EXHIBIT 99.1
Description of WorldCom Group Stock and MCI Group Stock
We have summarized below the material terms of WorldCom group stock and MCI
group stock, the terms of which will be contained in the articles of amendment
to be adopted by our board of directors.
Actions by Our Board of Directors Without Shareholder Approval, No
Separate Boards of Directors for the Groups
Under our charter as amended by our articles of amendment, our board of
directors will be able to take actions with respect to the WorldCom group and
the MCI group and WorldCom group stock and MCI group stock without shareholder
approval so long as those actions are taken on the terms and conditions set
forth in our charter. Neither the WorldCom group nor the MCI group will have a
separate board of directors to represent solely the interests of holders of
WorldCom group stock or MCI group stock. As described under "-Voting Rights,"
the holders of WorldCom group stock and the holders of MCI group stock will
generally vote together as a single voting group on all matters on which holders
of common stock are entitled to vote. This includes the election of directors of
WorldCom.
If we decide to take other actions with respect to WorldCom group stock
or MCI group stock or the WorldCom group or the MCI group that are not on the
terms and conditions in our articles of amendment, we would be required to
obtain shareholder approval of an amendment to our charter. In instances listed
under "-Voting Rights," approval of this type of an amendment would require both
the approval of the holders of WorldCom group stock and MCI group stock, voting
together as a single voting group, and the approval of the holders of any series
of common stock whose rights were affected by the amendment, voting as a
separate voting group.
The actions that our board of directors may take without shareholder
approval, discussed in more detail below, include decisions to:
o issue additional shares of WorldCom group stock and MCI group stock
so long as those additional shares are authorized shares under our
charter;
o pay dividends on a series of common stock, subject to the
limitations set forth in the charter;
o convert MCI group stock into WorldCom group stock on the terms set
forth in the charter;
o redeem a series of common stock in exchange for stock of one or
more wholly owned subsidiaries holding all of the assets and
liabilities attributed to the related group;
o dispose of assets attributed to the WorldCom group or the MCI
group, except as otherwise required by Georgia law;
o if we dispose of 80% or more of the assets attributed to a group,
pay a special dividend on, or redeem shares of, the series of
common stock related to that group or convert the MCI group stock
into shares of WorldCom group stock; or
o take actions that require an increase or decrease in the number of
shares of MCI group stock reserved for the WorldCom group or the
number of shares of WorldCom group stock reserved for the MCI
group.
<Page>
Authorized and Outstanding Shares
Our Current Capital Structure
Our current charter authorizes us to issue 5,050,000,000 shares of
stock, consisting of 5,000,000,000 shares of common stock and 50,000,000 shares
of preferred stock. Of the 50,000,000 shares of preferred stock, our board has
designated:
o 94,992 as Series A Preferred Stock,
o 15,000,000 as Series B Preferred Stock,
o 3,750,000 as Series C Preferred Stock, and
o 5,000,000 as Series 3 Preferred Stock.
As of April 16, 2001, 2,894,429,875 billion shares of our existing
common stock (including treasury shares) and 10,338,265 shares of preferred
stock were issued and outstanding.
Our Proposed Capital Structure
The articles of amendment will authorize us to issue 5.05 billion
shares of stock as follows:
o 4.85 billion shares as "WorldCom, Inc.-WorldCom Group Common
Stock;"
o 150 million shares as "WorldCom, Inc.-MCI Group Common Stock"; and
o 50 million shares of preferred stock in series, par value $.01 per
share (of which the shares described above and an additional 4.85
million shares of Series 4 Preferred Stock and 150,000 shares of
Series 5 Preferred Stock will have been designated by our board of
directors).
As a result of the tracking stock proposal, assuming the number of
shares of existing common stock then outstanding on April 16, 2001,
2,894,429,875 shares of WorldCom group stock and 115,777,195 shares of MCI group
stock will be issued and outstanding. In addition, 320,227,746 shares of
WorldCom group stock and 6,304 shares of MCI group stock will be reserved for
issuance upon the exercise of outstanding options and warrants, the conversion
of outstanding convertible securities and otherwise.
Issuances of Common Stock Without Shareholder Approval
After the implementation of the tracking stock proposal, our board of
directors may issue authorized but unissued shares of WorldCom group stock and
MCI group stock from time to time for any proper corporate purpose. Our board of
directors will have the authority under our charter, as amended by our articles
of amendment, to issue additional shares of MCI group stock or WorldCom group
stock without a vote of our shareholders, except as may be required by Georgia
law, the NASDAQ listing rules or the rules of any stock exchange on which any
series of outstanding common stock may then be listed.
Attribution of Proceeds of Issuances of Common Stock
If we issue shares of a series of common stock for cash or other
property, such as in an acquisition, the proceeds of that issuance, including
property acquired in an acquisition, will be attributed to the group in respect
of which that series of common stock has been issued; provided, however, that no
property will be attributed to the MCI group for issuance of any MCI group stock
in connection with the Intermedia merger. If there are shares of series of stock
related to that group reserved for another group or for issuance to the holders
of the series of stock related to that other group, our board of directors will
decide at the time of the issuance whether any portion of the proceeds should be
attributed to the group for which those reserved shares have been reserved.
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Dividends
Dividends on our existing common stock are limited to the funds we
legally have available for distributions under Georgia law, subject to the prior
payment of dividends on any preferred stock.
Our articles of amendment provide that dividends on WorldCom group
stock or MCI group stock will be limited to the lesser of:
o the funds we legally have available for distributions under
Georgia law; and
o the available distribution amount for the WorldCom group or the
MCI group, as the case may be.
The available distribution amount for a particular group is the same
amount that would be legally available for the payment of dividends on the
series of stock related to that group if that group were a separate company
under Georgia law. The available distribution amount for the relevant group is
the lesser of:
o any amount in excess of the minimum amount necessary to pay debts
attributed to that group as they become due in the usual course of
business; and
o the total assets attributed to that group less the sum of the total
liabilities attributed to that group plus the amount that would be
needed to satisfy the preferential rights upon dissolution of
shares of stock, if any, attributed to that group that are superior
to the series of stock related to that group.
Under Georgia law, the amount of funds we legally have available for
distributions is determined on the basis of our entire company, and not only the
respective groups. As a result, the amount of legally available funds will
reflect the amount of:
o any net losses of each group;
o any distributions on WorldCom group stock, MCI group stock or any
preferred stock; and
o any repurchases of WorldCom group stock, MCI group stock or any
preferred stock.
Payment of dividends on WorldCom group stock or MCI group stock also
may be restricted by loan agreements, indentures and other agreements or
obligations entered into by us from time to time.
Voting Rights
Currently, the holders of our existing common stock are entitled to one
vote per share on all matters submitted to shareholders.
The holders of WorldCom group stock and the holders of MCI group stock
will be entitled to vote on any matter on which our shareholders are, by Georgia
law, by Nasdaq listing rules or by the provisions of our charter or our bylaws
or as determined by our board of directors, entitled to vote.
The holders of WorldCom group stock and the holders of MCI group stock
will vote together as a single voting group on each matter on which holders of
common stock are generally entitled to vote, except as described below.
On all matters as to which all series of common stock will vote
together as a single voting group:
o each share of WorldCom group stock will have one vote; and
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o each share of MCI group stock will have a number of votes, which
may be a fraction of one vote, equal to the average market value
of one share of MCI group stock divided by the average market
value of one share of WorldCom group stock. We will calculate the
average market values during the 20-day trading period ending on
the tenth trading day prior to the record date for determining
the holders entitