtain control of WorldCom.
102
<PAGE> 118
INFORMATION REGARDING MFS
The following briefly describes the business of MFS. Additional information
regarding MFS is contained in its filings with the Commission pursuant to the
Exchange Act. See "Additional Information" and "Incorporation of Documents by
Reference."
BUSINESS OF MFS
MFS provides facilities-based telecommunications services and systems to
business and government. MFS is organized as a holding company and operates
through its subsidiaries in two business segments: telecommunications services
and network systems integration. MFS provides telecommunications services
domestically and internationally in the form of: (i) dedicated special access
and private line circuits, local switched service and high speed data
communications to large business customers; (ii) single source integrated local
and long distance switched services, high speed data communications services and
facilities management to medium and small businesses; (iii) local access to long
distance companies; and (iv) local access, ATM-based backbone service and
interconnection via NAPs to Internet service providers.
MFS provides telecommunications services by utilizing its international
network platform, which consists of MFS-owned transmission and switching
facilities and network capacity leased from other carriers primarily in the
United States and Western Europe.
On August 12, 1996, MFS acquired UUNET through a merger of a subsidiary of
MFS with and into UUNET. UUNET is a leading worldwide provider of a
comprehensive range of Internet access options, applications, and consulting
services to businesses, professionals and on-line services providers. UUNET
provides both dedicated and dial-up Internet access, and other applications and
services which include Web server hosting and integration services, client
software and security products, training, and network integration and consulting
services. MFS estimates that UUNET's customer base included over 35,000 business
and professional accounts as of September 30, 1996.
UUNET makes available to customers a variety of products and services,
including Web server hosting and content development services, client software
and security products and training, all of which can be integrated by UUNET
through its network integration and consulting services, through a single
source. UUNET's products and services are supported by a technical staff that is
highly experienced in Internet operations and services. UUNET's network
operations center monitors traffic across UUNET's network 24 hours per day,
seven days per week.
MFS has contacted 21 LECs to initiate the process of implementing the
"co-carrier" provisions of the Telecom Act and has established a co-carrier task
force consisting of approximately 100 personnel dedicated to facilitate the
negotiation and implementation of co-carrier arrangements with the LECs.
Beginning on May 22, 1996, MFS has entered into comprehensive co-carrier
agreements with each of Ameritech Corp., Southwestern Bell, Bell Atlantic, NYNEX
and Bell South, which involve the networks of those companies in the marketing
regions within the respective BOC operating territories in which MFS offers
telecommunications services. These agreements include, among other items,
minimum points of interconnection, an equal, identical and reciprocal rate for
termination of local calls, interim number portability with pass-through of
terminating compensation, and terms for the availability of unbundled loops.
Certain of these agreements also contemplate that loop rates will be set by
state regulators through binding arbitration according to a schedule and costing
standards defined by the Telecom Act. Interim loop rates have been established
in a number of states in arbitration decisions issued in early November 1996.
Future proceedings will establish permanent loop rates.
Initially created to design and build MFS' networks in a high quality and
cost-effective manner, MFS Network Technologies provides network systems
integration for MFS and third parties which desire to deploy sophisticated
networks, including intelligent transportation systems, voice and data networks,
interactive distance learning networks, security systems and combined cable
television-telephone networks.
The principal executive offices of MFS are located at 11808 Miracle Hills
Drive, Omaha, Nebraska 68154, and its telephone number is (402) 231-3000.
103
<PAGE> 119
WORLDCOM PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 1996 and unaudited Pro Forma Condensed Combined Income Statements
for the nine months ended September 30, 1996 and for the year ended December 31,
1995 illustrate the effect of the proposed Merger as if the Merger had occurred
on September 30, 1996 for the Pro Forma Condensed Combined Balance Sheet and as
of January 1, 1995 for the Pro Forma Condensed Combined Income Statements.
Pursuant to the terms of the Merger Agreement, each share of MFS Common
Stock, together with the associated preferred stock purchase rights issued under
the MFS Rights Agreement, will be converted into the right to receive 2.1 shares
of WorldCom Common Stock, and each share of MFS Series A Preferred Stock and MFS
Series B Preferred Stock (other than those held by holders of MFS Series B
Preferred Stock exercising appraisal rights) will be converted into the right to
receive, respectively, one share of WorldCom Series A Preferred Stock and one
share of WorldCom Series B Preferred Stock. For more information regarding the
Merger, see "Plan of Merger -- General Description of the Merger." The Merger
will be accounted for as a purchase transaction.
These Pro Forma Condensed Combined Financial Statements should be read in
conjunction with the historical financial statements of WorldCom, MFS and UUNET
which are incorporated by reference herein and the MFS Adjusted Historical
Financial Statements which are set forth elsewhere herein.
The Pro Forma Condensed Combined Financial Statements are presented for
comparative purposes only and are not intended to be indicative of actual
results had the transactions occurred as of the dates indicated above nor do
they purport to indicate results which may be attained in the future.
104
<PAGE> 120
WORLDCOM PRO FORMA CONDENSED COMBINED BALANCE SHEET(1)
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WORLDCOM/MFS
WORLDCOM MFS PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(2) ADJUSTMENTS COMBINED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Current assets........................... $ 825,914 $1,769,463 $ -- $ 2,595,377
Property, plant and equipment, net....... 1,765,547 1,619,739 -- 3,385,286
Goodwill and other intangibles, net...... 4,012,234 2,312,863 6,392,367 (3) 12,717,464
Other assets............................. 251,271 114,722 -- 365,993
---------- ---------- ----------- -----------
Total assets........................... $6,854,966 $5,816,787 $ 6,392,367 $19,064,120
========== ========== =========== ===========
Current liabilities...................... $ 901,710 $ 451,576 $ 35,000 (4) $ 1,388,286
Long-term debt........................... 3,276,641 1,388,111 -- 4,664,752
Other liabilities........................ 234,273 40,075 -- 274,348
Shareholders' equity:
Preferred stock........................ -- 151 (151)(5) 151
151 (6)
Common stock........................... 4,084 2,216 (2,216) (5) 8,738
4,654 (6)
Paid in capital........................ 2,184,633 4,911,760 (4,911,760)(5) 14,614,220
12,429,587 (6)
Retained earnings...................... 208,703 (978,274) 978,274 (5) (1,931,297)
(2,140,000)(7)
Other.................................. 44,922 1,172 (1,172)(5) 44,922
---------- ---------- ----------- -----------
Total shareholders' equity............. 2,442,342 3,937,025 6,357,367 12,736,734
---------- ---------- ----------- -----------
Total liabilities and shareholders'
equity.............................. $6,854,966 $5,816,787 $ 6,392,367 $19,064,120
========== ========== =========== ===========
</TABLE>
105
<PAGE> 121
WORLDCOM PRO FORMA CONDENSED COMBINED INCOME STATEMENT(1)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MFS WORLDCOM/MFS
WORLDCOM ADJUSTED PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(8) ADJUSTMENTS COMBINED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues................................ $3,235,552 $ 847,572 $ (65,271)(9) $4,017,853
Operating expenses:
Cost of sales......................... 1,763,421 473,204 (65,271)(9) 2,171,354
Selling, general and administrative... 597,558 421,030 -- 1,018,588
Depreciation and amortization......... 228,489 487,881 (91,159)(10) 625,211
Provision to reduce carrying value of
certain assets..................... 402,000 -- -- 402,000
---------- --------- --------- ----------
Operating income (loss)................. 244,084 (534,543) 91,159 (199,300)
Other income (expense):
Interest expense, net................. (167,946) (48,629) -- (216,575)
Other................................. 5,810 (1,767) -- 4,043
---------- --------- --------- ----------
Income (loss) before tax................ 81,948 (584,939) 91,159 (411,832)
Provision for income taxes.............. 129,843 394 (103,708)(11) 26,529
---------- --------- --------- ----------
Net income (loss) from continuing
operations............................ (47,895) (585,333) 194,867 (438,361)
Preferred dividend requirement.......... 860 21,992 -- 22,852
---------- --------- --------- ----------
Net income (loss) applicable to common
shareholders.......................... $ (48,755) $(607,325) $ 194,867 $ (461,213)
========== ========= ========= ==========
Number of shares issued and outstanding:
Primary............................... 393,869 195,208 214,729 803,806
========== ========= ========= ==========
Fully diluted......................... 393,869 195,208 214,729 803,806
========== ========= ========= ==========
Loss per share(12):
Primary............................... $ (0.12) $ (3.11) $ (0.57)
========== ========= ==========
Fully diluted......................... $ (0.12) $ (3.11) $ (0.57)
========== ========= ==========
</TABLE>
106
<PAGE> 122
WORLDCOM PRO FORMA CONDENSED COMBINED INCOME STATEMENT(1)
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MFS WORLDCOM/MFS
WORLDCOM ADJUSTED PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(8) ADJUSTMENTS COMBINED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues................................ $3,639,875 $ 671,810 $ (44,661)(9) $4,267,024
Operating expenses:
Cost of sales......................... 1,992,413 360,678 (44,661)(9) 2,308,430
Selling, general and administrative... 660,149 420,162 -- 1,080,311
Depreciation and amortization......... 311,265 583,131 (121,545)(10) 772,851
---------- --------- --------- ----------
Operating income (loss)................. 676,048 (692,161) 121,545 105,432
Other income (expense):
Interest expense, net................. (249,062) (39,414) -- (288,476)
Other................................. 11,801 13,233 -- 25,034
---------- --------- --------- ----------
Income (loss) before tax................ 438,787 (718,342) 121,545 (158,010)
Provision for income taxes.............. 171,127 600 (93,727)(11) 78,000
---------- --------- --------- ----------
Net income (loss) from continuing
operations............................ 267,660 (718,942) 215,272 (236,010)
Preferred dividend requirement.......... 33,191 15,064 -- 48,255
---------- --------- --------- ----------
Net income (loss) applicable to common
shareholders.......................... $ 234,469 $(734,006) $ 215,272 $ (284,265)
========== ========= ========= ==========
Number of shares issued and outstanding:
Primary............................... 386,898 185,938 164,300 737,136
========== ========= ========= ==========
Fully diluted......................... 402,990 185,938 148,208 737,136
========== ========= ========= ==========
Earnings (loss) per share(12):
Primary............................... $ 0.65 $ (3.95) $ (0.39)
========== ========= ==========
Fully diluted......................... $ 0.64 $ (3.95) $ (0.39)
========== ========= ==========
</TABLE>
107
<PAGE> 123
NOTES TO WORLDCOM PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. The pro forma financial data do not give effect to any potential cost
savings and synergies that could result from the Merger. The Pro Forma
Condensed Combined Balance Sheet reflects the write-off of intangible assets
consisting of in-process research and development ("R&D") projects of $2.14
billion related to the Merger. The effect of this charge has not been
reflected in the accompanying Pro Forma Condensed Combined Income Statements
as it is a non-recurring charge. Additionally, the Pro Forma Condensed
Combined Balance Sheet does not give effect to the potential repurchase of
MFS Notes for cash at 101% of the accreted value thereof. WorldCom
anticipates that if these rights are exercised, additional capital
availability may be generated through a combination of commercial bank debt
and public market debt. The pro forma data are not necessarily indicative of
the operating results or financial position that would have occurred had the
Merger been consummated at the dates indicated, nor necessarily indicative
of future operating results or financial position.
2. These columns represent historical results of operations and financial
position.
3. This adjustment reflects the excess of cost over net tangible assets
acquired. For purposes of allocating the acquisition costs among the various
assets acquired, WorldCom has tentatively considered the carrying value of
the acquired assets to approximate their fair value, with all of the excess
of such acquisition costs being attributed to R&D in-process (network design
and development projects in-process), goodwill, network technology and
assembled work force. It is WorldCom's intention, subsequent to the Merger,
to more fully evaluate the acquired assets and, as a result, the allocation
of the acquisition costs among the tangible and intangible assets acquired
may change. The following is a summary of the adjustment to goodwill and
other intangibles:
<TABLE>
<S> <C>
Purchased R&D in-process................................ $ 2,140,000
Write-off of purchased R&D in-process................... (2,140,000)
Goodwill................................................ 8,228,230
Network technology...................................... 400,000
Assembled work force.................................... 42,000
Direct merger costs..................................... 35,000
Elimination of MFS goodwill and other intangibles....... (2,312,863)
----------
$ 6,392,367
==========
</TABLE>
Goodwill is being amortized over a 40 year life while network technology and
assembled work force are being amortized over 5 years and 10 years,
respectively.
4. This adjustment reflects liabilities incurred, such as investment advisory,
legal, accounting and consulting fees, related to the Merger.
5. These adjustments represent the elimination of MFS' stockholders' investment
accounts.
6. This adjustment represents the issuance of approximately 465.4 million
shares of WorldCom Common Stock in accordance with the Merger Agreement and
the exchange ratio of 2.1 shares of WorldCom Common Stock for each share of
MFS Common Stock outstanding, and the exchange of each share of MFS Series A
Preferred Stock and MFS Series B Preferred Stock for one share of WorldCom
Series A Preferred Stock or one share of WorldCom Series B Preferred Stock,
respectively.
7. This adjustment reflects the write-off of intangible assets consisting of
in-process R&D projects of $2.14 billion. See Note 1.
8. The MFS Adjusted Historical Financial Statements for the nine months ended
September 30, 1996 and the year ended December 31, 1995 include the effect
of the UUNET Acquisition and the issuance of approximately 58 million shares
of MFS Common Stock and options to purchase MFS Common Stock valued at
approximately $2.1 billion in connection with such acquisition. See "MFS
Adjusted Historical Financial Statements" which are set forth elsewhere
herein.
9. These adjustments eliminate the revenues and corresponding line costs
attributable to the intercompany traffic among WorldCom, MFS and UUNET.
108
<PAGE> 124
10. This entry reflects the adjustment to amortization for the effect of the
intangible assets acquired in the Merger (see Note 3).
11. These entries represent the tax effect of adjustments due to inclusion of
the acquired operations.
12. Pro forma per share data are based on the number of WorldCom common shares
that would have been outstanding had the Merger occurred on the earliest
date presented.
109
<PAGE> 125
MFS ADJUSTED HISTORICAL FINANCIAL STATEMENTS
The following unaudited adjusted historical financial statements give pro
forma effect to the UUNET Acquisition. The adjusted historical statements of
operations assume that the UUNET Acquisition occurred as of January 1, 1995. The
adjusted historical financial statements are not necessarily indicative of the
results that actually would have been attained if the UUNET Acquisition had been
in effect on the dates indicated or which may be attained in the future. Such
statements should be read in conjunction with the MFS and UUNET historical
consolidated financial statements and notes thereto incorporated by reference
herein.
110
<PAGE> 126
MFS ADJUSTED HISTORICAL INCOME STATEMENT(1)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MFS
MFS UUNET PRO FORMA ADJUSTED
HISTORICAL(2) HISTORICAL(2) ADJUSTMENTS HISTORICAL
------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues................................... $ 724,044 $129,047 $ (5,519)(3) $ 847,572
Operating expenses:
Cost of sales............................ 407,618 71,105 (5,519)(3) 473,204
Selling, general and administrative...... 376,927 44,103 0 421,030
Depreciation and amortization............ 212,425 11,811 263,645 (4) 487,881
--------- -------- --------- ---------
Operating income........................... (272,926) 2,028 (263,645) (534,543)
Other income (expense):
Interest expense......................... (47,709) (920) 0 (48,629)
Other.................................... (2,109) 342 0 (1,767)
--------- -------- --------- ---------
Income (loss) before tax................... (322,744) 1,450 (263,645) (584,939)
Provision for income taxes................. 300 94 0 394
--------- -------- --------- ---------
Net income (loss) from continuing
operations............................... (323,044) 1,356 (263,645) (585,333)
Preferred dividend requirement............. 21,992 0 0 21,992
--------- -------- --------- ---------
Net income (loss) applicable to common
stockholders............................. $(345,036) $ 1,356 $(263,645) $(607,325)
========= ======== ========= =========
Number of shares issued and outstanding:
Primary.................................. 147,455 47,753 195,208
========= ========= =========
Fully diluted............................ 147,455 47,753 195,208
========= ========= =========
Loss per share(5):
Primary.................................. $ (2.34) $ (3.11)
========= =========
Fully diluted............................ $ (2.34) $ (3.11)
========= =========
</TABLE>
111
<PAGE> 127
MFS ADJUSTED HISTORICAL INCOME STATEMENT(1)
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MFS
MFS UUNET PRO FORMA ADJUSTED
HISTORICAL(2) HISTORICAL(2) ADJUSTMENTS HISTORICAL
------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues.................................... $ 583,194 $ 94,461 $ (5,845)(3) $ 671,810
Operating expenses:
Cost of sales............................. 315,506 51,017 (5,845)(3) 360,678
Selling, general and administrative....... 364,497 55,665 -- 420,162
Depreciation and amortization............. 142,496 8,322 432,313 (4) 583,131
--------- -------- --------- ---------
Operating loss.............................. (239,305) (20,543) (432,313) (692,161)
Other income (expense):
Interest expense.......................... (38,606) (808) -- (39,414)
Other..................................... 10,613 2,620 -- 13,233
--------- -------- --------- ---------
Loss before tax............................. (267,298) (18,731) (432,313) (718,342)
Provision for income taxes.................. 600 (474) 474(6) 600
--------- -------- --------- ---------
Net loss from continuing operations......... (267,898) (18,257) (432,787) (718,942)
Preferred dividend requirement.............. 15,064 -- -- 15,064
--------- -------- --------- ---------
Net loss applicable to common
stockholders.............................. $(282,962) $(18,257) $(432,787) $(734,006)
========= ======== ========= =========
Number of shares issued and outstanding:
Primary................................... 127,786 58,152 185,938
========= ========= =========
Fully diluted............................. 127,786 58,152 185,938
========= ========= =========
Loss per share(5):
Primary................................... $ (2.21) $ (3.95)
========= =========
Fully diluted............................. $ (2.21) $ (3.95)
========= =========
</TABLE>
112
<PAGE> 128
NOTES TO MFS ADJUSTED HISTORICAL FINANCIAL STATEMENTS.
1. The unaudited adjusted historical financial data do not give effect to any
potential cost savings and synergies that could result from the UUNET
Acquisition. The adjusted historical data are not necessarily indicative of
the operating results that would have occurred had the UUNET Acquisition been
consummated on the dates indicated nor necessarily indicative of future
operating results.
2. These columns represent historical results of operations. The UUNET
historical column for the nine months ended September 30, 1996 includes
results through the date of acquisition, August 12, 1996. One-time merger
related costs of $15.7 million have not been included in UUNET's results of
operations for this period. The results of operations for UUNET since August
12, 1996 are included in the MFS historical column.
3. This adjustment reflects the elimination of intercompany revenues and
expenses.
4. This adjustment reflects the amortization of the excess of the purchase price
over the net book value (which approximates fair value) of the net tangible
assets acquired which was recorded as goodwill, a customer contract and
customer list. The pro forma adjustment to depreciation and amortization
represents the amortization of the goodwill and other intangibles and was
calculated using the straight-line method over a five year life for goodwill
and three to four year lives for other intangibles.
5. Pro forma per share data are based on the number of MFS common shares that
would have been outstanding had the UUNET Acquisition occurred on the
earliest date presented.
6. This represents the tax effect of adjustments due to inclusion of the
acquired operations. The remaining pro forma combined income tax provision
results from state and foreign tax liabilities that would not be eliminated
as a result of the UUNET Acquisition.
113
<PAGE> 129
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The statements set forth below, including, without limitation, statements
regarding possible developments in the business of the combined company,
business opportunities, cost savings, capital spending programs, capital
availability, effects of regulatory developments, and cash flow management
constitute or may constitute forward-looking statements (as such term is defined
in the Private Securities Litigation Reform Act of 1995). Because such
statements are subject to risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward-looking statements.
See "Cautionary Statement Regarding Forward-Looking Statements." Factors that
could cause actual results to differ materially include, but are not limited to,
those discussed above under "Risk Factors," particularly the Risk Factors
captioned "Risks Related to the Merger -- Risks Associated with Failure to
Obtain Consents of Certain Governmental Authorities," "-- Integration of the
Companies" and "-- Risks Associated with the Repurchase of MFS Senior Notes" and
"Risks Related to WorldCom, MFS and the Combined Company -- Acquisition
Strategy," "-- Operating Losses," "-- Significant Capital Requirements,"
"-- Regulation" and "-- Competition."
The pro forma condensed combined financial statements reflecting the
proposed Merger of WorldCom and MFS have been presented as required by the rules
of the Commission. The required methodology only assumes the issuance of
additional shares of WorldCom Capital Stock as a part of the Merger and the
corresponding accounting adjustments to eliminate intercompany transactions to
write-off purchased research and development costs and to recognize additional
amortization and resulting tax effects. It is the opinion of the managements of
WorldCom and MFS that the pro forma condensed combined financial statements are
not necessarily indicative of the results to be expected in the post-Merger
period.
The pro forma condensed combined income statement for the year ended
December 31, 1995 reflects combined pro forma loss applicable to common
shareholders of $284.3 million, a decrease of $215.3 million over the sum of the
separate companies' (WorldCom, MFS and UUNET) amounts. This decrease is
attributable to the effect of the amortization of the intangible assets acquired
in the Merger. The decrease also includes the tax effect of adjustments due to
the inclusion of acquired operations. The pro forma condensed combined income
statement for the nine months ended September 30, 1996 also reflects the
adjustments noted above.
Consummation of the Merger is subject to the condition that all consents of
any governmental authority required for consummation of the Merger and the
transactions contemplated by the Merger Agreement shall have been obtained by
Final Order (as defined in the Merger Agreement) except as waived by WorldCom or
MFS or those consents the failure of which to obtain will not have a Surviving
Corporation Material Adverse Effect (as defined therein). If all requisite
consents have not been received at such time as all other material conditions to
the Merger have been satisfied or waived, MFS and WorldCom may nonetheless
determine to consummate the Merger. Although MFS and WorldCom are seeking such
consents, it is uncertain whether such consents will be obtained in, among
others, certain major metropolitan areas. If MFS and WorldCom determine to
consummate the Merger without having obtained such consents, no assurance can be
given that the resulting loss of that portion of MFS' business to which the
consents relate will not have a material adverse effect on the business,
prospects, financial condition or results of operations of WorldCom and MFS on a
combined basis.
It is believed that the proposed Merger will create one of the world's
premier business communications companies, providing a single source for a full
range of local, long distance, Internet and international services over an
advanced fiber optic network. The combination of the WorldCom, MFS and UUNET is
expected to enhance WorldCom's current position as one of the largest long
distance telecommunications companies in the industry, serving customers
domestically and internationally. As WorldCom's networks will connect to MFS'
city networks, it is expected that significant cost savings from reduced line
and access costs will be achieved. The Merger will also eliminate duplication of
capital spending programs, including those for undersea capacity, international
facilities and MFS' planned U.S. intercity network. Additionally, WorldCom
believes that the combined company is positioned to take advantage of the
congressional intent behind the Telecom Act as well as the recently released FCC
Interconnect Order. However, no assurance can be given
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that WorldCom will be able to successfully integrate the operations of MFS or
UUNET or obtain the expected networking and operational efficiencies. See "Risk
Factors -- Risks Related to the Merger."
Upon consummation of the Merger, each holder of the MFS Notes has the right
to require MFS to repurchase such holder's MFS Notes, for cash, at 101% of the
accreted value thereof on the date of such repurchase. Such offer to purchase
must generally be made to the holders of the MFS Notes within 30 days of the
Effective Time with all cash payments completed within 60 days of such offer.
Assuming that the MFS Notes were repurchased as of the MFS Record Date, the
maximum cash that WorldCom would be required to pay if all holders elect to
require WorldCom to repurchase their MFS Notes would be approximately $1.3
billion. Each of WorldCom and MFS believe that such repurchase can be made by
WorldCom after the consummation of the Merger without materially adversely
affecting the financial condition of the combined company. WorldCom anticipates
that if these rights are exercised, additional capital availability may be
generated through a combination of commercial bank debt and public market debt.
There can be no assurance that the noteholders will exercise this right or that
WorldCom can achieve this additional capital availability. See "Risk
Factors -- Risks Related to the Merger."
WorldCom has historically utilized cash flow from operations to finance
capital expenditures and a mixture of cash flow, debt and stock to finance
acquisitions. WorldCom is committed to a priority plan of accelerating operating
cash flow to reduce debt. Additional capital availability may be generated
through a combination of commercial bank debt and public market debt. Successful
execution of the priority plan would provide continued compliance with required
operating ratio covenants and improved interest rate spread pricing, and would
eliminate any type of equity financing other than equity issued in connection
with acquisitions. No assurance can be given that WorldCom will achieve its
priority plan. See "Risk Factors -- Risks Related to WorldCom, MFS and the
Combined Company."
Neither WorldCom nor MFS has ever paid any cash dividends on its common
stock. WorldCom's Credit Facility restricts the payment of cash dividends on the
WorldCom Common Stock without the prior consent of the lenders. In addition,
certain agreements to which MFS is a party limit the payment of dividends or
other distributions on any capital stock of MFS. The MFS Depositary Shares are
entitled to receive dividends, when, as and if they are declared by the Board of
Directors, accruing at the rate $2.68 per share per annum, payable quarterly in
arrears. Dividends are payable in cash or in shares of MFS Common Stock, at the
election of MFS. Dividends on the MFS Series B Preferred Stock accrue at the
rate of 7 3/4% per annum and are payable in cash. Dividends will be paid only
when and as declared by the MFS Board of Directors. Upon conversion, accrued but
unpaid dividends are payable, at WorldCom's election, in cash or WorldCom Common
Stock. WorldCom anticipates that, subject to consummation of the Merger,
dividends on the WorldCom Depositary Shares will continue to be paid in shares
of common stock in lieu of cash and that dividends on the WorldCom Series B
Preferred Stock will not be declared but will continue to accrue.
This discussion of pro forma condensed combined financial statements should
be read in conjunction with the historical financial statements and related
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of WorldCom and MFS incorporated by reference herein. See "Available
Information" and "Incorporation of Documents By Reference."
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COMPARATIVE RIGHTS OF SHAREHOLDERS
As a result of the Merger, the stockholders of MFS, whose rights are
currently governed by Delaware law, will become shareholders of WorldCom, whose
rights are governed by Georgia law. The following discussion is intended only to
highlight certain material differences between the rights of corporate
shareholders under Georgia law and Delaware law generally and specifically with
respect to stockholders of MFS and shareholders of WorldCom. The discussion does
not constitute a complete comparison of the differences between the rights of
such holders or the provisions of the GBCC or the DGCL, and MFS stockholders are
referred to the GBCC and the DGCL for a definitive treatment of the subject
matter. As discussed below, the WorldCom Series A Preferred Stock and WorldCom
Series B Preferred Stock to be received in the Merger in exchange for the MFS
Series A Preferred Stock and MFS Series B Preferred Stock, respectively, have
substantially similar terms, except as described below under "-- MFS Preferred
Stock."
ELECTION OF DIRECTORS
Under Delaware law, directors, unless their terms are staggered, are
elected at each annual stockholder meeting. Vacancies on the board of directors
may be filled by the stockholders or directors, unless the certificate of
incorporation or a bylaw provides otherwise. The certificate of incorporation
may authorize the election of certain directors by one or more classes or series
of shares, and the certificate of incorporation, an initial bylaw or a bylaw
adopted by a vote of the stockholders may provide for staggered terms for the
directors. The certificate of incorporation or the bylaws also may allow the
stockholders or the board of directors to fix or change the number of directors,
but a corporation must have at least one director. The MFS Board of Directors,
which presently consists of 12 members, has been established with staggered
terms for directors. Presently, the MFS Certificate of Incorporation divides the
directors into three classes. Each class of directors must consist, as nearly as
possible, of one-third of the total number of directors, with each director
serving for a term of three years. Subject to certain restrictions, nominations
to the MFS Board of Directors may be made by either the Board or stockholders.
The MFS By-laws provide that a stockholder's notice in connection with the
nomination of directors is timely received by MFS (a) in the case of an annual
meeting, not less than 60 nor more than 90 days prior to the anniversary date of
the immediately preceding annual meeting of stockholders, and (b) in the case of
a special meeting of stockholders called for the purpose of electing directors,
not later than the close of business on the 10th day following the day on which
notice of the date of the special meeting was mailed or public disclosure of the
date of the special meeting was made, whichever first occurs. Each share of MFS
Series A Preferred Stock and MFS Series B Preferred Stock is entitled to 10
votes per share with respect to the election of directors of MFS (and each other
matter coming before any meeting of MFS stockholders). The holders of
outstanding shares of MFS Series A Preferred Stock also have the right to elect
two members of the MFS Board of Directors at any time six or more quarterly
dividends on any shares of MFS Series A Preferred Stock are in arrears and
unpaid, in whole or in part, whether or not declared and whether or not any
funds are or have been legally available for payment thereof. Under Delaware
law, stockholders do not have cumulative voting rights unless the certificate of
incorporation so provides. The MFS Certificate of Incorporation does not provide
for cumulative voting.
Upon consummation of the Merger, the former stockholders of MFS will have
rights under Georgia law in the election of directors similar to those provided
by Delaware law. Directors, unless their terms are staggered pursuant to the
corporation's articles of incorporation or bylaws, are elected at each annual
shareholder meeting under Georgia law, and vacancies on the board of directors
may be filled by the shareholders or directors, unless the articles of
incorporation or a bylaw approved by the shareholders provides otherwise. The
articles of incorporation may authorize the election of certain directors by one
or more classes or series of shares. The articles of incorporation or the bylaws
also may allow the shareholders or the board of directors to fix or change the
number of directors. Currently, the WorldCom Bylaws provide that the number of
members of the WorldCom Board of Directors shall be fixed by the WorldCom Board
of Directors but shall not be less than three. The WorldCom Articles and the
WorldCom Bylaws do not provide for a staggered board of directors. In accordance
with the Merger Agreement, WorldCom will increase the number of members of its
Board of Directors to 15 persons, eight of whom will be designated by WorldCom
prior to the Effective Time and seven of whom will be designated by MFS prior to
the Effective Time. See "Management
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of WorldCom Following the Merger." Subject to certain restrictions, nominations
to the WorldCom Board of Directors may be made by either the Board or
shareholders, if delivered to WorldCom not later than 90 days prior to the
anniversary date of the immediately preceding annual meeting of WorldCom
shareholders. Under Georgia law, shareholders do not have cumulative voting
rights for the election of directors unless the articles of incorporation so
provide. The WorldCom Articles do not provide for cumulative voting.
REMOVAL OF DIRECTORS
Under Delaware law, classified directors of a corporation may only be
removed for cause, by the holders of a majority of the shares entitled to vote
at an election, unless the certificate of incorporation of the corporation
specifically provides that such directors can be removed without cause. The MFS
Certificate of Incorporation has no such provision; therefore, the directors of
MFS may only be removed for cause.
Georgia law provides that, unless director terms are staggered, directors
may be removed with or without cause by a majority of the votes entitled to be
cast, unless the articles of incorporation or a bylaw adopted by the
shareholders provides that directors may be removed only for cause, provided,
however, that if a director is elected by a particular voting class of
shareholders, that director may only be removed by the vote of that voting
group. The WorldCom Articles and the WorldCom Bylaws contain no provisions that
a director may be removed only for cause and, because director terms are not
staggered, directors of WorldCom may be removed with or without cause.
ACTION BY WRITTEN CONSENT
Delaware law provides that, unless limited by the certificate of
incorporation, any action that could be taken by stockholders at a meeting may
be taken without a meeting if a consent (or consents) in writing, setting forth
the action so taken, is signed by the holders of record of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. However, the MFS Certificate of Incorporation
provides that any action that could be taken at a meeting of stockholders can
only be taken at such a meeting and cannot be taken by the written consent of
the stockholders. Therefore, the stockholders of MFS cannot act by written
consent.
Georgia law provides that any action which might be taken by the
shareholders at a meeting may be taken by the shareholders without a meeting if
evidenced by one or more written consents describing the action taken, signed by
all shareholders, or, if the articles of incorporation provide for less than all
shareholders, by the number of shareholders required by the corporation's
articles. The WorldCom Articles do not provide for the consent of a lesser
number of shareholders with respect to an action by written consent, thus the
written consent of all shareholders of WorldCom would be required in order to
take such an action without a meeting of shareholders.
AMENDMENTS TO CHARTER
Under Delaware law, unless a higher vote is required in the certificate of
incorporation, an amendment to the certificate of incorporation of a corporation
may be approved by a majority of the outstanding shares entitled to vote upon
the proposed amendment. The MFS Certificate of Incorporation generally does not
require a higher vote to amend its terms and provisions; provided, however, that
the MFS Certificate of Incorporation provides that no amendment may be made to
the MFS Certificate of Incorporation which would adversely affect certain
rights, preferences and relative priority of the holders of MFS Series A
Preferred Stock unless such amendment is approved by the affirmative vote of at
least 66 2/3% of the outstanding shares of such series.
Georgia law provides that, unless a corporation's articles of incorporation
provide otherwise, directors may only make certain relatively technical
amendments to a corporation's articles of incorporation. Otherwise, only the
affirmative vote of a majority of the votes entitled to be cast on the amendment
by each voting group entitled to vote on the amendment, may amend a Georgia
corporation's articles of incorporation.
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AMENDMENTS TO BYLAWS
Delaware law provides that a corporation's bylaws may be amended by that
corporation's stockholders, or, if so provided in the corporation's certificate
of incorporation, the power to amend the corporation's bylaws may also be
conferred on the corporation's directors. The MFS Certificate of Incorporation
provides that the MFS By-laws may be amended or repealed by majority vote of the
MFS Board of Directors or by the affirmative vote of 66 2/3% of the outstanding
stock of MFS entitled to vote thereon.
Georgia law provides that, unless a corporation's articles of
incorporation, applicable law or a particular bylaw approved by the
corporation's shareholders provides otherwise, either the corporation's
directors or its shareholders may amend that corporation's bylaws. The WorldCom
Bylaws allow the directors or shareholders to amend or repeal the WorldCom
Bylaws unless the WorldCom Articles or applicable law reserves the power to
amend or repeal a particular bylaw exclusively to the shareholders or unless the
shareholders, in amending or repealing a particular bylaw, provide expressly
that the directors may not amend or repeal that bylaw.
SPECIAL MEETINGS OF SHAREHOLDERS
Delaware law provides that special meetings of the stockholders of a
corporation may be called by the corporation's board of directors or by such
other persons as may be authorized in the corporation's certificate of
incorporation or bylaws. The MFS Certificate of Incorporation provides that
special meetings of MFS' stockholders may only be called by the MFS Board of
Directors or the Chairman of the MFS Board of Directors.
Georgia law permits the board of directors or any person specified in the
corporation's articles of incorporation or bylaws to call special meetings of
shareholders. A special meeting may also be called by at least 25% or such
greater or lesser percentage of all the votes entitled to be cast on any issue
proposed to be considered at the special meeting as is designated in the
corporation's articles of incorporation or bylaws. The WorldCom Bylaws provide
that a special meeting may be called by the WorldCom Board of Directors, the
President of WorldCom or the holders of not less than 40% of all the votes
entitled to be cast on the issue proposed to be considered at the proposed
special meeting.
VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS
Delaware law provides that, unless otherwise specified in a corporation's
certificate of incorporation or unless the provisions of Delaware law relating
to "business combinations" discussed below are applicable, a sale or other
disposition of all or substantially all of the corporation's assets, a merger or
consolidation of the corporation with another corporation or a dissolution of
the corporation requires the affirmative vote of the Board of Directors (except
in certain limited circumstances) plus, with certain exceptions, the affirmative
vote of a majority of the outstanding stock entitled to vote thereon. The
foregoing provisions apply to MFS and its stockholders.
Georgia law is similar to Delaware law in that, except as described below
with respect to "business combinations," a sale or other disposition of all or
substantially all of the corporation's assets, a merger of the corporation with
and into another corporation, a share exchange involving one or more classes or
series of the corporation's shares or a dissolution of the corporation requires
the affirmative vote of the Board of Directors (except in certain limited
circumstances) plus, with certain exceptions, the affirmative vote of a majority
of all shares of stock entitled to vote thereon.
DIVIDENDS
Subject to any restrictions contained in a corporation's certificate of
incorporation, Delaware law generally provides that a corporation may declare
and pay dividends out of a surplus (defined as the excess, if any, of net assets
over capital) or, when no surplus exists, out of net profits for the fiscal year
in which the dividend is declared and/or the preceding fiscal year. Dividends
may not be paid out of net profits if the capital of the corporation is less
than the amount of capital represented by the issued and outstanding stock of
all classes having a preference upon the distribution of assets. The MFS
Certificate of Incorporation contains no
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additional restrictions on the declaration or payment of dividends. However,
certain of MFS' existing debt agreements restrict its ability to pay cash
dividends on MFS Capital Stock. MFS has paid no dividends on the MFS Common
Stock. Holders of shares of MFS Series A Preferred Stock are entitled to receive
dividends, when, as and if they are declared by the MFS Board of Directors,
accruing at the rate of $2.68 per Depositary Share per annum, payable quarterly
in arrears on each February 28, May 31, August 31 and November 30. Dividends are
payable in cash or in shares of MFS Common Stock, at the election of MFS. As a
result of certain of MFS' debt agreements, MFS does not anticipate that it will
pay cash dividends on the Series A Preferred Stock for the foreseeable future.
MFS paid the dividend on August 31 and November 30, 1995 and February 28, May
31, and August 31, 1996 in shares of MFS Common Stock. Dividends on the MFS
Series B Preferred Stock accrue at the rate of 7 3/4% per annum and are payable
in cash. Dividends will be paid only when and as declared by the MFS Board of
Directors. As a result of certain of MFS' debt agreements, MFS anticipates that
dividends on the Series B Preferred Stock will not be declared but will continue
to accrue. Upon conversion, accrued but unpaid dividends are payable in cash or
shares of MFS Common Stock, at the election of MFS.
Georgia law provides that, subject to any restrictions contained in a
corporation's articles of incorporation, the directors of a corporation may
authorize the payment of dividends to that corporation's shareholders, provided
that no such dividend may be paid if, after giving effect to such payment, (a)
the corporation would be unable to pay its debts as they come due in the
ordinary course of business or (b) the corporation's total assets would be less
than the sum of its total liabilities plus any preferential liquidation amounts
payable to shareholders whose preferential rights on dissolution are superior to
those of the shareholders receiving the dividend. Other than the preferential
rights of the holders of WorldCom preferred stock with respect to dividends (see
"-- Effect of Outstanding Preferred Stock" below), the WorldCom Articles contain
no additional restrictions on the declaration or payment of dividends; however,
the WorldCom Credit Facility prohibits the payment of cash dividends on WorldCom
Common Stock without the prior consent of the lenders. See "Management's
Discussion and Analysis of the Pro Forma Condensed Combined Financial
Statements."
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
Under Delaware law, a stockholder of a Delaware corporation is generally
entitled to demand appraisal and obtain payment of the fair value of his or her
shares in the event of any plan of merger or consolidation to which the
corporation, the shares of which he or she holds, is a party. However, this
right to demand appraisal does not apply to stockholders if: (1) they are
stockholders of a surviving corporation and if a vote of the stockholders of
such corporation is not necessary to authorize the merger or consolidation; (2)
the shares held by the stockholders are of a class or series registered on the
New York Stock Exchange or the American Stock Exchange, designated as a national
market system security on an interdealer quotation system by the NASD or are
held of record by more than 2,000 stockholders on the date set to determine the
stockholders entitled to vote on the merger or consolidation. Notwithstanding
the above, appraisal rights are available for the shares of any class or series
of stock of a Delaware corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation to accept for their stock
anything except: (i) shares of stock of the corporation surviving or resulting
from the merger or consolidation; (ii) shares of stock of any other corporation
which at the effective date of the merger or consolidation will be listed on the
New York Stock Exchange or the American Stock Exchange, designated as a national
market system security on an interdealer quotation system by the NASD or held of
record by more than 2,000 stockholders; (iii) cash in lieu of fractional shares
of the corporations described in (i) and (ii); or (iv) any combination of the
shares of stock and cash in lieu of fractional shares described in (i), (ii) and
(iii).
A Delaware corporation may provide in its certificate of incorporation that
appraisal rights shall be available for the shares of any class or series of its
stock as the result of an amendment to its certificate of incorporation, any
merger or consolidation to which the corporation is a party, or a sale of all or
substantially all of the assets of the corporation.
Holders of MFS Common Stock and MFS Series A Preferred Stock are not
entitled to appraisal rights in connection with the Merger, because: (i) shares
of MFS Common Stock and MFS Depositary Shares were,
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at the record date fixed to determine the stockholders entitled to receive
notice of and to vote at the MFS Special Meeting, designated as Nasdaq National
Market securities; (ii) MFS stockholders will not be required to accept anything
in exchange for their MFS shares other than WorldCom shares (i.e., shares of
stock of a corporation designated as a Nasdaq National Market security) and cash
in lieu of fractional shares of such stock; and (iii) the MFS Certificate of
Incorporation does not otherwise provide MFS stockholders with dissenters' or
appraisal rights applicable to the Merger. Holders of MFS Series B Preferred
Stock are entitled to appraisal rights. See "Appraisal Rights."
Georgia law provides that shareholders are entitled to have their shares
appraised if shareholders are permitted to dissent and dissent from mergers,
share exchanges, sales or exchanges of all or substantially all of the
corporation's assets, or an amendment to the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's shares.
However, unless the corporation's articles of incorporation otherwise provide,
appraisal rights are not available: (i) to holders of shares of any class of
shares not entitled to vote on the merger, share exchange or sale or exchange of
all or substantially all of a corporation's assets; (ii) in a sale or exchange
of all or substantially all of the property of the corporation pursuant to court
order; (iii) in a sale for cash, where all or substantially all of the net
proceeds will be distributed to the shareholders within one year; or (iv) to
holders of shares which at the record date were either listed on a national
securities exchange or held of record by more than 2,000 shareholders, unless:
(a) in the case of a plan of merger or share exchange, the holders of shares of
the class or series are required under the plan of merger or share exchange to
accept for their shares anything except shares of the surviving corporation or a
publicly held corporation which at the effective date of the merger or share
exchange are either listed on a national securities exchange or held of record
by more than 2,000 shareholders, except for scrip or cash payments in lieu of
fractional shares; or (b) the articles of incorporation or a resolution of the
board of directors approving the transaction provides otherwise. WorldCom
shareholders are not entitled to dissenters' or appraisal rights in connection
with the Merger. Appraisal rights under Georgia law differ from appraisal rights
under Delaware law in that, under Georgia law, shareholders have appraisal
rights for more types of transactions than under Delaware law, and unlike the
appraisal rights provisions under Delaware law, under Georgia law, the board of
directors may voluntarily extend appraisal rights to shareholders. See
"Appraisal Rights."
INDEMNIFICATION AND LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
Delaware law permits a corporation to adopt a provision in its certificate
of incorporation eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except that such provision shall not limit the liability of
a director for: (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
liability under Section 174 of the DGCL for unlawful payment of dividends or
stock purchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit. The MFS Certificate of Incorporation
limits the personal liability of MFS' directors for monetary damages to the
fullest extent permissible under applicable law.
Under Delaware law, a corporation may indemnify any person made a party or
threatened to be made a party to any type of proceeding (other than an action by
or in the right of the corporation) because he is or was an officer, director,
employee or agent of the corporation, or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
entity, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such proceeding: (1) if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation; or (2) in the case of a
criminal proceeding, he had no reasonable cause to believe that his conduct was
unlawful. A corporation may indemnify any person made a party or threatened to
be made a party to any threatened, pending or completed action or suit brought
by or in the right of the corporation because he was an officer, director,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
other entity, against expenses actually and reasonably incurred in connection
with such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
except that there may be no
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such indemnification if the person is found liable to the corporation unless, in
such a case, the court determines the person is entitled thereto. A corporation
must indemnify a director, officer, employee or agent against expenses actually
and reasonably incurred by him who successfully defends himself in a proceeding
to which he was a party because he was a director, officer, employee or agent of
the corporation. Expenses incurred by an officer or director (or other employees
or agents as deemed appropriate by the Board of Directors) in defending a civil
or criminal proceeding may be paid by the corporation in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation. The
Delaware law indemnification and expense advancement provisions are not
exclusive of any other rights which may be granted by the bylaws, a vote of
stockholders or disinterested directors, agreement or otherwise. The MFS By-laws
provide for the indemnification, in non-derivative suits, of any person who was
or is a party or is threatened to be made a party to any threatened, pending or
complete action, suit or proceeding, because such person was a director,
officer, employee or agent of MFS, against expenses (including attorneys' fees)
judgments, fines and amounts paid in settlement actually incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of MFS, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such conduct was unlawful. The MFS By-laws further
provide for the indemnification of directors, officers, employees or agents of
MFS in derivative suits if such person acted in good faith and in a manner such
person believed to be in or not opposed to the best interests of MFS, provided,
however, that no indemnification will be made for any claim, issue or matter as
to which such person has been adjudged liable to MFS, unless the court in which
such action or suit was brought determines, despite the adjudication of
liability, that such person is fairly and reasonably entitled to indemnity for
such expenses that such court deems proper. The MFS By-laws also permit the
advancement of expenses (including attorneys' fees) incurred by a director,
officer, employee or agent of MFS in defending a suit or action, provided that
such person executes an undertaking to repay the advanced expenses if it is
ultimately determined that such person is not entitled to be indemnified by MFS.
Under the Merger Agreement, WorldCom and MFS have agreed to jointly and
severally indemnify the directors, officers and agents of MFS as provided in the
MFS Certificate of Incorporation, MFS By-laws or indemnification agreements with
respect to matters occurring through the Closing Date. WorldCom has also agreed
to cause MFS, as the Surviving Corporation, to maintain in effect, for a minimum
of three years after the Closing Date, policies of directors' and officers'
liability insurance comparable to those currently maintained by MFS. See "Plan
of Merger -- Other Covenants."
Georgia law permits corporations to adopt a provision in their articles of
incorporation eliminating or limiting the personal liability of a director to
the corporation or its shareholders for monetary damages for breach of the
director's duty of care or other duties as directors. Georgia law does not
permit the elimination or limitation of monetary liability in the event of (i)
misappropriation of corporate business opportunities; (ii) intentional
misconduct or knowing violation of the law; (iii) unlawful distributions; or
(iv) improper personal benefit. The WorldCom Articles limit the personal
liability of directors for monetary damages to the fullest extent permissible
under applicable law.
Georgia law permits WorldCom to indemnify any director or officer of
WorldCom for any liability and expense that may be incurred in connection with
any threatened, pending or completed civil, criminal, administrative or
investigative action, suit or proceeding (whether brought by or in the right of
WorldCom), in which he may become involved by reason of his being or having been
a director or officer of WorldCom, provided that such person acted in a manner
he believed in good faith to be in or not opposed to the best interests of
WorldCom, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Except where an individual
is successful on the merits or otherwise in defense of any such action, suit or
proceeding, in which case indemnification is as of right, the determination of
whether the director has met the requisite standard of conduct for
indemnification may be made by (i) a majority vote of a quorum consisting of
directors not at that time parties to the suit; (ii) a duly designated committee
of directors; (iii) duly selected special legal counsel; or (iv) the
shareholders, excluding shares owned by or voted under the control of directors
who are at that time parties to the suit. If authorized by the
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articles of incorporation or a bylaw, contract, or resolution approved or
ratified by the shareholders, a corporation may indemnify a director made a
party to a proceeding including a proceeding brought by or in the right of the
corporation unless the director is adjudged liable: (1) for any appropriation,
in violation of his duties, of any business opportunity of the corporation; (2)
for acts which involve intentional misconduct or a knowing violation of law; (3)
for unlawful distributions; or (4) for any transaction from which he received an
improper personal benefit. A corporation may pay for or reimburse the reasonable
expenses incurred by a director who is a party to a proceeding in advance of
final disposition if the director certifies that he has met the standards of
conduct under Georgia law and the director agrees to repay any advances if it is
ultimately determined that he is not entitled to indemnification. Under Georgia
law, a corporation's authority to indemnify officers, unlike directors, is
restricted only by public policy. A person who is both an officer and a director
is treated, for indemnification purposes, as a director. The WorldCom Articles
and the WorldCom Bylaws authorize indemnification of its officers and directors
to the fullest extent permitted by Georgia law.
PREEMPTIVE RIGHTS
Neither Delaware nor Georgia law provides for preemptive rights to acquire
a corporation's unissued stock. However, such right may be expressly granted to
the shareholders in a corporation's certificate or articles of incorporation.
Neither the MFS Certificate of Incorporation nor the WorldCom Articles provide
for preemptive rights.
SPECIAL REDEMPTION PROVISIONS
The WorldCom Articles contain provisions permitting WorldCom to redeem
shares of its capital stock from certain foreign shareholders in order to enable
it to continue to hold certain common carrier radio licenses. These provisions
are intended to cause WorldCom to remain in compliance with the Communications
Act of 1934, as amended, and the regulations of the FCC promulgated thereunder.
Under these provisions, at such time as the percentage of capital stock
owned by foreign shareholders or certain affiliates thereof exceeds 20%,
WorldCom has the right to redeem the "excess shares" held by such persons at the
fair market value thereof. Following any determination that such excess shares
exist, such excess shares shall not be deemed outstanding for purposes of
determining the vote required on any matter brought to the attention of the
shareholders of WorldCom and such excess shares shall have no right to receive
any dividends or other distributions, including distributions in liquidation. If
such shares are traded on a national securities exchange or in the
over-the-counter market, such fair market value is the average closing price for
the 45 trading days immediately preceding the date of redemption. If such shares
are not so traded, such fair market value shall be established by the WorldCom
Board of Directors. In the event there is a foreign shareholder who acquired
shares within 120 days of the date of redemption, however, the redemption price
shall not exceed the price per share paid by such shareholder. At least 30 days'
notice of redemption must be given, and the redemption price may be paid in
cash, securities or any combination thereof. WorldCom may require confirmation
of citizenship from any record or beneficial owner of shares of its capital
stock, and from any transferee thereof, as a condition to the registration or
transfer of those shares.
MFS PREFERRED STOCK
Pursuant to the terms of the Merger, the MFS Series A Preferred Stock and
MFS Series B Preferred Stock will be exchanged for the WorldCom Series A
Preferred Stock and Worldcom Series B Preferred Stock, respectively. Below is a
discussion of the terms of each series of MFS and WorldCom preferred stock and
the differences between the respective preferred stock series of MFS and
WorldCom.
General. The MFS preferred stock has priority over the MFS Common Stock
with respect to dividends and to other distributions, including the distribution
of assets upon liquidation. The MFS Board of Directors is authorized to fix and
determine the terms, limitations and relative rights and preferences of the MFS
preferred stock, to establish series of MFS preferred stock and to fix and
determine the variations as among series. The MFS Board of Directors without
stockholder approval could issue MFS preferred stock with voting and conversion
rights which could adversely affect the voting power of the holders of MFS
Common Stock. MFS
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currently has outstanding 94,992 shares of MFS Series A Preferred Stock and
15,000,000 shares of MFS Series B Preferred Stock.
MFS Series A Preferred Stock. The MFS Series A Preferred Stock was issued
on May 23, 1995 in connection with the sale of 9,500,000 MFS Depositary Shares,
each representing a one one-hundredth interest in a share of MFS Series A
Preferred Stock. The liquidation preference of each share of MFS Series A
Preferred Stock is an amount equal to the greater of (i) the sum of (a) $3,350
and (b) all accrued and unpaid dividends thereon to the date of liquidation,
dissolution or winding up and (ii) the value of the fraction of a share of MFS
Common Stock into which the MFS Series A Preferred Stock is convertible on the
date of such liquidation, dissolution or winding up. Dividends on the MFS Series
A Preferred Stock and the MFS Depositary Shares are cumulative from the date of
original issue and are payable quarterly in arrears at the rate of $268.00 per
annum per share of MFS Series A Preferred Stock (equivalent to $2.68 per annum
per MFS Depositary Share). Such dividends are payable in cash or in shares of
MFS Common Stock, at the election of MFS. MFS has paid such dividends in shares
of MFS Common Stock since the issuance of the MFS Series A Preferred Stock. The
MFS Depositary Shares may be redeemed for cash at the option of MFS, in whole or
in part, at a call price of the sum of (i) $34.170 on and after the May 31, 1998
through August 30, 1998, $34.003 on and after August 31, 1998 through November
29, 1998, $33.835 on and after November 30, 1998 through February 27, 1999,
$33.668 on and after February 28, 1999 through April 29, 1999, and $33.50 on and
after April 30, 1999, until May 31, 1999, plus (ii) all accrued and unpaid
dividends thereon to the date fixed for redemption. On May 31, 1999, the MFS
Series A Preferred Stock and the MFS Depositary Shares are mandatorily
convertible into an aggregate of 19,000,000 shares of MFS Common Stock. The
shares of MFS Series A Preferred Stock are convertible, in whole or in part, at
the option of the holder thereof, at any time prior to May 31, 1999, unless
previously redeemed, into shares of MFS Common Stock at a rate of 163.94 shares
of MFS Common Stock for each share of MFS Series A Preferred Stock (equivalent
to a conversion price of $20.435 per share of MFS Common Stock), in either case
subject to certain adjustments. The right to convert shares of MFS Series A
Preferred Stock called for redemption will terminate at the close of business on
the redemption date.
Each share of MFS Series A Preferred Stock is entitled to 10 votes per
share with respect to the election of directors of MFS and each other matter
coming before any meeting of MFS stockholders. The holders of the MFS Series A
Preferred Stock and the holders of MFS Common Stock will vote together as a
single class, unless otherwise provided by law or the MFS Certificate of
Incorporation. The approval of more than two-thirds of the votes entitled to be
cast by the holders of issued and outstanding shares of MFS Series A Preferred
Stock is required to amend the MFS Certificate of Incorporation or to
materially, adversely change the rights, preferences or privileges of the MFS
Series A Preferred Stock. The holders of the outstanding shares of MFS Series A
Preferred Stock shall also have the right, voting together with the holders of
any other outstanding shares of Voting Preferred Stock (as hereinafter defined)
as a separate voting group, to elect two members of the MFS Board of Directors
at any time six or more quarterly dividends on any shares of Voting Preferred
Stock shall be in arrears and unpaid, in whole or in part, whether or not
declared and whether or not any funds shall be or have been legally available
for payment thereof. For this purpose, "Voting Preferred Stock" shall mean the
shares of MFS Series A Preferred Stock and each other series of MFS preferred
stock which shall have substantially similar voting rights (including voting as
one voting group with other shares of Voting Preferred Stock) with respect to
the election of directors upon substantially similar arrearages of dividends. In
such event, the number of directors of MFS shall be increased by two, and,
unless a regular meeting of the stockholders of MFS is to be held within 60 days
thereof for the purpose of electing directors, within 30 days thereafter, MFS
shall call a special meeting of the holders of the outstanding shares of Voting
Preferred Stock for the purpose of electing such directors. If such special
meeting shall not have been so called by MFS, or such regular meeting shall not
be so held, a special meeting may be called for such purpose at the expense of
MFS by the holders of not less than 10% of the outstanding shares of any series
of Voting Preferred Stock; and notice of any such special meeting shall be given
by the person or persons calling the same to the holders of the outstanding
shares of the Voting Preferred Stock. At any such special meeting, the holders
of the outstanding shares of Voting Preferred Stock (voting separately as a
class with each share having one vote) shall elect two members of the MFS Board
of Directors. If a regular meeting of the stockholders of MFS for the purpose of
electing directors is to be held within 60 days after the time the holders of
the
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outstanding shares of Voting Preferred Stock become so entitled to elect two
directors, then at such regular meeting, the holders of the outstanding shares
of Voting Preferred Stock (voting separately as a class with each share having
one vote) shall elect two members of the Board of Directors. The right of the
holders of the Voting Preferred Stock (voting separately as a class) to elect
two members of the MFS Board of Directors shall continue until such time as no
dividends on any outstanding shares of Voting Preferred Stock are in arrears and
unpaid, in whole or in part, at which time (i) the voting power of the holders
of the outstanding shares of Voting Preferred Stock so to elect two directors
shall cease, but always subject to the vesting of such voting power upon the
occurrence of each and every like arrearage of dividends, and (ii) the term of
office of each member of the Board of Directors who was elected pursuant to this
provision shall automatically expire.
MFS Series B Preferred Stock. The MFS Series B Preferred Stock is
convertible into shares of MFS Common Stock at any time after the first
anniversary of the date of issuance (September 30, 1996) at a conversion price
of $21.563. Each share of MFS Series B Preferred Stock is convertible into
.0463768 shares of MFS Common Stock, or an aggregate of 695,652 shares of MFS
Common Stock. Dividends on the MFS Series B Preferred Stock accrue at the rate
of 7 3/4% per annum and are payable in cash. Dividends will be paid only when
and as declared by the Board. The liquidation preference on each share of MFS
Series B Preferred Stock is $1.00, plus all accrued and unpaid dividends thereon
to the date of liquidation, dissolution or winding up. The MFS Series B
Preferred Stock cannot be redeemed by MFS prior to September 30, 2001. Each
share of MFS Series B Preferred Stock is entitled to 10 votes per share with
respect to any and all matters presented to the MFS stockholders for their
action and consideration. Holders of MFS Series B Preferred Stock vote together
with the holders of MFS Common Stock as a single class unless otherwise required
by law or the proposed action amends, alters or repeals the preferences, special
rights or other powers of the MFS Series B Preferred Stock. The shares of MFS
Series B Preferred Stock, however, are held subject to an irrevocable proxy that
has been granted to the Secretary and Assistant Secretary of MFS to vote all
shares of MFS Series B Preferred Stock on all matters, other than the election
of directors and matters as to which the holders of MFS Series B Preferred Stock
vote as a separate class, in proportion to the holders of MFS Common Stock.
The MFS Series B Preferred Stock is non-transferable for a period of six
years from its issuance date, with limited exceptions, and is redeemable at the
option of MFS at the end of such six-year period. Accordingly, the MFS Series B
Preferred Stock has no realizable resale value until the earlier of its
conversion into MFS Common Stock at the option of the holder or the expiration
of the six-year transfer restriction.
MFS Series C Preferred Stock. MFS has also authorized 75,000 shares to be
issued as Series C Preferred Stock. A description of the terms of the Series C
Preferred Stock is set forth below under "-- Preferred Stock Purchase Rights."
WorldCom Preferred Stock. The WorldCom Series A Preferred Stock and
WorldCom Series B Preferred Stock to be issued pursuant to the Merger in
exchange for the MFS Series A Preferred Stock and MFS Series B Preferred Stock,
respectively, will have substantially the same terms except that (i) the terms
of the WorldCom Series A Preferred Stock will not be subject to any adjustments
dependent on the occurrence of the "Spin-off Transaction" (e.g., the
distribution by Peter Kiewit & Sons, Inc. to certain of its shareholders of MFS
Common Stock and MFS Series B Preferred Stock), since such a distribution has
already occurred, (ii) each share of WorldCom Series B Preferred Stock will be
entitled to one vote per share on all matters on which the holders of WorldCom
Common Stock are entitled to vote, (iii) the WorldCom Series B Preferred Stock
will not be subject to a proxy with respect to any voting rights of such series
and (iv) the WorldCom Series B Preferred Stock will not be subject to the
additional restrictions on transfer that applied to the MFS Series B Preferred
Stock. See "Description of Capital Stock of WorldCom -- Preferred Stock" for a
description of the terms of the WorldCom preferred stock.
EFFECT OF OUTSTANDING PREFERRED STOCK
The MFS preferred stock has priority over the MFS Common Stock with respect
to dividends and to other distributions, including the distribution of assets
upon liquidation. Each share of MFS Series A and Series B Preferred Stock is
entitled to 10 votes per share with respect to any and all matters presented to
the
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MFS stockholders for their action and consideration. The shares of MFS Series B
Preferred Stock, however, are held subject to an irrevocable proxy that has been
granted to the Secretary and Assistant Secretary of MFS to vote all shares of
MFS Series B Preferred Stock on all matters, other than the election of
directors and matters as to which the holders of MFS Series B Preferred Stock
vote as a separate class, in proportion to the holders of MFS Common Stock. See
"-- MFS Preferred Stock."
By becoming holders of WorldCom Common Stock, the former holders of MFS
Common Stock will become subject to the rights and preferences of the holders of
WorldCom preferred stock. Such rights and preferences include preferential,
cumulative dividends, preferential payments upon dissolution or liquidation of
WorldCom, the right to expand the WorldCom Board of Directors and elect
additional WorldCom directors in the event certain WorldCom preferred stock
dividend payments are not made and in other specified events, the right to
convert shares of WorldCom preferred stock into shares of WorldCom Common Stock.
See the description of WorldCom preferred stock contained under "Descriptions of
WorldCom Capital Stock -- Preferred Stock."
PREFERRED STOCK PURCHASE RIGHTS
Delaware case law authorizes Delaware corporations to issue stock purchase
rights, having terms and conditions similar to those set out in the MFS Rights
Agreement, to its stockholders. In September 1995, MFS entered into the MFS
Rights Agreement, and the MFS Board of Directors authorized the issuance of one
MFS Right for each share of MFS Common Stock outstanding as of October 2, 1995
and issued thereafter until the Distribution Date (as defined in the MFS Rights
Agreement). Each MFS Right entitles the holder to purchase from MFS one
one-thousandth of a share of MFS Series C Preferred Stock at an initial purchase
price of $300, subject to adjustment. The MFS Rights expire on September 30,
2005, unless extended or earlier redeemed by MFS.
The MFS Rights separate from the MFS Common Stock and a Distribution Date
occurs upon the earlier of 10 days following public disclosure that certain
persons or groups of persons have become a beneficial owner of 15% or more of
the outstanding MFS Common Stock or 10 business days following the commencement
of a tender offer or exchange offer that would result in certain persons or
groups becoming an Acquiring Person (as defined in the MFS Rights Agreement).
Upon the occurrence of a Distribution Date, each holder of a MFS Right has the
right to receive, upon exercise of the right, MFS Common Stock having a value
equal to two times the exercise price of the MFS Right, except that all MFS
Rights held by an Acquiring Person become null and void.
In the event that a person becomes an Acquiring Person and MFS is acquired
in a merger or other business combination in which MFS is not the surviving
corporation or more than 50% of the assets or earning power of MFS' assets are
sold or transferred, each holder, except for Acquiring Persons, of a MFS Right
has the right to receive, upon exercise, common stock of the acquiring company
which has a value equal to two times the exercise price of the MFS Right.
The MFS Series C Preferred Stock will be nonredeemable and subordinate to
all other series of MFS preferred stock. The liquidation preference of each
share of MFS Series C Preferred Stock is an amount equal to (a) 1,000 times the
aggregate amount to be distributed per share to holders of MFS Common Stock and
(b) after the payments set forth in (a), a ratable and proportionate share with
the holders of MFS Common Stock of the remaining assets to be distributed. Each
share of MFS Series C Preferred Stock will be entitled to receive, when, as and
if declared, a quarterly dividend at the rate equal to 1,000 times the aggregate
per share amount of all cash dividends and 1,000 times the aggregate per share
amount of all non-cash dividends or other distributions (payable in kind) (other
than dividends payable in MFS equity securities). Each share of MFS Series C
Preferred Stock will have 1,000 votes, subject to adjustment, voting together
with the MFS Common Stock and not as a separate class. If MFS enters into any
consolidation, merger, combination or other transaction in which the shares of
MFS Common Stock are exchanged, each share of MFS Series C Preferred Stock will
be entitled to receive 1,000 times the amount received per share of MFS Common
Stock. The rights of the MFS Series C Preferred Stock as to dividends, voting
rights and liquidation are protected by antidilution provisions.
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MFS may redeem the MFS Rights in whole, but not in part, at any time until
ten days following the date on which there has been public disclosure that, or
facts indicating that, a person has become an Acquiring Person at a price of
$.01 per MFS Right (or such other consideration deemed appropriate by the MFS
Board of Directors) by resolution of the MFS Board of Directors, subject to
certain exceptions. The redemption of the MFS Rights may be made effective at
such time, on such basis and with such conditions as the MFS Board of Directors
in its sole discretion may establish. The MFS Rights terminate immediately upon
the action of the MFS Board of Directors ordering redemption of the MFS Rights,
and, thereafter, the holders of MFS Rights will only be able to receive the
Redemption Price.
Other than provisions relating to the principal economic terms of the MFS
Rights, the MFS Rights Agreement may be amended by resolution of the MFS Board
of Directors, subject to certain exceptions, prior to the Distribution Date.
After the Distribution Date, the MFS Rights Agreement may be amended by
resolution of the MFS Board of Directors, subject to certain exceptions, in
order to cure any ambiguity, to make changes which do not adversely affect the
interests of holders of MFS Rights (excluding the interests of any Acquiring
Person or its affiliates or associates) or to shorten or lengthen any time
period under the MFS Rights Agreement; provided, however, that no amendment to
adjust the time period governing redemption may be made at such time as the MFS
Rights are not redeemable.
In connection with the execution of the Merger Agreement, on August 24,
1996, the MFS Board of Directors amended the MFS Rights Agreement to provide, in
part, that the acquisition of MFS Common Stock pursuant to the Merger, the
execution of the Merger Agreement, the acquisition of the MFS Stock Option (or
any part thereof) to acquire shares of MFS Common Stock pursuant to the MFS
Stock Option Agreement or the acquisition of shares of MFS Common Stock pursuant
to the exercise of the MFS Stock Option would not cause the occurrence of a
Distribution Date under the MFS Rights Agreement.
The MFS Rights have certain anti-takeover effects. The MFS Rights will
cause substantial dilution to a person or group that attempts to acquire, or
merge with, MFS without conditioning the offer on the MFS Rights being rendered
inapplicable.
Georgia law expressly authorizes a Georgia corporation, subject to any
provisions in its articles of incorporation, to create and issue rights
entitling the holders thereof to purchase from the corporation any shares of its
capital stock of any class or classes. The terms of such rights, including the
time or times, the conditions precedent, and the prices at which and the holders
by whom the rights may be exercised, as well as their duration may preclude or
limit the exercise, transfer or receipt of such rights or invalidate or void any
rights. Further, the terms may be dependent upon facts ascertainable outside the
documents evidencing the rights, or the resolution providing for the issue of
the rights adopted by the board of directors, if the manner in which the facts
shall operate upon the exercise of the rights is clearly and expressly set forth
in the document evidencing the rights or in the resolution. See "Description of
WorldCom Capital Stock -- Preferred Stock Purchase Rights" for a description of
the terms and conditions of the WorldCom Rights Agreement.
BUSINESS COMBINATION RESTRICTIONS
In general, Delaware law prevents an "Interested Stockholder" (defined
generally as a person with 15% or more of a corporation's outstanding voting
stock, with the exception of any person who owned and has continued to own
shares in excess of the 15% limitation since December 23, 1987) from engaging in
a "Business Combination" with a Delaware corporation for three years following
the date such person became an Interested Stockholder. The term "Business
Combination" includes mergers or consolidations with an Interested Stockholder
and certain other transactions with an Interested Stockholder, including,
without limitation: (i) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (except proportionately as a stockholder of such corporation)
to or with the Interested Stockholder of assets (except proportionately as a
stockholder of the corporation) having an aggregate market value equal to 10% or
more of the aggregate market value of all assets of the corporation or of
certain subsidiaries thereof determined on a consolidated basis or the aggregate
market value of all the outstanding stock of the corporation; (ii) any
transaction which results in the issuance or transfer by the corporation or by
certain subsidiaries thereof of stock of the corporation or such subsidiary to
the Interested Stockholder, except pursuant to certain transfers in a conversion
or exchange or a pro rata distribution to all stockholders of the corporation or
certain other
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transactions, none of which increase the Interested Stockholder's proportionate
ownership of any class or series of the corporation's or such subsidiary's
stock; (iii) any transaction involving the corporation or certain subsidiaries
thereof which has the effect, directly or indirectly, of increasing the
proportionate share of the stock of any class or series, or securities
convertible into stock of the corporation or any subsidiary which is owned by
the Interested Stockholder (except as a result of immaterial changes due to
fractional share adjustments or as a result of any purchase or redemption of any
shares of stock not caused directly or indirectly by the Interested
Stockholder); or (iv) any receipt by the Interested Stockholder of the benefit
(except proportionately as a stockholder of such corporation) of any loans,
advances, guarantees, pledges, or other financial benefits provided by or
through the corporation or certain subsidiaries.
The three-year moratorium may be avoided if: (i) before such person became
an Interested Stockholder, the Board of Directors of the corporation approved
either the Business Combination or the transaction in which the Interested
Stockholder became an Interested Stockholder; or (ii) upon consummation of the
transaction which resulted in the stockholder becoming an Interested
Stockholder, the stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding shares
held by directors who are also officers of the corporation and by employee stock
ownership plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) on or following the date on which such
person became an Interested Stockholder, the Business Combination is approved by
the Board of Directors of the corporation and authorized at an annual or special
meeting of stockholders (not by written consent) by the affirmative vote of the
stockholders of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder.
The Business Combination restrictions described above do not apply if,
among other things: (i) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by the statute; (ii)
the corporation by action by the holders of a majority of the voting stock of
the corporation approve an amendment to its certificate of incorporation or
bylaws expressly electing not to be governed by the statute (effective twelve
(12) months after the amendment's adoption), which amendment shall not be
applicable to any business combination with a person who was an Interested
Stockholder at or prior to the time of the amendment; or (iii) the corporation
does not have a class of voting stock that is (a) listed on a national
securities exchange, (b) authorized for quotation on Nasdaq or a similar
quotation system; or (c) held of record by more than 2,000 stockholders. The
statute also does not apply to certain Business Combinations with an Interested
Stockholder when such combination is proposed after the public announcement of,
and before the consummation or abandonment of, a merger or consolidation, a sale
of 50% or more of the aggregate market value of the assets of the corporation on
a consolidated basis or the aggregate market value of all outstanding shares of
the corporation, or a tender offer for 50% or more of the outstanding voting
shares of the corporation, if the triggering transaction is with or by a person
who either was not an Interested Stockholder during the previous three years or
who became an Interested Stockholder with Board of Director approval, and if the
transaction is approved or not opposed by a majority of the current directors
who were also directors prior to any person becoming an Interested Stockholder
during the previous three years. MFS is subject to the terms of this statute.
For a description of certain other aspects of the MFS Certificate of
Incorporation or MFS' By-laws that may have "anti-takeover" effects, see "Risk
Factors -- Risks Related to WorldCom, MFS and the Combined
Company -- Anti-Takeover Provisions."
Under Georgia law, Georgia corporations may adopt a provision in their
bylaws requiring that "Business Combinations" be approved by a special vote of
the board of directors and/or the shareholders unless certain fair pricing
criteria are met. Georgia corporations may also adopt a provision in their
articles of incorporation or bylaws which requires that "Business Combinations"
with "Interested Shareholders" be approved by a super majority vote. These
provisions, neither of which has been adopted by WorldCom, are described below.
Also described below is the business combination restriction contained in the
WorldCom Articles.
Georgia's "fair price" statute authorizes a corporation to adopt a bylaw
provision which requires special approval by the board of directors and/or
shareholders for "Business Combinations" unless certain "fair price"
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criteria are met. Generally, for purposes of this statute, "Business
Combination" is defined to include mergers, sales of assets out of the ordinary
course of business, liquidations, and certain issuances of securities involving
the corporation and any "Interested Shareholder." For purposes of this statute,
an "Interested Shareholder" is defined as a person or entity that is the
beneficial owner of 10% or more of the outstanding shares of the corporation's
voting stock, or a person or entity that is an affiliate of the corporation and,
at any time within the two-year period immediately prior to the date in
question, was the beneficial owner of 10% or more of the then outstanding shares
of the corporation's voting stock. A Business Combination with an Interested
Shareholder must meet one of three criteria: (i) the transaction must be
unanimously approved by the "Continuing Directors" (directors who served as
directors immediately prior to the date the Interested Shareholder first became
an Interested Shareholder and who are not affiliates or associates of the
Interested Shareholder), provided that the Continuing Directors constitute at
least three members of the board of directors at the time of such approval; (ii)
the transaction must be recommended by at least two-thirds of the Continuing
Directors and approved by a majority of the votes entitled to be cast by holders
of voting shares, excluding shares held by the Interested Shareholder; or (iii)
the terms of the transaction must meet fair pricing criteria and certain other
tests intended to assure that all shareholders receive a fair price and
equivalent consideration for their shares regardless of when they sell to the
acquiring party.
Georgia's "business combination" statute authorizes a corporation to adopt
a bylaw provision which prohibits "Business Combinations" with "Interested
Shareholders" occurring within five years of the date a person first becomes an
Interested Shareholder, unless special approval of the transaction is obtained.
For purposes of this statute, "Business Combination" is defined to include
mergers, sales of 10% or more of the corporation's net assets, and certain
issuances of securities involving the corporation and any "Interested
Shareholder." "Interested Shareholder" has the same definition as under the
Georgia "fair price" statute. Any Business Combination with an Interested
Shareholder within five years of the date such person first became an Interested
Shareholder requires approval in one of three ways: (i) prior to becoming an
Interested Shareholder, the corporation's board of directors must have approved
the Business Combination or the transaction which resulted in the shareholder
becoming an Interested Shareholder; (ii) the Interested Shareholder acquires at
least 90% of the outstanding voting stock of the corporation (other than shares
owned by officers, directors and their affiliates and associates) in the same
transaction in which such person becomes an Interested Shareholder; or (iii)
subsequent to becoming an Interested Shareholder, such person acquires
additional shares resulting in ownership of at least 90% of the outstanding
shares (other than shares owned by officers, directors and their affiliates and
associates), and obtains the approval of the Business Combination by the holders
of a majority of the remaining shares.
The WorldCom Articles contain a provision that requires the approval by the
holders of at least 70% of the voting power of the outstanding shares of any
class of stock of WorldCom entitled to vote generally in the election of
directors as a condition for Business Transactions (defined below) involving
WorldCom and a Related Person (defined below) or in which a Related Person has
an interest, unless (a) the Business Transaction is approved by at least a
majority of WorldCom's Continuing Directors (defined below) then serving on the
Board of Directors, but if the votes of such Continuing Directors would have
been insufficient to constitute an act of the Board of Directors, then such
transaction must have been approved by the unanimous vote of such Continuing
Directors so long as there were at least three such Continuing Directors serving
on the Board of Directors at the time of such unanimous vote, provided that no
such Continuing Director is a Related Person who has an interest in the Business
Transaction (other than a proportionate interest as a shareholder of WorldCom),
or (b) certain minimum price and procedural requirements are met. A "Business
Transaction" is defined to mean: (i) any merger, share exchange or consolidation
involving WorldCom or any of its subsidiaries; (ii) any sale, lease, exchange,
transfer or other disposition by WorldCom or any of its subsidiaries of more
than 20% of its assets; (iii) any sale, lease, exchange, transfer or disposition
of more than 20% of the assets of an entity to WorldCom or a subsidiary of
WorldCom; (iv) the issuance, sale, exchange, transfer or other disposition by
WorldCom or a subsidiary of WorldCom of any securities of WorldCom or any
subsidiary in exchange for cash, securities or other properties having an
aggregate fair market value of $15.0 million or more; (v) any merger, share
exchange or consolidation between WorldCom and any subsidiary of WorldCom in
which WorldCom is not the survivor and the charter of the surviving corporation
does not contain provisions similar to this provision; (vi) any recapitalization
or reorganization of WorldCom or reclassification of its
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securities which would have the effect of increasing the voting power of a
Related Person; (vii) any liquidation, spin off, split off, split up or
dissolution of WorldCom; and (viii) any agreement, contract or other arrangement
providing for any of the Business Transactions defined or having a similar
purpose or effect. A "Related Person" is defined to mean a beneficial owner
which, together with its Affiliates and Associates (defined below), beneficially
own 10% or more of WorldCom's outstanding voting stock or who had such level of
beneficial ownership: (a) at the time of entering into the definitive agreement
providing for the Business Transaction; (b) at the time of adoption by the Board
of Directors of a resolution approving such transaction; or (c) as of the record
date for the determination of shareholders entitled to vote on or consent to the
Business Transaction. A "Continuing Director" is a director of WorldCom who
either was a member of the Board of Directors on September 15, 1993, or who
became a director of WorldCom subsequent to such date and whose election, or
nomination for election by the shareholders, was approved by at least a majority
of the Continuing Directors then on the Board of Directors. If the votes of such
Continuing Directors would have been insufficient to constitute an act of the
Board of Directors, then such election or nomination must have been approved by
the unanimous vote of the Continuing Directors so long as there were at least
three such Continuing Directors on the Board of Directors at the time of such
unanimous vote. An "Affiliate" is defined to mean a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, such specified person. An "Associate" is defined
to mean: (a) any corporation, partnership or other organization of which such
specified person is an officer or partner; (b) any trust or other estate in
which such specified person has a substantial beneficial interest or as to which
such specified person serves as trustee or in a similar fiduciary capacity; (c)
any relative or spouse of such specified person, or any relative of such spouse,
who has the same home as such specified person or who is a director or officer
of WorldCom or any of its subsidiaries; and (d) any person who is a director,
officer or partner of such specified person or of any corporation (other than
WorldCom or any wholly owned subsidiary of WorldCom), partnership or other
entity which is an Affiliate of such specified person.
For a discussion of certain other aspects of the WorldCom Articles or the
WorldCom Bylaws that may have "anti-takeover" effects, see "Risk
Factors -- Risks Related to WorldCom, MFS and the Combined
Company -- Anti-Takeover Provisions." For a discussion of certain other aspects
of the WorldCom Articles, see "Description of WorldCom Capital Stock."
LEGAL MATTERS
Certain legal matters with respect to the Merger will be passed upon for
WorldCom by Bryan Cave LLP, St. Louis, Missouri and for MFS by Willkie Farr &
Gallagher, New York, New York. Certain tax matters with respect to the Merger
will be passed upon for WorldCom by Bryan Cave LLP, St. Louis, Missouri and for
MFS by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The consolidated financial statements and schedule of WorldCom as of
December 31, 1995 and 1994, and for each of the years in the three-year period
ended December 31, 1995, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included in WorldCom's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, and are incorporated herein by reference, in reliance upon
the authority of such firm as experts in accounting and auditing in giving said
reports.
The consolidated statements of operations, shareholders' equity and cash
flows of IDB Communications Group Inc. for the year ended December 31, 1993 and
the related financial statement schedule (such financial statements and
financial statement schedule have not been separately included herein or
incorporated by reference) have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which has been incorporated by
reference from WorldCom's Annual Report on Form 10-K for the year ended December
31, 1995, and has been so incorporated in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
129
<PAGE> 145
The combined financial statements of WilTel Network Services, as of
December 31, 1994 and 1993 and for the years then ended, incorporated by
reference in this Joint Proxy Statement/Prospectus and Registration Statement,
have been audited by Ernst & Young LLP, independent auditors, to the extent
indicated in their reports thereon, also incorporated by reference in the
Registration Statement. Such combined financial statements are incorporated by
reference herein in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements and the related financial statement
schedules of MFS as of December 31, 1995 and 1994 and for each of the three
years in the period ended December 31, 1995 included in the Annual Report on
Form 10-K of MFS for the year ended December 31, 1995 and incorporated by
reference in this Joint Proxy Statement/Prospectus have been incorporated in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given upon the authority of that firm as experts in accounting and auditing.
The consolidated financial statements and schedule of UUNET Technologies,
Inc. as of December 31, 1995 and 1994 and for each of the three years in the
period ended December 31, 1995 have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto and are incorporated herein by reference in reliance upon the authority
of said firm as experts in giving said reports.
130
<PAGE> 146
APPENDIX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
By and Among
WorldCom, Inc.,
HIJ Corp.
and
MFS Communications Company, Inc.
DATED AS OF
AUGUST 25, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 147
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I TERMS OF THE MERGER................................................. I-1
1.1 The Merger.......................................................... I-1
1.2 Effective Time...................................................... I-1
1.3 Merger Consideration................................................ I-1
1.4 Stockholders' Rights upon Merger.................................... I-2
1.5 Surrender and Exchange of Shares.................................... I-3
1.6 Options and Warrants................................................ I-3
1.7 Certificate of Incorporation........................................ I-4
1.8 Bylaws.............................................................. I-4
1.9 [Intentionally left blank].......................................... I-4
1.10 Other Effects of Merger............................................. I-4
1.11 Registration Statement; Prospectus/Proxy Statement.................. I-4
1.12 Tax-Free Reorganization............................................. I-5
1.13 Additional Actions.................................................. I-5
1.14 Dissenting Shares................................................... I-6
1.15 Alternative Structure............................................... I-6
ARTICLE II REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF MFS............ I-7
2.1 Organization and Good Standing...................................... I-7
2.2 Capitalization...................................................... I-7
2.3 Subsidiaries........................................................ I-7
2.4 Authorization; Binding Agreement.................................... I-8
2.5 Governmental Approvals.............................................. I-8
2.6 No Violations....................................................... I-8
2.7 Securities Filings and Litigation................................... I-9
2.8 MFS Financial Statements............................................ I-9
2.9 Absence of Certain Changes or Events................................ I-9
2.10 Compliance with Laws................................................ I-10
2.11 Permits............................................................. I-10
2.12 Finders and Investment Bankers...................................... I-10
2.13 Contracts........................................................... I-10
2.14 Employee Benefit Plans.............................................. I-10
2.15 Taxes and Returns................................................... I-11
2.16 Fairness Opinion.................................................... I-11
2.17 Takeover Statutes................................................... I-11
2.18 MFS Rights Plan..................................................... I-11
ARTICLE III REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF
WORLDCOM............................................................ I-12
3.1 Organization and Good Standing...................................... I-12
3.2 Capitalization...................................................... I-12
3.3 Subsidiaries........................................................ I-12
3.4 Authorization; Binding Agreement.................................... I-13
3.5 Governmental Approvals.............................................. I-13
3.6 No Violations....................................................... I-13
3.7 Securities Filings and Litigation................................... I-13
3.8 WorldCom Financial Statements....................................... I-14
3.9 Absence of Certain Changes or Events................................ I-14
3.10 Compliance with Laws................................................ I-14
3.11 Permits............................................................. I-15
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.12 Finders and Investment Bankers...................................... I-15
3.13 Contracts........................................................... I-15
3.14 Employee Benefit Plans.............................................. I-15
3.15 Taxes and Returns................................................... I-15
3.16 Fairness Opinion.................................................... I-16
3.17 Takeover Statutes and Charter....................................... I-16
3.18 WorldCom Rights Plan................................................ I-16
ARTICLE IV ADDITIONAL COVENANTS OF MFS......................................... I-16
4.1 Conduct of Business of MFS and MFS Subsidiaries..................... I-16
4.2 Notification of Certain Matters..................................... I-17
4.3 Access and Information.............................................. I-18
4.4 Stockholder Approval................................................ I-18
4.5 Reasonable Business Efforts......................................... I-18
4.6 Public Announcements................................................ I-18
4.7 Compliance.......................................................... I-18
4.8 No Solicitation..................................................... I-18
4.9 SEC and Stockholder Filings......................................... I-20
4.10 Tax Opinion Certification........................................... I-20
4.11 Affiliate Agreements................................................ I-20
4.12 Takeover Statutes................................................... I-20
4.13 Comfort Letters..................................................... I-20
ARTICLE V ADDITIONAL COVENANTS OF WORLDCOM.................................... I-20
5.1 Conduct of Business of WorldCom and the WorldCom Subsidiaries....... I-20
5.2 Notification of Certain Matters..................................... I-21
5.3 Access and Information.............................................. I-22
5.4 Shareholder Approval................................................ I-22
5.5 Reasonable Business Efforts......................................... I-22
5.6 Public Announcements................................................ I-22
5.7 Compliance.......................................................... I-22
5.8 No Solicitation..................................................... I-22
5.9 SEC and Shareholder Filings......................................... I-24
5.10 Tax Opinion Certificates............................................ I-24
5.11 Board Representation................................................ I-24
5.12 Employee Benefit Plans.............................................. I-24
5.13 Indemnification..................................................... I-25
5.14 Takeover Statutes................................................... I-25
5.15 Comfort Letters..................................................... I-25
ARTICLE VI CONDITIONS.......................................................... I-26
6.1 Conditions to Each Party's Obligations.............................. I-26
6.1.1 Stockholder Approval................................................ I-26
6.1.2 No Injunction or Action............................................. I-26
6.1.3 Governmental Approvals.............................................. I-26
6.1.4 HSR Act............................................................. I-26
6.1.5 Required Consents................................................... I-26
6.1.6 Registration Statement.............................................. I-26
6.1.7 Blue Sky............................................................ I-27
6.1.8 Tax Opinion......................................................... I-27
6.1.9 Quotation of WorldCom Stock......................................... I-27
6.2 Conditions to Obligations of MFS.................................... I-27
6.2.1 WorldCom Representations and Warranties............................. I-27
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
6.2.2 Performance by WorldCom............................................. I-27
6.2.3 No Material Adverse Change.......................................... I-27
6.2.4 Certificates and Other Deliveries................................... I-27
6.2.5 Opinion of WorldCom Counsel......................................... I-27
6.2.6 Election of Nominees................................................ I-27
6.3 Conditions to Obligations of WorldCom............................... I-27
6.3.1 MFS Representations and Warranties.................................. I-27
6.3.2 Performance by MFS.................................................. I-28
6.3.3 No Material Adverse Change.......................................... I-28
6.3.4 Certificates and Other Deliveries................................... I-28
6.3.5 Opinion of MFS Counsel.............................................. I-28
6.3.6 Affiliate Agreements................................................ I-28
ARTICLE VII TERMINATION AND ABANDONMENT......................................... I-28
7.1 Termination......................................................... I-28
7.2 Effect of Termination and Abandonment............................... I-29
7.3 Procedure Upon Termination.......................................... I-30
7.4 Services Agreement.................................................. I-31
ARTICLE VIII MISCELLANEOUS....................................................... I-31
8.1 Confidentiality..................................................... I-31
8.2 Amendment and Modification.......................................... I-31
8.3 Waiver of Compliance; Consents...................................... I-31
8.4 Survival of Representations and Warranties.......................... I-32
8.5 Notices............................................................. I-32
8.6 Binding Effect; Assignment.......................................... I-32
8.7 Expenses............................................................ I-33
8.8 Governing Law....................................................... I-33
8.9 Counterparts........................................................ I-33
8.10 Interpretation...................................................... I-33
8.11 Entire Agreement.................................................... I-33
8.12 Severability........................................................ I-33
8.13 Specific Performance................................................ I-33
8.14 Third Parties....................................................... I-33
8.15 Schedules and Disclosure Letters.................................... I-34
</TABLE>
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LIST OF SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- --------- ----------------------------------------------------------------------------------
<S> <C>
1.3(b) Articles of Amendment Establishing WorldCom Preferred Stock
2.1 MFS Jurisdictions of Organization and Qualification
2.2 Rights and Restrictions with respect to MFS Stock
2.3 MFS Subsidiaries
2.6 MFS Required Approvals
2.9 MFS Subsequent Events
2.13 MFS Material Contracts
2.14(a) MFS Employee Benefit Plans
2.14(b) Severance Obligations
2.15 MFS Tax Matters
3.2 Rights and Restrictions with respect to WorldCom Stock
3.3 WorldCom Subsidiaries
3.14 WorldCom Employee Benefit Plans
3.15 WorldCom Tax Matters
4.11 Form of MFS Affiliate Agreement
5.12(b) Schedule of Benefit Plans with Change in Control Provisions
6.2.5 Opinion of Counsel to WorldCom
6.3.5 Opinion of Counsel to MFS
</TABLE>
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<PAGE> 151
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE WHERE
TERM DEFINED
- ---- ----------
<S> <C>
Acquisition Subsidiary........................................................... I-1
Affiliate........................................................................ I-33
Agreement........................................................................ I-1
Alternative Structure............................................................ I-6
Benefit Plan..................................................................... I-10
Certificate of Merger............................................................ I-1
Certificates..................................................................... I-2
Change in Control Agreements..................................................... I-24
Closing.......................................................................... I-1
Closing Date..................................................................... I-1
Code............................................................................. I-5
Consent.......................................................................... I-8
Delaware Code.................................................................... I-1
Dissenting Shares................................................................ I-6
Effective Time................................................................... I-1
Enforceability Exceptions........................................................ I-8
ERISA............................................................................ I-10
Event............................................................................ I-9
Exchange Agent................................................................... I-3
Exchange Ratio................................................................... I-1
Final Order...................................................................... I-26
Governmental Authority........................................................... I-8
HSR Act.......................................................................... I-8
Law.............................................................................. I-9
Litigation....................................................................... I-9
Merger........................................................................... I-1
Merger Consideration............................................................. I-2
MFS.............................................................................. I-1
MFS Acquisition Agreement........................................................ I-19
MFS Ancillary Agreements......................................................... I-8
MFS Benefit Plan................................................................. I-10
MFS Common Stock................................................................. I-1
MFS Disclosure Letter............................................................ I-19
MFS Financial Statements......................................................... I-9
MFS Material Adverse Effect...................................................... I-7
MFS Material Contract............................................................ I-10
MFS Option Agreement............................................................. I-1
MFS Options...................................................................... I-3
MFS Outperformance Options....................................................... I-4
MFS Permits...................................................................... I-10
MFS Preferred Shares............................................................. I-2
MFS Preferred Stock.............................................................. I-7
MFS Proposals.................................................................... I-4
MFS Rights....................................................................... I-11
MFS Rights Agreement............................................................. I-11
MFS Securities Filings........................................................... I-9
MFS Shares....................................................................... I-1
MFS Subsidiary................................................................... I-7
MFS Superior Proposal............................................................ I-19
</TABLE>
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<TABLE>
<CAPTION>
PAGE WHERE
TERM DEFINED
- ---- ----------
<S> <C>
MFS Takeover Proposal............................................................ I-19
MFS Tax Opinion Certificate...................................................... I-20
MFS Warrants..................................................................... I-3
Multiemployer Plan............................................................... I-10
NASD............................................................................. I-8
Nominees......................................................................... I-24
Person........................................................................... I-33
Prospectus/Proxy Statement....................................................... I-4
Registration Statement........................................................... I-4
SEC.............................................................................. I-4
Securities Act................................................................... I-4
Securities Exchange Act.......................................................... I-4
Series A Preferred............................................................... I-7
Series B Preferred............................................................... I-7
Series C Preferred............................................................... I-7
Subsidiary....................................................................... I-33
Surviving Corporation............................................................ I-1
Surviving Corporation Common Stock............................................... I-2
Surviving Corporation Material Adverse Effect.................................... I-26
Takeover Statute................................................................. I-20
Tax.............................................................................. I-11
Tax Return....................................................................... I-11
Termination Fee.................................................................. I-30
WorldCom......................................................................... I-1
WorldCom Acquisition Agreement................................................... I-23
WorldCom Ancillary Agreements.................................................... I-13
WorldCom Benefit Plan............................................................ I-15
WorldCom Credit Agreement........................................................ I-13
WorldCom Financial Statements.................................................... I-14
WorldCom Material Adverse Effect................................................. I-12
WorldCom Material Contract....................................................... I-15
WorldCom Option Agreement........................................................ I-1
WorldCom Permits................................................................. I-15
WorldCom Preferred Shares........................................................ I-12
WorldCom Preferred Stock......................................................... I-2
WorldCom Proposals............................................................... I-4
WorldCom Rights Agreement........................................................ I-16
WorldCom Securities Filings...................................................... I-14
WorldCom Stock................................................................... I-1
WorldCom Subsidiary.............................................................. I-12
WorldCom Superior Proposal....................................................... I-23
WorldCom Takeover Proposal....................................................... I-23
WorldCom Tax Opinion Certificate................................................. I-24
</TABLE>
I-(vi)
<PAGE> 153
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
This Amended and Restated Agreement and Plan of Merger (the "Agreement") is
made and entered into as of August 25, 1996, by and among WorldCom, Inc., a
Georgia corporation ("WorldCom"), HIJ Corp., a Delaware corporation and wholly
owned subsidiary of WorldCom ("Acquisition Subsidiary"), and MFS Communications
Company, Inc., a Delaware corporation ("MFS").
RECITALS
A. The respective Boards of Directors of MFS, Acquisition Subsidiary and
WorldCom have approved the merger (the "Merger") of Acquisition Subsidiary with
and into MFS in accordance with the laws of the State of Delaware and the
provisions of this Agreement.
B. MFS, Acquisition Subsidiary and WorldCom desire to make certain
representations, warranties and agreements in connection with, and establish
various conditions precedent to, the Merger.
C. As a condition and inducement to WorldCom and Acquisition Subsidiary
entering into this Agreement, concurrently with the execution and delivery of
this Agreement, MFS has granted an option to WorldCom to purchase common stock
of MFS pursuant to a Stock Option Agreement with WorldCom (the "MFS Option
Agreement").
D. As a condition and inducement to MFS entering into this Agreement,
concurrently with the execution and delivery of this Agreement, WorldCom has
granted an option to MFS to purchase common stock of WorldCom pursuant to a
Stock Option Agreement with MFS (the "WorldCom Option Agreement").
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements hereinafter set forth, the parties hereto
agree as follows:
ARTICLE I
TERMS OF THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions of this
Agreement, the Merger shall be consummated in accordance with the Delaware
General Corporation Law (the "Delaware Code"). At the Effective Time (as defined
in Section 1.2, below), upon the terms and subject to the conditions of this
Agreement, Acquisition Subsidiary shall be merged with and into MFS in
accordance with the Delaware Code and the separate existence of Acquisition
Subsidiary shall thereupon cease, and MFS, as the surviving corporation in the
Merger (the "Surviving Corporation"), shall continue its corporate existence
under the laws of the State of Delaware as a subsidiary of WorldCom. The parties
shall prepare and execute a certificate of merger (the "Certificate of Merger")
in order to comply in all respects with the requirements of the Delaware Code
and with the provisions of this Agreement.
1.2 Effective Time. The Merger shall become effective at the time of the
filing of the Certificate of Merger with the Secretary of State of Delaware in
accordance with the applicable provisions of the Delaware Code or at such later
time as may be specified in the Certificate of Merger. The Certificate of Merger
shall be filed as soon as practicable after all of the conditions set forth in
this Agreement have been satisfied or waived by the party or parties entitled to
the benefit of the same. WorldCom and MFS shall mutually determine the time of
such filing and the place where the closing of the Merger (the "Closing") shall
occur. The time when the Merger shall become effective is herein referred to as
the "Effective Time" and the date on which the Effective Time occurs is herein
referred to as the "Closing Date."
1.3 Merger Consideration. (a) Subject to the provisions of this Agreement
and any applicable backup or other withholding requirements, each of the issued
and outstanding shares (the "MFS Shares") of common stock, par value $.01 per
share, of MFS (the "MFS Common Stock") as of the Effective Time shall be
converted into the right to receive, and there shall be paid and issued as
hereinafter provided, in exchange for each of the MFS Shares, 2.1 shares (the
"Exchange Ratio") of the common stock of WorldCom, par value $.01 per share (the
"WorldCom Stock"), subject to payment of cash in lieu of any fractional share as
I-1
<PAGE> 154
hereinafter provided (the "Merger Consideration"). The Exchange Ratio shall be
subject to appropriate adjustment in the event of a stock split, stock dividend
or recapitalization after the date of this Agreement applicable to shares of the
WorldCom Stock or the MFS Common Stock.
(b) Subject to the provisions of this Agreement and any applicable backup
or other withholding requirements, each of the issued and outstanding shares
(the "MFS Preferred Shares") of Series A Preferred (as hereinafter defined) and
Series B Preferred (as hereinafter defined) (other than any Dissenting Shares
(as hereinafter defined)), as of the Effective Time shall be converted into the
right to receive and there shall be paid and issued as hereinafter provided, in
exchange for each share of Series A Preferred and Series B Preferred one (1)
share of Series A 8% Cumulative Convertible Preferred Stock of WorldCom and one
(1) share of Series B Convertible Preferred Stock of WorldCom, respectively
(collectively, "WorldCom Preferred Stock") and, as a result, each depositary
share representing a 1/100 interest in a share of Series A Preferred shall be
converted into the right to receive a depositary share representing a 1/100
interest in a share of Series A 8% Cumulative Convertible Preferred Stock of
WorldCom. The terms of the WorldCom Preferred Stock shall be substantially the
same as set forth on Schedule 1.3(b) attached hereto and shall be the same as
the terms of the corresponding MFS Preferred Shares (with such stock being
convertible at the same conversion price into the same number of shares of
WorldCom Stock, in each case, as adjusted for the Exchange Ratio and otherwise
on terms substantially similar to the terms of the corresponding MFS Preferred
Shares with appropriate adjustments for dates of issuance or anniversary),
except that each share of Series B Convertible Preferred Stock of WorldCom (i)
shall be entitled to one vote per share on all matters presented to WorldCom
shareholders, voting together with the WorldCom Stock and such other voting
rights as may be required by law, and (ii) at the discretion of WorldCom, may
contain corresponding restrictions on transfer, and in the case of both series
of WorldCom Preferred Stock, with such changes as shall be appropriate to
reflect previous adjustments effected pursuant to the terms of the MFS Preferred
Shares and the requirements of Georgia Law.
(c) No fractional shares of WorldCom Stock shall be issued pursuant to the
Merger nor will any fractional share interest involved entitle the holder
thereof to vote, to receive dividends or to exercise any other rights of a
shareholder of WorldCom. In lieu thereof, any person who would otherwise be
entitled to a fractional share of WorldCom Stock pursuant to the provisions
hereof shall receive an amount in cash equal to the value of such fractional
share. The value of such fractional share shall be the product of such fraction
multiplied by $26.375, subject to appropriate adjustment in the event of a stock
split, stock dividend or recapitalization after the date of this Agreement
applicable to shares of the WorldCom Stock.
(d) Each share of MFS Common Stock or MFS Preferred Stock held in the
treasury of MFS or by a wholly owned subsidiary of MFS shall be cancelled as of
the Effective Time and no Merger Consideration shall be payable with respect
thereto.
(e) Subject to the provisions of this Agreement, at the Effective Time, the
shares of Acquisition Subsidiary common stock outstanding immediately prior to
the Merger shall be converted, by virtue of the Merger and without any action on
the part of the holder thereof, into one share of the common stock of the
Surviving Corporation (the "Surviving Corporation Common Stock"), which one
share of the Surviving Corporation Common Stock shall constitute all of the
issued and outstanding capital stock of the Surviving Corporation and shall be
owned by WorldCom.
1.4 Stockholders' Rights upon Merger. Upon consummation of the Merger, the
certificates which theretofore represented MFS Shares or MFS Preferred Shares
(other than Dissenting Shares) (the "Certificates") shall cease to represent any
rights with respect thereto, and, subject to applicable law and this Agreement,
shall only represent the right to receive the Merger Consideration including the
amount of cash, if any, payable in lieu of fractional shares of WorldCom Stock
into which the MFS Shares or MFS Preferred Shares, as the case may be, have been
converted pursuant to this Agreement. MFS represents and warrants neither the
holders of the shares of MFS Stock nor the holders of shares of Series A
Preferred are entitled to appraisal rights under applicable Law (as hereinafter
defined) or the Certificate of Incorporation of MFS provided the conditions of
Section 262(b)(1) of the Delaware Code are satisfied and the provisions of
Section 262(b)(2) of the Delaware Code are not applicable.
I-2
<PAGE> 155
1.5 Surrender and Exchange of Shares. (a) Prior to the Closing Date,
WorldCom shall appoint The Bank of New York or another agent mutually acceptable
to WorldCom and MFS to act as exchange agent (the "Exchange Agent") for the
Merger. Promptly after the Effective Time, WorldCom shall make available, or
cause to be made available, to the Exchange Agent such certificates evidencing
such number of shares of WorldCom Stock and WorldCom Preferred Stock and such
amount of cash, as and when necessary, in order to enable the Exchange Agent to
effect the exchange of certificates and make the cash payments in respect of
fractional shares contemplated by Section 1.5(c) below.
(b) On the Closing Date, WorldCom shall instruct the Exchange Agent to mail
to each holder of record of a Certificate within five business days of receiving
from MFS a list of such holders of record, (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as WorldCom may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing the Merger
Consideration.
(c) After the Effective Time, each holder of a MFS Share or MFS Preferred
Share (other than Dissenting Shares) shall surrender and deliver the
Certificates to the Exchange Agent together with a duly completed and executed
transmittal letter. Upon such surrender and delivery, the holder shall receive a
certificate representing the number of whole shares of WorldCom Stock or
WorldCom Preferred Stock into which such holder's MFS Shares or MFS Preferred
Shares have been converted pursuant to this Agreement, subject to payment of
cash in lieu of any fractional share. Until so surrendered and exchanged, each
outstanding Certificate after the Effective Time shall be deemed for all
purposes to evidence the right to receive that number of whole shares of
WorldCom Stock or WorldCom Preferred Stock into which the MFS Shares or MFS
Preferred Shares (other than Dissenting Shares) have been converted pursuant to
this Agreement, subject to payment of cash in lieu of any factional share;
provided, however, that no dividends or other distributions, if any, in respect
of the shares of WorldCom Stock or WorldCom Preferred Stock, declared after the
Effective Time and payable to holders of record after the Effective Time, shall
be paid to the holders of any unsurrendered Certificates until such Certificates
and transmittal letters are surrendered and delivered as provided herein.
Subject to applicable Law, after the surrender and exchange of Certificates, the
record holders thereof will be entitled to receive any such dividends or other
distributions without interest thereon, which theretofore have become payable
with respect to the number of shares of WorldCom Stock or WorldCom Preferred
Stock for which such Certificates were exchangeable. Holders of any
unsurrendered Certificates shall not be entitled to vote WorldCom Stock or
WorldCom Preferred Stock until such Certificates are exchanged pursuant to this
Agreement.
(d) At the Effective Time, the stock transfer books of MFS shall be closed
and no transfer of MFS Shares or MFS Preferred Shares shall be made thereafter,
other than transfers of MFS Shares and MFS Preferred Shares that have occurred
prior to the Effective Time. In the event that, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be canceled
and exchanged for shares of WorldCom Stock or WorldCom Preferred Stock or cash
as provided in Section 1.3.
(e) Neither MFS nor WorldCom nor the Exchange Agent shall be liable to any
holder of MFS Shares or MFS Preferred Shares for any such shares of WorldCom
Stock or WorldCom Preferred Stock (or dividends or distributions with respect
thereto), or cash delivered to a public official pursuant to any abandoned
property, escheat or similar law, rule, regulation, statute, order, judgment or
decree.
1.6 Options and Warrants. (a) At the Effective Time, WorldCom shall cause
each holder of a then-outstanding and unexercised option (the "MFS Options") or
warrant (the "MFS Warrants") exercisable for shares of MFS Common Stock to
receive, by virtue of the Merger and without any action on the part of the
holder thereof, options or warrants, respectively, exercisable for shares of
WorldCom Stock having the same terms and conditions as the MFS Options and MFS
Warrants (including such terms and conditions as may be incorporated by
reference into the agreements evidencing MFS Options and MFS Warrants pursuant
to the plans or arrangements pursuant to which such MFS Options and MFS Warrants
were granted and taking into account the provisions of Section 5.12(b) hereof)
except that (i) the exercise price and the number of shares issuable upon
exercise shall be divided and multiplied, respectively, by the Exchange Ratio,
and (ii) MFS
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Options which are "MFS Outperformance Options" (as defined in Section 1.6(b))
shall be treated as set forth in Section 1.6(b). WorldCom shall use all
reasonable efforts to ensure that the MFS Options which qualified as incentive
stock options under Section 422 of the Code prior to the Effective Time continue
to so qualify after the Effective Time. WorldCom shall take all corporate action
necessary to reserve for issuance a sufficient number of shares of WorldCom
Stock for delivery upon the exercise of MFS Options and MFS Warrants after the
Effective Time. Immediately after the Effective Time, WorldCom shall file or
cause to be filed all registration statements on Form S-8 or other appropriate
form as may be necessary in connection with the purchase and sale of WorldCom
Stock contemplated by such MFS Options subsequent to the Effective Time, and
shall maintain the effectiveness of such registration statements (and maintain
the current status of the prospectus or prospectuses contained therein) for so
long as any of the MFS Options registered thereunder remain outstanding. As soon
as practicable after the Effective Time, WorldCom shall qualify under applicable
state securities laws the issuance of such shares of WorldCom Stock issuable
upon exercise of MFS Options. WorldCom shall use reasonable business efforts to
cause to be taken any actions necessary on the part of WorldCom to enable
subsequent transactions in WorldCom Stock after the Effective Time pursuant to
MFS Options held by persons subject to the reporting requirements of Section
16(a) of the Securities Exchange Act to be exempt from the application of
Section 16(b) of the Securities Exchange Act, to the extent permitted
thereunder. At the Effective Time, WorldCom shall assume, by supplemental
agreement, the due and punctual performance and observance of each and every
covenant and condition of the Warrant Agreement dated as of June 8, 1993 between
MFS and Gleacher & Co., Inc.
(b) At the Effective Time, each holder of a then-outstanding and
unexercised MFS Option which is an "Outperformance Option" awarded under the MFS
1993 Stock Plan ("MFS Outperformance Options") shall be entitled to receive, by
virtue of the Merger, the value of such MFS Outperformance Option in accordance
with the terms of the MFS 1993 Stock Plan.
1.7 Certificate of Incorporation. At and after the Effective Time, the
Certificate of Incorporation of the Surviving Corporation shall be identical to
the Certificate of Incorporation of MFS in effect at the Effective Time (subject
to any subsequent amendment).
1.8 Bylaws. Subject to Section 5.13 below, at and after the Effective
Time, the Bylaws of Acquisition Subsidiary in effect at the Effective Time shall
be the Bylaws of the Surviving Corporation (subject to any subsequent
amendment).
1.9 [Intentionally left blank].
1.10 Other Effects of Merger. The Merger shall have all further effects as
specified in the applicable provisions of the Delaware Code.
1.11 Registration Statement; Prospectus/Proxy Statement.
(a) For the purposes of (i) registering the issuance of WorldCom Stock and
the WorldCom Preferred Stock to holders of the MFS Shares and the MFS Preferred
Shares in connection with the Merger with the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act"), and complying with applicable
state securities Laws, (ii) holding the meeting of MFS stockholders to vote upon
the adoption of this Agreement and the Merger and the transactions contemplated
hereby and thereby (the "MFS Proposals"), and (iii) holding the meeting of
WorldCom's shareholders to approve the amendment of WorldCom's Articles of
Incorporation to increase the number of authorized shares of WorldCom Stock and
to approve the issuance of the WorldCom Stock and WorldCom Preferred Stock in
the Merger and the other transactions contemplated hereby and thereby (the
"WorldCom Proposals"), WorldCom and MFS will cooperate in the preparation of a
registration statement on Form S-4 (such registration statement, together with
any and all amendments and supplements thereto, being herein referred to as the
"Registration Statement"), including a prospectus/joint proxy statement
satisfying all requirements of applicable state securities Laws, the Securities
Act and the Securities Exchange Act of 1934 and the rules and regulations
thereunder (the "Securities Exchange Act"). Such prospectus/joint proxy
statement in the form mailed by MFS and WorldCom to their respective
stockholders, together with any and all amendments or supplements thereto, is
herein referred to as the "Prospectus/Proxy Statement."
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(b) MFS will furnish WorldCom with such information concerning MFS and its
subsidiaries as is necessary in order to cause the Prospectus/Proxy Statement,
insofar as it relates to MFS and its subsidiaries, to comply with applicable
Law. None of the information relating to MFS and its subsidiaries supplied by
MFS for inclusion in the Prospectus/Proxy Statement will be false or misleading
with respect to any material fact or will 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. MFS agrees promptly to advise WorldCom if, at any time prior to the
respective meetings of the stockholders of MFS or WorldCom referenced herein,
any information provided by it in the Prospectus/Proxy Statement is or becomes
incorrect or incomplete in any material respect and to provide WorldCom with the
information needed to correct such inaccuracy or omission. MFS will furnish
WorldCom with such supplemental information as may be necessary in order to
cause the Prospectus/Proxy Statement, insofar as it relates to MFS and its
subsidiaries, to comply with applicable Law after the mailing thereof to the
stockholders of MFS or WorldCom.
(c) WorldCom will furnish MFS with such information concerning WorldCom and
its subsidiaries as is necessary in order to cause the Prospectus/Proxy
Statement, insofar as it relates to WorldCom and its subsidiaries, to comply
with applicable Law. None of the information relating to WorldCom and its
subsidiaries supplied by WorldCom for inclusion in the Prospectus/Proxy
Statement will be false or misleading with respect to any material fact or will
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. WorldCom agrees promptly to advise MFS if, at
any time prior to the respective meetings of stockholders of MFS or WorldCom
referenced herein, any information provided by it in the Prospectus/Proxy
Statement is or becomes incorrect or incomplete in any material respect and to
provide MFS with the information needed to correct such inaccuracy or omission.
WorldCom will furnish MFS with such supplemental information as may be necessary
in order to cause the Prospectus/Proxy Statement, insofar as it relates to
WorldCom and its subsidiaries, to comply with applicable Law after the mailing
thereof to the stockholders of MFS or WorldCom.
(d) MFS and WorldCom agree to cooperate in making any preliminary filings
of the Prospectus/Proxy Statement with the SEC, as promptly as practicable,
pursuant to Rule 14a-6 under the Securities Exchange Act.
(e) WorldCom will file the Registration Statement with the SEC and
appropriate materials with applicable state securities agencies as promptly as
practicable and will use all reasonable efforts to cause the Registration
Statement to become effective under the Securities Act and all such state filed
materials to comply with applicable state securities Laws. MFS authorizes
WorldCom to utilize in the Registration Statement and in all such state filed
materials, the information concerning MFS and its subsidiaries provided to
WorldCom in connection with, or contained in, the Prospectus/Proxy Statement.
WorldCom promptly will advise MFS when the Registration Statement has become
effective and of any supplements or amendments thereto, and WorldCom will
furnish MFS with copies of all such documents. Except for the Prospectus/Joint
Proxy or the preliminary prospectus/joint proxy, neither WorldCom nor MFS shall
distribute any written material that might constitute a "prospectus" relating to
the Merger, the MFS Proposals or the WorldCom Proposals within the meaning of
the Securities Act or any applicable state securities Law without the prior
written consent of WorldCom.
1.12 Tax-Free Reorganization. The parties intend that the Merger qualify
as a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended, and the regulations thereunder (the "Code"). None of
the parties will knowingly take any action that would cause the Merger to fail
to qualify as a reorganization within the meaning of Section 368(a) of the Code.
1.13 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Acquisition Subsidiary or MFS or otherwise to carry out
this Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of Acquisition
Subsidiary or MFS, all such
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deeds, bills of sale, assignments and assurances and to take and do, in the name
and on behalf of Acquisition Subsidiary or MFS, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties or assets in
the Surviving Corporation or otherwise to carry out this Agreement.
1.14 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of MFS Series B Preferred held by a holder who has demanded and perfected
his demand for appraisal of his shares of Series B Preferred in accordance with
Section 262 of the Delaware Code and as of the Effective Time has neither
effectively withdrawn nor lost his right to such appraisal (the "Dissenting
Shares"), shall not be converted into or represent a right to receive the Series
B Convertible Preferred Stock of WorldCom pursuant to Section 1.3 hereof, but
the holder thereof shall be entitled to only such rights as are granted by the
Delaware Code.
(b) Notwithstanding the provisions of subsection (a) of this Section 1.14,
if any holder of shares of Series B Preferred who demands appraisal of such
shares under the Delaware Code shall effectively withdraw or lose (through
failure to perfect or otherwise) his right to appraisal, then as of the
Effective Time or the occurrence of such event, whichever later occurs, such
holder's shares of Series B Preferred shall automatically be converted into and
represent only the right to receive the Series B Convertible Preferred Stock of
WorldCom pursuant to Section 1.3 hereof, without any interest thereon, upon
surrender of the certificate or certificates representing such shares of Series
B Preferred.
(c) MFS shall give WorldCom (i) prompt notice of any written demands for
appraisal or payment of the fair value of any shares of Series B Preferred,
withdrawals of such demands, and any other instruments served pursuant to the
Delaware Code received by MFS and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
Delaware Code. MFS shall not voluntarily make any payment with respect to any
demands for appraisal and shall not, except with the prior written consent of
WorldCom, settle or offer to settle any such demands. All payments made to
holders of Dissenting Shares shall be made by MFS. No funds will be provided to
MFS, directly or indirectly, by WorldCom or Acquisition Subsidiary nor will
WorldCom or Acquisition Subsidiary reimburse MFS, directly or indirectly, for
these payments.
1.15 Alternative Structure. Notwithstanding anything to the contrary
herein, the parties agree that the structure of the Merger as provided herein
may, by mutual agreement of MFS and WorldCom, be modified such that, in lieu of
Acquisition Subsidiary merging with and into MFS, MFS may merge with and into
WorldCom (the "Alternative Structure"), provided the Alternative Structure (i)
provides for equivalent value of consideration (which in the case of securities,
shall be freely tradeable, subject to Rule 145 promulgated under the Securities
Act) for, and entails no adverse tax consequences to, MFS's stockholders or
holders of options or warrants for MFS Shares or MFS Outperformance Options,
(ii) would have no materially adverse tax, accounting or other financial
consequences for MFS, MFS's stockholders or holders of options or warrants for
MFS Shares or MFS Outperformance Options (including without limitation an
adverse effect with respect to any change in control provisions contained
therein), and (iii) would not result in any material delay in consummation of
the Merger as modified. In addition, MFS agrees to cooperate with WorldCom in
considering structures for the Merger other than the Alternative Structure which
will be implemented at the request of WorldCom, but only with the consent of
MFS, which consent shall not be unreasonably withheld; provided, however, that
in determining whether to consent to structures other than the Alternative
Structure, consent will not be considered to be unreasonably withheld if the
decision to withhold consent is determined by considering the factors referred
to in clauses (i), (ii) and (iii) above. In the event WorldCom and MFS agree to
implement the Alternative Structure or another structure as contemplated by this
Section 1.15, the parties agree to execute an appropriate amendment to this
Agreement (including representations, warranties, covenants and other pertinent
provisions to the extent appropriate in light of the Alternative Structure or
other structure) providing for such Alternative Structure or other structure.
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ARTICLE II
REPRESENTATIONS, WARRANTIES AND CERTAIN
COVENANTS OF MFS
MFS represents, warrants and/or covenants to and with WorldCom as follows:
2.1 Organization and Good Standing. MFS and each of the MFS Subsidiaries
is a corporation or partnership duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite corporate or partnership power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
MFS and each of the MFS Subsidiaries is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the character of the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except where the failure
to be so duly qualified or licensed and in good standing would not have a
material adverse effect on the business, assets (including, but not limited to,
intangible assets), prospects, condition (financial or otherwise), properties
(including, but not limited to, intangible properties), liabilities or the
results of operations of MFS and its subsidiaries taken as a whole ("MFS
Material Adverse Effect"). Schedule 2.1 attached hereto contains a complete and
accurate list of the jurisdictions of incorporation or organization and
qualification or license of MFS and the MFS Subsidiaries. MFS has heretofore
made available to WorldCom accurate and complete copies of the Certificate of
Incorporation and Bylaws, as currently in effect, of MFS. For purposes of this
Agreement, the term "MFS Subsidiary" shall mean any "Significant Subsidiary" (as
such term is defined in Rule 1-02 of Regulation S-X of the SEC) of MFS.
2.2 Capitalization. As of the date hereof, the authorized capital stock of
MFS consists of (a) 400,000,000 shares of MFS Common Stock, and (b) 25,000,000
shares of preferred stock, as to which 95,000 shares have been designated as
Series A 8% Cumulative Convertible Preferred Stock, 15,000,000 shares have been
designated as Series B Convertible Preferred Stock and 75,000 shares have been
designated as Series C Junior Participating Preferred Stock (collectively, the
"MFS Preferred Stock" and, separately, the "Series A Preferred," "Series B
Preferred," and "Series C Preferred," respectively). As of August 23, 1996, (a)
220,869,715 shares of MFS Common Stock were issued and outstanding, (b) no
shares of MFS Common Stock were issued and held in the treasury of MFS, and (c)
94,992 shares of Series A Preferred, 15,000,000 shares of Series B Preferred and
no shares of Series C Preferred were issued and outstanding. No other capital
stock of MFS is authorized or issued. All issued and outstanding shares of the
MFS Common Stock and MFS Preferred Stock are duly authorized, validly issued,
fully paid and non-assessable and were issued free of preemptive rights and in
compliance with applicable securities Laws. Except as set forth in the MFS
Securities Filings (as hereinafter defined) or on Schedule 2.2 attached hereto
and as otherwise contemplated by this Agreement, as of the date hereof there are
no outstanding rights, subscriptions, warrants, puts, calls, unsatisfied
preemptive rights, options or other agreements of any kind relating to any of
the outstanding, authorized but unissued, unauthorized or treasury shares of the
capital stock or any other security of MFS, and there is no authorized or
outstanding security of any kind convertible into or exchangeable for any such
capital stock or other security. Except as disclosed in the MFS Securities
Filings, there are no restrictions upon the transfer of or otherwise pertaining
to the securities (including, but not limited to, the ability to pay dividends
thereon) or retained earnings of MFS and the MFS Subsidiaries or the ownership
thereof other than those, if any, described on Schedule 2.2 attached hereto or
those imposed by the Securities Act, the Securities Exchange Act, applicable
state securities Laws or applicable corporate Law.
2.3 Subsidiaries. Schedule 2.3 attached hereto sets forth the name and
jurisdiction of incorporation or organization of each MFS Subsidiary, each of
which is wholly owned by MFS except as otherwise indicated on said Schedule 2.3.
All of the capital stock and other interests of the MFS Subsidiaries so held by
MFS are owned by it or a MFS Subsidiary as indicated on said Schedule 2.3, free
and clear of any claim, lien, encumbrance, security interest or agreement with
respect thereto. All of the outstanding shares of capital stock in each of the
MFS Subsidiaries directly or indirectly held by MFS are duly authorized, validly
issued, fully paid and non-assessable and were issued free of preemptive rights
and in compliance with applicable Laws. Except as set forth on Schedule 2.3
attached hereto, there are no irrevocable proxies or similar obligations with
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respect to such capital stock of the MFS Subsidiaries held by MFS and no equity
securities or other interests of any of the MFS Subsidiaries are or may become
required to be issued or purchased by reason of any options, warrants, rights to
subscribe to, puts, calls or commitments of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for, shares of any
capital stock of any MFS Subsidiary, and there are no contracts, commitments,
understandings or arrangements by which any MFS Subsidiary is bound to issue
additional shares of its capital stock, or options, warrants or rights to
purchase or acquire any additional shares of its capital stock or securities
convertible into or exchangeable for such shares.
2.4 Authorization; Binding Agreement. MFS has all requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the other agreements and documents referred to herein to which MFS is or
will be a party or a signatory (the "MFS Ancillary Agreements") and the
consummation of the transactions contemplated hereby and thereby, including, but
not limited to, the Merger have been duly and validly authorized by MFS's Board
of Directors and no other corporate proceedings on the part of MFS or any MFS
Subsidiary are necessary to authorize the execution and delivery of this
Agreement and the MFS Ancillary Agreements or to consummate the transactions
contemplated hereby or thereby (other than the adoption of this Agreement by the
stockholders of MFS in accordance with the Delaware Code and the Certificate of
Incorporation and Bylaws of MFS). This Agreement has been duly and validly
executed and delivered by MFS and constitutes, and upon execution and delivery
thereof as contemplated by this Agreement, the MFS Ancillary Agreements will
constitute, the legal, valid and binding agreements of MFS, enforceable against
MFS in accordance with its and their respective terms, except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by principles of equity regarding the availability of
remedies ("Enforceability Exceptions").
2.5 Governmental Approvals. No consent, approval, waiver or authorization
of, notice to or declaration or filing with ("Consent") any nation or
government, any state or other political subdivision thereof, any entity,
authority or body exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including, without
limitation, any governmental or regulatory authority, agency, department, board,
commission, administration or instrumentality, any court, tribunal or arbitrator
and any self-regulatory organization ("Governmental Authority") on the part of
MFS or any of the MFS Subsidiaries is required in connection with the execution
or delivery by MFS of this Agreement and the MFS Ancillary Agreements or the
consummation by MFS of the transactions contemplated hereby or thereby other
than (i) the filing of the Certificate of Merger with the Secretary of State of
Delaware in accordance with the Delaware Code, (ii) filings with the SEC, state
securities laws administrators and the National Association of Securities
Dealers, Inc. ("NASD"), (iii) Consents from the Federal Communications
Commission, state public service or utility commissions (or comparable state
Governmental Authorities) or foreign telephone administrations, (iv) filings
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder (the "HSR Act"), (v) such
filings as may be required in any jurisdiction where MFS is qualified or
authorized to do business as a foreign corporation in order to maintain such
qualification or authorization, and (vi) those Consents that, if they were not
obtained or made, do not or would not have a MFS Material Adverse Effect or
materially and adversely affect the ability of MFS to perform its obligations as
set forth in this Agreement or to consummate the transactions contemplated
hereby.
2.6 No Violations. The execution and delivery of this Agreement and the
MFS Ancillary Agreements, the consummation of the transactions contemplated
hereby and thereby and compliance by MFS with any of the provisions hereof or
thereof will not (i) conflict with or result in any breach of any provision of
the Certificate and/or Articles of Incorporation or Bylaws or other governing
instruments of MFS or any of the MFS Subsidiaries, (ii) except as set forth on
Schedule 2.6 attached hereto, require any Consent under or result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration or augment the performance required) under any of the terms,
conditions or provisions of any MFS Material Contract (as hereinafter defined),
(iii) result in the creation or imposition of any lien or encumbrance of any
kind upon any of the assets of MFS
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or any MFS Subsidiary, or (iv) subject to obtaining the Consents from
Governmental Authorities referred to in Section 2.5, above, contravene any
applicable provision of any constitution, treaty, statute, law, code, rule,
regulation, ordinance, policy or order of any Governmental Authority or other
matters having the force of law including, but not limited to, any orders,
decisions, injunctions, judgments, awards and decrees of or agreements with any
court or other Governmental Authority ("Law") currently in effect to which MFS
or any MFS Subsidiary or its or any of their respective assets or properties are
subject, except in the case of clauses (ii), (iii) and (iv), above, for any
deviations from the foregoing which do not or would not have a MFS Material
Adverse Effect.
2.7 Securities Filings and Litigation. MFS has made available to WorldCom
true and complete copies of (i) its Annual Reports on Form 10-K, as amended, for
the years ended December 31, 1993, 1994 and 1995, as filed with the SEC, (ii)
its proxy statements relating to all of the meetings of stockholders (whether
annual or special) of MFS since May 26, 1993, as filed with the SEC, and (iii)
all other reports, statements and registration statements and amendments thereto
(including, without limitation, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as amended) filed by MFS with the SEC since May 26, 1993.
The reports and statements set forth in clauses (i) through (iii), above, and
those subsequently provided or required to be provided pursuant to this Section,
are referred to collectively herein as the "MFS Securities Filings." As of their
respective dates, or as of the date of the last amendment thereof, if amended
after filing, none of the MFS Securities Filings (including all schedules
thereto and disclosure documents incorporated by reference therein), contained
or, as to MFS Securities Filings subsequent to the date hereof, will contain any
untrue statement of a material fact or omitted or, as to MFS Securities Filings
subsequent to the date hereof, will omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the MFS
Securities Filings at the time of filing or as of the date of the last amendment
thereof, if amended after filing, complied or, as to MFS Securities Filings
subsequent to the date hereof, will comply in all material respects with the
Securities Exchange Act or the Securities Act, as applicable. There is no
action, cause of action, claim, demand, suit, proceeding, citation, summons,
subpoena, inquiry or investigation of any nature, civil, criminal, regulatory or
otherwise, in law or in equity, by or before any court, tribunal, arbitrator or
other Governmental Authority ("Litigation") pending or, to the knowledge of MFS,
threatened against MFS or any of its subsidiaries, any officer, director,
employee or agent thereof, in his or her capacity as such, or as a fiduciary
with respect to any MFS Benefit Plan, as hereinafter defined, or otherwise
relating to MFS or any of its subsidiaries or the securities of any of them, or
any properties or rights of MFS or any of its subsidiaries or any MFS Benefit
Plan which is required to be described in any MFS Securities Filing that is not
so described. No event has occurred as a consequence of which MFS would be
required to file a Current Report on Form 8-K pursuant to the requirements of
the Securities Exchange Act as to which such a report has not been timely filed
with the SEC. Any reports, statements and registration statements and amendments
thereof (including, without limitation, Reports on Form 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K, as amended) filed by MFS with the
SEC after the date hereof shall be provided to WorldCom on the date of such
filing.
2.8 MFS Financial Statements. The audited consolidated financial
statements and unaudited interim financial statements of MFS included in the MFS
Securities Filings (the "MFS Financial Statements") have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes thereto) and present
fairly, in all material respects, the financial position of MFS and its
subsidiaries as at the dates thereof and the results of their operations and
cash flows for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end audit adjustments, any other
adjustments described therein and the fact that certain information and notes
have been condensed or omitted in accordance with the Securities Exchange Act.
2.9 Absence of Certain Changes or Events. Except as set forth in the MFS
Securities Filings or in Schedule 2.9 attached hereto, since December 31, 1995,
through the date of this Agreement, there has not been: (i) any event,
occurrence, fact, condition, change, development or effect ("Event") that has
had or could reasonably be expected to have a MFS Material Adverse Effect; or
(ii) any declaration, payment or setting aside for payment of any dividend
(except to MFS or a MFS Subsidiary and dividends required under
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the present terms of the MFS Preferred Stock) or other distribution or any
redemption, purchase or other acquisition of any shares of capital stock or
securities of MFS by or from MFS.
2.10 Compliance with Laws. The business of MFS and each of its
subsidiaries has been operated in compliance with all Laws and all tariffs,
rules and regulations applicable to the regulation of the provision of
communications services including, but not limited to, information service
providers and competitive local exchange, exchange access, inter-exchange and
international telecommunications services, except for any instances of
non-compliance which do not and will not have a MFS Material Adverse Effect.
Without limiting the generality of the foregoing, neither MFS nor any of its
subsidiaries has engaged in carrying transit or indirect traffic in violation of
applicable Laws, tariffs, rules and regulations in any jurisdiction, foreign or
domestic, which violation could reasonably be expected to have a MFS Material
Adverse Effect.
2.11 Permits. (i) MFS and its subsidiaries have all permits, certificates,
licenses, approvals, tariffs and other authorizations required in connection
with the operation of their business (collectively, "MFS Permits"), (ii) neither
MFS nor any of its subsidiaries is in violation of any MFS Permit, and (iii) no
proceedings are pending or, to the knowledge of MFS, threatened, to revoke or
limit any MFS Permit, except, in each case, those the absence or violation of
which do not and will not have a MFS Material Adverse Effect.
2.12 Finders and Investment Bankers. Neither MFS nor any of its officers
or directors has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated hereby other than pursuant to the agreement with Gleacher NatWest
Inc., an accurate and complete copy of which agreement has been provided to
WorldCom.
2.13 Contracts. Except as set forth in Schedule 2.13 attached hereto,
neither MFS nor any of its subsidiaries is a party or is subject to any material
note, bond, mortgage, indenture, contract, lease, license, agreement,
understanding, instrument, bid or proposal that is required to be described in
or filed as an exhibit to any MFS Securities Filing ("MFS Material Contract")
that is not so described in or filed as required by the Securities Act or the
Securities Exchange Act, as the case may be. For purposes of this Section 2.13
and Section 3.13 below, a note, bond, mortgage, indenture, contract, lease,
license, agreement, understanding, instrument, bid or proposal shall be
considered material if it is required to be described in or filed as an exhibit
to any document filed under the Securities Act or the Securities Exchange Act,
as the case may be. MFS has made available to WorldCom true and accurate copies
of the MFS Material Contracts. All such MFS Material Contracts are valid and
binding and are in full force and effect and enforceable against MFS or such
subsidiary in accordance with their respective terms, subject to the
Enforceability Exceptions. Except as set forth in Schedule 2.6 attached hereto,
(i) no Consent of any person is needed in order that each such MFS Material
Contract shall continue in full force and effect in accordance with its terms
without penalty, acceleration or rights of early termination by reason of the
consummation of the transactions contemplated by this Agreement, except for
Consents the absence of which would not have a MFS Material Adverse Effect, and
(ii) neither MFS nor any of its subsidiaries is in violation or breach of or
default under any such MFS Material Contract; nor to MFS's knowledge is any
other party to any such MFS Material Contract in violation or breach of or
default under any such MFS Material Contract in each case where such violation
or breach would have a MFS Material Adverse Effect.
2.14 Employee Benefit Plans. Except as set forth in Schedule 2.14(a)
attached hereto, there are no material Benefit Plans (as defined below)
maintained or contributed to by MFS or any of its subsidiaries ("MFS Benefit
Plan"). A "Benefit Plan" shall include (i) an employee benefit plan as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended, together with all regulations thereunder (" ERISA"), even if, because
of some other provision of ERISA, such plan is not subject to any or all of
ERISA's provisions, and (ii) whether or not described in the preceding clause,
any pension, profit sharing, stock bonus, deferred or supplemental compensation,
retirement, thrift, stock purchase or stock option plan, or any other
compensation, welfare, fringe benefit or retirement plan, program, policy,
course of conduct, understanding or arrangement of any kind whatsoever,
providing for benefits for or the welfare of any or all of the current or former
employees or agents of MFS or any of its subsidiaries or their beneficiaries or
dependents; provided that Benefit Plans shall not include any multiemployer
plan, as defined in Section 3(37) of ERISA (a "Multiemployer Plan").
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No MFS Benefit Plan is a defined benefit pension plan subject to Title IV
of ERISA or Section 412 of the Code. Each of the MFS Benefit Plans has been
maintained in material compliance with its terms and all applicable Law, except
where the failure to do so would not be reasonably likely to result in a MFS
Material Adverse Effect.
Neither MFS nor any of its subsidiaries contributes to, or has any
outstanding liability with respect to, any Multiemployer Plan.
Except as set forth in Schedule 2.14(b) attached hereto and except as
provided in Section 5.12(b), the consummation of the transactions contemplated
by this Agreement will not (i) entitle any individual to severance pay, or (ii)
accelerate the time of payment or vesting of benefits or increase the amount of
compensation due to any individual.
2.15 Taxes and Returns. (a) Except as disclosed in Schedule 2.15 attached
hereto, MFS and each of its subsidiaries has timely filed, or caused to be
timely filed all material Tax Returns required to be filed by it, and has paid,
collected or withheld, or caused to be paid, collected or withheld, all material
amounts of Taxes required to be paid, collected or withheld, other than such
Taxes for which adequate reserves in the MFS Financial Statements have been
established or which are being contested in good faith. Except as set forth in
Schedule 2.15 attached hereto, there are no claims or assessments pending
against MFS or any of its subsidiaries for any alleged deficiency in any Tax,
and MFS has not been notified in writing of any proposed Tax claims or
assessments against MFS or any of its subsidiaries (other than in each case,
claims or assessments for which adequate reserves in the MFS Financial
Statements have been established or which are being contested in good faith or
are immaterial in amount). Except as set forth in Schedule 2.15 attached hereto,
neither MFS nor any of its subsidiaries has any waivers or extensions of any
applicable statute of limitations to assess any material amount of Taxes. Except
as set forth in Schedule 2.15 attached hereto, there are no outstanding requests
by MFS or any of its subsidiaries for any extension of time within which to file
any material Tax Return or within which to pay any material amounts of Taxes
shown to be due on any return.
(b) To the best knowledge of MFS, there are no liens for material amounts
of Taxes on the assets of MFS or any of its subsidiaries except for statutory
liens for current Taxes not yet due and payable.
(c) For purposes of this Agreement, the term "Tax" shall mean any federal,
state, local, foreign or provincial income, gross receipts, property, sales,
use, license, excise, franchise, employment, payroll, alternative or added
minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty imposed by any Governmental Authority. The
term "Tax Return" shall mean a report, return or other information (including
any attached schedules or any amendments to such report, return or other
information) required to be supplied to or filed with a governmental entity with
respect to any Tax, including an information return, claim for refund, amended
return or declaration or estimated Tax.
2.16 Fairness Opinion. MFS's Board of Directors has received from its
financial advisors, Gleacher NatWest Inc., a written opinion addressed to it for
inclusion in the Prospectus/Proxy Statement to the effect that the Exchange
Ratio and the WorldCom Preferred Stock is fair to the holders of the MFS Shares
and the MFS Preferred Shares, respectively, from a financial point of view.
2.17 Takeover Statutes. Assuming WorldCom and its "associates" and
"affiliates" (as defined in Section 203 of the Delaware Code) collectively
beneficially own and have beneficially owned at all times during the three year
period prior to the date hereof less than fifteen percent (15%) of the MFS
Shares outstanding (other than MFS Shares issuable pursuant to the MFS Option
Agreement), Section 203 of the Delaware Code is, and shall be, inapplicable to
the Merger, this Agreement, the MFS Option Agreement and the transactions
contemplated hereby and thereby.
2.18 MFS Rights Plan. Under the Rights Agreement between MFS and
Continental Stock Transfer & Trust Company, as Rights Agent, dated as of
September 30, 1995 and as amended as of August 24, 1996 (the "MFS Rights
Agreement"), WorldCom will not become an "Acquiring Person", no "Stock
Acquisition Date" or "Distribution Date" (as such terms are defined in the MFS
Rights Agreement) will occur, and the holders of any preferred stock purchase
rights issued under the MFS Rights Agreement ("MFS Rights") will not be
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entitled to receive any benefits under the MFS Rights Agreement as a result of
the approval, execution or delivery of this Agreement, the MFS Option Agreement
or the consummation of the transactions contemplated hereby and thereby.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND
CERTAIN COVENANTS OF WORLDCOM
WorldCom represents, warrants and/or covenants to and with MFS as follows:
3.1 Organization and Good Standing. WorldCom, Acquisition Subsidiary and
each of the WorldCom Subsidiaries is a corporation or partnership duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite
corporate or partnership power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. WorldCom and
each of the WorldCom Subsidiaries is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the character of the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except where the failure
to be so duly qualified or licensed and in good standing would not have a
material adverse effect on the business, assets (including, but not limited to,
intangible assets), prospects, condition (financial or otherwise), properties
(including, but not limited to, intangible properties), liabilities or the
results of operations of WorldCom and its subsidiaries taken as a whole
("WorldCom Material Adverse Effect"). WorldCom has heretofore made available to
MFS accurate and complete copies of the Articles of Incorporation and Bylaws, as
currently in effect, of WorldCom. For purposes of this Agreement, the term
"WorldCom Subsidiary" shall mean any "Significant Subsidiary" (as such term is
defined in Rule 1-02 of the Registration S-X of the SEC) of WorldCom.
3.2 Capitalization. As of the date hereof, the authorized capital stock of
WorldCom consists of 750,000,000 shares of WorldCom Stock, and 50,000,000 shares
of preferred stock, par value $.01 per share ("WorldCom Preferred Shares"). As
of August 23, 1996, (a) 408,161,493 shares of WorldCom Stock were issued and
outstanding, and (b) no WorldCom Preferred Shares were outstanding. No other
capital stock of WorldCom is authorized or issued. All issued and outstanding
shares of the WorldCom Stock are duly authorized, validly issued, fully paid and
non-assessable and were issued free of preemptive rights and in compliance with
applicable securities Laws. Except as set forth in the WorldCom Securities
Filings (as hereinafter defined) or on Schedule 3.2 attached hereto, or as
otherwise contemplated by this Agreement, as of the date hereof there are no
outstanding rights, subscriptions, warrants, puts, calls, unsatisfied preemptive
rights, options or other agreements of any kind relating to any of the
outstanding, authorized but unissued, unauthorized or treasury shares of the
capital stock or any other security of WorldCom, and there is no authorized or
outstanding security of any kind convertible into or exchangeable for any such
capital stock or other security. Except as disclosed in the WorldCom Securities
Filings, there are no restrictions upon the transfer of or otherwise pertaining
to the securities (including, but not limited to, the ability to pay dividends
thereon) or retained earnings of WorldCom and the WorldCom Subsidiaries or the
ownership thereof other than those imposed by the Securities Act, the Securities
Exchange Act, applicable state securities Laws or applicable corporate Law.
3.3 Subsidiaries. Schedule 3.3 attached hereto sets forth the name and
jurisdiction of incorporation or organization of each WorldCom Subsidiary, each
of which is wholly owned by WorldCom except as otherwise indicated on said
Schedule 3.3. All of the capital stock and other interests of the WorldCom
Subsidiaries so held by WorldCom are owned by it or a WorldCom Subsidiary as
indicated on said Schedule 3.3, free and clear of any claim, lien, encumbrance,
security interest or agreement with respect thereto. All of the outstanding
shares of capital stock in each of the WorldCom Subsidiaries held by WorldCom
are duly authorized, validly issued, fully paid and non-assessable and were
issued free of preemptive rights and in compliance with applicable Laws. Except
as set forth on Schedule 3.3 attached hereto, there are no irrevocable proxies
or similar obligations with respect to such capital stock of the WorldCom
Subsidiaries held by WorldCom and no equity securities or other interests of any
of the WorldCom Subsidiaries are or may become
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required to be issued or purchased by reason of any options, warrants, rights to
subscribe to, puts, calls or commitments of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for, shares of any
capital stock of any WorldCom Subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any WorldCom Subsidiary is
bound to issue additional shares of its capital stock, or options, warrants or
rights to purchase or acquire any additional shares of its capital stock or
securities convertible into or exchangeable for such shares.
3.4 Authorization; Binding Agreement. WorldCom and Acquisition Subsidiary
have all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the other agreements and documents referred
to herein to which WorldCom or Acquisition Subsidiary is or will be a party or a
signatory (the "WorldCom Ancillary Agreements") and the consummation of the
transactions contemplated hereby and thereby, including, but not limited to, the
Merger have been duly and validly authorized by the respective Boards of
Directors of WorldCom and Acquisition Subsidiary, as appropriate, and no other
corporate proceedings on the part of WorldCom, Acquisition Subsidiary or any
WorldCom Subsidiary are necessary to authorize the execution and delivery of
this Agreement and the WorldCom Ancillary Agreements or to consummate the
transactions contemplated hereby or thereby (other than the requisite approval
by the WorldCom shareholders of the WorldCom Proposals and the sole shareholder
of Acquisition Subsidiary of this Agreement and the Merger). This Agreement has
been duly and validly executed and delivered by each of WorldCom and Acquisition
Subsidiary and constitutes, and upon execution and delivery thereof as
contemplated by this Agreement, the WorldCom Ancillary Agreements will
constitute, the legal, valid and binding agreements of WorldCom and Acquisition
Subsidiary, enforceable against each of WorldCom and Acquisition Subsidiary in
accordance with its and their respective terms, subject to the Enforceability
Exceptions.
3.5 Governmental Approvals. No Consent from or with any Governmental
Authority on the part of WorldCom or any of the WorldCom Subsidiaries is
required in connection with the execution or delivery by WorldCom of this
Agreement and the WorldCom Ancillary Agreements or the consummation by WorldCom
of the transactions contemplated hereby or thereby other than (i) filings with
the SEC, state securities laws administrators, the NASD and applicable Georgia
Governmental Authorities, (ii) Consents from the Federal Communications
Commission, state public service or utility commissions (or comparable state
Governmental Authorities) or foreign telephone administrations, (iii) filings
under the HSR Act, and (iv) those Consents that, if they were not obtained or
made, do not or would not have a WorldCom Material Adverse Effect or materially
and adversely affect the ability of WorldCom to perform its obligations set
forth herein or to consummate the transactions contemplated hereby.
3.6 No Violations. The execution and delivery of this Agreement and the
WorldCom Ancillary Agreements, the consummation of the transactions contemplated
hereby and thereby and compliance by WorldCom with any of the provisions hereof
or thereof will not (i) conflict with or result in any breach of any provision
of the Certificate and/or Articles of Incorporation or Bylaws or other governing
instruments of WorldCom or any of the WorldCom Subsidiaries, (ii) except for
compliance with the requirements under WorldCom's Amended and Restated Credit
Agreement dated as of June 28, 1996 (the "WorldCom Credit Agreement"), require
any Consent under or result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration or augment the performance
required) under any of the terms, conditions or provisions of any WorldCom
Material Contract (as hereinafter defined), (iii) result in the creation or
imposition of any lien or encumbrance of any kind upon any of the assets of
WorldCom or any WorldCom Subsidiary, or (iv) subject to obtaining the Consents
from Governmental Authorities referred to in Section 3.5, above, contravene any
Law currently in effect to which WorldCom or any WorldCom Subsidiary or its or
any of their respective assets or properties are subject, except in the case of
clauses (ii), (iii) and (iv), above, for any deviations from the foregoing which
do not or would not have a WorldCom Material Adverse Effect.
3.7 Securities Filings and Litigation. WorldCom has made available to MFS
true and complete copies of (i) its Annual or Transition Reports on Form 10-K,
as amended, for the years ended December 31, 1993, 1994 and 1995, or periods
included therein, as filed with the SEC, (ii) its proxy statements relating to
all of
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the meetings of shareholders (whether annual or special) of WorldCom since
January 1, 1993, as filed with the SEC, and (iii) all other reports, statements
and registration statements and amendments thereto (including, without
limitation, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
amended) filed by WorldCom with the SEC since January 1, 1993. The reports and
statements set forth in clauses (i) through (iii), above, and those subsequently
provided or required to be provided pursuant to this Section, are referred to
collectively as the "WorldCom Securities Filings"). As of their respective
dates, or as of the date of the last amendment thereof, if amended after filing,
none of the WorldCom Securities Filings (including all schedules thereto and
disclosure documents incorporated by reference therein), contained or, as to
WorldCom Securities Filings subsequent to the date hereof, will contain any
untrue statement of a material fact or omitted or, as to WorldCom Securities
Filings subsequent to the date hereof, will omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Each of
the WorldCom Securities Filings at the time of filing or as of the date of the
last amendment thereof, if amended after filing, complied or, as to WorldCom
Securities Filings subsequent to the date hereof, will comply in all material
respects with the Securities Exchange Act or the Securities Act, as applicable.
There is no Litigation pending or, to the knowledge of WorldCom, threatened
against WorldCom or any of its subsidiaries, any officer, director, employee or
agent thereof, in his or her capacity as such, or as a fiduciary with respect to
any WorldCom Benefit Plan, as hereinafter defined, or otherwise relating to
WorldCom or any of its subsidiaries or the securities of any of them, or any
properties or rights of WorldCom or any of its subsidiaries or any WorldCom
Benefit Plan which is required to be described in any WorldCom Securities Filing
that is not so described. No event has occurred as a consequence of which
WorldCom would be required to file a Current Report on Form 8-K pursuant to the
requirements of the Securities Exchange Act as to which such a report has not
been timely filed with the SEC. Any reports, statements and registration
statements and amendments thereof (including, without limitation, Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
amended) filed by WorldCom with the SEC after the date hereof shall be provided
to MFS on the date of such filing.
3.8 WorldCom Financial Statements. The audited consolidated financial
statements and unaudited interim financial statements of WorldCom included in
the WorldCom Securities Filings (the "WorldCom Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein or in the notes thereto)
and present fairly, in all material respects, the financial position of WorldCom
and its subsidiaries as at the dates thereof and the results of their operations
and cash flows for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end audit adjustments, any other
adjustments described therein and the fact that certain information and notes
have been condensed or omitted in accordance with the Securities Exchange Act.
3.9 Absence of Certain Changes or Events. Except as set forth in the
WorldCom Securities Filings and except for the adoption of the WorldCom Rights
Agreement (as hereinafter defined), since December 31, 1995, through the date of
this Agreement, there has not been: (i) any Event that has had or could
reasonably be expected to have a WorldCom Material Adverse Effect; or (ii) any
declaration, payment or setting aside for payment of any dividend (except to
WorldCom or a WorldCom Subsidiary) or other distribution or any redemption,
purchase or other acquisition of any shares of capital stock or securities of
WorldCom by or from WorldCom.
3.10 Compliance with Laws. The business of WorldCom and each of its
subsidiaries has been operated in compliance with all Laws and all tariffs,
rules and regulations applicable to the regulation of the provision of
communications services including, but not limited to, information service
providers and competitive local exchange, exchange access, inter-exchange and
international telecommunications services, except for any instances of
non-compliance which do not and will not have a WorldCom Material Adverse
Effect. Without limiting the generality of the foregoing, neither WorldCom nor
any of its subsidiaries has engaged in carrying transit or indirect traffic in
violation of applicable Laws, tariffs, rules and regulations in any
jurisdiction, foreign or domestic, which violation could reasonably be expected
to have a WorldCom Material Adverse Effect.
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3.11 Permits. (i) WorldCom and its subsidiaries have all permits,
certificates, licenses, approvals, tariffs and other authorizations required in
connection with the operation of their business (collectively, "WorldCom
Permits"), (ii) neither WorldCom nor any of its subsidiaries is in violation of
any WorldCom Permit, and (iii) no proceedings are pending or, to the knowledge
of WorldCom, threatened, to revoke or limit any WorldCom Permit, except, in each
case, those the absence or violation of which do not and will not have a
WorldCom Material Adverse Effect.
3.12 Finders and Investment Bankers. Neither WorldCom nor any of its
officers or directors has employed any broker or finder other than Salomon
Brothers Inc or otherwise incurred any liability for any brokerage fees,
commissions or finders' fees in connection with the transactions contemplated
hereby.
3.13 Contracts. Neither WorldCom nor any of its subsidiaries is a party or
is subject to any material note, bond, mortgage, indenture, contract, lease,
license, agreement, understanding, instrument, bid or proposal that is required
to be described in or filed as an exhibit to any WorldCom Securities Filing
("WorldCom Material Contract") that is not so described in or filed as required
by the Securities Act or the Securities Exchange Act, as the case may be.
WorldCom has made available to MFS true and accurate copies of the WorldCom
Material Contracts. All such WorldCom Material Contracts are valid and binding
and are in full force and effect and enforceable against WorldCom or such
subsidiary in accordance with their respective terms, subject to the
Enforceability Exceptions. Except as referenced in Section 3.6 above, (i) no
Consent of any person is needed in order that each such WorldCom Material
Contract shall continue in full force and effect in accordance with its terms
without penalty, acceleration or rights of early termination by reason of the
consummation of the transactions contemplated by this Agreement, except for
Consents the absence of which would not have a WorldCom Material Adverse Effect,
and (ii) neither WorldCom nor any of its subsidiaries is in violation or breach
of or default under any such WorldCom Material Contract; nor to WorldCom's
knowledge is any other party to any such WorldCom Material Contract in violation
or breach of or default under any such WorldCom Material Contract in each case
where such violation or breach would have a WorldCom Material Adverse Effect.
3.14 Employee Benefit Plans. Except as set forth in Schedule 3.14 attached
hereto, there are no material Benefit Plans maintained or contributed to by
WorldCom or any of its subsidiaries ("WorldCom Benefit Plan"). No WorldCom
Benefit Plan is a defined benefit pension plan subject to Title IV of ERISA or
Section 412 of the Code. Each of the WorldCom Benefit Plans has been maintained
in material compliance with its terms and all applicable Law, except where the
failure to do so would not be reasonably likely to result in a WorldCom Material
Adverse Effect.
3.15 Taxes and Returns. (a) Except as disclosed in Schedule 3.15 attached
hereto, WorldCom and each of its subsidiaries has timely filed, or caused to be
timely filed all material Tax Returns required to be filed by it, and has paid,
collected or withheld, or caused to be paid, collected or withheld, all material
amounts of Taxes required to be paid, collected or withheld, other than such
Taxes for which adequate reserves in the WorldCom Financial Statements have been
established or which are being contested in good faith. Except as set forth in
Schedule 3.15 attached hereto, there are no claims or assessments pending
against WorldCom or any of its subsidiaries for any alleged deficiency in any
Tax, and WorldCom has not been notified in writing of any proposed Tax claims or
assessments against WorldCom or any of its subsidiaries (other than in each
case, claims or assessments for which adequate reserves in the WorldCom
Financial Statements have been established or which are being contested in good
faith or are immaterial in amount). Except as set forth in Schedule 3.15
attached hereto, neither WorldCom nor any of its subsidiaries has any waivers or
extensions of any applicable statute of limitations to assess any material
amount of Taxes. Except as set forth in Schedule 3.15 attached hereto, there are
no outstanding requests by WorldCom or any of its subsidiaries for any extension
of time within which to file any material Tax Return or within which to pay any
material amounts of Taxes shown to be due on any return.
(b) To the best knowledge of WorldCom, there are no liens for material
amounts of Taxes on the assets of WorldCom or any of its subsidiaries except for
statutory liens for current Taxes not yet due and payable.
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3.16 Fairness Opinion. WorldCom's Board of Directors has received from its
financial advisors, Salomon Brothers Inc, a written opinion addressed to it for
inclusion in the Prospectus/Proxy Statement to the effect that the Exchange
Ratio is fair to the holders of WorldCom Stock from a financial point of view.
3.17 Takeover Statutes and Charter. Assuming MFS and its "associates" and
"affiliates" (as defined under 14-2-1110 of the Georgia Business Corporation
Code), collectively beneficially own and have beneficially owned at all times
during the three-year period prior to the date hereof less than 1% of the shares
of WorldCom Stock outstanding (other than shares of WorldCom Stock subject to
the WorldCom Option Agreement), Section 14-2-1132 of the Georgia Business
Corporation Code is, and shall be inapplicable to the Merger, the WorldCom
Option Agreement and the transactions contemplated by this Agreement. As a
result of the execution of this Agreement and the WorldCom Option Agreement, MFS
is not, and will not be, a "Related Person" as defined in Article Ten of the
Amended and Restated Certificate of Incorporation of WorldCom.
3.18 WorldCom Rights Plan. Under the Rights Agreement between WorldCom and
The Bank of New York, dated as of the date hereof (the "WorldCom Rights
Agreement"), MFS will not become an "Acquiring Person," no "Share Acquisition
Date" or "Distribution Date" (as such terms are defined in the WorldCom Rights
Agreement) will occur, and the holders of any rights issued pursuant to the
WorldCom Rights Agreement will not be entitled to receive any benefits under the
WorldCom Rights Agreement as a result of the approval, execution or delivery of
this Agreement, the WorldCom Option Agreement or the consummation of the
transactions contemplated hereby and thereby.
ARTICLE IV
ADDITIONAL COVENANTS OF MFS
MFS represents, covenants and agrees as follows:
4.1 Conduct of Business of MFS and MFS Subsidiaries. Except as expressly
contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, MFS shall conduct, and it shall cause its
subsidiaries to conduct, its or their businesses in the ordinary course and
consistent with past practice, subject to the limitations contained in this
Agreement, and MFS shall, and it shall cause its subsidiaries to, use its or
their reasonable business efforts to preserve intact its business organization,
to keep available the services of its officers and employees and to maintain
satisfactory relationships with all persons with whom it does business. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement or as otherwise set forth in the MFS Disclosure
Letter (as hereinafter defined), after the date of this Agreement and prior to
the Effective Time, neither MFS nor any of its subsidiaries will, without the
prior written consent of WorldCom:
(i) amend or propose to amend its Certificate or Articles of
Incorporation or Bylaws (or comparable governing instruments) in any
material respect;
(ii) authorize for issuance, issue, grant, sell, pledge, dispose of or
propose to issue, grant, sell, pledge or dispose of any shares of, or any
options, warrants, commitments, subscriptions or rights of any kind to
acquire or sell any shares of, the capital stock or other securities of MFS
or any of its subsidiaries including, but not limited to, any securities
convertible into or exchangeable for shares of stock of any class of MFS or
any of its subsidiaries, except for the issuance of shares of MFS Common
Stock pursuant to the exercise of stock options or warrants or the
conversion of convertible securities outstanding on the date of this
Agreement in accordance with their present terms and except for the grant
of employee stock options and issuance of MFS Common Stock pursuant to the
exercise thereof, in the ordinary course of business consistent with past
practice, and except for the issuance of shares of MFS Common Stock in
accordance with the terms of acquisitions approved by WorldCom; and
(iii) split, combine or reclassify any shares of its capital stock or
declare, pay or set aside any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, other than dividends or distributions to MFS or a subsidiary
of MFS and dividends
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required under the present terms of the MFS Preferred Stock, or directly or
indirectly redeem, purchase or otherwise acquire or offer to acquire any
shares of its capital stock or other securities;
(iv) other than as contemplated by its May 6, 1996 business plans or
in the ordinary course of business consistent with past practice, (a)
create, incur or assume any debt or obligations in respect of capital
leases, except refinancings of existing obligations on terms that are no
less favorable to MFS or its subsidiaries than the existing terms; (b)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, indirectly, contingently or otherwise) for the
obligations of any person; (c) make any capital expenditures or make any
loans, advances or capital contributions to, or investments in, any other
person (other than to a MFS subsidiary and customary travel, relocation or
business advances to employees made in the ordinary course of business
consistent with past practice); (d) acquire the stock or assets of, or
merge or consolidate with, any other person; (e) voluntarily incur any
material liability or obligation (absolute, accrued, contingent or
otherwise); or (f) sell, transfer, mortgage, pledge or otherwise dispose
of, or encumber, or agree to sell, transfer, mortgage, pledge or otherwise
dispose of or encumber, any assets or properties, real, personal or mixed
material to MFS and its subsidiaries taken as a whole other than to secure
debt permitted under (a) of this clause (iv);
(v) increase in any manner the compensation of any of its officers or
employees or enter into, establish, amend or terminate any employment,
consulting, retention, change in control, collective bargaining, bonus or
other incentive compensation, profit sharing, health or other welfare,
stock option or other equity, pension, retirement, vacation, severance,
deferred compensation or other compensation or benefit plan, policy,
agreement, trust, fund or arrangement with, for or in respect of, any
shareholder, officer, director, other employee, agent, consultant or
affiliate other than as required pursuant to the terms of agreements in
effect on the date of this Agreement and such as are in the ordinary course
of business consistent with past practice;
(vi) enter into any lease or amend any lease of real property other
than in the ordinary course of business consistent with past practice; or
(vii) consent to the transfer of any shares of the Series B Preferred.
Furthermore, MFS covenants, represents and warrants that from and after the
date of this Agreement, unless WorldCom shall otherwise expressly consent in
writing, MFS shall, and MFS shall cause each of its subsidiaries to, use its or
their reasonable business efforts to comply in all material respects with all
Laws applicable to it or any of its properties, assets or business and maintain
in full force and effect all MFS Permits necessary for, or otherwise material
to, such business.
4.2 Notification of Certain Matters. MFS shall give prompt notice to
WorldCom if any of the following occur after the date of this Agreement: (i) any
notice of, or other communication relating to, a default or Event which, with
notice or lapse of time or both, would become a default under any MFS Material
Contract which could have a MFS Material Adverse Effect; (ii) receipt of any
notice or other communication in writing from any third party alleging that the
Consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement, provided that such Consent would
have been required to have been disclosed in this Agreement; (iii) receipt of
any material notice or other communication from any Governmental Authority
(including, but not limited to, the NASD or any securities exchange) in
connection with the transactions contemplated by this Agreement; (iv) the
occurrence of an Event which could have a MFS Material Adverse Effect; (v) the
commencement or threat of any Litigation involving or affecting MFS or any of
its subsidiaries, or any of their respective properties or assets, or, to its
knowledge, any employee, agent, director or officer, in his or her capacity as
such, of MFS or any of its subsidiaries which, if pending on the date hereof,
would have been required to have been disclosed in this Agreement or which
relates to the consummation of the Merger or any material development in
connection with any Litigation disclosed by MFS in or pursuant to this Agreement
or the MFS Securities Filings; and (vi) the occurrence of any Event that could
cause a breach by MFS of any provision of this Agreement or a MFS Ancillary
Agreement, including such a breach that could occur if such Event had taken
place on or prior to the date of this Agreement.
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4.3 Access and Information. Between the date of this Agreement and the
Effective Time, MFS and its subsidiaries will give, and shall direct its
accountants and legal counsel to give, WorldCom, its lenders and their
respective authorized representatives (including, without limitation, financial
advisors, accountants and legal counsel) at all reasonable times access as
reasonably requested to all offices and other facilities and to all contracts,
agreements, commitments, books and records (including, but not limited to, Tax
Returns) of or pertaining to MFS and its subsidiaries, will permit the foregoing
to make such reasonable inspections as they may require and will cause its
officers promptly to furnish WorldCom with (a) such financial and operating data
and other information with respect to the business and properties of MFS and its
subsidiaries as WorldCom may from time to time reasonably request, and (b) a
copy of each material report, schedule and other document filed or received by
MFS or any of its subsidiaries pursuant to the requirements of applicable
securities laws or the NASD.
4.4 Stockholder Approval. As soon as practicable, MFS will take all steps
necessary to duly call, give notice of, convene and hold a meeting of its
stockholders for the purpose of approving the MFS Proposals and for such other
purposes as may be necessary or desirable in connection with effectuating the
transactions contemplated hereby. Except as otherwise contemplated by this
Agreement, the Board of Directors of MFS (i) will recommend to the stockholders
of MFS that they approve the MFS Proposals, and (ii) will use its reasonable
best efforts to obtain any necessary approval by MFS's stockholders of the MFS
Proposals including, without limitation, voting the MFS Shares and MFS Preferred
Shares held by such Directors for such adoption and approval.
4.5 Reasonable Business Efforts. Subject to the terms and conditions
herein provided, MFS agrees to use its reasonable business efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the Merger and the transactions contemplated by this Agreement
including, but not limited to (i) obtaining the Consent of MFS's lenders and
others to this Agreement and the transactions contemplated hereby, (ii) the
defending of any Litigation against MFS or any of its subsidiaries challenging
this Agreement or the consummation of the transactions contemplated hereby,
(iii) obtaining all Consents from Governmental Authorities required for the
consummation of the Merger and the transactions contemplated thereby, and (iv)
timely making all necessary filings under the HSR Act. Upon the terms and
subject to the conditions hereof, MFS agrees to use reasonable business efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary to satisfy the other conditions of the closing set forth
herein.
4.6 Public Announcements. So long as this Agreement is in effect, MFS
shall not, and shall cause its affiliates not to, issue or cause the publication
of any press release or any other announcement with respect to the Merger, the
MFS Proposals, the WorldCom Proposals, the MFS Option Agreement, the WorldCom
Option Agreement or the transactions contemplated hereby or thereby without the
consent of WorldCom, except where such release or announcement is required by
applicable Law or pursuant to any applicable listing agreement with, or rules or
regulations of, the NASD, in which case MFS, prior to making such announcement,
shall consult with WorldCom regarding the same.
4.7 Compliance. In consummating the Merger and the transactions
contemplated hereby, MFS shall comply in all material respects with the
provisions of the Securities Exchange Act and the Securities Act and shall
comply, and/or cause its subsidiaries to comply or to be in compliance, in all
material respects, with all other applicable Laws.
4.8 No Solicitation. (a) MFS shall, and shall direct and use reasonable
efforts to cause its officers, directors, employees, representatives and agents
to, immediately cease any discussions or negotiations with any parties that may
be ongoing with respect to a MFS Takeover Proposal (as hereinafter defined). MFS
shall not, nor shall it permit any of its subsidiaries to, nor shall it
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed or reasonably likely to
facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any MFS Takeover Proposal or (ii)
participate in any discussions or negotiations regarding any MFS Takeover
Proposal; provided,
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however, that if, at any time prior to the Effective Time, the Board of
Directors of MFS determines in good faith, after consultation with outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to MFS's stockholders under applicable law, MFS may, in response to a MFS
Takeover Proposal which was not solicited subsequent to the date hereof, and
subject to compliance with Section 4.8(c), (x) furnish information with respect
to MFS to any person pursuant to a customary confidentiality agreement (as
determined by MFS after consultation with its outside counsel) and (y)
participate in negotiations regarding such MFS Takeover Proposal. Except as
expressly provided in a separate letter agreement of even date herewith agreed
to by WorldCom and MFS (the "MFS Disclosure Letter"), "MFS Takeover Proposal"
means any inquiry, proposal or offer from any person relating to any direct or
indirect acquisition or purchase of 15% or more of the assets of MFS and its
subsidiaries or 15% or more of any class of equity securities of MFS or any of
its subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 15% or more of any class of equity
securities of MFS or any of its subsidiaries, any merger, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution or
similar transaction involving MFS or any of its subsidiaries, other than the
transactions contemplated by this Agreement, or any other transaction the
consummation of which could reasonably be expected to impede, interfere with,
prevent or materially delay the Merger or which would reasonably be expected to
dilute materially the benefits to WorldCom of the transactions contemplated by
this Agreement.
(b) Except as set forth in this Section 4.8, neither the Board of Directors
of MFS nor any committee thereof shall (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to WorldCom, the approval or
recommendation by such Board of Directors or such committee of the MFS
Proposals, (ii) approve or recommend, or propose publicly to approve or
recommend, any MFS Takeover Proposal or (iii) cause MFS to enter into any letter
of intent, agreement in principle, acquisition agreement or other similar
agreement (each, a "MFS Acquisition Agreement") related to any MFS Takeover
Proposal. Notwithstanding the foregoing, in the event that prior to the
Effective Time the Board of Directors of MFS determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to MFS's stockholders under applicable law, the
Board of Directors of MFS may (subject to this and the following sentences) (x)
withdraw or modify its approval or recommendation of the MFS Proposals or (y)
approve or recommend a MFS Superior Proposal (as defined below) or terminate
this Agreement (and concurrently with or after such termination, if it so
chooses, cause MFS to enter into any MFS Acquisition Agreement with respect to
any MFS Superior Proposal), but in each of the cases set forth in this clause
(y), only at a time that is after the tenth business day following WorldCom's
receipt of written notice advising WorldCom that the Board of Directors of MFS
has received a MFS Superior Proposal, specifying the material terms and
conditions of such MFS Superior Proposal and identifying the person making such
MFS Superior Proposal. Any such withdrawal or modification of the recommendation
of the MFS Proposals shall not change the approval of the Board of Directors of
MFS for purposes of causing Section 203 of the Delaware Code to be inapplicable
to the MFS Proposals and the MFS Option Agreement or the status of WorldCom as
other than an "Acquiring Person" under the MFS Rights Agreement and shall not
directly or indirectly cause a "Stock Acquisition Date" or a "Distribution Date"
(as such terms are defined in the MFS Rights Agreement) to occur. For purposes
of this Agreement, a "MFS Superior Proposal" means any bona fide proposal made
by a third party to acquire, directly or indirectly, for consideration
consisting of cash and/or securities, more than 15% of the combined voting power
of the shares of MFS Common Stock and MFS Preferred Stock then outstanding or
all or substantially all the assets of MFS and otherwise on terms which the
Board of Directors of MFS determines in its good faith judgment (based on the
advice of a financial advisor of nationally recognized reputation) to be
materially more favorable to MFS's stockholders than the Merger and for which
financing, to the extent required, is then committed or which, in the good faith
judgment of the Board of Directors of MFS, is reasonably capable of being
financed by such third party.
(c) In addition to the obligations of MFS set forth in paragraphs (a) and
(b) of this Section 4.8, MFS shall immediately advise WorldCom orally and in
writing of any request for information or of any MFS Takeover Proposal, the
material terms and conditions of such request or MFS Takeover Proposal and the
identity of the person making such request or MFS Takeover Proposal. MFS will
keep WorldCom fully
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informed of the status and details (including amendments or proposed amendments)
of any such request or MFS Takeover Proposal.
(d) Nothing contained in this Section 4.8 shall prohibit MFS from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Securities Exchange Act or from making any disclosure to
MFS's stockholders if, in the good faith judgment of the Board of Directors of
MFS, after consultation with outside counsel, failure so to disclose would be
inconsistent with its fiduciary duties to MFS's stockholders under applicable
law; provided, however, neither MFS nor its Board of Directors nor any committee
thereof shall, except as permitted by Section 4.8(b), withdraw or modify, or
propose publicly to withdraw or modify, its position with respect to the MFS
Proposals or approve or recommend, or propose publicly to approve or recommend,
a MFS Takeover Proposal.
4.9 SEC and Stockholder Filings. MFS shall send to WorldCom a copy of all
material public reports and materials as and when it sends the same to its
stockholders, the SEC or any state or foreign securities commission.
4.10 Tax Opinion Certification. MFS shall execute and deliver a
certificate in a form satisfactory to the counsel of both MFS and WorldCom,
signed by an officer of MFS setting forth factual representations and covenants
that will serve as a basis for the tax opinions required pursuant to Section
6.1.8 of this Agreement ("MFS Tax Opinion Certificate").
4.11 Affiliate Agreements. MFS shall use reasonable business efforts to
ensure that each person who is or may be an "affiliate" of MFS within the
meaning of Rule 145 promulgated under the Securities Act shall enter into an
agreement in the form attached hereto as Schedule 4.11.
4.12 Takeover Statutes. If any "fair price," "moratorium," "control share
acquisition" or other similar antitakeover statute or regulation enacted under
state or federal laws in the United States (each a "Takeover Statute"),
including, without limitation, Section 203 of the Delaware Code, is or may
become applicable to the Merger, the MFS Proposals or the MFS Option Agreement,
MFS and the members of its Board of Directors will grant such approvals, and
take such actions as are necessary so that the transactions contemplated by this
Agreement, the MFS Proposals and the MFS Option Agreement may be consummated as
promptly as practicable on the terms contemplated hereby and thereby and
otherwise act to eliminate or minimize the effects of any Takeover Statute on
any of the transactions contemplated hereby or thereby.
4.13 Comfort Letters. Upon the request of WorldCom, MFS shall use
reasonable business efforts to provide to WorldCom prior to the Effective Time
"comfort letters" from the independent certified public accountants for MFS and
its subsidiaries dated the date on which the Registration Statement, or last
amendment thereto, shall become effective, and dated the Closing Date, addressed
to the Board of Directors of each of MFS and WorldCom, covering such matters as
WorldCom shall reasonably request with respect to facts concerning the financial
condition of MFS and its subsidiaries and customary for such certified public
accountants to deliver in connection with a transaction similar to the Merger.
ARTICLE V
ADDITIONAL COVENANTS OF WORLDCOM
WorldCom covenants and agrees as follows:
5.1 Conduct of Business of WorldCom and the WorldCom Subsidiaries. Except
as expressly contemplated by this Agreement, during the period from the date of
this Agreement to the Effective Time, WorldCom shall conduct, and it shall cause
its subsidiaries to conduct, its or their businesses in the ordinary course and
consistent with past practice, subject to the limitations contained in this
Agreement, and WorldCom shall, and it shall cause its subsidiaries to, use its
or their reasonable business efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain satisfactory relationships with all persons with whom it does
business. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in this Agreement or as otherwise set forth in the
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WorldCom Disclosure Letter (as hereinafter defined), after the date hereof and
prior to the Effective Time, neither WorldCom nor any of its subsidiaries will,
without the prior written consent of MFS:
(i) amend or propose to amend its Certificate or Articles of
Incorporation or Bylaws (or comparable governing instruments) in any
material respect;
(ii) authorize for issuance, issue, grant, sell, pledge, dispose of
or propose to issue, grant, sell, pledge or dispose of any shares of, or
any options, warrants, commitments, subscriptions or rights of any kind to
acquire or sell any shares of, the capital stock or other securities of
WorldCom or any of its subsidiaries including, but not limited to, any
securities convertible into or exchangeable for shares of stock of any
class of WorldCom or any of its subsidiaries, except for the issuance of
shares of WorldCom Stock pursuant to the exercise of stock options
outstanding on the date of this Agreement in accordance with their present
terms and except for the grant of employee stock options and issuance of
shares of WorldCom Stock pursuant to the exercise thereof in the ordinary
course of business consistent with past practice, and except for the
issuance of shares of WorldCom Stock in accordance with the terms of
acquisitions approved by MFS, or pursuant to the terms of rights or
obligations referred to in Schedule 3.2;
(iii) split, combine or reclassify any shares of its capital stock or
declare, pay or set aside any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, other than dividends or distributions to WorldCom or a
subsidiary of WorldCom, or directly or indirectly redeem, purchase or
otherwise acquire or offer to acquire any shares of its capital stock or
other securities;
(iv) sell, transfer, mortgage, pledge or otherwise dispose of, or
encumber, or agree to sell, transfer, mortgage, pledge or otherwise dispose
of or encumber, any assets or properties, real, personal or mixed, material
to WorldCom and its subsidiaries taken as a whole, other than in the
ordinary course of business consistent with past practice; or
(v) increase in any manner the compensation of any of its officers or
employees or enter into, establish, amend or terminate any employment,
consulting, retention, change in control, collective bargaining, bonus or
other incentive compensation, profit sharing, health or other welfare,
stock option or other equity, pension, retirement, vacation, severance,
deferred compensation or other compensation or benefit plan, policy,
agreement, trust, fund or arrangement with, for or in respect of, any
shareholder, officer, director, other employee, agent, consultant or
affiliate other than as required pursuant to the terms of agreements in
effect on the date of this Agreement and such as are in the ordinary course
of business consistent with past practice.
Furthermore, WorldCom covenants, represents and warrants that from and
after the date of this Agreement, unless MFS shall otherwise expressly consent
in writing, WorldCom shall, and WorldCom shall cause each of its subsidiaries
to, use its or their reasonable business efforts to comply in all material
respects with all Laws applicable to it or any of its properties, assets or
business and maintain in full force and effect all the WorldCom Permits
necessary for, or otherwise material to, such business.
5.2 Notification of Certain Matters. WorldCom shall give prompt notice to
MFS if any of the following occur after the date of this Agreement: (i) any
notice of, or other communication relating to, a default or Event which, with
notice or lapse of time or both, would become a default under any WorldCom
Material Contract which could have a WorldCom Material Adverse Effect; (ii)
receipt of any notice or other communication in writing from any third party
alleging that the Consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement, provided that
such Consent would have been required to have been disclosed in this Agreement;
(iii) receipt of any material notice or other communication from any
Governmental Authority (including, but not limited to the NASD or any securities
exchange) in connection with the transactions contemplated by this Agreement;
(iv) the occurrence of an Event which could have a WorldCom Material Adverse
Effect; (v) the commencement or threat of any Litigation involving or affecting
WorldCom or any of its subsidiaries or any of their respective properties or
assets, or, to its knowledge, any employee, agent, director or officer, in his
or her capacity as such, of
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WorldCom or any of its subsidiaries which, if pending on the date hereof, would
have been required to have been disclosed in this Agreement or which relates to
the consummation of the Merger or any material development in connection with
any Litigation disclosed by WorldCom in or pursuant to this Agreement or the
WorldCom Securities Filings; and (vi) the occurrence of any Event that could
cause a breach by WorldCom of any provision of this Agreement or a WorldCom
Ancillary Agreement, including such a breach that could occur if such Event had
taken place on or prior to the date of this Agreement.
5.3 Access and Information. Between the date of this Agreement and the
Effective Time, WorldCom and its subsidiaries will give, and shall direct its
accountants and legal counsel to give MFS, and their respective authorized
representatives (including, without limitation, its lenders, financial advisors,
accountants and legal counsel) at all reasonable times access as reasonably
requested to all offices and other facilities and to all contracts, agreements,
commitments, books and records (including, but not limited to, Tax Returns) of
or pertaining to WorldCom and its subsidiaries, will permit the foregoing to
make such reasonable inspections as they may require and will cause its officers
promptly to furnish MFS with (a) such financial and operating data and other
information with respect to the business and properties of WorldCom and its
subsidiaries as MFS may from time to time reasonably request, and (b) a copy of
each material report, schedule and other document filed or received by WorldCom
or any of its subsidiaries pursuant to the requirements of applicable securities
laws or the NASD.
5.4 Shareholder Approval. As soon as practicable, WorldCom will take all
steps necessary to duly call, give notice of, convene and hold a meeting of its
shareholders for the purpose of approving the WorldCom Proposals, for such other
purposes as may be necessary or desirable in connection with effectuating the
transactions contemplated hereby and for such other purposes as WorldCom shall
determine. Except as otherwise contemplated by this Agreement, the Board of
Directors of WorldCom (i) will recommend to the shareholders of WorldCom that
they approve the WorldCom Proposals, and (ii) will use its reasonable best
efforts to obtain any necessary approval by WorldCom's shareholders of the
WorldCom Proposals, including, without limitation, voting the WorldCom Stock
held by such Directors for such approval.
5.5 Reasonable Business Efforts. Subject to the terms and conditions
herein provided, WorldCom agrees to use its reasonable business efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the Merger and the transactions contemplated by this Agreement
including, but not limited to (i) obtaining the Consent of WorldCom's lenders to
this Agreement and the transactions contemplated hereby, (ii) the defending of
any Litigation against WorldCom or any of its subsidiaries challenging this
Agreement or the consummation of the transactions contemplated hereby, (iii)
obtaining all Consents from Governmental Authorities required for the
consummation of the Merger and the transactions contemplated thereby, and (iv)
timely making all necessary filings under the HSR Act. Upon the terms and
subject to the conditions hereof, WorldCom agrees to use reasonable business
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary to satisfy the other conditions of the closing set
forth herein.
5.6 Public Announcements. So long as this Agreement is in effect, WorldCom
shall not, and shall cause its affiliates not to, issue or cause the publication
of any press release or any other announcement with respect to the Merger, the
WorldCom Proposals, the MFS Proposals, the WorldCom Option Agreement, the MFS
Option Agreement or the transactions contemplated hereby or thereby without the
consent of MFS, except where such release or announcement is required by
applicable Law or pursuant to any applicable listing agreement with, or rules or
regulations of, the NASD, in which case WorldCom, prior to making such
announcement, will consult with MFS regarding the same.
5.7 Compliance. In consummating the Merger and the transactions
contemplated hereby, WorldCom shall comply in all material respects with the
provisions of the Securities Exchange Act and the Securities Act and shall
comply, and/or cause its subsidiaries to comply or to be in compliance, in all
material respects, with all other applicable Laws.
5.8 No Solicitation. (a) WorldCom shall, and shall direct and use
reasonable efforts to cause its officers, directors, employees, representatives
and agents to, immediately cease any discussions or negotiations with any
parties that may be ongoing with respect to a WorldCom Takeover Proposal (as
hereinafter defined).
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WorldCom shall not, nor shall it permit any of its subsidiaries to, nor shall it
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed or reasonably likely to
facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any WorldCom Takeover Proposal or (ii)
participate in any discussions or negotiations regarding any WorldCom Takeover
Proposal; provided, however, that if, at any time prior to the Effective Time,
the Board of Directors of WorldCom determines in good faith, after consultation
with outside counsel, that it is necessary to do so in order to comply with its
fiduciary duties to WorldCom's shareholders under applicable law, WorldCom may,
in response to a WorldCom Takeover Proposal which was not solicited subsequent
to the date hereof, and subject to compliance with Section 5.8(c), (x) furnish
information with respect to WorldCom to any person pursuant to a customary
confidentiality agreement (as determined by WorldCom after consultation with its
outside counsel) and (y) participate in negotiations regarding such WorldCom
Takeover Proposal. Except as expressly provided in a separate letter agreement
of even date herewith agreed to by WorldCom and MFS (the "WorldCom Disclosure
Letter"), "WorldCom Takeover Proposal" means any inquiry, proposal or offer from
any person relating to any direct or indirect acquisition or purchase of 15% or
more of the assets of WorldCom and its subsidiaries or 15% or more of any class
of equity securities of WorldCom or any of its subsidiaries, any tender offer or
exchange offer that if consummated would result in any person beneficially
owning 15% or more of any class of equity securities of WorldCom or any of its
subsidiaries, any merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
WorldCom or any of its subsidiaries, other than the transactions contemplated by
this Agreement, or any other transaction the consummation of which could
reasonably be expected to impede, interfere with, prevent or materially delay
the Merger or which would reasonably be expected to dilute materially the
benefits to MFS of the transactions contemplated by this Agreement.
(b) Except as set forth in this Section 5.8, neither the Board of Directors
of WorldCom nor any committee thereof shall (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to MFS, the approval or
recommendation by such Board of Directors or such committee of the WorldCom
Proposals, (ii) approve or recommend, or propose publicly to approve or
recommend, any WorldCom Takeover Proposal or (iii) cause WorldCom to enter into
any letter of intent, agreement in principle, acquisition agreement or other
similar agreement (each, a "WorldCom Acquisition Agreement") related to any
WorldCom Takeover Proposal. Notwithstanding the foregoing, in the event that
prior to the Effective Time the Board of Directors of WorldCom determines in
good faith, after consultation with outside counsel, that it is necessary to do
so in order to comply with its fiduciary duties to WorldCom's shareholders under
applicable law, the Board of Directors of WorldCom may (subject to this and the
following sentences) (x) withdraw or modify its approval or recommendation of
the WorldCom Proposals or (y) approve or recommend a WorldCom Superior Proposal
(as defined below) or terminate this Agreement (and concurrently with or after
such termination, if it so chooses, cause WorldCom to enter into any WorldCom
Acquisition Agreement with respect to any WorldCom Superior Proposal), but in
each of the cases set forth in this clause (y), only at a time that is after the
tenth business day following MFS's receipt of written notice advising MFS that
the Board of Directors of WorldCom has received a WorldCom Superior Proposal,
specifying the material terms and conditions of such WorldCom Superior Proposal
and identifying the person making such WorldCom Superior Proposal. Any such
withdrawal or modification of the recommendation of the WorldCom Proposals shall
not change the approval of the Board of Directors of WorldCom for purposes of
Section 14-2-1132 of the Georgia Business Corporation Code or Article Ten of the
Amended and Restated Articles of Incorporation of WorldCom. For purposes of this
Agreement, a "WorldCom Superior Proposal" means any bona fide proposal made by a
third party to acquire, directly or indirectly, for consideration consisting of
cash and/or securities, more than 15% of the combined voting power of the shares
of WorldCom Stock and WorldCom Preferred Stock then outstanding or all or
substantially all the assets of WorldCom and otherwise on terms which the Board
of Directors of WorldCom determines in its good faith judgment (based on the
advice of a financial advisor of nationally recognized reputation) to be
materially more favorable to WorldCom's shareholders than the Merger and for
which financing, to the extent required, is then committed
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or which, in the good faith judgment of the Board of Directors of WorldCom, is
reasonably capable of being financed by such third party.
(c) In addition to the obligations of WorldCom set forth in paragraphs (a)
and (b) of this Section 5.8, WorldCom shall immediately advise MFS orally and in
writing of any request for information or of any WorldCom Takeover Proposal, the
material terms and conditions of such request or WorldCom Takeover Proposal and
the identity of the persons making such request or WorldCom Takeover Proposal.
WorldCom will keep MFS fully informed of the status and details (including
amendments or proposed amendments) of any such request or WorldCom Takeover
Proposal.
(d) Nothing contained in this Section 5.8 shall prohibit WorldCom from
taking and disclosing to its shareholders a position contemplated by Rule
14e-2(a) promulgated under the Securities Exchange Act or from making any
disclosure to WorldCom's shareholders if, in the good faith judgment of the
Board of Directors of WorldCom, after consultation with outside counsel, failure
so to disclose would be inconsistent with its fiduciary duties to WorldCom's
shareholders under applicable law; provided, however, neither WorldCom nor its
Board of Directors nor any committee thereof shall, except as permitted by
Section 5.8(b), withdraw or modify, or propose publicly to withdraw or modify,
its position with respect to the WorldCom Proposals or approve or recommend, or
propose publicly to approve or recommend, a WorldCom Takeover Proposal.
5.9 SEC and Shareholder Filings. WorldCom shall send to MFS a copy of all
material public reports and materials as and when it sends the same to its
shareholders, the SEC or any state or foreign securities commission.
5.10 Tax Opinion Certificates. WorldCom shall execute and deliver a
certificate in form satisfactory to the counsel of MFS and WorldCom, signed by
an officer of WorldCom setting forth factual representations and covenants that
will serve as a basis for the tax opinions required pursuant to Section 6.1.8 of
this Agreement ("WorldCom Tax Opinion Certificate").
5.11 Board Representation. WorldCom's Board of Directors will take action
to cause the number of directors comprising the full Board of Directors of
WorldCom at the Effective Time to consist of an odd number of directors, with
MFS being entitled to designate one less director than WorldCom (the
"Nominees"). It is the intent of the parties that membership on the compensation
and stock option, audit and nominating committees of WorldCom's Board of
Directors shall initially consist of an equal number of designees of WorldCom
and MFS.
5.12 Employee Benefit Plans.
(a) Benefit Plans. After the Effective Time, WorldCom shall arrange for
each employee participating in any of the Benefit Plans of MFS or an MFS
subsidiary as are in effect on the date hereof to participate in any counterpart
Benefit Plans of WorldCom in accordance with the eligibility criteria thereof,
provided that (i) such participants shall receive full credit for years of
service with MFS or any of its subsidiaries prior to the Merger for all purposes
for which such service was recognized under the Benefit Plan of MFS or such
subsidiary including, but not limited to, recognition of service for
eligibility, vesting, and, to the extent not duplicative of benefits received
under such Benefit Plan of MFS or such subsidiary, the amount of benefits, (ii)
such participants shall participate in the Benefit Plans of WorldCom on terms no
less favorable than those offered by WorldCom to similarly situated employees of
WorldCom; and (iii) WorldCom shall cause any and all pre-existing condition
limitations (to the extent such limitations did not apply to a pre-existing
condition under MFS' Benefit Plans) and eligibility waiting periods under any
group health plans to be waived with respect to such participants and their
eligible dependents.
(b) Change in Control Provisions. WorldCom and MFS hereby acknowledge that
the Merger and the consummation of the transactions contemplated under this
Agreement will be treated as a "Change in Control" for purposes of each of the
applicable MFS Benefit Plans and each applicable employment, severance or
similar agreement applicable to any employee of MFS or any of its subsidiaries
listed on Schedule 5.12(b) attached hereto (collectively, "Change in Control
Agreements") and agree to abide by the
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provisions of any Benefit Plans and Change in Control Agreements which relate to
a Change in Control, including, but not limited to, the accelerated vesting
and/or payment of equity-based awards.
(c) Treatment under Section 280G of the Code. With respect to any income
tax filing relating to Sections 280G or 4999 of the Code, WorldCom hereby agrees
that it shall take, and shall cause its subsidiaries to take, the position that
none of the execution of this Agreement, the approval of this Agreement by
stockholders of MFS, or the consummation of the Merger shall constitute a change
in the ownership or effective control of MFS or a change in the ownership of a
substantial portion of the assets of MFS within the meaning of Section 280G of
the Code, and further agrees that, consistent with such position, it shall not
withhold from any amounts payable to any MFS employee by reason of consummation
of the transactions contemplated hereby (including by reason of any termination
of employment of any such employee within specified periods following the
Effective Time) any amounts in respect of the excise tax described in Section
4999 of the Code unless, as a result of a change in relevant "authority" (as
such term is defined in Treasury Regulation Section 1.6662-(4)(d)(3)(iii) for
purposes of Section 6662 of the Code) which occurs after the date hereof, such
position ceases to be supported by a good faith interpretation of relevant
authority (as so defined).
5.13 Indemnification. The indemnification provisions of the By-laws and
the Certificate of Incorporation of the Surviving Corporation shall not be
amended, repealed or otherwise modified for a period of six years after the
Closing Date in any manner that would adversely affect the rights thereunder of
individuals who immediately prior to the Closing Date were directors, officers,
agents or employees of MFS unless otherwise required by applicable Law. From and
after the Effective Time, WorldCom and the Surviving Corporation shall jointly
and severally indemnify, defend and hold harmless the directors, officers and
agents of MFS as provided in MFS's Certificate of Incorporation, By-Laws or
indemnification agreements, as in effect as of the date hereof, with respect to
matters occurring through the Closing Date. To the extent available, WorldCom
agrees to cause the Surviving Corporation to maintain in effect for not less
than three years after the Closing Date policies of directors' and officers'
liability insurance comparable to those maintained by MFS with carriers
comparable to MFS's existing carriers and containing terms and conditions which
are no less advantageous in any material respect to the officers, directors and
employees of MFS; provided, however, that the Surviving Corporation shall not be
required to pay an annual premium for such insurance in excess of two times the
last annual premium paid prior to the date hereof, but in such case shall
purchase as much coverage as possible for such amount.
5.14 Takeover Statutes. If any Takeover Statute, including, without
limitation, Section 14-2-1132 of the Georgia Business Corporation Code, is or
may become applicable to the Merger, the WorldCom Proposals or the WorldCom
Option Agreement, WorldCom and the members of its Board of Directors will grant
such approvals, and take such actions as are necessary so that the transactions
contemplated by this Agreement, the WorldCom Proposals and the WorldCom Option
Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and thereby and otherwise act to eliminate or minimize the
effects of any Takeover Statute on any of the transactions contemplated hereby
or thereby.
5.15 Comfort Letters. Upon the request of MFS, WorldCom shall use
reasonable business efforts to provide to MFS prior to the Effective Time
"comfort letters" from the independent certified public accountants for WorldCom
and its subsidiaries, dated the date on which the Registration Statement, or
last amendment thereto, shall become effective, and dated the Closing Date,
addressed to the Board of Directors of each of MFS and WorldCom, covering such
matters as MFS shall reasonably request with respect to facts concerning the
financial condition of WorldCom and its subsidiaries and customary for such
certified public accountants to deliver in connection with a transaction similar
to the Merger.
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ARTICLE VI
CONDITIONS
6.1 Conditions to Each Party's Obligations. The respective obligations of
each party to effect the Merger shall be subject to the fulfillment or waiver at
or prior to the Effective Time of the following conditions:
6.1.1 Stockholder Approval. The MFS Proposals shall have been
approved at or prior to the Effective Time by the requisite vote of the
stockholders of MFS in accordance with the Delaware Code and the WorldCom
Proposals shall have been approved by the requisite vote of the
shareholders of WorldCom in accordance with applicable Law and the rules
and regulations of the NASD.
6.1.2 No Injunction or Action. No order, statute, rule, regulation,
executive order, stay, decree, judgment or injunction shall have been
enacted, entered, promulgated or enforced by any court or other
Governmental Authority which prohibits or prevents the consummation of the
Merger which has not been vacated, dismissed or withdrawn by the Effective
Time. MFS and WorldCom shall use their reasonable best efforts to have any
of the foregoing vacated, dismissed or withdrawn by the Effective Time.
6.1.3 Governmental Approvals. All Consents of any Governmental
Authority required for the consummation of the Merger and the transactions
contemplated by this Agreement shall have been obtained by Final Order (as
hereafter defined), except as may be waived by WorldCom and MFS or those
Consents the failure of which to obtain will not have a Surviving
Corporation Material Adverse Effect (as defined below). The term "Final
Order" with respect to any Consent of a Governmental Authority shall mean
an action by the appropriate Governmental Authority as to which: (i) no
request for stay by such Governmental Authority of the action is pending,
no such stay is in effect, and, if any deadline for filing any such request
is designated by statute or regulation, it has passed; (ii) no petition for
rehearing or reconsideration of the action is pending before such
Governmental Authority, and no appeal or comparable administrative remedy
with such or any other Governmental Authority is pending before such
Governmental Authority, and the time for filing any such petition, appeal
or administrative remedy has passed; (iii) such Governmental Authority does
not have the action under reconsideration on its own motion and the time
for such reconsideration has passed; and (iv) no appeal to a court, or
request for stay by a court, of the Governmental Authority action is
pending or in effect, and if any deadline for filing any such appeal or
request is designated by statute or rule, it has passed.
6.1.4 HSR Act. Any waiting period applicable to the Merger under the
HSR Act shall have expired or earlier termination thereof shall have been
granted and no action, suit, proceeding or investigation shall have been
instituted by either the United States Department of Justice or the Federal
Trade Commission to prevent the consummation of the transactions
contemplated by this Agreement or to modify or amend such transactions in
any material manner, or if any such action, suit, proceeding or
investigation shall have been instituted, it shall have been withdrawn or a
final judgment shall have been entered against such Department or
Commission, as the case may be.
6.1.5 Required Consents. Any required Consents of any person to the
Merger or the transactions contemplated hereby, including, without
limitation, the Consents of the respective lenders of WorldCom and MFS,
shall have been obtained and be in full force and effect, except for those
the failure of which to obtain will not have a material adverse effect on
the business, assets (including, but not limited to, intangible assets),
prospects, condition (financial or otherwise), properties (including, but
not limited to, intangible properties), liabilities or the result of
operations of the Surviving Corporation and its subsidiaries taken as a
whole ("Surviving Corporation Material Adverse Effect") or a WorldCom
Material Adverse Effect.
6.1.6 Registration Statement. The Registration Statement shall have
been declared effective and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no action, suit,
proceeding or investigation for that purpose shall have been initiated or
threatened by any Governmental Authority.
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6.1.7 Blue Sky. WorldCom shall have received all state securities law
authorizations necessary to consummate the transactions contemplated
hereby.
6.1.8 Tax Opinion. WorldCom shall have received an opinion from
WorldCom's tax counsel and MFS shall have received an opinion from MFS's
tax counsel substantially to the effect that, if the Merger is consummated
in accordance with the provisions of this Agreement, under current Law, for
federal income tax purposes, the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code.
6.1.9 Quotation of WorldCom Stock. The shares of WorldCom Stock
comprising the Merger Consideration shall have been approved for quotation
on The Nasdaq Stock Market.
6.2 Conditions to Obligations of MFS. The obligation of MFS to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time of
the following additional conditions, any one or more of which may be waived by
MFS:
6.2.1 WorldCom Representations and Warranties. The representations
and warranties of WorldCom contained in this Agreement that are modified by
materiality or WorldCom Material Adverse Effect shall be true and correct
in all respects and those that are not so modified shall be true and
correct in all material respects, on the date hereof and, except for
changes not prohibited by this Agreement, as of the Effective Time as if
made at the Effective Time.
6.2.2 Performance by WorldCom. WorldCom shall have performed and
complied with all of the covenants and agreements in all material respects
and satisfied in all material respects all of the conditions required by
this Agreement to be performed or complied with or satisfied by WorldCom at
or prior to the Effective Time.
6.2.3 No Material Adverse Change. There shall not have occurred after
the date hereof any Event that has or reasonably could be expected to have
a WorldCom Material Adverse Effect.
6.2.4 Certificates and Other Deliveries. WorldCom shall have
delivered to MFS (i) a certificate executed on its behalf by its President
or another authorized officer to the effect that the conditions set forth
in Subsections 6.2.1, 6.2.2 and 6.2.3, above, have been satisfied; (ii) a
certificate of existence from the Secretary of State of the State of
Georgia stating that WorldCom is a validly existing corporation; (iii) duly
adopted resolutions of the Board of Directors of each of WorldCom and the
Board of Directors and stockholder of Acquisition Subsidiary approving the
execution, delivery and performance of this Agreement, the WorldCom
Ancillary Agreements and the instruments contemplated hereby and thereby,
and of the WorldCom shareholders approving the WorldCom Proposals, each
certified by its Secretary; (iv) the duly executed WorldCom Tax Opinion
Certificate; (v) the supplemental agreement referred to in the last
sentence of Section 1.6(a) hereof; and (vi) such other documents and
instruments as MFS reasonably may request.
6.2.5 Opinion of WorldCom Counsel. MFS shall have received an opinion
of counsel to WorldCom, in form and substance reasonably satisfactory to
MFS, covering the matters set forth in Schedule 6.2.5 attached hereto.
6.2.6 Election of Nominees. WorldCom shall have taken all action
necessary to cause the Nominees to become members of the Board of Directors
of WorldCom as of the Effective Time.
6.3 Conditions to Obligations of WorldCom. The obligations of WorldCom to
effect the Merger shall be subject to the fulfillment at or prior to the
Effective Time of the following additional conditions, any one or more of which
may be waived by WorldCom:
6.3.1 MFS Representations and Warranties. The representations and
warranties of MFS contained in this Agreement that are modified by
materiality or MFS Material Adverse Effect shall be true and correct in all
respects, and those that are not so modified shall be true and correct in
all material respects, on the date hereof and, except for changes not
prohibited by this Agreement, as of the Effective Time as if made at the
Effective Time.
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6.3.2 Performance by MFS. MFS shall have performed and complied with
all the covenants and agreements in all material respects and satisfied in
all material respects all the conditions required by this Agreement to be
performed or complied with or satisfied by MFS at or prior to the Effective
Time.
6.3.3 No Material Adverse Change. There shall have not occurred after
the date hereof any Event that has or reasonably could be expected to have
a MFS Material Adverse Effect or a Surviving Corporation Material Adverse
Effect.
6.3.4 Certificates and Other Deliveries. MFS shall have delivered, or
caused to be delivered, to WorldCom (i) a certificate executed on its
behalf by its Chairman or another duly authorized officer to the effect
that the conditions set forth in Subsections 6.3.1, 6.3.2 and 6.3.3, above,
have been satisfied; (ii) a certificate of good standing from the Secretary
of State of the State of Delaware stating that MFS is a validly existing
corporation in good standing; (iii) duly adopted resolutions of the Board
of Directors and stockholders of MFS approving the execution, delivery and
performance of this Agreement, the MFS Proposals, the MFS Ancillary
Agreements and the instruments contemplated hereby and thereby, certified
by the Secretary of MFS; (iv) a true and complete copy of the Certificate
of Incorporation certified by the Secretary of State of the State of
Delaware, and a true and complete copy of the Bylaws of MFS certified by
the Secretary thereof; (v) the duly executed MFS Tax Opinion Certificate;
and (vi) such other documents and instruments as WorldCom reasonably may
request.
6.3.5 Opinion of MFS Counsel. WorldCom shall have received the
opinion of counsel to MFS, in form and substance reasonably satisfactory to
WorldCom, covering the matters set forth in Schedule 6.3.5 attached hereto.
6.3.6 Affiliate Agreements. Each person who is or may be an
"affiliate" of MFS within the meaning of Rule 145 of the rules and
regulations of the SEC promulgated under the Securities Act shall have
entered into an agreement in the form attached hereto as Schedule 4.11.
ARTICLE VII
TERMINATION AND ABANDONMENT
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the stockholders of MFS and
the shareholders of WorldCom described herein:
(a) by mutual written consent of WorldCom and MFS;
(b) by either WorldCom or MFS if:
(i) the Merger shall not have been consummated on or prior to the
first anniversary of the date hereof; provided, however, that the right
to terminate this Agreement pursuant to this Section 7.1(b)(i) shall not
be available to any party whose failure to perform any of its
obligations under this Agreement results in the failure of the Merger to
be consummated by such time;
(ii) the approval of MFS's stockholders required by Section 6.1.1
shall not have been obtained at a meeting duly convened therefor or at
any adjournment or postponement thereof;
(iii) the approval of WorldCom's shareholders as required by
Section 6.1.1 shall not have been obtained at a meeting duly convened
therefor or at any adjournment or postponement thereof; or
(iv) any Governmental Authority shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining
or otherwise prohibiting the consummation of the Merger and such order,
decree or ruling or other action shall have become final and
nonappealable;
(c) by WorldCom, if MFS shall have breached in any material respect
any of its representations, warranties, covenants or other agreements
contained in this Agreement, which breach or failure to perform is
incapable of being cured or has not been cured within 20 days after the
giving of written notice to MFS;
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(d) by WorldCom in accordance with Section 5.8(b), provided that it
has complied with all provisions thereof, including the notice provisions
therein, and that it complies with applicable requirements relating to the
payment (including the timing of any payment) of the Termination Fee;
(e) by WorldCom, if Section 4.8 shall be breached by MFS in any
material respect and MFS shall have failed to promptly terminate the
activity giving rise to such breach and use best efforts to cure such
breach upon notice thereof from WorldCom, or MFS shall breach Section 4.8
by failing to promptly notify WorldCom as required thereunder;
(f) by WorldCom if (i) the Board of Directors of MFS or any committee
thereof shall have withdrawn or modified in a manner adverse to WorldCom
its approval or recommendation of the MFS Proposals, or failed to reconfirm
its recommendation within fifteen business days after a written request to
do so, or approved or recommended any MFS Takeover Proposal or (ii) the
Board of Directors of MFS or any committee thereof shall have resolved to
take any of the foregoing actions;
(g) by WorldCom, if MFS or any of its officers, directors, employees,
representatives or agents shall take any of the actions referenced in the
proviso to the second sentence of Section 4.8(a);
(h) by MFS, if WorldCom shall have breached in any material respect
any of its representations, warranties, covenants or other agreements
contained in this Agreement, which breach or failure to perform is
incapable of being cured or has not been cured within 20 days after the
giving of written notice to WorldCom;
(i) by MFS in accordance with Section 4.8(b), provided that it has
complied with all provisions thereof, including the notice provisions
therein, and that it complies with applicable requirements relating to the
payment (including the timing of any payment) of the Termination Fee;
(j) by MFS, if Section 5.8 shall be breached by WorldCom in any
material respect and WorldCom shall have failed to promptly terminate the
activity giving rise to such breach and use best efforts to cure such
breach upon notice thereof from MFS, or WorldCom shall breach Section 5.8
by failing to promptly notify MFS as required thereunder;
(k) by MFS if (i) the Board of Directors of WorldCom or any committee
thereof shall have withdrawn or modified in a manner adverse to MFS its
approval or recommendation of the WorldCom Proposals, or failed to
reconfirm its recommendation within fifteen business days after a written
request to do so, or approved or recommended any WorldCom Takeover Proposal
or (ii) the Board of Directors of WorldCom or any committee thereof shall
have resolved to take any of the foregoing actions;
(l) by MFS, if WorldCom or any of its officers, directors, employees,
representatives or agents shall take any of the actions referenced in the
proviso to the second sentence of Section 5.8(a); or
(m) by MFS, if any person (other than MFS or any of its affiliates or
associates) shall have acquired beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Securities Exchange Act) or any
"group" (as such term is defined in Section 13(d)(3) of the Securities
Exchange Act) (other than a group of which MFS or any of its affiliates or
associates is a member) shall have been formed which beneficially owns, 25%
or more of the voting power of WorldCom.
The party desiring to terminate this Agreement pursuant to the preceding
paragraphs (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l) or (m) shall
give written notice of such termination to the other party in accordance with
Section 8.5 below.
7.2 Effect of Termination and Abandonment. (a) In the event of termination
of this Agreement and the abandonment of the Merger pursuant to this Article
VII, this Agreement (other than as set forth in this Section 7.2, Section 7.3,
Section 7.4, Section 8.1 and Section 8.7) shall become void and of no effect
with no liability on the part of any party hereto (or of any of its directors,
officers, employees, agents, legal or financial advisors or other
representatives); provided, however, that no such termination shall relieve any
party hereto from any liability for any breach of this Agreement.
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(b) In the event that (A) this Agreement is terminated by either WorldCom
or MFS pursuant to Section 7.1(b)(ii) above; (B) a bona fide MFS Takeover
Proposal shall have been made known to MFS or any of its subsidiaries and made
known to its stockholders generally or has been made directly to its
stockholders generally or any Person shall have publicly announced an intention
(whether or not conditional) to make a bona fide MFS Takeover Proposal and such
MFS Takeover Proposal or announced intention shall not have been withdrawn and
thereafter this Agreement is terminated by either WorldCom or MFS pursuant to
Section 7.1(b)(i), or (C) this Agreement is terminated (x) by MFS pursuant to
Section 7.1(i) or (y) by WorldCom pursuant to Section 7.1(e), (f) or (g), then
MFS shall promptly, but in no event later than two days after the date of such
termination, pay WorldCom a fee equal to $350 million (the "Termination Fee"),
payable by wire transfer of same day funds; provided, however, that no
Termination Fee shall be payable to WorldCom pursuant to a termination by
WorldCom pursuant to Section 7.1(g) unless and until within 18 months of such
termination, MFS or any of its subsidiaries enters into any MFS Acquisition
Agreement or consummates any MFS Takeover Proposal. MFS acknowledges that the
agreements contained in this Section 7.2(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
WorldCom would not enter into this Agreement; accordingly, if MFS fails to
promptly pay the amount due pursuant to this Section 7.2(b), and, in order to
obtain such payment, WorldCom commences a suit which results in a judgment
against MFS for the Termination Fee set forth in this paragraph (b), MFS shall
also pay to WorldCom its costs and expenses (including attorneys' fees) in
connection with such suit, together with interest on the amount of the
Termination Fee at the prime rate of Citibank N.A. in effect on the date such
payment was required to be made. In the event of a termination by WorldCom
pursuant to Section 7.1(g), MFS shall promptly pay upon WorldCom's request all
out-of-pocket charges and expenses incurred by WorldCom in connection with this
Agreement and the transactions contemplated hereby in an amount not to exceed
$10 million, which payments shall be credited against any Termination Fee that
may subsequently become payable.
(c) In the event that (A) this Agreement is terminated by either WorldCom
or MFS pursuant to Section 7.1(b)(iii) above, (B) a bona fide WorldCom Takeover
Proposal shall have been made known to WorldCom or any of its subsidiaries and
made known to its shareholders generally or has been made directly to its
shareholders generally or any Person shall have publicly announced an intention
(whether or not conditional) to make a bona fide WorldCom Takeover Proposal and
such WorldCom Takeover Proposal or announced intention shall not have been
withdrawn and thereafter this Agreement is terminated by either WorldCom or MFS
pursuant to Section 7.1(b)(i), or (C) this Agreement is terminated (x) by
WorldCom pursuant to Section 7.1(d) or (y) by MFS pursuant to Section 7.1(j),
(k), (l) or (m), then WorldCom shall promptly, but in no event later than two
days after the date of such termination, pay MFS the Termination Fee, payable by
wire transfer of same day funds; provided, however, that no Termination Fee
shall be payable to MFS pursuant to a termination by MFS pursuant to Section
7.1(l) unless and until within 18 months of such termination, WorldCom or any of
its subsidiaries enters into any WorldCom Acquisition Agreement or consummates
any WorldCom Takeover Proposal. WorldCom acknowledges that the agreements
contained in this Section 7.2(c) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, MFS would
not enter into this Agreement; accordingly, if WorldCom fails to promptly pay
the amount due pursuant to this Section 7.2(c), and, in order to obtain such
payment, MFS commences a suit which results in a judgment against WorldCom for
the Termination Fee set forth in this paragraph (c), WorldCom shall also pay to
MFS its costs and expenses (including attorneys' fees) in connection with such
suit, together with interest on the amount of the Termination Fee at the prime
rate of Citibank N.A. in effect on the date such payment was required to be
made. In the event of a termination by MFS pursuant to Section 7.1(l), WorldCom
shall promptly pay upon MFS's request all out-of-pocket charges and expenses
incurred by MFS in connection with this Agreement and the transactions
contemplated hereby in an amount not to exceed $10 million, which payments shall
be credited against any Termination Fee that may subsequently become payable.
7.3 Procedure Upon Termination. In the event of termination and
abandonment pursuant to this Article VII, this Agreement shall terminate and the
Merger shall be abandoned without further action by MFS or WorldCom, provided
that the agreements contained in Sections 7.2, 8.1 and 8.7 hereof shall remain
in full force and effect. If this Agreement is terminated as provided herein,
each party shall use its reasonable best
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efforts to redeliver all documents, work papers and other material (including
any copies thereof) of any other party relating to the transactions contemplated
hereby, whether obtained before or after the execution hereof, to the party
furnishing the same. Nothing contained in this Agreement shall relieve any party
from any liability for any inaccuracy, misrepresentation or breach of this
Agreement prior to termination.
7.4 Services Agreement. In the event that this Agreement is terminated
under circumstances in which either WorldCom or MFS is entitled to receive the
Termination Fee pursuant to Section 7.2 hereof, the party entitled to receive
the Termination Fee shall also be entitled to receive, at its sole election, the
services described in that agreement of even date herewith between MFS and
WorldCom, on the terms and conditions described in such agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 Confidentiality. Unless (i) otherwise expressly provided in this
Agreement, (ii) required by applicable Law or any listing agreement with, or the
rules and regulations of, any applicable securities exchange or the NASD, (iii)
necessary to secure any required Consents as to which the other party has been
advised, or (iv) consented to in writing by WorldCom and MFS, any information or
documents furnished in connection herewith shall be kept strictly confidential
by MFS, WorldCom and their respective officers, directors, employees and agents.
Prior to any disclosure pursuant to the preceding sentence, the party intending
to make such disclosure shall consult with the other party regarding the nature
and extent of the disclosure. Nothing contained herein shall preclude
disclosures to the extent necessary to comply with accounting, SEC and other
disclosure obligations imposed by applicable Law. To the extent required by such
disclosure obligations, WorldCom or MFS, after consultation with the other
party, may file with the SEC a Report on Form 8-K pursuant to the Securities
Exchange Act with respect to the Merger, which report may include, among other
things, financial statements and pro forma financial information with respect to
the other party. In connection with any filing with the SEC of a registration
statement or amendment thereto under the Securities Act, MFS or WorldCom, after
consultation with the other party, may include a prospectus containing any
information required to be included therein with respect to the Merger,
including, but not limited to, financial statements and pro forma financial
information with respect to the other party, and thereafter distribute said
prospectus. WorldCom and MFS shall cooperate with the other and provide such
information and documents as may be required in connection with any such
filings. In the event the Merger is not consummated, each party shall return to
the other any documents furnished by the other and all copies thereof any of
them may have made and will hold in absolute confidence any information obtained
from the other party except to the extent (i) such party is required to disclose
such information by Law or such disclosure is necessary or desirable in
connection with the pursuit or defense of a claim, (ii) such information was
known by such party prior to such disclosure or was thereafter developed or
obtained by such party independent of such disclosure, or (iii) such information
becomes generally available to the public or is otherwise no longer
confidential. Prior to any disclosure of information pursuant to the exception
in clause (i) of the preceding sentence, the party intending to disclose the
same shall so notify the party which provided the same in order that such party
may seek a protective order or other appropriate remedy should it choose to do
so.
8.2 Amendment and Modification. To the extent permitted by applicable law,
this Agreement may be amended, modified or supplemented only by a written
agreement among MFS, WorldCom and Acquisition Subsidiary, whether before or
after approval of this Agreement by the stockholders of MFS and Acquisition
Subsidiary or approval of the transactions contemplated by this Agreement by the
shareholders of WorldCom.
8.3 Waiver of Compliance; Consents. Any failure of MFS on the one hand, or
WorldCom on the other hand, to comply with any obligation, covenant, agreement
or condition herein may be waived by WorldCom on the one hand, or MFS on the
other hand, only by a written instrument signed by the party granting such
waiver, but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall
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be given in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section 8.3.
8.4 Survival of Representations and Warranties. The respective
representations, warranties, covenants and agreements of MFS and WorldCom
contained herein or in any certificates or other documents delivered prior to or
at the Closing shall survive the execution and delivery of this Agreement,
notwithstanding any investigation made or information obtained by the other
party, but shall terminate at the Effective Time, except for those contained in
Sections 5.11, 5.12 and 5.13, above and except for the agreements delivered
pursuant to Section 6.3.6 hereof and the certificates referred to in Sections
6.2.4(iv) and 6.3.4(v) hereof.
8.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person, by
facsimile, receipt confirmed, or on the next business day when sent by overnight
courier or on the second succeeding business day when sent by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(i) if to MFS, to:
11808 Miracle Hills Drive
Omaha, Nebraska 68154
Attention: Terrence J. Ferguson, Esq.
Telecopy: (402) 231-3545
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022
Attention: John S. D'Alimonte, Esq. and
Steven J. Gartner, Esq.
Telecopy: 212-821-8111
and
(ii) if to WorldCom or Acquisition Subsidiary, to:
515 East Amite Street
Jackson, Mississippi 39201
Attention: Bernard J. Ebbers
Telecopy: (601) 360-8616
with copies to:
WorldCom, Inc.
10777 Sunset Office Drive, Suite 330
St. Louis, Missouri 63127
Attention: P. Bruce Borghardt, Esq.
Telecopy: (314) 909-4101
and
Bryan Cave LLP
One Metropolitan Square
211 North Broadway, Suite 3600
St. Louis, Missouri 63102
Attention: Don G. Lents, Esq. and
R. Randall Wang, Esq.
Telecopy: (314) 259-2020
8.6 Binding Effect; Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Neither
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this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties hereto prior to the Effective Time without the
prior written consent of the other party hereto, except that Acquisition
Subsidiary may assign to WorldCom or any other direct subsidiary of WorldCom any
and all rights, interests and obligations of Acquisition Subsidiary under this
Agreement; provided that any assignment by Acquisition Subsidiary of any or all
of its rights, interests and obligations under this Agreement to WorldCom shall
require that the Merger contemplated by this Agreement shall then be structured
as a direct merger of MFS with and into WorldCom or any other structure approved
by MFS.
8.7 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs or expenses, subject to the rights of such party
contemplated under Section 7.2, above.
8.8 Governing Law. This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in accordance
with the internal laws of, the State of Delaware, except as otherwise required
by the Georgia Business Corporation Code.
8.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.10 Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement. As used in this Agreement, (i) the term "person" shall mean and
include an individual, a partnership, a joint venture, a corporation, a limited
liability company, a trust, an association, an unincorporated organization, a
Governmental Authority and any other entity; (ii) the term "affiliate," with
respect to any person, shall mean and include any person controlling, controlled
by or under common control with such person; and (iii) the term "subsidiary" of
any specified person shall mean any corporation 50 percent or more of the
outstanding voting power of which, or any partnership, joint venture, limited
liability company or other entity 50 percent or more of the total equity
interest of which, is directly or indirectly owned by such specified person.
8.11 Entire Agreement. This Agreement and the documents or instruments
referred to herein including, but not limited to, the Schedules attached hereto
and the Disclosure Letters referred to herein, which Schedules and Disclosure
Letters are incorporated herein by reference, embody the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants, or undertakings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and the understandings
between the parties with respect to such subject matter.
8.12 Severability. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable in a jurisdiction, such provision shall be
modified or deleted, as to the jurisdiction involved, only to the extent
necessary to render the same valid, legal and enforceable, and the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired thereby nor shall the validity, legality or
enforceability of such provision be affected thereby in any other jurisdiction.
8.13 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. Accordingly, the parties further agree that each party shall be
entitled to an injunction or restraining order to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other right or remedy to which such party may be entitled under
this Agreement, at law or in equity.
8.14 Third Parties. Nothing contained in this Agreement or in any
instrument or document executed by any party in connection with the transactions
contemplated hereby shall create any rights in, or be deemed to have been
executed for the benefit of, any person or entity that is not a party hereto or
thereto, or, a successor or permitted assign of such a party; provided however,
that the parties hereto specifically acknowledge that the provisions of Sections
5.12 and 5.13, above, are intended to be for the benefit of, and
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shall be enforceable by, the employees, officers and directors of MFS and/or the
MFS Subsidiaries affected thereby and their heirs and representatives.
8.15 Schedules and Disclosure Letters. MFS and WorldCom acknowledge that
the Schedules to this Agreement, the MFS Disclosure Letter and the WorldCom
Disclosure Letter (i) relate to certain matters concerning the disclosures
required and transactions contemplated by this Agreement, (ii) are qualified in
their entirety by reference to specific provisions of this Agreement, (iii) are
not intended to constitute and shall not be construed as indicating that such
matter is required to be disclosed, nor shall such disclosure be construed as an
admission that such information is material with respect to MFS or WorldCom, as
the case may be, except to the extent required by this Agreement, and (iv)
disclosure of the information contained in one MFS or WorldCom Schedule shall be
deemed as proper disclosure for all MFS or WorldCom Schedules, as the case may
be.
IN WITNESS WHEREOF, WorldCom, Acquisition Subsidiary and MFS have caused
this Agreement to be signed and delivered by their respective duly authorized
officers as of the date first above written.
WORLDCOM, INC.
By /s/ BERNARD J. EBBERS
--------------------------------
Name: Bernard J. Ebbers
Title: President and Chief
Executive Officer
HIJ CORP.
By /s/ BERNARD J. EBBERS
--------------------------------
Name: Bernard J. Ebbers
Title: President and Chief
Executive Officer
MFS COMMUNICATIONS COMPANY, INC.
By /s/ JAMES Q. CROWE
--------------------------------
Name: James Q. Crowe
Title: Chairman of the Board and
Chief Executive Officer
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<PAGE> 187
APPENDIX II
AGREEMENT
AGREEMENT by and between WorldCom, Inc., a Georgia corporation
("WorldCom"), and MFS Communications Company, Inc., a Delaware corporation
("MFS"), dated as of August 25, 1996.
RECITALS
A. On the date hereof, WorldCom, HIJ Corp., a wholly owned subsidiary of
WorldCom and a Delaware corporation, and MFS entered into an Agreement and Plan
of Merger (the "Merger Agreement").
B. Section 7.4 of the Merger Agreement provides that in the event that the
Merger Agreement is terminated under circumstances in which either WorldCom or
MFS is entitled to a Termination Fee (as defined in the Merger Agreement), the
party entitled to receive the Termination Fee (the "Terminating Party") shall be
entitled to receive from the other party (the "Non-Terminating Party") certain
services, on the terms and conditions described herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. SERVICES
In the event the provisions of Section 7.4 of the Merger Agreement become
applicable, the Non-Terminating Party agrees to provide communication services
on the terms described herein to the Terminating Party at Transfer Cost (as
defined below) for a period of 3 years. The commencement date of this three-year
period shall be 180 days after the date on which the Merger Agreement is
terminated.
2. TRANSFER COST
(a) For purposes of this Agreement, "Transfer Cost" shall consist of the
total service long-run incremental cost ("TSLRIC") of providing a communications
service, excluding: (1) any measure of costs of capital, common costs and
profits; and (2) any retail related costs, such as sales, marketing, billing,
collection (other than carrier-to-carrier billing and collection) and other
costs associated with offering communications services directly to end users.
TSLRIC shall be based upon the forward-looking economic costs of the total
quantity of the facilities and functions that are directly attributable to, or
reasonably identifiable as incremental to, the provision of the service. A
reasonable allocation of shared costs of facilities directly attributable or
incremental to the provision of a particular service may be included in TSLRIC.
The TSLRIC shall be revised annually; and shall be computed, to the extent
possible and subject to the exclusions listed above, in a manner consistent with
the "Total Element Long-Run Incremental Cost" standard adopted by the FCC in 47
CFR sec. 51.505, or any successor cost standard implemented by the FCC.
(b) The Non-Terminating Party will determine the Transfer Cost for each
type of service being provided. Should the Terminating Party wish to dispute a
Transfer Cost, it may propose a different Transfer Cost. The dispute will be
resolved by a third party who shall select the Transfer Cost which such third
party determines to be more consistent with the proper Transfer Cost as defined
above.
(c) The third party will be selected from the list in Exhibit A by
alternate deletion, beginning with the disputing party, until three remain. Each
remaining one shall be requested by the parties to submit a bid for compensation
(to be paid in equal share by the parties) for making the determination. The
lowest bidder shall be selected as arbitrator.
3. DEFINITION OF SERVICES
Services that are to be provided by WorldCom or MFS are defined as
communication products sold by that party to an independent third party customer
under an arms' length arrangement. These services include the transport and
switching of telecommunications and data traffic, but do not include any
ancillary or value-added services such as facilities management.
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<PAGE> 188
4. VALUE OF SERVICES
The Non-Terminating Party shall provide up to $300,000,000 in services over
a 3-year period, with a maximum annual service commitment of $150,000,000. Due
to the scope of services requested, the Terminating Party shall provide to the
Non-Terminating Party a 6-month rolling forecast of requirements. For the first
12 months of this Agreement, the Non-Terminating Party shall not be obligated to
install more than $500,000 of gross incremental service per month. For the
remaining term of this Agreement, the Non-Terminating Party shall not be
obligated to install more than $1,000,000 in gross incremental service per
month.
5. CAPACITY
The Non-Terminating Party will make available to the Terminating Party up
to 1/3 of all available capacity in its switches and networks. Where sufficient
capacity does not exist to satisfy the Terminating Party's requirements, the
Non-Terminating Party shall commence a good faith effort to construct the
additional capacity in a timely manner. The Non-Terminating Party must undertake
such capacity construction where the requested capacity is in a market or route
in which the Non-Terminating Party normally operates and the capacity is for
services offered by the Non-Terminating Party to third parties. If capacity
construction is required, the Non-Terminating Party can construct as much or as
little capacity as it sees fit to satisfy the request. Therefore, for this new
construction, the limit of 1/3 available capacity will not govern. For purposes
of this Agreement, available capacity shall be determined after taking into
account constraints placed on the delivering party by underlying service or
network suppliers. If as a result of capacity constraints, the Non-Terminating
Party is not able to deliver at least 75% of its requested installation amount
for the first 2 years (subject to the limitations in "Value of Services" above),
the Non-Terminating Party will extend the term of its obligation hereunder by 1
year.
6. QUALITY OF SERVICE
The quality of services provided by the Non-Terminating Party shall
generally meet standards and shall not be of materially lower quality than the
service provided to third parties purchasing similar services during the same
period of time. Should the Non-Terminating Party fail to deliver services that
meet such quality standards other than by reason of causes beyond the reasonable
control of the Non-Terminating Party, the Terminating Party shall be entitled to
service credits equal to 1/96th of a day's bill for each 15 minutes of
interrupted service. This service credit will be calculated on a
circuit-by-circuit basis. The sum of service credits cannot exceed 24 hours in
any one day, nor more than 30 days in any one calendar month. Alternatively, if
the overall quality of service provided in aggregate for one month is materially
less than the aggregate quality of service provided by the Non-Terminating Party
to its third party customers purchasing similar services for that same month
other than by reason of causes beyond the reasonable control of the Non-
Terminating Party, the Non-Terminating Party will be liable to the Terminating
Party for liquidated damages equal to the value of 1/2 times the total bill for
the month for any service with materially substandard quality.
7. SERVICE TERM
All services turned up shall be on a circuit by circuit basis. Circuit
installation and disconnect charges shall be calculated according to the
Transfer Cost definition above. Should the Terminating Party cancel service
prior to one year, the Terminating Party will be liable for any reasonable
termination charges resulting from the cancellation.
8. TERMINATION
At the end of the 3-year term, service rates will be negotiated between the
parties. Should the parties not be able to reach agreement on a new contract
covering these services, in order to effect an orderly transition of service,
the Non-Terminating Party will be obligated to support all existing services for
a period up to 18 months from the termination date at rates equal to those in
effect at the time for other customers purchasing similar types and quantities
of services.
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9. MISCELLANEOUS
(a) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement or the Merger Agreement.
(b) This Agreement may not be modified, changed or discharged in whole or
in part, except by an agreement in writing signed by MFS and WorldCom.
(c) This Agreement will be binding upon the parties' permitted assigns.
This Agreement may not be assigned by the Terminating Party, whether by
operation of law or otherwise, without the prior written consent of the
Non-Terminating Party.
(d) No delay or omission by either party in exercising any right under this
Agreement will operate as a waiver of that or any other right. A waiver or
consent given by either party on any one occasion is effective only in that
instance and will not be construed as a bar to or waiver of any right on any
other occasion.
(e) This Agreement is governed by and will be construed in accordance with
the laws of the State of Delaware.
(f) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but both of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MFS COMMUNICATIONS COMPANY, INC.
By: /s/ JAMES Q. CROWE
-------------------------------
Name: James Q. Crowe
Title: Chairman of the Board
and Chief Executive
Officer
WORLDCOM, INC.
By: /s/ BERNARD J. EBBERS
-------------------------------
Name: Bernard J. Ebbers
Title: President and Chief
Executive Officer
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<PAGE> 190
EXHIBIT A
ARTHUR ANDERSEN
COOPERS & LYBRAND
DELOITTE & TOUCHE
ERNST & YOUNG
KPMG PEAT MARWICK
PRICE WATERHOUSE
<PAGE> 191
APPENDIX III
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of August 25, 1996 (the "Agreement"), by
and between WorldCom, Inc., a Georgia corporation ("WorldCom"), and MFS
Communications Company, Inc., a Delaware corporation ("MFS").
RECITALS
(A) MERGER AGREEMENT. WorldCom, MFS and HIJ Corp., a Delaware corporation
and wholly owned subsidiary of WorldCom ("Acquisition Subsidiary"), have entered
into an Agreement and Plan of Merger dated as of the date hereof (the "Merger
Agreement"), which provides, upon the terms and subject to the conditions set
forth therein, for the merger of Acquisition Subsidiary with and into MFS (the
"Merger"); and
(B) CONDITION TO MERGER AGREEMENT. As a condition and inducement to MFS'
pursuit of the transactions contemplated by the Merger Agreement, and in
consideration therefor, WorldCom has agreed to grant MFS the Option (as
hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, and intending to be legally bound hereby, WorldCom and
MFS, agree as follows:
1. DEFINED TERMS. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Merger Agreement.
2. GRANT OF OPTION. Subject to the terms and conditions set forth herein,
WorldCom hereby grants to MFS an irrevocable option (the "Option") to purchase a
number of shares of common stock, par value $.01 per share ("WorldCom Common"),
of WorldCom up to 81,224,137 of such shares (as adjusted as set forth herein,
the "Option Shares," which shall include the Option Shares before and after any
transfer of such Option Shares, and which represents 19.9% of the issued and
outstanding shares of WorldCom Common as of the date hereof), at a purchase
price per Option Share (as adjusted as set forth herein, the "Purchase Price")
equal to $26.375.
3. EXERCISE OF OPTION.
(a) Provided that no preliminary or permanent injunction or other order
against the delivery of shares covered by the Option issued by any court of
competent jurisdiction in the United States shall be in effect, Holder may
exercise the Option, in whole or in part, at any time and from time to time
following the occurrence of a Purchase Event (as hereinafter defined); provided
that the Option shall terminate and be of no further force or effect as follows:
(A) If the Merger is consummated, upon the Effective Date;
(B) If the Merger Agreement is terminated for any reason and a Purchase
Event has occurred prior to such termination, eighteen (18) months after the
occurrence of such Purchase Event;
(C) If the Merger Agreement is terminated pursuant to Sections 7.1(a),
7.1(b), 7.1(c), 7.1(e), 7.1(f), 7.1(g) or 7.1(i) and a Purchase Event has not
occurred prior to such termination, upon such termination;
(D) If the Merger Agreement is terminated for any reason other than those
enumerated in clause (C) above and a Purchase Event has not occurred prior to
such termination, eighteen (18) months after such termination; and
(E) Three years from the date hereof if the Merger has not been consummated
and the Merger Agreement has not been terminated by such date.
provided, however, that any purchase of shares upon exercise of the Option shall
be subject to compliance with applicable law. The term "Holder" shall mean the
holder or holders of the Option from time to time, and which is initially MFS.
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(b) As used herein, a "Purchase Event" means any of the following events:
(i) WorldCom shall have recommended to its stockholders, or WorldCom
or any person (other than MFS or any affiliate or associate of MFS) shall
have publicly proposed or publicly announced, a bona fide WorldCom Takeover
Proposal that shall not have been withdrawn at the time of the exercise of
the Option; or
(ii) any person (other than MFS or any affiliate or associate of MFS)
shall have acquired beneficial ownership (as such term is defined in Rule
13d-3 promulgated under the Securities Exchange Act) of or the right to
acquire beneficial ownership of, or any "group" (as such term is defined in
Section 13(d)(3) of the Securities Exchange Act), other than a group of
which MFS or any affiliate or associate of MFS is a member, shall have been
formed which beneficially owns, or has the right to acquire beneficial
ownership of, 15% or more of the voting power of WorldCom; or
(iii) WorldCom's Board of Directors shall have withdrawn or modified
in a manner adverse to MFS the recommendation of WorldCom's Board of
Directors with respect to the WorldCom Proposals.
As used in this Agreement, "person" shall have the meaning specified in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act.
(c) WorldCom shall notify Holder promptly in writing of the occurrence of
any Purchase Event, it being understood that the giving of such notice by
WorldCom shall not be a condition to the right of Holder to exercise the Option.
(d) In the event Holder wishes to exercise the Option, it shall send to
WorldCom a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) a place and date not earlier than
three (3) business days nor later than fifteen (15) business days from the
Notice Date for the closing (the "Closing") of such purchase (the "Closing
Date"). If prior notification to or approval of any governmental regulatory
agency is required in connection with such purchase, WorldCom shall cooperate
with Holder in the filing of the required notice or application for approval and
the obtaining of such approval and the Closing shall occur immediately following
such regulatory approvals (and any mandatory waiting periods). Any exercise of
the Option shall be deemed to occur on the Notice Date relating thereto.
(e) Holder, which is initially MFS, by this Agreement, with respect to any
Option Shares acquired by it on or prior to the record date for the meeting of
shareholders of WorldCom called to consider the WorldCom Proposals, does hereby
constitute and appoint WorldCom, or any nominee of WorldCom, with full power of
substitution, from the date hereof to the earlier to occur of the termination of
the Merger Agreement or the Effective Time, as its true and lawful attorney and
proxy (its "Proxy"), for and in its name, place and stead, to vote each of such
Option Shares as its Proxy, at every annual, special or adjourned meeting of the
shareholders of WorldCom, including the right to sign its name (as stockholder)
to any consent, certificate or other document relating to WorldCom that the law
of the State of Georgia may permit or require:
(i) in favor of the WorldCom Proposals; and
(ii) against any proposal for any recapitalization, merger (other than
the Merger), sale of assets or other business combination between WorldCom
and any person or entity (other than MFS) or any other action or agreement
that would result in a breach of any covenant, representation or warranty
or any other obligation or agreement of MFS under the Merger Agreement or
which could result in any of the conditions to the Merger Agreement not
being fulfilled.
THIS POWER OF ATTORNEY IS IRREVOCABLE, IS GRANTED IN CONSIDERATION OF
WORLDCOM AND ACQUISITION SUBSIDIARY ENTERING INTO THE MERGER AGREEMENT AND IS
COUPLED WITH AN INTEREST SUFFICIENT IN LAW TO SUPPORT AN IRREVOCABLE POWER. This
appointment shall revoke all prior powers of attorney and proxies appointed by
Holder at any time with respect to the Option Shares and no subsequent powers of
attorney or proxies will be appointed by Holder, or be effective, with respect
thereto during the term of this Agreement.
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Holder shall perform such further acts and execute such further documents
and instruments as may reasonably be required to vest in WorldCom the power to
carry out and give effect to the provisions of this Agreement.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) On each Closing Date, Holder shall (i) pay to WorldCom, in immediately
available funds by wire transfer to a bank account designated by WorldCom, an
amount equal to the Purchase Price multiplied by the number of Option Shares to
be purchased on such Closing Date, and (ii) present this Agreement to WorldCom
at the address of WorldCom specified in Section 11(f) and WorldCom shall mark
and return this Agreement to Holder to reflect the exercise of this Option.
(b) At each Closing, simultaneously with the delivery of immediately
available funds, and presentation of this Agreement as provided in Section 4(a),
(i) WorldCom shall deliver to Holder (A) a certificate or certificates
representing the Option Shares to be purchased at such Closing, which Option
Shares shall be free and clear of all liens, fully paid and nonassessable and
subject to no preemptive rights, and (B) an executed new agreement with the same
terms as this Agreement evidencing the right to purchase the balance of the
Option Shares purchasable hereunder, if any, and the remaining rights of the
Holder, and (ii) Holder shall deliver to WorldCom a letter agreeing that Holder
shall not offer to sell or otherwise dispose of such Option Shares in violation
of applicable federal and state law or of the provisions of this Agreement.
(c) In addition to any other legend that is required by applicable law,
certificates for the Option Shares delivered at each Closing shall be endorsed
with a restrictive legend which shall read substantially as follows:
THE TRANSFER AND VOTING OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED AND A STOCK OPTION AGREEMENT DATED AS OF AUGUST 25, 1996. A COPY OF
SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON
RECEIPT BY WORLDCOM OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the portion of the above legend relating to
restrictions on transfer shall be removed by delivery of substitute
certificate(s) without such legend if Holder shall have delivered to WorldCom a
copy of a letter from the staff of the SEC, or an opinion of counsel in form and
substance reasonably satisfactory to WorldCom and its counsel, to the effect
that such legend is not required for purposes of the Securities Act. It is
understood and agreed that the portion of the above legend relating to voting
shall be removed upon expiration or termination of the proxy referred to in
Section 3(e) hereof.
(d) Upon the giving by Holder to WorldCom of the written notice of exercise
of the Option provided for under Section 3(e), the tender of the applicable
purchase price in immediately available funds and the tender of this Agreement
to WorldCom, Holder shall be deemed to be the holder of record of the shares of
WorldCom Common issuable upon such exercise, notwithstanding that the stock
transfer books of WorldCom shall then be closed or that certificates
representing such shares of WorldCom Common shall not then be actually delivered
to Holder. WorldCom shall pay all expenses, and any and all United States
federal, state, and local taxes and other charges that may be payable in
connection with the preparation, issuance and delivery of stock certificates
under this Section in the name of Holder or its assignee, transferee, or
designee.
(e) WorldCom agrees (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
WorldCom Common so that the Option may be exercised without additional
authorization of WorldCom Common after giving effect to all other options,
warrants, convertible securities and other rights to purchase WorldCom Common,
(ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
WorldCom, and (iii) promptly to take all action as may from time to time be
required (including (A) complying with all premerger notification, reporting and
waiting period requirements, (B) in the event prior approval of or notice to any
governmental regulatory agency is necessary before the Option may be exercised,
cooperating fully with Holder in preparing such applications or notices and
providing such information to such Governmental Authority as it may require and
(C) adopting,
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amending, redeeming or taking such other action with respect to any Rights
Agreement adopted on or after the date hereof so as to preclude MFS from
becoming an "Acquiring Person" and to preclude a "Share Acquisition Date" or a
"Distribution Date" (or similar events) from occurring thereunder in order to
permit Holder to exercise the Option and WorldCom duly and effectively to issue
shares of the WorldCom Common pursuant hereto, as long as, after giving effect
to the exercise of the Option (or any part thereof), Holder would not own
beneficially (within the meaning of Rule 13d-3 under the Securities Exchange
Act) more than 17.5% of the issued and outstanding WorldCom Common.
5. REPRESENTATIONS AND WARRANTIES OF WORLDCOM. WorldCom hereby represents
and warrants to MFS (and Holder, if different from MFS) as follows:
(a) Corporate Authority. WorldCom has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby; the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of WorldCom, and
no other corporate proceedings on the part of WorldCom are necessary to
authorize this Agreement or to consummate the transactions so contemplated;
this Agreement has been duly and validly executed and delivered by
WorldCom.
(b) Beneficial Ownership. To the best knowledge of WorldCom, as of the
date of this Agreement, no person or group has beneficial ownership of more
than 10% of the issued and outstanding shares of WorldCom Common.
(c) Shares Reserved for Issuance; Capital Stock. WorldCom has taken
all necessary corporate action to authorize and reserve and permit it to
issue, and at all times from the date hereof through the termination of
this Agreement in accordance with its terms, will have reserved for
issuance upon the exercise of the Option, that number of shares of WorldCom
Common equal to the maximum number of shares of WorldCom Common at any time
and from time to time purchasable upon exercise of the Option, and all such
shares, upon issuance pursuant to the Option, will be duly authorized,
validly issued, fully paid and nonassessable, and will be delivered free
and clear of all claims, liens, encumbrances, and security interests (other
than those created by this Agreement) and not subject to any preemptive
rights.
(d) No Violations. The execution, delivery and performance of this
Agreement does not or will not, and the consummation by WorldCom of any of
the transactions contemplated hereby will not, constitute or result in (A)
a breach or violation of, or a default under, its certificate of
incorporation or by-laws, or the comparable governing instruments of any of
its subsidiaries, or (B) a breach or violation of, or a default under, any
agreement, lease, contract, note, mortgage, indenture, arrangement or other
obligation of it or any of its subsidiaries (with or without the giving of
notice, the lapse of time or both) or under any law, rule, ordinance or
regulation or judgment, decree, order, award or governmental or
non-governmental permit or license to which it or any of its subsidiaries
is subject, that would, in any case give any other person the ability to
prevent or enjoin WorldCom's performance under this Agreement in any
material respect.
6. REPRESENTATIONS AND WARRANTIES OF MFS. MFS hereby represents and
warrants to WorldCom as follows:
(a) Corporate Authority. MFS has full corporate power and authority to
enter into this Agreement and, subject to obtaining the approvals referred
to in this Agreement, to consummate the transactions contemplated by this
Agreement; the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of MFS and this
Agreement has been duly executed and delivered by MFS.
(b) Investment Representations.
(i) MFS is acquiring the Option and the Option Shares
(collectively, the "Securities") for its own account for investment
only, and not with a view to, or for sale in connection with, any
distribution of the Securities in violation of the Securities Act, or
any rule or regulation under the Securities Act.
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(ii) MFS has had such opportunity as it deems adequate to obtain
from representatives of WorldCom such information as is necessary to
permit MFS to evaluate the merits and risks of its investment in
WorldCom.
(iii) MFS has sufficient experience in business, financial and
investment matters to be able to evaluate the risks involved in the
purchase of the Securities and to make an informed investment decision
with respect to such purchase.
(iv) MFS acknowledges that (1) the Securities have not been
registered under the Securities Act and are "restricted securities"
within the meaning of Rule 144 under the Securities Act and (2) the
Securities cannot be sold, transferred or otherwise disposed of unless
they are subsequently registered under the Securities Act or an
exemption from registration is then available.
7. ADJUSTMENT UPON CHANGES IN MFS CAPITALIZATION, ETC.
(a) In the event of any change in the WorldCom Common by reason of a stock
dividend, stock split, split-up, recapitalization, combination, exchange of
shares or similar transaction, the type and number of shares or securities
subject to the Option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction so that Holder shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Holder would
have received in respect of WorldCom Common if the Option had been exercised
immediately prior to such event, or the record date therefor, as applicable. If
any additional shares of WorldCom Common are issued after the date of this
Agreement (other than pursuant to an event described in the first sentence of
this Section 7(a), upon exercise of any option to purchase WorldCom Common
outstanding on the date hereof or upon conversion into WorldCom Common of any
convertible security of WorldCom outstanding on the date hereof), the number of
shares of WorldCom Common subject to the Option shall be adjusted so that, after
such issuance, it, together with any shares of WorldCom Common previously issued
pursuant hereto, equals 19.9% of the number of shares of WorldCom Common then
issued and outstanding, without giving effect to any shares subject to or issued
pursuant to the Option. No provision of this Section 7 shall be deemed to affect
or change, or constitute authorization for any violation of, any of the
covenants or representations in the Merger Agreement.
(b) In the event that WorldCom shall enter into an agreement (i) to
consolidate with or merge into any person, other than MFS or one of its
subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than MFS or one of its
subsidiaries, to merge into WorldCom and WorldCom shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of WorldCom Common shall be changed into or exchanged for stock or other
securities of WorldCom or any other person or cash or any other property or the
outstanding shares of WorldCom Common immediately prior to such merger shall
after such merger represent less than 50% of the outstanding shares and share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than MFS or one of its
subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option to acquire the number and
class of shares or other securities or property that Holder would have received
in respect of WorldCom Common if the Option had been exercised immediately prior
to such consolidation, merger, sale or transfer, or the record date therefor, as
applicable.
8. REGISTRATION RIGHTS.
(a) Demand Registration Rights. WorldCom shall, subject to the conditions
of 8(c) below, if requested by Holder, including MFS and any permitted
transferee acquiring at least 10% of the shares of WorldCom Common represented
by the Option on the date hereof (each, a "Selling Shareholder"), as
expeditiously as possible prepare and file a registration statement under the
Securities Act if such registration is necessary in order to permit the sale or
other disposition of any or all shares of WorldCom Common or other securities
that have been acquired by or are issuable to the Selling Shareholder upon
exercise of the Option in accordance with the intended method of sale or other
disposition stated by the Selling Shareholder in such request,
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including without limitation a "shelf" registration statement under Rule 415
under the Securities Act or any successor provision, and WorldCom shall use its
best efforts to qualify such shares or other securities for sale under any
applicable state securities laws, provided, however, that WorldCom shall not be
required to consent to general jurisdiction or qualify to do business in any
state where it is not otherwise required to so consent to such jurisdiction or
to so qualify to do business.
(b) Additional Registration Rights. If WorldCom at any time after the
exercise of the Option proposes to register any shares of WorldCom Common under
the Securities Act, WorldCom will promptly give written notice to the Selling
Shareholders of its intention to do so and, upon the written request of any
Selling Shareholder given within thirty (30) days after receipt of any such
notice (which request shall specify the number of shares of WorldCom Common
intended to be included in such public offering by the Selling Shareholder),
WorldCom will cause all such shares for which a Selling Shareholder requests
participation in such registration, to be so registered and included in such
public offering, provided, however, that WorldCom may elect to not cause any
such shares to be so registered (i) if such public offering is to be
underwritten and the underwriters in good faith object for valid business
reasons, or (ii) in the case of a registration solely to implement an employee
benefit plan or a registration filed on Form S-4 of the Securities Act or any
successor Form; provided, further, however, that such election pursuant to (i)
may only be made two times. If some but not all the shares of WorldCom Common,
with respect to which WorldCom shall have received requests for registration
pursuant to this Section 8(b), shall be excluded from such registration,
WorldCom shall make appropriate allocation of shares to be registered among the
Selling Shareholders desiring to register their shares pro rata in the
proportion that the number of shares requested to be registered by each such
Selling Shareholder bears to the total number of shares requested to be
registered by all such Selling Shareholders then desiring to have WorldCom
Common registered for sale.
(c) Conditions to Required Registration. WorldCom shall use all reasonable
efforts to cause each registration statement referred to in Section 8(a) above
to become effective and to obtain all consents or waivers of other parties which
are required therefor and to keep such registration statement effective;
provided, however, that WorldCom may delay any registration of Option Shares
required pursuant to Section 8(a) above for a period not exceeding ninety (90)
days provided WorldCom shall in good faith determine that any such registration
would adversely affect WorldCom (provided that this right may not be exercised
more than once during any twelve month period), and WorldCom shall not be
required to register Option Shares under the Securities Act pursuant to Section
8(a) above:
(i) on more than one occasion during any calendar year;
(ii) within ninety (90) days after the effective date of a
registration referred to in Section 8(b) above pursuant to which the
Selling Shareholder or Selling Shareholders concerned were afforded the
opportunity to register such shares under the Securities Act and such
shares were registered as requested;
(iii) unless a request therefor is made to WorldCom by Selling
Shareholders that hold at least 25% or more of the aggregate number of
Option Shares (including shares of WorldCom Common issuable upon exercise
of the Option) then outstanding; or
(iv) if all the Option Shares proposed to be registered could be sold
by the Selling Shareholders in a 90-day period in accordance with Rule 144.
In addition to the foregoing, WorldCom shall not be required to maintain
the effectiveness of any registration statement after the expiration of six (6)
months from the effective date of such registration statement. WorldCom shall
use all reasonable efforts to make any filings, and take all steps, under all
applicable state securities laws to the extent necessary to permit the sale or
other disposition of the Option Shares so registered in accordance with the
intended method of distribution for such shares; provided, however, that
WorldCom shall not be required to consent to general jurisdiction or qualify to
do business in any state where it is not otherwise required to so consent to
such jurisdiction or to so qualify to do business.
(d) Expenses. Except where applicable state law prohibits such payments,
WorldCom will pay all expenses (including without limitation registration fees,
qualification fees, blue sky fees and expenses
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(including the fees and expenses of counsel), legal expenses, including the
reasonable fees and expenses of one counsel to the holders whose Option Shares
are being registered (not to exceed $15,000), printing expenses and the costs of
special audits or "cold comfort" letters, expenses of underwriters, excluding
discounts and commissions but including liability insurance if WorldCom so
desires or the underwriters so require, and the reasonable fees and expenses of
any necessary special experts) in connection with each registration pursuant to
Section 8(a) or 8(b) above (including the related offerings and sales by holders
of Option Shares) and all other qualifications, notifications or exemptions
pursuant to Section 8(a) or 8(b) above.
(e) Indemnification. In connection with any registration under Section 8(a)
or 8(b) above, WorldCom hereby indemnifies the Selling Shareholders, and each
underwriter thereof, including each person, if any, who controls such Holder or
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, losses, claims, damages and liabilities caused by any untrue, or
alleged untrue, statement of a material fact contained in any registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) or any preliminary prospectus, or caused by
any omission, or alleged omission, to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such expenses, losses, claims, damages or liabilities of such
indemnified party are caused by any untrue statement or alleged untrue statement
that was included by WorldCom in any such registration statement or prospectus
or notification or offering circular (including any amendments or supplements
thereto) in reliance upon and in conformity with, information furnished in
writing to WorldCom by such indemnified party expressly for use therein, and
WorldCom and each officer, director and controlling person of WorldCom shall be
indemnified by such Selling Shareholders, or by such underwriter, as the case
may be, for all such expenses, losses, claims, damages and liabilities caused by
any untrue, or alleged untrue, statement, that was included by WorldCom in any
such registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon, and in
conformity with, information furnished in writing to WorldCom by or on behalf of
such Selling Shareholder or such underwriter, as the case may be, expressly for
such use.
Promptly upon receipt by a party indemnified under this Section 8(e) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 8(e), such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
Section 8(e) except to the extent the indemnified party is materially prejudiced
thereby. In case notice of commencement of any such action shall be given to the
indemnifying party as above provided, the indemnifying party shall be entitled
to participate in and, to the extent it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense of such action at
its own expense, with counsel chosen by it and reasonably satisfactory to such
indemnified party. The indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel (other than reasonable costs of investigation)
shall be paid by the indemnified party unless (i) the indemnifying party either
agrees to pay the same, (ii) the indemnifying party fails to assume the defense
of such action with counsel reasonably satisfactory to the indemnified party, or
(iii) the indemnified party has been advised by counsel that one or more legal
defenses may be available to the indemnifying party that may be contrary to the
interest of the indemnified party, in which case the indemnifying party shall be
entitled to assume the defense of such action notwithstanding its obligation to
bear fees and expenses of such counsel. No indemnifying party shall be liable
for any settlement entered into without its consent, which consent may not be
unreasonably withheld.
If the indemnification provided for in this Section 8(e) is unavailable to
a party otherwise entitled to be indemnified in respect of any expenses, losses,
claims, damages or liabilities referred to herein, then the indemnifying party,
in lieu of indemnifying such party otherwise entitled to be indemnified, shall
contribute to the amount paid or payable by such party to be indemnified as a
result of such expenses, losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative benefits received by
WorldCom, the Selling Shareholders and the underwriters from the offering of the
securities and also the relative fault of WorldCom, the Selling Shareholders and
the underwriters in connection with the statements
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or omissions which resulted in such expenses, losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The amount
paid or payable by a party as a result of the expenses, losses, claims, damages
and liabilities referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim, provided, however, that in no
case shall any Selling Shareholder be responsible, in the aggregate, for any
amount in excess of the net offering proceeds attributable to its Option Shares
included in the offering. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Any obligation by any Selling Shareholder to indemnify shall
be several and not joint with other holders.
In connection with any registration pursuant to Section 8(a) or 8(b) above,
WorldCom and each Selling Shareholder (other than MFS) shall enter into an
agreement containing the indemnification provisions of this Section 8(e). In the
event of an underwritten public offering pursuant to Section 8(b), the Company
and the Selling Shareholders shall enter into an underwriting agreement
containing customary terms and provisions; provided that the indemnification
provisions as they relate to Selling Shareholders shall contain substantially
the same limitations as the provisions set forth herein.
(f) Miscellaneous Reporting. WorldCom shall comply with all reporting
requirements and will do all such other things as may be necessary to permit the
expeditious sale at any time of any Option Shares by the Selling Shareholders
thereof in accordance with and to the extent permitted by any rule or regulation
promulgated by the SEC from time to time, including, without limitation, Rule
144. WorldCom shall at its expense provide the Selling Shareholders with any
information necessary in connection with the completion and filing of any
reports or forms required to be filed by them under the Securities Act or the
Securities Exchange Act, or required pursuant to any state securities laws or
the rules of any stock exchange.
(g) Issue Taxes. WorldCom will pay all stamp taxes in connection with the
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will hold the Selling Shareholders harmless, without
limitation as to time, against any and all liabilities, with respect to all such
taxes.
9. QUOTATION; LISTING. If WorldCom Common or any other securities to be
acquired in connection with the exercise of the Option are then authorized for
quotation or trading or listing on any securities exchange, WorldCom, upon the
request of Holder, will promptly file an application, if required, to authorize
for quotation or trading or listing the shares of WorldCom Common or other
securities to be acquired upon exercise of the Option on such securities
exchange and will use its best efforts to obtain approval, if required, of such
quotation or listing as soon as practicable.
10. DIVISION OF OPTION. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Holder, upon presentation and
surrender of this Agreement at the principal office of WorldCom for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of WorldCom
Common purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by WorldCom of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Agreement, if mutilated, WorldCom will execute and deliver a new Agreement
of like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of WorldCom, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
11. MISCELLANEOUS.
(a) Expenses. Each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
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(b) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties hereto.
(c) Entire Agreement: No Third-Party Beneficiaries; Severability. This
Agreement, together with the Merger Agreement and the other documents and
instruments referred to herein and therein, between WorldCom and MFS (i)
constitute the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, and (ii) is not intended to confer upon any person other
than the parties hereto (other than the indemnified parties under Section 8(e)
and any transferees of the Option Shares or any permitted transferee of this
Agreement pursuant to Section 11(h)) any rights or remedies hereunder. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or Governmental Authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. If for any reason such court or
Governmental Authority determines that the Option does not permit Holder to
acquire the full number of shares of WorldCom Common as provided in Section 3
(as may be adjusted herein), it is the express intention of WorldCom to allow
Holder to acquire such lesser number of shares as may be permissible without any
amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Georgia without regard to any
applicable conflicts of law rules.
(e) Descriptive Headings. The descriptive headings contained herein are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the addresses set forth in the Merger Agreement (or
at such other address for a party as shall be specified by like notice).
(g) Counterparts. This Agreement and any amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed and
delivered, it being understood that both parties need not sign the same
counterpart.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Holder may assign this Agreement
to a wholly-owned subsidiary of Holder and Holder may assign its rights
hereunder in whole or in part after the occurrence of a Purchase Event. Subject
to the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
(i) Further Assurances. In the event of any exercise of the Option by
Holder, WorldCom and Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
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IN WITNESS WHEREOF, MFS and WorldCom have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
MFS COMMUNICATIONS COMPANY, INC.
By: /s/ JAMES Q. CROWE
-------------------------------
Name: James Q. Crowe
Title: Chairman of the Board and
Chief Executive Officer
WORLDCOM, INC.
By: /s/ BERNARD J. EBBERS
-------------------------------
Name: Bernard J. Ebbers
Title: President and Chief
Executive Officer
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APPENDIX IV
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of August 25, 1996 (the "Agreement"), by
and between WorldCom, Inc., a Georgia corporation ("WorldCom"), and MFS
Communications Company, Inc., a Delaware corporation ("MFS").
RECITALS
(A) MERGER AGREEMENT. WorldCom, MFS and HIJ Corp., a Delaware corporation
and wholly owned subsidiary of WorldCom ("Acquisition Subsidiary"), have entered
into an Agreement and Plan of Merger dated as of the date hereof (the "Merger
Agreement"), which provides, upon the terms and subject to the conditions set
forth therein, for the merger of Acquisition Subsidiary with and into MFS (the
"Merger"); and
(B) CONDITION TO MERGER AGREEMENT. As a condition and inducement to
WorldCom's pursuit of the transactions contemplated by the Merger Agreement, and
in consideration therefor, MFS has agreed to grant WorldCom the Option (as
hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, and intending to be legally bound hereby, WorldCom and
MFS, agree as follows:
1. DEFINED TERMS. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Merger Agreement.
2. GRANT OF OPTION. Subject to the terms and conditions set forth herein,
MFS hereby grants to WorldCom an irrevocable option (the "Option") to purchase a
number of shares of common stock, par value $.01 per share ("MFS Common"), of
MFS up to 43,953,073 of such shares (as adjusted as set forth herein, the
"Option Shares", which shall include the Option Shares before and after any
transfer of such Option Shares, and which represents 19.9% of the issued and
outstanding shares of MFS Common as of the date hereof), at a purchase price per
Option Share (as adjusted as set forth herein, the "Purchase Price") equal to
$55.3875.
3. EXERCISE OF OPTION.
(a) Provided that no preliminary or permanent injunction or other order
against the delivery of shares covered by the Option issued by any court of
competent jurisdiction in the United States shall be in effect, Holder may
exercise the Option, in whole or in part, at any time and from time to time
following the occurrence of a Purchase Event (as hereinafter defined); provided
that the Option shall terminate and be of no further force or effect as follows:
(A) If the Merger is consummated, upon the Effective Date;
(B) If the Merger Agreement is terminated for any reason and a Purchase
Event has occurred prior to such termination, eighteen (18) months after the
occurrence of such Purchase Event;
(C) If the Merger Agreement is terminated pursuant to Sections 7.1(a),
7.1(b), 7.1(d), 7.1(h), 7.1(j), 7.1(k) or 7.1(l) and a Purchase Event has not
occurred prior to such termination, upon such termination;
(D) If the Merger Agreement is terminated for any reason other than those
enumerated in clause (C) above and a Purchase Event has not occurred prior to
such termination, eighteen (18) months after such termination; and
(E) Three years from the date hereof if the Merger has not been consummated
and the Merger Agreement has not been terminated by such date.
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provided, however, that any purchase of shares upon exercise of the Option shall
be subject to compliance with applicable law. The term "Holder" shall mean the
holder or holders of the Option from time to time, and which is initially
WorldCom.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) MFS shall have recommended to its stockholders, or MFS or any
person (other than WorldCom or any affiliate or associate of WorldCom)
shall have publicly proposed or publicly announced, a bona fide MFS
Takeover Proposal that shall not have been withdrawn at the time of the
exercise of the Option; or
(ii) any person (other than WorldCom or any affiliate or associate of
WorldCom) shall have acquired beneficial ownership (as such term is defined
in Rule 13d-3 promulgated under the Securities Exchange Act) of or the
right to acquire beneficial ownership of, or any "group" (as such term is
defined in Section 13(d)(3) of the Securities Exchange Act), other than a
group of which WorldCom or any affiliate or associate of WorldCom is a
member, shall have been formed which beneficially owns, or has the right to
acquire beneficial ownership of, 15% or more of the voting power of MFS; or
(iii) MFS' Board of Directors shall have withdrawn or modified in a
manner adverse to WorldCom the recommendation of MFS' Board of Directors
with respect to the MFS Proposals.
(c) As used in this Agreement, "person" shall have the meaning specified in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act.
MFS shall notify Holder promptly in writing of the occurrence of any
Purchase Event, it being understood that the giving of such notice by MFS
shall not be a condition to the right of Holder to exercise the Option.
(d) In the event Holder wishes to exercise the Option, it shall send to MFS
a written notice (the date of which being herein referred to as the "Notice
Date") specifying (i) the total number of Option Shares it intends to purchase
pursuant to such exercise and (ii) a place and date not earlier than three (3)
business days nor later than fifteen (15) business days from the Notice Date for
the closing (the "Closing") of such purchase (the "Closing Date"). If prior
notification to or approval of any governmental regulatory agency is required in
connection with such purchase, MFS shall cooperate with Holder in the filing of
the required notice or application for approval and the obtaining of such
approval and the Closing shall occur immediately following such regulatory
approvals (and any mandatory waiting periods). Any exercise of the Option shall
be deemed to occur on the Notice Date relating thereto.
(e) Holder, which is initially WorldCom, by this Agreement, with respect to
any Option Shares acquired by it on or prior to the record date for the meeting
of stockholders of MFS called to consider the MFS Proposals, does hereby
constitute and appoint MFS, or any nominee of MFS, with full power of
substitution, from the date hereof to the earlier to occur of the termination of
the Merger Agreement or the Effective Time, as its true and lawful attorney and
proxy (its "Proxy"), for and in its name, place and stead, to vote each of such
Option Shares as its Proxy, at every annual, special or adjourned meeting of the
stockholders of MFS, including the right to sign its name (as stockholder) to
any consent, certificate or other document relating to MFS that the law of the
State of Delaware may permit or require:
(i) in favor of the MFS Proposals; and
(ii) against any proposal for any recapitalization, merger (other than
the Merger), sale of assets or other business combination between MFS and
any person or entity (other than WorldCom or Acquisition Subsidiary or
other permitted assignee thereof under the Merger Agreement) or any other
action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of WorldCom
under the Merger Agreement or which could result in any of the conditions
to the Merger Agreement not being fulfilled.
THIS POWER OF ATTORNEY IS IRREVOCABLE, IS GRANTED IN CONSIDERATION OF MFS
ENTERING INTO THE MERGER AGREEMENT AND IS COUPLED WITH AN INTEREST
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SUFFICIENT IN LAW TO SUPPORT AN IRREVOCABLE POWER. This appointment shall revoke
all prior powers of attorney and proxies appointed by Holder at any time with
respect to the Option Shares and no subsequent powers of attorney or proxies
will be appointed by Holder, or be effective, with respect thereto during the
term of this Agreement.
Holder shall perform such further acts and execute such further documents
and instruments as may reasonably be required to vest in MFS the power to carry
out and give effect to the provisions of this Agreement.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) On each Closing Date, Holder shall (i) pay to MFS, in immediately
available funds by wire transfer to a bank account designated by MFS, an amount
equal to the Purchase Price multiplied by the number of Option Shares to be
purchased on such Closing Date, and (ii) present this Agreement to MFS at the
address of MFS specified in Section 11(f) and MFS shall mark and return this
Agreement to Holder to reflect the exercise of this Option.
(b) At each Closing, simultaneously with the delivery of immediately
available funds, and presentation of this Agreement as provided in Section 4(a),
(i) MFS shall deliver to Holder (A) a certificate or certificates representing
the Option Shares to be purchased at such Closing, which Option Shares shall be
free and clear of all liens, fully paid and nonassessable and subject to no
preemptive rights, and (B) an executed new agreement with the same terms as this
Agreement evidencing the right to purchase the balance of the Option Shares
purchasable hereunder, if any, and the remaining rights of the Holder, and (ii)
Holder shall deliver to MFS a letter agreeing that Holder shall not offer to
sell or otherwise dispose of such Option Shares in violation of applicable
federal and state law or of the provisions of this Agreement.
(c) In addition to any other legend that is required by applicable law,
certificates for the Option Shares delivered at each Closing shall be endorsed
with a restrictive legend which shall read substantially as follows:
THE TRANSFER AND VOTING OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED AND A STOCK OPTION AGREEMENT DATED AS OF AUGUST 25, 1996. A COPY OF
SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON
RECEIPT BY MFS OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the portion of the above legend relating to
restrictions on transfer shall be removed by delivery of substitute
certificate(s) without such legend if Holder shall have delivered to MFS a copy
of a letter from the staff of the SEC, or an opinion of counsel in form and
substance reasonably satisfactory to MFS and its counsel, to the effect that
such legend is not required for purposes of the Securities Act. It is understood
and agreed that the portion of the above legend relating to voting shall be
removed upon expiration or termination of the proxy referred to in Section 3(e)
hereof.
(d) Upon the giving by Holder to MFS of the written notice of exercise of
the Option provided for under Section 3(e), the tender of the applicable
purchase price in immediately available funds and the tender of this Agreement
to MFS, Holder shall be deemed to be the holder of record of the shares of MFS
Common issuable upon such exercise, notwithstanding that the stock transfer
books of MFS shall then be closed or that certificates representing such shares
of MFS Common shall not then be actually delivered to Holder. MFS shall pay all
expenses, and any and all United States federal, state, and local taxes and
other charges that may be payable in connection with the preparation, issuance
and delivery of stock certificates under this Section in the name of Holder or
its assignee, transferee, or designee.
(e) MFS agrees (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of MFS
Common so that the Option may be exercised without additional authorization of
MFS Common after giving effect to all other options, warrants, convertible
securities and other rights to purchase MFS Common, (ii) that it will not, by
charter amendment or through reorganization, consolidation, merger, dissolution
or sale of assets, or by any other voluntary act, avoid or seek to avoid the
observance or performance of any of the covenants, stipulations or conditions to
be observed or performed
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hereunder by MFS, and (iii) promptly to take all action as may from time to time
be required (including (A) complying with all premerger notification, reporting
and waiting period requirements, (B) in the event prior approval of or notice to
any governmental regulatory agency is necessary before the Option may be
exercised, cooperating fully with Holder in preparing such applications or
notices and providing such information to such Governmental Authority as it may
require and (C) amending, redeeming or taking such other action with respect to
the MFS Rights Agreement so as to preclude WorldCom from becoming an "Acquiring
Person" and to preclude a "Stock Acquisition Date" or a "Distribution Date" (or
similar events) from occurring thereunder in order to permit Holder to exercise
the Option and MFS duly and effectively to issue shares of the MFS Common
pursuant hereto, as long as, after giving effect to the exercise of the Option
(or any part thereof), Holder would not own beneficially (within the meaning of
Rule 13d-3 under the Securities Exchange Act) more than 17.5% of the issued and
outstanding MFS Common.
5. REPRESENTATIONS AND WARRANTIES OF MFS. MFS hereby represents and
warrants to WorldCom (and Holder, if different from WorldCom) as follows:
(a) Corporate Authority. MFS has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby; the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of MFS, and no other corporate
proceedings on the part of MFS are necessary to authorize this Agreement or
to consummate the transactions so contemplated; this Agreement has been
duly and validly executed and delivered by MFS.
(b) Beneficial Ownership. To the best knowledge of MFS, as of the date
of this Agreement, no person or group has beneficial ownership of more than
10% of the issued and outstanding shares of MFS Common.
(c) Shares Reserved for Issuance; Capital Stock. MFS has taken all
necessary corporate action to authorize and reserve and permit it to issue,
and at all times from the date hereof through the termination of this
Agreement in accordance with its terms, will have reserved for issuance
upon the exercise of the Option, that number of shares of MFS Common equal
to the maximum number of shares of MFS Common at any time and from time to
time purchasable upon exercise of the Option, and all such shares, upon
issuance pursuant to the Option, will be duly authorized, validly issued,
fully paid and nonassessable, and will be delivered free and clear of all
claims, liens, encumbrances, and security interests (other than those
created by this Agreement) and not subject to any preemptive rights.
(d) No Violations. The execution, delivery and performance of this
Agreement does not or will not, and the consummation by MFS of any of the
transactions contemplated hereby will not, constitute or result in (A) a
breach or violation of, or a default under, its certificate of
incorporation or by-laws, or the comparable governing instruments of any of
its subsidiaries, or (B) a breach or violation of, or a default under, any
agreement, lease, contract, note, mortgage, indenture, arrangement or other
obligation of it or any of its subsidiaries (with or without the giving of
notice, the lapse of time or both) or under any law, rule, ordinance or
regulation or judgment, decree, order, award or governmental or
non-governmental permit or license to which it or any of its subsidiaries
is subject, that would, in any case give any other person the ability to
prevent or enjoin MFS' performance under this Agreement in any material
respect.
6. REPRESENTATIONS AND WARRANTIES OF WORLDCOM. WorldCom hereby represents
and warrants to MFS as follows:
(a) Corporate Authority. WorldCom has full corporate power and
authority to enter into this Agreement and, subject to obtaining the
approvals referred to in this Agreement, to consummate the transactions
contemplated by this Agreement; the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
WorldCom; and this Agreement has been duly executed and delivered by
WorldCom.
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(b) Investment Representations.
(i) WorldCom is acquiring the Option and the Option Shares
(collectively, the "Securities") for its own account for investment
only, and not with a view to, or for sale in connection with, any
distribution of the Securities in violation of the Securities Act, or
any rule or regulation under the Securities Act.
(ii) WorldCom has had such opportunity as it deems adequate to
obtain from representatives of MFS such information as is necessary to
permit WorldCom to evaluate the merits and risks of its investment in
MFS.
(iii) WorldCom has sufficient experience in business, financial and
investment matters to be able to evaluate the risks involved in the
purchase of the Securities and to make an informed investment decision
with respect to such purchase.
(iv) WorldCom acknowledges that (1) the Securities have not been
registered under the Securities Act and are "restricted securities"
within the meaning of Rule 144 under the Securities Act and (2) the
Securities cannot be sold, transferred or otherwise disposed of unless
they are subsequently registered under the Securities Act or an
exemption from registration is then available.
7. ADJUSTMENT UPON CHANGES IN MFS CAPITALIZATION, ETC.
(a) In the event of any change in the MFS Common by reason of a stock
dividend, stock split, split-up, recapitalization, combination, exchange of
shares or similar transaction, the type and number of shares or securities
subject to the Option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction so that Holder shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Holder would
have received in respect of MFS Common if the Option had been exercised
immediately prior to such event, or the record date therefor, as applicable. If
any additional shares of MFS Common are issued after the date of this Agreement
(other than pursuant to an event described in the first sentence of this Section
7(a), upon exercise of any option to purchase MFS Common outstanding on the date
hereof or upon conversion into MFS Common of any convertible security of MFS
outstanding on the date hereof), the number of shares of MFS Common subject to
the Option shall be adjusted so that, after such issuance, it, together with any
shares of MFS Common previously issued pursuant hereto, equals 19.9% of the
number of shares of MFS Common then issued and outstanding, without giving
effect to any shares subject to or issued pursuant to the Option. No provision
of this Section 7 shall be deemed to affect or change, or constitute
authorization for any violation of, any of the covenants or representations in
the Merger Agreement.
(b) In the event that MFS shall enter into an agreement (i) to consolidate
with or merge into any person, other than WorldCom or one of its subsidiaries,
and shall not be the continuing or surviving corporation of such consolidation
or merger, (ii) to permit any person, other than WorldCom or one of its
subsidiaries, to merge into MFS and MFS shall be the continuing or surviving
corporation, but, in connection with such merger, the then outstanding shares of
MFS Common shall be changed into or exchanged for stock or other securities of
MFS or any other person or cash or any other property or the outstanding shares
of MFS Common immediately prior to such merger shall after such merger represent
less than 50% of the outstanding shares and share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than WorldCom or one of its subsidiaries, then, and
in each such case, the agreement governing such transaction shall make proper
provisions so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option to acquire the number and class of shares or
other securities or property that Holder would have received in respect of MFS
Common if the Option had been exercised immediately prior to such consolidation,
merger, sale or transfer, or the record date therefor, as applicable.
8. REGISTRATION RIGHTS.
(a) Demand Registration Rights. MFS shall, subject to the conditions of
8(c) below, if requested by Holder, including WorldCom and any permitted
transferee acquiring at least 10% of the shares of MFS
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Common represented by the Option on the date hereof (each, a "Selling
Shareholder"), as expeditiously as possible prepare and file a registration
statement under the Securities Act if such registration is necessary in order to
permit the sale or other disposition of any or all shares of MFS Common or other
securities that have been acquired by or are issuable to the Selling Shareholder
upon exercise of the Option in accordance with the intended method of sale or
other disposition stated by the Selling Shareholder in such request, including
without limitation a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and MFS shall use its best efforts to
qualify such shares or other securities for sale under any applicable state
securities laws, provided, however, that MFS shall not be required to consent to
general jurisdiction or qualify to do business in any state where it is not
otherwise required to so consent to such jurisdiction or to so qualify to do
business.
(b) Additional Registration Rights. If MFS at any time after the exercise
of the Option proposes to register any shares of MFS Common under the Securities
Act, MFS will promptly give written notice to the Selling Shareholders of its
intention to do so and, upon the written request of any Selling Shareholder
given within thirty (30) days after receipt of any such notice (which request
shall specify the number of shares of MFS Common intended to be included in such
public offering by the Selling Shareholder), MFS will cause all such shares for
which a Selling Shareholder requests participation in such registration, to be
so registered and included in such public offering, provided, however, that MFS
may elect to not cause any such shares to be so registered (i) if such public
offering is to be underwritten and the underwriters in good faith object for
valid business reasons, or (ii) in the case of a registration solely to
implement an employee benefit plan or a registration filed on Form S-4 of the
Securities Act or any successor Form; provided, further, however, that such
election pursuant to (i) may only be made two times. If some but not all the
shares of MFS Common, with respect to which MFS shall have received requests for
registration pursuant to this Section 8(b), shall be excluded from such
registration, MFS shall make appropriate allocation of shares to be registered
among the Selling Shareholders desiring to register their shares pro rata in the
proportion that the number of shares requested to be registered by each such
Selling Shareholder bears to the total number of shares requested to be
registered by all such Selling Shareholders then desiring to have MFS Common
registered for sale.
(c) Conditions to Required Registration. MFS shall use all reasonable
efforts to cause each registration statement referred to in Section 8(a) above
to become effective and to obtain all consents or waivers of other parties which
are required therefor and to keep such registration statement effective;
provided, however, that MFS may delay any registration of Option Shares required
pursuant to Section 8(a) above for a period not exceeding ninety (90) days
provided MFS shall in good faith determine that any such registration would
adversely affect MFS (provided that this right may not be exercised more than
once during any twelve month period), and MFS shall not be required to register
Option Shares under the Securities Act pursuant to Section 8(a) above:
(i) on more than one occasion during any calendar year;
(ii) within ninety (90) days after the effective date of a
registration referred to in Section 8(b) above pursuant to which the
Selling Shareholder or Selling Shareholders concerned were afforded the
opportunity to register such shares under the Securities Act and such
shares were registered as requested;
(iii) unless a request therefor is made to MFS by Selling Shareholders
that hold at least 25% or more of the aggregate number of Option Shares
(including shares of MFS Common issuable upon exercise of the Option) then
outstanding; or
(iv) if all the Option Shares proposed to be registered could be sold
by the Selling Shareholders in a 90-day period in accordance with Rule 144.
In addition to the foregoing, MFS shall not be required to maintain the
effectiveness of any registration statement after the expiration of six (6)
months from the effective date of such registration statement. MFS shall use all
reasonable efforts to make any filings, and take all steps, under all applicable
state securities laws to the extent necessary to permit the sale or other
disposition of the Option Shares so registered in accordance with the intended
method of distribution for such shares; provided, however, that MFS shall not be
required to
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consent to general jurisdiction or qualify to do business in any state where it
is not otherwise required to so consent to such jurisdiction or to so qualify to
do business.
(d) Expenses. Except where applicable state law prohibits such payments,
MFS will pay all expenses (including without limitation registration fees,
qualification fees, blue sky fees and expenses (including the fees and expenses
of counsel), legal expenses, including the reasonable fees and expenses of one
counsel to the holders whose Option Shares are being registered (not to exceed
$15,000), printing expenses and the costs of special audits or "cold comfort"
letters, expenses of underwriters, excluding discounts and commissions but
including liability insurance if MFS so desires or the underwriters so require,
and the reasonable fees and expenses of any necessary special experts) in
connection with each registration pursuant to Section 8(a) or 8(b) above
(including the related offerings and sales by holders of Option Shares) and all
other qualifications, notifications or exemptions pursuant to Section 8(a) or
8(b) above.
(e) Indemnification. In connection with any registration under Section 8(a)
or 8(b) above, MFS hereby indemnifies the Selling Shareholders, and each
underwriter thereof, including each person, if any, who controls such Holder or
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, losses, claims, damages and liabilities caused by any untrue, or
alleged untrue, statement of a material fact contained in any registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) or any preliminary prospectus, or caused by
any omission, or alleged omission, to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such expenses, losses, claims, damages or liabilities of such
indemnified party are caused by any untrue statement or alleged untrue statement
that was included by MFS in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon and in conformity with, information furnished in
writing to MFS by such indemnified party expressly for use therein, and MFS and
each officer, director and controlling person of MFS shall be indemnified by
such Selling Shareholders, or by such underwriter, as the case may be, for all
such expenses, losses, claims, damages and liabilities caused by any untrue, or
alleged untrue, statement, that was included by MFS in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon, and in conformity with,
information furnished in writing to MFS by or on behalf of such Selling
Shareholder or such underwriter, as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this Section 8(e) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 8(e), such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
Section 8(e) except to the extent the indemnified party is materially prejudiced
thereby. In case notice of commencement of any such action shall be given to the
indemnifying party as above provided, the indemnifying party shall be entitled
to participate in and, to the extent it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense of such action at
its own expense, with counsel chosen by it and reasonably satisfactory to such
indemnified party. The indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel (other than reasonable costs of investigation)
shall be paid by the indemnified party unless (i) the indemnifying party either
agrees to pay the same, (ii) the indemnifying party fails to assume the defense
of such action with counsel reasonably satisfactory to the indemnified party, or
(iii) the indemnified party has been advised by counsel that one or more legal
defenses may be available to the indemnifying party that may be contrary to the
interest of the indemnified party, in which case the indemnifying party shall be
entitled to assume the defense of such action notwithstanding its obligation to
bear fees and expenses of such counsel. No indemnifying party shall be liable
for any settlement entered into without its consent, which consent may not be
unreasonably withheld.
If the indemnification provided for in this Section 8(e) is unavailable to
a party otherwise entitled to be indemnified in respect of any expenses, losses,
claims, damages or liabilities referred to herein, then the indemnifying party,
in lieu of indemnifying such party otherwise entitled to be indemnified, shall
contribute to
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the amount paid or payable by such party to be indemnified as a result of such
expenses, losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative benefits received by MFS, the Selling
Shareholders and the underwriters from the offering of the securities and also
the relative fault of MFS, the Selling Shareholders and the underwriters in
connection with the statements or omissions which resulted in such expenses,
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The amount paid or payable by a party as a result of the
expenses, losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim,
provided, however, that in no case shall any Selling Shareholder be responsible,
in the aggregate, for any amount in excess of the net offering proceeds
attributable to its Option Shares included in the offering. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Any obligation by any Selling
Shareholder to indemnify shall be several and not joint with other holders.
In connection with any registration pursuant to Section 8(a) or 8(b) above,
MFS and each Selling Shareholder (other than WorldCom) shall enter into an
agreement containing the indemnification provisions of this Section 8(e). In the
event of an underwritten public offering pursuant to Section 8(b), the Company
and the Selling Shareholders shall enter into an underwriting agreement
containing customary terms and provisions; provided that the indemnification
provisions as they relate to Selling Shareholders shall contain substantially
the same limitations as the provisions set forth herein.
(f) Miscellaneous Reporting. MFS shall comply with all reporting
requirements and will do all such other things as may be necessary to permit the
expeditious sale at any time of any Option Shares by the Selling Shareholders
thereof in accordance with and to the extent permitted by any rule or regulation
promulgated by the SEC from time to time, including, without limitation, Rule
144. MFS shall at its expense provide the Selling Shareholders with any
information necessary in connection with the completion and filing of any
reports or forms required to be filed by them under the Securities Act or the
Securities Exchange Act, or required pursuant to any state securities laws or
the rules of any stock exchange.
(g) Issue Taxes. MFS will pay all stamp taxes in connection with the
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will hold the Selling Shareholders harmless, without
limitation as to time, against any and all liabilities, with respect to all such
taxes.
9. QUOTATION; LISTING. If MFS Common or any other securities to be acquired
in connection with the exercise of the Option are then authorized for quotation
or trading or listing on any securities exchange, MFS, upon the request of
Holder, will promptly file an application, if required, to authorize for
quotation or trading or listing the shares of MFS Common or other securities to
be acquired upon exercise of the Option on such securities exchange and will use
its best efforts to obtain approval, if required, of such quotation or listing
as soon as practicable.
10. DIVISION OF OPTION. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Holder, upon presentation and
surrender of this Agreement at the principal office of MFS for other Agreements
providing for Options of different denominations entitling the holder thereof to
purchase in the aggregate the same number of shares of MFS Common purchasable
hereunder. The terms "Agreement" and "Option" as used herein include any other
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by MFS of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, MFS will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of MFS, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
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11. MISCELLANEOUS.
(a)Expenses. Each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be waived at
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties hereto.
(c) Entire Agreement: No Third-Party Beneficiaries; Severability. This
Agreement, together with the Merger Agreement and the other documents and
instruments referred to herein and therein, between WorldCom and MFS (i)
constitute the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, and (ii) is not intended to confer upon any person other
than the parties hereto (other than the indemnified parties under Section 8(e)
and any transferees of the Option Shares or any permitted transferee of this
Agreement pursuant to Section 11(h)) any rights or remedies hereunder. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or Governmental Authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. If for any reason such court or
Governmental Authority determines that the Option does not permit Holder to
acquire the full number of shares of MFS Common as provided in Section 3 (as may
be adjusted herein), it is the express intention of MFS to allow Holder to
acquire such lesser number of shares as may be permissible without any amendment
or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law rules.
(e) Descriptive Headings. The descriptive headings contained herein are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the addresses set forth in the Merger Agreement (or
at such other address for a party as shall be specified by like notice).
(g) Counterparts. This Agreement and any amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed and
delivered, it being understood that both parties need not sign the same
counterpart.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Holder may assign this Agreement
to a wholly-owned subsidiary of Holder and Holder may assign its rights
hereunder in whole or in part after the occurrence of a Purchase Event. Subject
to the preceding sentence, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
(i) Further Assurances. In the event of any exercise of the Option by
Holder, MFS and Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
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IN WITNESS WHEREOF, MFS and WorldCom have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
MFS COMMUNICATIONS COMPANY, INC.
By: /s/ JAMES Q. CROWE
-------------------------------
Name: James Q. Crowe
Title: Chairman of the Board
and Chief Executive
Officer
WORLDCOM, INC.
By: /s/ BERNARD J. EBBERS
-------------------------------
Name: Bernard J. Ebbers
Title: President and Chief
Executive Officer
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APPENDIX V
SALOMON BROTHERS INC
Seven World Trade Center
New York, New York 10048
212-783-7000
[Salomon logo]
August 25, 1996
Board of Directors
WorldCom, Inc.
515 East Amite Street
Jackson, Mississippi
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of common stock, par value $.01 per share ("Parent
Common Stock"), of WorldCom, Inc. ("Parent"), of the Exchange Ratio (as defined
below) to be used in connection with the proposed merger (the "Merger") of HIJ
Corp. ("Sub"), a wholly owned subsidiary of Parent, with MFS Communications
Company, Inc. (the "Company") pursuant to an Agreement and Plan of Merger, dated
as of August 25, 1996 (the "Merger Agreement"), among Parent, Sub and the
Company. Upon the effectiveness of the Merger, each share of common stock, par
value $.01 per share ("Company Common Stock"), of the Company issued and
outstanding immediately prior to the effectiveness of the Merger (other than
shares owned by Parent, Sub or any other subsidiary of Parent and shares owned
by the Company or any subsidiary of the Company) will be converted into and
represent the right to receive 2.1 (the "Exchange Ratio") shares of Parent
Common Stock. We understand that upon effectiveness of the Merger (i) each share
of the Company's Series A 8% Cumulative Convertible Preferred Stock will be
converted into and represent the right to receive one share of Series A 8%
Cumulative Convertible Preferred Stock of Parent, and (ii) each share of the
Company's Series B Convertible Preferred Stock will be converted into and
represent the right to receive one share of Series B Convertible Preferred Stock
of Parent, in each case in accordance with the terms of the Merger Agreement.
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning Parent and the Company and certain other
financial information concerning Parent and the Company, including financial
forecasts, that were provided to us by Parent and the Company, respectively. We
have discussed the business operations and financial condition of Parent and the
Company as well as other matters we believe relevant to our inquiry, including
matters relating to the obtaining of regulatory approvals for the Merger, with
certain officers and employees of Parent and the Company, respectively. We have
also considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that we deemed
relevant.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of the financial and other
information (including information relating to the obtaining of regulatory
approvals for the Merger) reviewed by us, and we have not assumed any
responsibility for
- --------------------------------------------------------------------------------
SALOMON BROTHERS INC & WORLDWIDE AFFILIATES
- --------------------------------------------------------------------------------
ATLANTA - BANGKOK - BEIJING - BOSTON - CHICAGO - FRANKFURT - HONG
KONG - LONDON - LOS ANGELES - MADRID - MELBOURNE
MEXICO CITY - MILAN - NEW YORK - OSAKA - PARIS - SAN
FRANCISCO - SEOUL - SINGAPORE - SYDNEY - TAIPEI - TOKYO - TORONTO - ZURICH
V-1
<PAGE> 212
SALOMON BROTHERS INC
[SALOMON LOGO]
independent verification of such information. With respect to the financial
forecasts of Parent and the Company, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the respective managements of Parent or the Company as to the
future financial performance of Parent or the Company, respectively, and we
express no opinion with respect to such forecasts or the assumptions on which
they are based. We have not made or obtained or assumed any responsibility for
making or obtaining any independent valuations or appraisals of any of the
assets (including properties and facilities) or liabilities of Parent or the
Company.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof. Our opinion as expressed below does not imply any
conclusion as to the likely trading range for the Parent Common Stock following
the consummation of the Merger which may vary depending upon, among other
factors, changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors that generally influence the price of
securities. Our opinion does not address Parent's underlying business decision
to effect the Merger. Our opinion is directed only to the fairness, from a
financial point of view, of the Exchange Ratio to the holders of Parent Common
Stock and does not constitute a recommendation concerning how holders of Parent
Common Stock should vote with respect to the transactions contemplated by the
Merger Agreement. In rendering our opinion, we have assumed that in the course
of obtaining the necessary regulatory approvals for the Merger no restrictions
will be imposed that would have a material adverse effect on the contemplated
benefits of the Merger to Parent following the Merger.
We have acted as financial advisor to the Board of Directors of Parent in
connection with the Merger and will receive a fee for our services, part of
which is payable upon initial delivery of this fairness opinion and part of
which is contingent upon consummation of the Merger. In the ordinary course of
business, we may actively trade the securities of Parent and the Company for our
own account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities. Also, we have previously
rendered investment banking and financial advisory services to the Company
(including underwritings of Company Common Stock) for which we have received
customary compensation.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to holders of Parent Common Stock from a
financial point of view.
Very truly yours,
SALOMON BROTHERS INC
/s/ SALOMON BROTHERS INC
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<PAGE> 213
APPENDIX VI
[GLEACHER NATWEST]
Corporate & Investment
Banking
August 24, 1996
GLEACHER NATWEST INC.
660 MADISON AVENUE
NEW YORK, NY 10021-8417
212-418-4200
212-732-2711 FAX
Board of Directors
MFS Communications Company, Inc.
11808 Miracle Hills Drive
Omaha, Nebraska 68154
Gentlemen:
We understand that MFS Communications Company, Inc. ("MFS" or the
"Company") is contemplating entering into a definitive merger agreement with
WorldCom, Inc. ("WorldCom") pursuant to which a subsidiary of WorldCom
("WorldCom Sub") shall be merged with and into MFS (the "Merger"), with MFS as
the surviving corporation. We further understand that in the Merger (i) each
share of MFS common stock outstanding immediately prior to the effective time of
the Merger (the "Common Shares") will be converted into 2.1 shares of WorldCom
common stock (the "Common Exchange Ratio"), (ii) each share of Series A 8%
Cumulative Convertible Preferred Stock of MFS outstanding immediately prior to
the effective time of the Merger (the "Series A Shares") will be converted into
one share of Series A 8% Cumulative Convertible Preferred Stock of WorldCom,
having terms substantially similar to the terms of the Series A Shares (the
"Series A Exchange Ratio"), (iii) each share of Series B Convertible Preferred
Stock of MFS outstanding immediately prior to the effective time of the Merger
(the "Series B Shares") will be converted into one share of Series B Convertible
Preferred Stock of WorldCom, having terms substantially similar to the terms of
the Series B Shares, except that voting rights will be changed from ten votes
per share to one vote per share (the "Series B Exchange Ratio"), and (iv) each
option to purchase a share of MFS common stock will be converted into an option
to acquire 2.1 shares of WorldCom common stock at an exercise price for each
underlying share equal to its current exercise price divided by 2.1.
You have asked for our opinion as to whether the Common Exchange Ratio, the
Series A Exchange Ratio and the Series B Exchange Ratio offered by WorldCom to
MFS stockholders is fair from a financial point of view to MFS and the holders
of its Common Shares, Series A Shares and Series B Shares, respectively.
For the purposes of the opinion set forth herein, we have:
1. analyzed the historical publicly filed financial statements of MFS and
WorldCom;
2. discussed the past and current operations, the financial condition and
the prospects of WorldCom and MFS with the management of WorldCom and
the management of MFS, respectively, and reviewed with the management of
MFS its due diligence of WorldCom;
3. reviewed with the management of WorldCom certain business plans of
WorldCom, and reviewed with the management of MFS certain business plans
of MFS and WorldCom, certain projections prepared by and pertaining to
WorldCom and certain projections prepared by and pertaining to MFS, and
certain estimates of financial synergies occurring from the business
combination resulting from the merger as prepared by the management of
MFS and WorldCom;
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<PAGE> 214
[Gleacher NatWest]
Board of Directors
August 24, 1996
Page 2
4. reviewed the historical market prices and reported trading volumes of
MFS Common Stock and WorldCom Common Stock;
5. compared the financial performance of WorldCom with, and reviewed the
prices and reported trading activity of the securities of, certain
publicly traded companies whose operating characteristics and/or
industry focus resemble those of WorldCom;
6. reviewed the premiums paid in selected precedent transactions
involving publicly-held companies;
7. reviewed such other information and performed such other analyses as
we have deemed appropriate.
We have assumed and relied upon, without assuming responsibility for independent
verification, the accuracy and completeness of the information reviewed by us
for purposes of this opinion. With respect to the financial projections provided
to us, we have assumed that they have been reasonably prepared and reflect the
best currently available estimates and judgments of the senior management of
WorldCom and MFS as to the future financial performance of WorldCom and MFS. We
have also assumed based upon the information which has been provided to us and
without assuming responsibility for independent verification thereof that no
material undisclosed or contingent liability exists with respect to WorldCom or
MFS. We have not made any independent evaluation or appraisal of the assets or
liabilities of MFS or WorldCom, nor have we been furnished with any such
evaluation or appraisal. Our opinion is based necessarily on the economic,
market, and other conditions as in effect on, and the information made available
to us as of, the date hereof.
MFS acknowledges that the opinion and any advice or materials provided by
Gleacher NatWest in connection with its engagement hereunder is intended for the
benefit and use of the Board in considering the transaction to which the
opinion, advice or materials relate and the Company agrees that no such opinion,
advice or material shall be used for any other purpose or be reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose, nor shall any public references to Gleacher NatWest be made by or on
behalf of the Company, in each case without Gleacher NatWest's prior written
consent; provided, however that a copy of this opinion may be included in the
proxy statement/prospectus delivered to MFS stockholders to consider the Merger.
Based upon and subject to the foregoing, we are of the opinion that as of the
date hereof the Common Exchange Ratio, the Series A Exchange Ratio and the
Series B Exchange Ratio offered by WorldCom to holders of Common Shares, Series
A Shares and Series B Shares, respectively, is, in each case, fair from a
financial point of view to the holders of such Shares.
Very truly yours,
GLEACHER NATWEST INC.
/s/ JAMES GOODWIN
James Goodwin
Managing Director
VI-2
<PAGE> 215
APPENDIX VII
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 sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his 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 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 sec.sec. 251 (other than a merger effected pursuant to
subsection (g) of sec. 251), 252, 254, 257, 258, 263 or 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 holders of the surviving corporation as
provided in subsection (f) of sec. 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 sec.sec. 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 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 sec. 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.
(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
VII-1
<PAGE> 216
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
subsection (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 his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his 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 his 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 sec. 228 or
sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten 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 twenty 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 to 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 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 his demand for
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<PAGE> 217
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 his 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 his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(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
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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 his 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 his 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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APPENDIX VIII
TERMS OF
WORLDCOM SERIES A PREFERRED STOCK
(1) Designation. The designation of this Series shall be Series A 8%
Cumulative Convertible Preferred Stock. The number of shares of this Series
shall be 94,992. The liquidation value of shares of this Series shall be
$3,350.00 per share.
(2) Dividends. (a) The holders of shares of this Series shall be entitled
to receive, when, as and if declared by the Board of Directors of WorldCom, Inc.
(the "Company") out of funds legally available therefor, cumulative preferential
dividends from the issue date of such shares, at the rate per share of $268.00
per annum or $67.00 per quarter, and no more, payable quarterly for each share
of this Series, payable in arrears on each February 28, May 31, August 31 and
November 30, respectively (each such date being hereinafter referred to as a
"Dividend Payment Date") or, if any Dividend Payment Date is not a business day,
then the Dividend Payment Date shall be the next succeeding business day;
provided, however, that with respect to any dividend period during which a
redemption occurs, the Company may, at its option, declare accrued dividends to,
and pay such dividends on, the redemption date, in which case such dividends
would be payable on the redemption date in shares of the Common Stock of the
Company, par value $.01 per share (the "Common Stock"), to the holders of the
shares of this Series as of the record date for such dividend payment and such
accrued dividends would not be included in the calculation of the related Call
Price (as hereinafter defined). Each dividend on the shares of this Series shall
be payable to holders of record as they appear on the stock books of the Company
on such record dates as shall be fixed by the Board of Directors. The first
dividend payment of $67.00 shall be for the period from the date of issuance of
shares of this Series to and including * , 1997 and shall be payable on
** , 1997. Dividends (or amounts equal to accrued and unpaid dividends)
payable on the shares of this Series for any period other than a quarterly
dividend period shall be computed on the basis of a 360-day year of twelve
30-day months. At the election of the Board of Directors of the Company,
dividends may be paid in cash or in shares of Common Stock. In the event the
Board of Directors of the Company elects to pay a dividend in shares of Common
Stock, the number of shares of Common Stock to be issued on the Dividend Payment
Date will be determined by dividing the total dividend to be paid on each share
of this Series by 90% of the average of the average of the high and low sales
prices of the Common Stock as reported on the Nasdaq National Market for each of
the ten consecutive Trading Days (as hereinafter defined) immediately preceding
the fifth business day preceding the record date for such dividend.
Dividends on the shares of this Series shall accrue (whether or not the
Company has earnings, whether or not there are funds legally available for the
payment of such dividends and whether or not such dividends are declared) on a
daily basis from the previous Dividend Payment Date, except that the first
dividend shall accrue from the date of issuance of the shares of this Series.
Dividends accumulate to the extent they are not paid on the Dividend Payment
Date for the quarter for which they accrue ("Accumulated Unpaid Dividends").
Accumulated Unpaid Dividends shall not bear interest.
(b) No dividend whatsoever shall be declared or paid upon, or any sum set
apart for the payment of dividends upon, any shares of this Series or Parity
Stock (as hereinafter defined) for any dividend period unless all dividends for
all past dividend periods have been declared and paid upon, or declared and a
sufficient
- ---------------
* (i) "February 27" if the transactions contemplated by the Merger Agreement
(the "Merger") are consummated prior to the record date for the February 28,
1997 payment date; (ii) otherwise, "May 30" if the Merger is consummated
prior to the record date for the May 31, 1997 payment date; and (iii)
otherwise, "August 30" if the Merger is consummated prior to the record date
for the August 31, 1997 payment date.
** "February 28," "May 31" or "August 31" if the Merger is consummated prior to
the record date for such dividend payment date, as the case may be.
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<PAGE> 220
sum set apart for the payment of such dividends upon, all shares of this Series
and Parity Stock outstanding other than the Exchange Preferred (as hereinafter
defined).
(c) Unless full cumulative dividends on all outstanding shares of this
Series and (to the extent that the amount thereof shall have become
determinable) any outstanding shares of Parity Stock due for all past dividend
periods shall have been declared and paid, or declared and a sufficient sum for
the payment thereof set apart, then, subject to the rights of holders of shares
of previously issued series of Preferred Stock: (i) no dividend (other than a
dividend payable solely in Junior Stock (as hereinafter defined)) shall be
declared or paid upon, or any sum set apart for the payment of dividends upon,
any shares of Junior Stock; (ii) no other distribution shall be made upon any
shares of Junior Stock; (iii) no shares of Junior Stock or any other series of
Preferred Stock shall be purchased, redeemed or otherwise acquired for cash or
other property of the Company (excluding shares of Junior Stock or Exchange
Preferred) by the Company or by any Subsidiary; and (iv) no monies shall be paid
into or set apart or made available for a sinking or other like fund for the
purchase, redemption or other acquisition for value of any shares of Junior
Stock by the Company or any Subsidiary.
(d) Any dividend payment made on shares of this Series shall be distributed
pro rata to the holders entitled thereto and be credited first against the
earliest accrued but unpaid dividend due with respect to shares of this Series.
(3) Voting Rights. (a) The holders of shares of this Series shall have the
right with the holders of Common Stock to vote in the election of directors of
the Company and upon each other matter coming before any meeting of the
shareholders of the Company on the basis of ten votes for each such share held.
The holders of shares of this Series and the holders of Common Stock shall vote
together as a single class except as otherwise set forth herein or as otherwise
provided by law or by the Amended and Restated Articles of Incorporation of the
Company.
(b) The approval of more than two-thirds of the votes entitled to be cast
by the holders of the outstanding shares of this Series (voting separately as a
class), shall be required for the adoption of any amendment to the Amended and
Restated Articles of Incorporation that materially adversely changes the rights,
preferences or privileges of the shares of this Series.
(c) The holders of the outstanding shares of this Series shall also have
the right, voting together with the holders of any other outstanding shares of
Voting Preferred Stock (as hereinafter defined) as a separate voting group, to
elect two members of the Board of Directors of the Company at any time six or
more quarterly dividends on any shares of Voting Preferred Stock shall be in
arrears and unpaid, in whole or in part, whether or not declared and whether or
not any funds shall be or have been legally available for payment thereof. For
this purpose, "Voting Preferred Stock" shall mean the shares of this Series and
each other series of Preferred Stock which shall have substantially similar
voting rights (including voting as one voting group with other shares of Voting
Preferred Stock) with respect to the election of directors upon substantially
similar arrearages of dividends. In such event, the number of Directors of the
Company shall be increased by two, and, unless a regular meeting of the
shareholders of the Company is to be held within 60 days thereof for the purpose
of electing Directors, within 30 days thereafter, the Company shall call a
special meeting of the holders of the outstanding shares of Voting Preferred
Stock for the purpose of electing such Directors to take place at the time
specified in the notice of the meeting, to be not more than 60 days after such
holders become so entitled to elect two Directors and not less than 10 days nor
more than 50 days after the date on which such notice is mailed. If such special
meeting shall not have been so called by the Company, or such regular meeting
shall not be so held, a special meeting may be called for such purpose at the
expense of the Company by the holders of not less than 10% of the outstanding
shares of any series of Voting Preferred Stock; and notice of any such special
meeting shall be given by the person or persons calling the same to the holders
of the outstanding shares of the Voting Preferred Stock by first-class mail,
postage prepaid, at their last address as shall appear on the stock transfer
records of the Company. At any such special meeting the holders of the
outstanding shares of Voting Preferred Stock (voting separately as a class with
each share having one vote) shall elect two members of the Board of Directors of
the Company. If a regular meeting of the shareholders of the Company for the
purpose of electing Directors is to be held within 60 days after the time the
holders of the outstanding
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shares of Voting Preferred Stock become so entitled to elect two Directors, then
the holders of the outstanding shares of Voting Preferred Stock shall be given
notice thereof in the same manner as other shareholders of the Company entitled
to vote thereat; and at such regular meeting, the holders of the outstanding
shares of Voting Preferred Stock (voting separately as a class with each share
having one vote) shall elect two members of the Board of Directors. The right of
the holders of the Voting Preferred Stock (voting separately as a class) to
elect two members of the Board of Directors of the Company shall continue until
such time as no dividends on any outstanding shares of Voting Preferred Stock
are in arrears and unpaid, in whole or in part, at which time (i) the voting
power of the holders of the outstanding shares of Voting Preferred Stock so to
elect two Directors shall cease, but always subject to the same provisions of
this subparagraph (c) for the vesting of such voting power upon the occurrence
of each and every like arrearage of dividends, and (ii) the term of office of
each member of the Board of Directors who was elected pursuant to this
subparagraph (c) shall automatically expire.
(4) Redemptions and Conversions.
(a) Mandatory Conversion. On May 31, 1999 (the "Mandatory Conversion
Date"), each outstanding share of this Series shall convert automatically (the
"Mandatory Conversion") into shares of Common Stock at the Common Equivalent
Rate (as hereinafter defined) in effect on the Mandatory Conversion Date and the
right to receive, out of funds legally available therefor, an amount equal to
all accrued and unpaid dividends on such share of this Series to the Mandatory
Conversion Date, whether or not declared (payable in cash or in shares of Common
Stock on the same basis as that used to determine dividends), subject to the
right of the Company to redeem the shares of this Series on or after the Initial
Redemption Date (as hereinafter defined) and prior to the Mandatory Conversion
Date, as described below, and subject to the conversion of the shares of this
Series at the option of the holder at any time prior to the Mandatory Conversion
Date. Notwithstanding the forgoing, if the Mandatory Conversion Date occurs
after a record date for a quarterly dividend and before the corresponding
Dividend Payment Date, such dividend shall be paid, out of funds legally
available therefor, on the Dividend Payment Date rather than on the Mandatory
Conversion Date. The Common Equivalent Rate is initially four-hundred and twenty
shares of Common Stock for each share of this Series. Dividends on the shares of
this Series shall cease to accrue and such shares shall cease to be outstanding
on the Mandatory Conversion Date. The Company shall make such arrangements as it
deems appropriate for the issuance of certificates representing shares of Common
Stock and for the payment (in cash or in shares of Common Stock, at the election
of the Board of Directors of the Company) in respect of such accrued and unpaid
dividends, if any, or cash in lieu of fractional shares, if any, in exchange for
and contingent upon surrender of certificates representing the shares of this
Series, provided that the Company shall give the holders of the shares of this
Series such notice of any such actions as the Company deems appropriate and upon
such surrender such holders shall be entitled to receive such dividends declared
and paid on such shares of Common Stock subsequent to the Mandatory Conversion
Date. Amounts payable in cash in respect of the shares of this series or in
respect of such shares of Common Stock shall not bear interest.
(b) Redemption by the Company.
(i) Right to Redeem. Shares of this Series are not redeemable by the
Company prior to May 31, 1998 (the "Initial Redemption Date"). At any time and
from time to time on or after the Initial Redemption Date and prior to the
Mandatory Conversion Date, the Company shall have the right to redeem, in whole
or in part, the outstanding shares of this Series. Upon any such redemption, the
Company shall deliver to the holders of shares of this Series, in accordance
with the provisions of these Articles of Amendment in exchange for each share so
redeemed, a number of shares of Common Stock equal to (A) the Call Price (as
hereinafter defined) in effect on the date of redemption, divided by (B) the
Current Market Price (as hereinafter defined) of the Common Stock determined as
of the date which is one trading day prior to the public announcement of the
redemption. The Call Price of each share of this Series is an amount equal to
the sum of (X) $3,417.00 on and after the Initial Redemption Date through August
30, 1998, $3,400.25 on and after August 31, 1998 through November 29, 1998,
$3,383.50 on and after November 30, 1998 through February 27, 1999, $3,366.75 on
and after February 28, 1999 through April 29, 1999 and $3,350.00 on and after
April 30, 1999 until the Mandatory Conversion Date plus (Y) all accrued and
unpaid dividends thereon to the date fixed for redemption. Notwithstanding the
forgoing, if the date fixed for redemption occurs after a record date for a
quarterly
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dividend and prior to the corresponding Dividend Payment Date, such dividend
shall be paid, out of funds legally available therefor, on the Dividend Payment
Date and the Call Price shall not include the amount of the dividend to be so
paid. Dividends on the shares of this Series shall cease to accrue and such
shares shall cease to be outstanding on the date fixed for redemption. A public
announcement of any call for redemption shall be made prior to the mailing of
the notice of such call to holders of shares of this Series as described below.
If fewer than all the outstanding shares of this Series are to be redeemed,
shares to be redeemed shall be selected by the Company from outstanding shares
of this Series not previously redeemed by lot or pro rata (as nearly as may be
practicable) or by any other method determined by the Board of Directors of the
Company in its sole discretion to be fair and proper.
(ii) Current Market Price. As used in this subparagraph (b), the term
"Current Market Price" per share of the Common Stock on any date of
determination means the lesser of (X) the average of the average of the high and
low sales prices of the Common Stock as reported on the Nasdaq National Market
or any national securities exchange upon which the Common Stock is then listed,
for each of the ten consecutive Trading Dates ending on and including such date
of determination and (Y) the Closing Price (as hereinafter defined) of the
Common Stock for such date of determination; provided, however, that, with
respect to any redemption of shares of this Series, if any event that results in
an adjustment of the Common Equivalent Rate occurs during the period beginning
on the first day of such ten-day period and ending on the applicable redemption
date, the Current Market Price as determined pursuant to the foregoing shall be
appropriately adjusted to reflect the occurrence of such event.
(iii) Notice of Redemption. The Company shall provide notice of any
redemption of the shares of this Series to holders of record of the shares of
this Series to be called for redemption not less than 15 nor more than 60 days
prior to the date fixed for such redemption. Such notice shall be provided by
mailing notice of such redemption first class postage prepaid, to each holder of
record of shares of this Series to be redeemed, at such holder's address as it
appears on the stock register of the Company; provided, however, that neither
failure to give such notice nor any defect therein shall affect the validity of
the proceeding for the redemption of any shares of this Series to be redeemed.
Each such notice shall state, as appropriate, the following and may contain
such other information as the Company deems advisable:
(A) the redemption date;
(B) that all outstanding shares of this Series are to be redeemed or,
in the case of a call for redemption of fewer than all outstanding shares
of this Series, the number of such shares held by such holder to be
redeemed;
(C) the Call Price, the number of shares of Common Stock deliverable
upon redemption of each share of this Series to be redeemed and the Current
Market Price used to calculate such number of shares of Common Stock;
(D) the place or places where certificates for such shares are to be
surrendered for redemption; and
(E) that dividends on the shares of this Series to be redeemed shall
cease to accrue on such redemption date (except as otherwise provided
herein).
(iv) Deposit of Shares and Funds. The Company's obligation to deliver
shares of Common Stock and provide funds upon redemption in accordance with this
paragraph (4) shall be deemed fulfilled if, on or before a redemption date, the
Company shall irrevocably deposit, with a bank or trust company, or an affiliate
of a bank or trust company, having an office or agency in New York City and
having a capital and surplus of at least $50,000,000, or shall set aside or make
other reasonable provision for the issuance of, such number of shares of Common
Stock as are required to be delivered by the Company pursuant to this paragraph
(4) upon the occurrence of the related redemption (and for the payment of cash
in lieu of the issuance of fractional share amounts and accrued and unpaid
dividends payable in cash, if any, on the shares to be redeemed as and to the
extent provided by this paragraph (4)). Any interest accrued on such funds shall
be paid to the Company from time to time. Any shares of Common Stock or funds so
deposited and unclaimed at the end of
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two years from such redemption date shall be repaid and released to the Company,
after which the holder or holders of such shares of this Series so called for
redemption shall look only to the Company for delivery of such shares of Common
Stock or funds.
(v) Surrender of Certificates; Status. Each holder of shares of this Series
to be redeemed shall surrender the certificates evidencing such shares (properly
endorsed or assigned for transfer, if the Board of Directors of the Company
shall so require and the notice shall so state) to the Company at the place
designated in the notice of such redemption and shall thereupon be entitled to
receive certificates evidencing shares of Common Stock and to receive any funds
or shares of Common Stock payable pursuant to this paragraph (4) following such
surrender and following the date of such redemption. In case fewer than all the
shares represented by any such surrendered certificate are called for
redemption, a new certificate shall be issued at the expense of the Company
representing the unredeemed shares. If such notice of redemption shall have been
given, and if on the date fixed for redemption shares of Common Stock and funds
necessary for the redemption shall have been irrevocably either set aside by the
Company separate and apart from its other funds or assets in trust for the
account of the holders of the shares to be redeemed or converted (and so as to
be and continue to be available therefor) or deposited with a bank or a trust
company or an affiliate thereof as provided herein or the Company shall have
made other reasonable provision therefor, then, notwithstanding that the
certificates evidencing any shares of this Series so called for redemption or
subject to conversion shall not have been surrendered, the shares represented
thereby so called for redemption shall be deemed no longer outstanding,
dividends with respect to the shares so called for redemption shall cease to
accrue on the date fixed for redemption (except that holders of shares of this
Series at the close of business on a record date for any payment of dividends
shall be entitled to receive the dividend payable on such shares on the
corresponding Dividend Payment Date notwithstanding the redemption of such
shares following such record date and prior to such Dividend Payment Date) and
all rights with respect to the shares so called for redemption shall forthwith
after such date cease and terminate, except for the rights of the holders to
receive the shares of Common Stock and funds, if any, payable pursuant to this
paragraph (4) without interest upon surrender of their certificates therefor.
Holders of shares of this Series that are redeemed shall not be entitled to
receive dividends declared and paid on such shares of Common Stock, and such
shares of Common Stock shall not be entitled to vote, until such shares of
Common Stock are issued upon the surrender of the certificates representing such
shares of this Series and upon such surrender such holders shall be entitled to
receive such dividends declared and paid on such shares of Common Stock
subsequent to such redemption date.
(c) Conversion at Option of Holder. Shares of this Series are convertible,
in whole or in part, at the option of the holder thereof, at any time prior to
the Mandatory Conversion Date, unless previously redeemed, into shares of Common
Stock at a rate of 344.274 shares of Common Stock for each share of this Series
(the "Optional Conversion Rate") (equivalent to a conversion price of $9.73 per
share of Common Stock). The right to convert shares of this Series called for
redemption shall terminate at the close of business on the redemption date.
Conversion of shares of this Series may be effected by delivering
certificates evidencing such shares, together with written notice of conversion
and a proper assignment of such certificates to the Company or in blank, to the
office or agency to be maintained by the Company for that purpose (and, if
applicable, payment by the Company of an amount, out of funds legally available
therefor (in cash or in shares of Common Stock, at the election of the Company),
equal to the dividend payable on such shares), and otherwise in accordance with
conversion procedures established by the Company. Each conversion shall be
deemed to have been effected immediately prior to the close of business on the
date on which the foregoing requirements shall have been satisfied. The
conversion shall be at the Optional Conversion Rate in effect at such time and
on such date.
Holders of shares of this Series at the close of business on a record date
for any payment of dividends shall be entitled to receive the dividend payable
on such shares on the corresponding Dividend Payment Date notwithstanding the
conversion of such shares following such record date and prior to such Dividend
Payment Date. The Company shall make no other payment or allowance for unpaid
dividends, whether or not in arrears, on converted shares of this Series or for
dividends or distributions on the shares of Common Stock issued upon such
conversion.
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(d) Common Equivalent Rate and Optional Conversion Rate Adjustments. The
Common Equivalent Rate and the Optional Conversion Rate also shall be subject to
adjustment from time to time as provided below in this paragraph.
(i) If the Company shall:
(A) pay a dividend or make a distribution with respect to its
Common Stock in shares of such stock,
(B) subdivide or split its outstanding shares of Common Stock into
a greater number of shares,
(C) combine its outstanding shares of Common Stock into a smaller
number of shares, or
(D) issue by reclassification of its shares of Common Stock any
shares of Common Stock of the Company,
then, in any such event, the Common Equivalent Rate and the Optional Conversion
Rate in effect immediately prior to such event shall each be adjusted so that
the holder of any shares of this Series shall thereafter be entitled to receive,
upon Mandatory Conversion or upon conversion at the option of the holder, the
number of shares of Common Stock of the Company which such holder would have
owned or been entitled to receive immediately following any event described
above had such shares of this Series been converted immediately prior to such
event or any record date with respect thereto. Such adjustment shall become
effective at the opening of business on the business day next following the
record date for determination of shareholders entitled to receive such dividend
or distribution in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
split, combination or reclassification. Such adjustment shall be made
successively.
(ii) If the Company shall, after the date hereof, issue rights or
warrants to all holders of its Common Stock entitling them (for a period
not exceeding forty-five days from the date of such issuance) to subscribe
for or purchase shares of Common Stock at a price per share less than the
current market price of the Common Stock, then in each case the Common
Equivalent Rate and Optional Conversion Rate shall each be adjusted by
multiplying the Common Equivalent Rate and the Optional Conversion Rate, in
effect immediately prior to the date of issuance of such rights or
warrants, by a fraction, of which the numerator shall be the number of
shares of Common Stock outstanding on the date of issuance of such rights
or warrants, immediately prior to such issuance, plus the number of
additional shares of Common Stock offered for subscription or purchase
pursuant to such rights or warrants, and of which the denominator shall be
the number of shares of Common Stock outstanding on the date of issuance of
such rights or warrants, immediately prior to such issuance, plus the
number of additional shares of Common Stock which the aggregate offering
price of the total number of shares of Common Stock so offered for
subscription or purchase pursuant to such rights or warrants would purchase
at such current market price (determined by multiplying such total number
of shares by the exercise price of such rights or warrants and dividing the
product so obtained by such current market price). Such adjustment shall
become effective at the opening of business on the business day next
following the record date for the determination of shareholders entitled to
receive such rights or warrants. To the extent that shares of Common Stock
are not delivered after the expiration of such rights or warrants, the
Common Equivalent Rate shall be readjusted to the Common Equivalent Rate
which would then be in effect had the adjustments been made upon the
issuance of such rights or warrants been made upon the basis of delivery of
only the number of shares of Common Stock actually delivered. Such
adjustment shall be made successively.
(iii) If the Company shall pay a dividend or make a distribution to
all holders of its Common Stock of evidences of its indebtedness,
securities of a Subsidiary or other assets (excluding any dividends or
distributions referred to in clause (i) above or any cash dividends other
than Extraordinary Cash Distributions (as hereinafter defined)) or shall
issue to all holders of its Common Stock rights or warrants to subscribe
for or purchase any of its securities (other than those referred to in
clause (ii) above), then in each such case, the Common Equivalent Rate and
the Optional Conversion Rate shall
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each be adjusted by multiplying the Common Equivalent Rate and the Optional
Conversion Rate in effect on the record date mentioned below, by a fraction
of which the numerator shall be the current market price per share of the
Common Stock on the record date for the determination of shareholders
entitled to receive such dividend or distribution, and of which the
denominator shall be such current market price per share of Common Stock
less the fair market value (as determined by the Board of Directors of the
Company, whose good faith determination shall be conclusive, and described
in a resolution adopted with respect thereto) as of such record date of the
portion of the assets or evidences of indebtedness so distributed or of
such subscription rights or warrants applicable to one share of Common
Stock. Such adjustment shall become effective on the opening of business on
the business day next following the record date for the determination of
shareholders entitled to receive such dividend or distribution. Such
adjustment shall be made successively.
(iv) Any shares of Common Stock issuable in payment of a dividend
shall be deemed to have been issued immediately prior to the close of
business on the record date for such dividend for purposes of calculating
the number of outstanding shares of Common Stock under clause (ii) above.
For purposes of any computation under clause (ii) and (iii) above, the
current market price per share of Common Stock at any date shall be deemed
to be the average of the daily Closing Prices for the thirty consecutive
Trading Dates preceding the date in question; provided, however, if any
event that results in an adjustment of the Common Equivalent Rate occurs
during such thirty-day period, the current market price as determined
pursuant to the foregoing shall be appropriately adjusted to reflect the
occurrence of such event.
(v) The Company shall also be entitled to make upward adjustments in
the Common Equivalent Rate, the Optional Conversion Rate and the Call
Price, as the Board of Directors in its good faith discretion shall
determine to be advisable, in order that any stock dividends, subdivisions
of shares, distribution of rights to purchase stock or securities, or
distribution of securities convertible into or exchangeable for stock (or
any transaction which could be treated as any of the foregoing transactions
pursuant to Section 305 of the Internal Revenue Code of 1986, as amended)
hereafter made by the Company to its shareholders shall not be taxable.
(vi) In any case in which clause (iii) above shall require that an
adjustment as a result of any event become effective at the opening of
business on the business day next following a record date and the date
fixed for conversion pursuant to subparagraph (4)(c) or redemption pursuant
to subparagraph (4)(b) occurs after such record date, but before the
occurrence of such event, the Company may in its sole discretion, elect to
defer, until after the occurrence of such event, issuing to the holder of
any converted or redeemed shares of this Series the additional shares of
Common Stock issuable upon such conversion or redemption over the shares of
Common Stock issuable before giving effect to such adjustment.
(vii) All adjustments to the Common Equivalent Rate and the Optional
Conversion Rate shall be calculated to the nearest 1/1000th of a share of
Common Stock (or if there is not a nearest 1/1000th of a share to the next
lower 1/1000th of a share). No adjustment in the Common Equivalent Rate and
the Optional Conversion Rate shall be required unless such adjustment would
require an increase or decrease of at least one percent therein; provided,
however, that any adjustments which by reason of this subparagraph are not
required to be made shall be carried forward and taken into account in any
subsequent adjustments.
(e) Adjustment for Consolidation or Merger. In case of any consolidation or
merger to which the Company is a party (other than a merger or consolidation in
which the Company is the continuing corporation and in which the Common Stock
outstanding immediately prior to the merger or consolidation remains unchanged),
or in case of any sale or transfer to another corporation of the property of the
Company as an entirety or substantially as an entirety, or in case of any
statutory exchange of securities with another corporation (other than in
connection with a merger or acquisition), proper provision shall be made so that
each share of this Series shall, after consummation of such transaction, be
subject to (i) conversion at the option of the holder into the kind and amount
of securities, cash or other property receivable upon consummation of such
transaction by a holder of the number of shares of Common Stock into which such
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share of this Series might have been converted immediately prior to consummation
of such transaction, (ii) conversion on the Mandatory Conversion Date into the
kind and amount of securities, cash or other property receivable upon
consummation of such transaction by a holder of the number of shares of Common
Stock into which such share of this Series would have been converted if the
conversion on the Mandatory Conversion Date had occurred immediately prior to
the date of consummation of such transaction, and (iii) redemption on any
redemption date in exchange for the kind and amount of securities, cash or other
property receivable upon consummation of such transaction by a holder of the
number of shares of Common Stock that would have been issuable at the Call Price
in effect on such redemption date upon a redemption of such shares immediately
prior to the consummation of such transaction, assuming that the public
announcement of such redemption had been made on the last possible date
permitted by the terms of this Series and applicable law; assuming in each case
that such holder of shares of this Series failed to exercise rights of election,
if any, as to the kind or amount of securities, cash or other property
receivable upon consummation of such transaction (provided that if the kind or
amount of securities, cash or other property receivable upon consummation of
such transaction is not the same for each non-electing share, then the kind and
amount of securities, cash or other property receivable upon consummation of
such transaction for each non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the non-electing shares). The
kind and amount of securities into which the shares of this Series shall be
convertible after the consummation of such transaction shall be subject to
adjustment as described in the immediately preceding subparagraph 4(d) following
the date of consummation of such transaction. The Company shall not, without the
affirmative vote of more than the holders of two-thirds of all the outstanding
shares of this Series, become a party to any such transaction unless the terms
thereof are consistent with the foregoing.
(f) Notice of Adjustments. Whenever the Common Equivalent Rate and Optional
Conversion Rate are adjusted as herein provided, the Company shall:
(i) forthwith compute the adjusted Common Equivalent Rate and Optional
Conversion Rate in accordance herewith and prepare a certificate signed by
an officer of the Company setting forth the adjusted Common Equivalent Rate
and the Optional Conversion Rate, the method of calculation thereof in
reasonable detail and the facts requiring such adjustment and upon which
such adjustment is based, which certificate shall be conclusive, final and
binding evidence of the correctness of the adjustment, and file such
certificate forthwith with the transfer agent for the shares of this Series
and the Common Stock; and
(ii) mail a notice to the holders of the outstanding shares of this
Series stating that the Common Equivalent Rate and the Optional Conversion
Rate have been adjusted, the facts requiring such adjustment and upon which
such adjustment is based and setting forth the adjusted Common Equivalent
Rate and Optional Conversion Rate, such notice to be mailed at or prior to
the time the Company mails an interim statement to its shareholders
covering the fiscal quarter during which the facts requiring such
adjustment occurred, but in any event within 45 days of the end of such
fiscal quarter.
(g) Notices. In case, at any time while any of the shares of this Series
are outstanding,
(i) the Company shall declare a dividend (or any other distribution)
on its Common Stock, excluding any cash dividends; or
(ii) the Company shall authorize the issuance to all holders of its
Common Stock of rights or warrants to subscribe for or purchase shares of
its Common Stock or of any other subscription rights or warrants; or
(iii) the Company shall authorize any reclassification of the Common
Stock of the Company (other than a subdivision or combination thereof) or
of any consolidation or merger to which the Company is a party and for
which approval of any shareholders of the Company is required (except for a
merger of the Company into a Subsidiary solely for the purpose of changing
the corporate domicile of the Company to another state of the United States
and in connection with which there is no substantive change in the rights
or privileges of any securities of the Company other than changes resulting
from differences in the
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corporate statutes of the then existing and the new state of domicile), or
of the sale or transfer of all or substantially all of the assets of the
Company; or
(iv) there shall be commenced the voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the shares of this Series, and shall cause to be
mailed to the holders of shares of this Series at their last addresses as they
shall appear on the stock register, at least 10 days before the date hereinafter
specified (or the earlier of the dates hereinafter specified, in the event that
more than one date is specified), a notice stating (A) the date on which a
record is to be taken for the purpose of such dividend, distribution, rights or
warrants, or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution, rights
or warrants are to be determined, or (B) the date on which any such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their Common Stock for securities or other property (including cash),
if any, deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up. The failure to give or receive
the notice required by this subparagraph (g) or any defect therein shall not
affect the legality or validity of any such dividend, distribution, right or
warrant or other action.
(h) Effective Date of Conversions and Redemptions. The person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon any conversion or redemption shall be deemed to have
become on the date of any such conversion or redemption the holder or holders of
record of the shares represented thereby; provided, however, that any such
surrender on any date when the stock transfer books of the Company shall be
closed shall constitute the person or persons in whose name or names the
certificate or certificates for such shares are to be issued as the record
holder or holders thereof for all purposes at the opening of business on the
next succeeding business day on which such stock transfer books are open.
(i) No Fractional Shares. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon the redemption or
conversion of any shares of this Series or in respect of any dividend paid in
shares of Common Stock. In lieu of any fractional share otherwise issuable in
respect of all the shares of this Series of any holder which are redeemed or
converted on any redemption date or upon Mandatory Conversion or any optional
conversion or in respect of any dividend paid in shares of Common Stock, the
Company shall, at the election of the Company, either (i) sell such fractional
share, as agent for the person entitled thereto, and distribute the proceeds of
such sale, net of any discounts, commissions, fees or expenses associated with
such sale, to such person, all in accordance with applicable rules under the
Securities Act of 1933, as amended, or (ii) pay to the person entitled thereto
an amount in cash equal to the current value of such fraction, calculated to the
nearest one-hundredth ( 1/100) of a share, to be computed (x) if the shares of
this Series are listed on any national securities exchange or the Nasdaq
National Market, on the basis of the last sales price (or the quoted closing bid
price if there shall have been no sales) of the shares of this Series on such
exchange or the Nasdaq National Market (as the case may be) on the date of any
such conversion or redemption or the date of payment of any such dividend, or
(y) if the shares of this Series are not so listed, on the basis of the mean
between the closing bid and asked prices for the shares of this Series on the
date of any such conversion or redemption or the date of payment of any such
dividend, as reported by Nasdaq, or its successor, or (z) if the shares of this
Series are not so listed and if there are no such closing bid and asked prices,
on the basis of the fair market value per share as determined in good faith by
the Board of Directors.
(j) Reissuance. Shares of this Series that have been issued and reacquired
in any manner, including shares purchased, exchanged, redeemed or converted,
shall not be reissued as part of this Series and shall (upon compliance with any
applicable provisions of the laws of the State of Georgia) have the status of
authorized and unissued shares of the Preferred Stock undesignated as to series
and may be redesignated and reissued as part of any series of Preferred Stock.
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(k) Definitions. As used herein:
(i) the term "business day" shall mean any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close or are closed
because of a banking moratorium or otherwise;
(ii) the term "Capital Stock" means any capital stock of any class or
series (however designated) of the Company;
(iii) the term "Closing Price" on any day shall mean the closing sale
price regular way on such day or, in case no such sale takes place on such
day, the average of the reported closing bid and asked prices regular way,
in each case on the Nasdaq National Market or, if the Common Stock is not
listed or admitted to trading on the Nasdaq National Market then on the
principal national securities exchange on which the Common Stock is listed
or admitted to trading (which shall be the national securities exchange on
which the greatest number of shares of Common Stock has been traded during
the five consecutive Trading Dates ending on and including the date of
determination), or, if not quoted or listed or admitted to trading on any
national securities exchange or quotation system, the average of the
closing bid and asked prices of the Common Stock on the over-the-counter
market on the day in question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting service, or if not
so available as determined in good faith by the Board of Directors, on the
basis of such relevant factors as it in good faith considers appropriate;
(iv) the term "Exchange Preferred" means the Series B Convertible
Preferred Stock of the Company.
(v) the term "Extraordinary Cash Distributions" means, with respect to
any cash dividend or distribution paid on any date, the amount, if any, by
which all cash dividends and cash distributions on the Common Stock paid
during the consecutive 12-month period ending on and including such date
(other than cash dividends and cash distributions for which an adjustment
to the Common Equivalent Rate and the Optional Conversion Rate was
previously made) exceeds, on a per share of Common Stock basis, 10% of the
average daily Closing Price of the Common Stock over such 12-month period;
(vi) the term "Junior Stock" means any Capital Stock ranking as to
dividends or as to rights in liquidation, dissolution or winding up of the
affairs of the Company junior to the shares of this Series;
(vii) the term "Parity Stock" means any Capital Stock ranking as to
dividends or as to rights in liquidation, dissolution or winding up the
affairs of the Company equally with the shares of this Series;
(viii) the term "Subsidiary" means any corporation a majority of the
outstanding Voting Stock of which is owned, directly or indirectly, by the
Company or by one or more Subsidiaries or by the Company and one or more
Subsidiaries. For this purpose, the term "Voting Stock" means stock of any
class or classes (however designated) having ordinary voting power for the
election of a majority of the members of the board of directors (or other
governing body) of such corporation, other than stock having such powers
only by reason of the happening of a contingency;
(ix) the term "Trading Date" shall mean a date on which the Nasdaq
National Market (or any successor thereto) is open for the transaction of
business.
(l) Payment of Taxes. The Company shall pay any and all documentary, stamp
or similar issue or transfer taxes payable in respect of the issue or delivery
of shares of Common Stock on the redemption or conversion of shares of this
Series pursuant to this paragraph (4); provided, however, that the Company shall
not be required to pay any tax which may be payable in respect of any
registration of transfer involved in the issue or delivery of shares of Common
Stock in a name other than that of the registered holder of shares of this
Series redeemed or converted or to be redeemed or converted, and no such issue
or delivery shall be made unless and until the person requesting such issue has
paid to the Company the amount of any such tax or has established, to the
satisfaction of the Company, that such tax has been paid.
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(m) Reservation of Common Stock. The Company shall at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Stock and/or its issued Common Stock held in its
treasury, for the purpose of effecting any Mandatory Conversion of the shares of
this Series or any conversion of the shares of this Series at the option of the
holder, the full number of shares of Common Stock then deliverable upon any such
conversion of all outstanding shares of this Series.
(5) Liquidation Rights. (a) In the event of the liquidation, dissolution,
or winding up of the Company, whether voluntary or involuntary, the holders of
shares of this Series then outstanding, after payment or provision for payment
of the debts and other liabilities of the Company and the payment or provision
for payment of any distribution on any shares of the Company having a preference
and a priority over the shares of this Series on liquidation, and before any
distribution to the holders of the Common Stock, or any other stock ranking
junior to the shares of this Series with respect to distributions upon
liquidation, dissolution or winding up, shall be entitled to be paid out of the
assets of the Company available for distribution to its shareholders, an amount
per share of this Series equal to the greater of (i) the sum of (a) the
liquidation value set forth in paragraph (1) above and (b) all accrued and
unpaid dividends thereon to the date of liquidation, dissolution or winding up
and (ii) the value of the shares of Common Stock into which such shares of this
Series are convertible on the date of such liquidation, dissolution or winding
up, before any payment shall be made or any assets distributed to the holders of
any shares of the Company ranking junior to the shares of this Series upon
liquidation. In the event the assets of the Company available for distribution
to the holders of the shares of this Series upon any dissolution, liquidation or
winding up of the Company shall be insufficient to pay in full the liquidation
payments payable to the holders of outstanding shares of this Series and any
shares of Parity Stock, then the holders of all such shares of this Series shall
share ratably in such distribution of assets in accordance with the amount which
would be payable on such distribution if the amounts to which the holders of
outstanding shares of this Series and the holders of outstanding shares of such
shares of Parity Stock are entitled were paid in full. Except as provided in
this paragraph (5), holders of this Series shall not be entitled to any
distribution in the event of liquidation, dissolution or winding up of the
affairs of the Company.
(b) For the purposes of this paragraph (5), none of the following shall be
deemed to be a voluntary or involuntary liquidation, dissolution or winding up
of the Company:
(i) the voluntary sale, conveyance, lease, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all of the property or assets of the Company;
(ii) the consolidation or merger of the Company with or into one or
more other corporations, or other associations;
(iii) the consolidation or merger of one or more corporations or other
associations with or into the Company; or
(iv) the participation by the Company in a share exchange.
(6) Definition. As used in this certificate, the term "Common Stock" shall
mean any stock of any class of the Company which has no preference in respect of
dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company and which is not subject
to redemption by the Company. However, shares of Common Stock issuable upon
conversion of shares of this Series shall include only shares of the class
designated as Common Stock as of the original date of issuance of shares of this
Series, or shares of the Company of any class or classes resulting from any
reclassification or reclassification thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company and which are
not subject to redemption by the Company; provided that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from such reclassification bears to the total
number of shares of all classes resulting from all such reclassification.
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APPENDIX IX
TERMS OF
WORLDCOM SERIES B PREFERRED STOCK
1. DESIGNATION AND AMOUNT. The shares of such series shall be designated
"Series B Convertible Preferred Stock" (the "Series B Preferred Stock") and the
number of shares constituting such series shall be 15,000,000.
2. DIVIDENDS.
(a) The holders of Series B Preferred Stock shall be entitled to receive,
when and as declared, out of the funds legally available for that purpose,
dividends per share of Series B Preferred Stock at the rate of 7.75 cents per
annum, payable when and as the Company's Board of Directors (the "Board of
Directors") may determine, in cash, before any dividends shall be set apart for
or paid upon the WorldCom common stock of the Company par value $.01 per share
(the "Common Stock") or any stock ranking as to dividends junior to the Series B
Preferred Stock (such stock being referred to hereinafter collectively as
"Junior Stock") in any year. All dividends declared upon Series B Preferred
Stock shall be declared pro rata per share and shall be payable to holders of
record as they appear on the stock books of the Company on such record dates as
shall be fixed by the Board of Directors. Notwithstanding the foregoing, the
Company may declare, set apart and pay dividends on shares of the Company's
Series A 8% Cumulative Convertible Preferred Stock (the "Series A Preferred
Stock") whether or not dividends have been declared, set apart or paid on the
shares of Series B Preferred Stock. The Company's Board of Directors (the "Board
of Directors") shall not be required to declare any dividends on the Series B
Preferred Stock and the failure to declare any such dividends shall not
constitute a default or otherwise vest the holders of Series B Preferred Stock
with any right, other than the right to receive amounts in respect of accrued
but unpaid dividends pursuant to Sections 3, 5 and 7 hereof.
(b) Dividends on the Series B Preferred Stock shall be cumulative and shall
accrue on a daily basis, whether or not in any fiscal year there shall be net
profits or surplus available for the payment of dividends in such fiscal year,
so that if in any fiscal year or years, dividends in whole or in part are not
paid upon the Series B Preferred Stock, unpaid dividends shall accumulate as
against the holders of the Junior Stock. Accrued but unpaid dividends shall not
bear interest.
(c) Dividends (or amounts equal to accrued and unpaid dividends) payable on
the shares of Series B Preferred Stock shall be computed on the basis of a
360-day year of twelve 30-day months.
(d) The Company shall not set apart for or pay upon the Common Stock any
Extraordinary Cash Dividend unless, at the same time, the Company shall have set
apart for or paid upon all shares of Series B Preferred Stock an amount of cash
per share of Series B Preferred Stock equal to the Extraordinary Cash Dividend
that would have been paid in respect of such share if the holder of such share
had converted such share into shares of Common Stock pursuant to Section 5
immediately prior to the record date for such Extraordinary Cash Dividend. For
purposes of this paragraph 2(d), "Extraordinary Cash Dividend" shall mean, with
respect to any cash dividend or distribution paid on any date, the amount, if
any, by which all cash dividends and cash distributions on the Common Stock paid
during the consecutive 12-month period ending on and including such date
exceeds, on a per share of Common Stock basis, 10% of the average daily closing
price of the Common Stock over such 12-month period.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) Upon any voluntary or involuntary liquidation, dissolution or winding
up of the Company, no distribution shall be made (i) to the holders of Junior
Stock unless, prior thereto, the holders of the Series B Preferred Stock shall
have received $1.00 per share, plus an amount equal to unpaid dividends thereon,
including accrued dividends, whether or not declared, to the date of such
payment and subject to the payment in full of all amounts required to be
distributed to the holders of any other Preferred Stock of the Company ranking
on liquidation prior and in preference to the Series B Preferred Stock (such
Preferred Stock being referred to hereinafter as "Senior Preferred Stock") or
(ii) to the holders of stock ranking on a parity, either as to dividends or upon
liquidation with the Series B Preferred Stock, except distributions made ratably
on the
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Series B Preferred Stock and all other such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation. In the event the assets of the Company available for distribution
to the holders of the shares of the Series B Preferred Stock upon any
dissolution, liquidation or winding up of the Company shall be insufficient to
pay in full the liquidation payments payable to the holders of outstanding
shares of the Series B Preferred Stock and the holders of any shares of stock
ranking on a parity with the Series B Preferred Stock, then the holders of all
such shares of the Series B Preferred Stock shall share ratably in such
distribution of assets in accordance with the amount which would be payable on
such distribution if the amounts to which the holders of outstanding shares of
the Series B Preferred Stock and the holders of outstanding shares of such
shares of parity stock are entitled were paid in full. The Series A Preferred
Stock shall rank on a parity with the Series B Preferred Stock for purposes of
this paragraph 3(a).
(b) The merger or consolidation of the Company into or with another
company, the merger or consolidation of any other company into or with the
Company, or the sale, conveyance, mortgage, pledge or lease of all or
substantially all the assets of the Company shall not be deemed to be a
liquidation, dissolution or winding up of the Company for purposes of this
Section 3.
4. VOTING.
(a) Each issued and outstanding share of Series B Preferred Stock shall be
entitled to one vote per share with respect to any and all matters presented to
the shareholders of the Company for their action or consideration. Except as
provided by law and by the provisions of paragraph 4(b) below, holders of Series
B Preferred Stock shall vote together with the holders of Common Stock as a
single class.
(b) The Company shall not amend, alter or repeal the preferences, special
rights or other powers or terms of the Series B Preferred Stock so as to affect
adversely the Series B Preferred Stock, without the written consent or
affirmative vote of the holders of at least a majority of the then outstanding
aggregate number of shares of Series B Preferred Stock, given in writing or by
vote at a meeting, consenting or voting (as the case may be) separately as a
class. For this purpose, the authorization or issuance of any series of
preferred stock with preference or priority over, or being on a parity with the
Series B Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Company shall
not be deemed to affect adversely the Series B Preferred Stock.
5. OPTIONAL CONVERSION.
(a) Each share of Series B Preferred Stock may be converted at any time,
unless previously redeemed, at the option of the holder thereof, in the manner
hereinafter provided, into fully paid and nonassessable shares of Common Stock
at the rate of 0.0973912 shares (or an effective initial conversion price of
$10.268 per share of Common Stock) of Common Stock for each one share of Series
B Preferred Stock surrendered for conversion, or at such other rate as may then
be effective following adjustment pursuant to Section 6 hereof (the "Conversion
Rate").
(b) The Company shall not issue fractions of shares of Common Stock upon
conversion of Series B Preferred Stock or scrip in lieu thereof. If any fraction
of a share of Common Stock would, except for the provisions of this paragraph
5(b), be issuable upon conversion of any Series B Preferred Stock, the Company
shall in lieu thereof at the election of the Company, either (i) sell such
fractional share, as agent for the person entitled thereto, and distribute the
proceeds of such sale, net of any discounts, commissions, fees or expenses
associated with such sale, to such person, all in accordance with all applicable
rules under the Securities Act of 1933, as amended, or (ii) pay to the person
entitled thereto an amount in cash equal to the current value of such fraction,
calculated to the nearest one-hundredth ( 1/100) of a share, to be computed (x)
if the Common Stock is listed on any national securities exchange or the Nasdaq
National Market, on the basis of the last sales price (or the quoted closing bid
price if there shall have been no sales) of the Common Stock on such exchange or
the Nasdaq National Market (as the case may be) on the date of conversion, or
(y) if the Common Stock is not so listed, on the basis of the mean between the
closing bid and asked prices for the Common Stock on the date of conversion as
reported by Nasdaq, or its successor, or (z) if the Common Stock is not so
listed and if there are no such closing bid and asked prices, on the basis of
the fair market value per share as determined by the Board of Directors.
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(c) In order to exercise the conversion privilege, the holder of any Series
B Preferred Stock to be converted shall surrender his, her or its certificate or
certificates therefore to the principal office of the transfer agent for the
Series B Preferred Stock (or if no transfer agent be at the time appointed, then
the Company at its principal office), and shall give written notice to the
Company at such office that the holder elects to convert the Series B Preferred
Stock represented by such certificates, or any number thereof. Such notice shall
also state the name or names (with address) in which the certificate or
certificates for shares of Common Stock that shall be issuable on such
conversion shall be issued. If so required by the Company, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Company. The
date of receipt by the transfer agent (or by the Company if the Company serves
as its own transfer agent) of the certificates and notice shall be the
conversion date (the "Conversion Date"). As soon as practicable after receipt of
such notice and the surrender of the certificate or certificates for Series B
Preferred Stock as aforesaid, the Company shall cause to be issued and delivered
at such office to such holder, or on such holder's written order, a certificate
or certificates for the number of full shares of Common Stock issuable on such
conversion in accordance with the provisions hereof and cash as provided in
paragraph 5(b) in respect of any fraction of a share of Common Stock otherwise
issuable upon such conversion.
(d) The Company shall at all times when the Series B Preferred Stock shall
be outstanding reserve and keep available out of its authorized but unissued
stock, for the purposes of effecting the conversion of the Series B Preferred
Stock, such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding Series B
Preferred Stock.
(e) Shares of Series B Preferred Stock may not be converted after the close
of business on the business day preceding the date fixed for redemption of such
shares pursuant to Section 7.
(f) Upon any such conversion, the Company shall pay, out of funds legally
available therefor, to the person entitled thereto an amount equal to all
accrued but unpaid dividends to, but not including, the Conversion Date in
respect of the shares of Series B Preferred Stock surrendered for conversion,
which amount shall be payable, at the election of the Company, in cash or shares
of Common Stock. In the event the Company elects to pay such amount in shares of
Common Stock, the number of shares of Common Stock to be issued in respect of
unpaid dividends on each share of Series B Preferred Stock surrendered for
conversion shall, subject to paragraph 5(b), be determined by dividing (x) the
total amount of accrued but unpaid dividends to be paid on each such share of
Series B Preferred Stock by (y) the Fair Market Value of a share of Common
Stock. For purposes hereof, the term "Fair Market Value" shall mean (i) if the
Common Stock is listed on any national securities exchange or the Nasdaq
National Market, the average of the last sales price (or the quoted closing bid
price if there shall have been no sales) of the Common Stock on such exchange or
the Nasdaq National Market (as the case may be) for a period of 30 trading days
prior to the Conversion Date, or (ii) if the Common Stock is not so listed, on
the basis of the average of the mean between the closing bid and asked prices
for the Common Stock for each day in the 30 trading day period prior to the
Conversion Date, as reported by Nasdaq, or its successor, or (iii) if the Common
Stock is not so listed and if there are no such closing bid and asked prices, on
the basis of the fair market value per share as determined by the Board of
Directors.
(g) All shares of Series B Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall forthwith cease and terminate except
only the right of the holder thereof to receive shares of Common Stock in
exchange therefor and payment of any accrued and unpaid dividends thereon. Any
shares of Series B Preferred Stock so converted shall be retired and cancelled
and shall not be reissued, and the Company may from time to time take such
appropriate action as may be necessary to reduce the authorized Series B
Preferred Stock accordingly.
6. ADJUSTMENT PROVISIONS.
(a) In case the Company shall at any time (x) subdivide (whether by stock
dividend, stock split or otherwise) its outstanding shares of Common Stock into
a greater number of shares or (y) combine its outstanding shares of Common Stock
into a smaller number of shares, the Conversion Rate in effect
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immediately prior thereto shall be proportionately adjusted so that the holder
of any shares of Series B Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number of shares of capital stock of the
Company which the holder would have owned or have been entitled to receive after
the happening of any of the events described above, had such shares of Series B
Preferred Stock been converted immediately prior to the happening of such event.
In case the Company shall at any time prior to March 23, 1999 subdivide (whether
by stock dividend, stock split or otherwise) its outstanding shares of Common
Stock into a greater number of shares (each a "Subdivision"), the voting rights
of each share of Series B Preferred Stock shall be adjusted to provide that the
percentage of the aggregate voting power of the Common Stock represented by the
Series B Preferred Stock, shall be the same as such percentage immediately prior
to such Subdivision, with the holder of each share of Series B Preferred Stock
being entitled to the number of votes proportionate to such adjustment. The
adjustment made pursuant to this paragraph 4(a) shall become effective
immediately after the effective date of the event requiring such adjustment and
shall be made by the Board of Directors of the Company, whose judgment shall be
final, binding and conclusive absent manifest error. Such adjustment made
pursuant to this paragraph 6(a) shall become effective immediately after the
effective date of the event requiring such adjustment.
(b) If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another company,
or the sale of all or substantially all of its assets to another company shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities, cash or other property with respect to or in exchange
for Common Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be made
whereby the holders of the Series B Preferred Stock shall have the right to
acquire and receive upon conversion of the Series B Preferred Stock, which right
shall be prior to the rights of the holders of Junior Stock (but after and
subject to the rights of holders of Senior Preferred Stock, if any, and on
parity with the rights of holders of Series A Preferred Stock), such shares of
stock, securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, consolidation, merger or sale) with respect to
or in exchange for such number of outstanding shares of the Company's Common
Stock as would have been received upon conversion of the Series B Preferred
Stock at the Conversion Rate then in effect. The Company will not effect any
such consolidation, merger or sale, unless prior to the consummation thereof the
successor company (if other than the Company) resulting from such consolidation
or merger or the company purchasing such assets shall assume by written
instrument mailed or delivered to the holders of the Series B Preferred Stock at
the last address of each such holder appearing on the books of the Company, the
obligation to deliver to each such holder such shares of stock, securities, cash
or other property as, in accordance with the foregoing provisions, such holder
may be entitled to purchase.
(c) In the event that:
(1) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock, or
(2) there shall be any capital reorganization or reclassification of
the capital stock of the Company, including any subdivision or combination
of its outstanding shares of Common Stock, or consolidation or merger of
the Company with, or sale of all or substantially all of its assets to,
another company, or
(3) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in accordance with such event, the Company shall give to the holders of
the Series B Preferred Stock:
(i) at least twenty (20) days prior written notice of the date on
which the books of the Company shall close or a record shall be taken for
such dividend or distribution or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least twenty (20) days prior written notice of the date when the same shall
take place.
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A notice in accordance with the foregoing clause (i) shall also specify, in the
case of any such dividend or distribution, the date on which the holders of
Common Stock shall be entitled thereto, and a notice in accordance with the
foregoing clause (ii) shall also specify the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be. Each
such written notice shall be sent by mail, first class, postage prepaid,
addressed to the holders of the Series B Preferred Stock at the address of each
such holder as shown on the books of the Company.
(d) If any event occurs as to which, in the opinion of the Board of
Directors of the Company, the provisions of this Section 6 are not strictly
applicable or if strictly applicable would not fairly protect the rights of the
holders of the Series B Preferred Stock in accordance with the essential intent
and principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights as aforesaid, but
in no event shall any adjustment have the effect of decreasing the Conversion
Rate as otherwise determined pursuant to any of the provisions of this Section 6
except in the case of a combination of shares of a type contemplated in
paragraph 6(a) and then in no event to a rate less than the Conversion Rate as
adjusted pursuant to paragraph 6(a).
(e) Whenever the Conversion Rate shall be adjusted pursuant to this Section
6, the Company shall forthwith file at each office designated for the conversion
of Series B Preferred Stock, a statement, signed by the Chairman of the Board,
the President, any Vice President or Treasurer of the Company, showing in
reasonable detail the facts requiring such adjustment and the Conversion Rate
that will be effective after such adjustment. The Company shall also cause a
notice setting forth any such adjustments to be sent by mail, first class,
postage prepaid, to each record holder of Series B Preferred Stock at his or its
address appearing on the stock register. If such notice relates to an adjustment
resulting from an event referred to in paragraph 6(c), such notice shall be
included as part of the notice required to be mailed and published under the
provisions of paragraph 6(c) hereof.
7. REDEMPTION.
The Company shall have the right to redeem shares of Series B Preferred
Stock pursuant to the following provisions:
(a) The Company shall not have any right to redeem shares of the Series B
Preferred Stock prior to September 30, 2001. Thereafter, the Company shall have
the right, at its sole option and election, out of funds legally available
therefor, to redeem the shares of Series B Preferred Stock, in whole or in part,
at any time and from time to time at a redemption price of $1.00 per share plus
an amount equal to all accrued and unpaid dividends thereon (the "Redemption
Price"), whether or not declared, to the redemption date; provided, that any
amount due in respect of all or any portion of the Redemption Price, including
accrued dividends, may be paid in cash or shares of Common Stock as determined
by the Board of Directors. In the event the Board of Directors elects to pay any
portion of the Redemption Price in shares of Common Stock, the number of shares
of Common Stock to be issued shall be determined in accordance with the
provisions of paragraph 5(f).
(b) If less than all of the Series B Preferred Stock at the time
outstanding is to be redeemed, the shares so to be redeemed shall be selected by
lot, pro-rata or in such other manner as the Board of Directors may determine to
be fair and proper.
(c) Notice of any redemption of the Series B Preferred Stock (including
notice of whether such redemption shall be paid in cash or shares of Common
Stock) shall be mailed at least 30 days, but not more than 60 days prior to the
date fixed for redemption to each holder of Series B Preferred Stock to be
redeemed, at such holder's address as it appears on the books of the Company. In
order to facilitate the redemption of the Series B Preferred Stock, the Board of
Directors may fix a record date for the determination of holders of Series B
Preferred Stock to be redeemed, or may cause the transfer books of the Company
to be closed for the transfer of the Series B Preferred Stock, not more than 60
days prior to the date fixed for such redemption.
(d) On the redemption date specified in the notice given pursuant to
paragraph 7(c), the Company shall, and at any time after such notice shall have
been mailed and before such redemption date the Company may,
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MFS COMMUNICATIONS COMPANY, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF STOCKHOLDERS, DECEMBER 20, 1996
The undersigned stockholder(s) of MFS Communications Company, Inc. ("MFS")
hereby appoints Brian P. McGinty and Sunit S. Patel (collectively, the
"Proxies"), and each or either of them, the true and lawful agents and
attorneys-in-fact for the undersigned, with power of substitution, to attend the
meeting and to vote the stock owned by or registered in the name of the
undersigned, as instructed below, at the Special Meeting of Stockholders to be
held at The Joslyn Art Museum, 2200 Dodge Street, Omaha, Nebraska on December
20, 1996 at 9:00 a.m. local time, and at any adjournments or postponements
thereof, for the transaction of the following business:
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
1. TO ADOPT THE AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, DATED AS OF
AUGUST 25, 1996 (THE "MERGER AGREEMENT"), BY AND AMONG WORLDCOM, INC.
("WORLDCOM"), HIJ CORP., A WHOLLY OWNED SUBSIDIARY OF WORLDCOM ("ACQUISITION
SUBSIDIARY"), AND MFS, PURSUANT TO WHICH ACQUISITION SUBSIDIARY WILL BE
MERGED WITH AND INTO MFS AND MFS WILL BECOME A WHOLLY OWNED SUBSIDIARY OF
WORLDCOM, AND TO AUTHORIZE THE MERGER AND OTHER TRANSACTIONS CONTEMPLATED
THEREBY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. TO VOTE TO ADJOURN THE SPECIAL MEETING OF STOCKHOLDERS TO SOLICIT ADDITIONAL
STOCKHOLDER PROXIES OR VOTES IN THE EVENT THAT THE NUMBER OF PROXIES OR VOTES
SUFFICIENT TO OBTAIN A QUORUM OR TO APPROVE THE MERGER AGREEMENT HAS NOT BEEN
RECEIVED BY THE DATE OF THE SPECIAL MEETING.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. IN THEIR DISCRETION WITH RESPECT TO SUCH OTHER BUSINESS AS PROPERLY MAY COME
BEFORE THE SPECIAL MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.
(Continued and to be signed on the other side.)
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<PAGE> 236
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(Continued from other side.)
When properly executed, the Proxy will be voted in the manner directed
herein by the undersigned. If you wish to vote in accordance with the Board of
Directors' recommendations, just sign below. You need not mark any boxes. If no
specification is made, the Proxies intend to vote "FOR" Proposal 1 and Proposal
2 and in their discretion with respect to Proposal 3. The Board of Directors
unanimously recommends a vote "FOR" Proposal 1 and Proposal 2.
The undersigned acknowledges receipt
of the Notice of Special Meeting of
Stockholders to be held on December
20, 1996 and the Joint Proxy
Statement/Prospectus dated November
14, 1996.
Signature: Date:
Signature: Date:
Please sign exactly as your name
appears hereon. Joint owners should
each sign. When signing as attorney,
executor, trustee or guardian, please
give full title as such.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY, USING THE ENCLOSED
ENVELOPE.
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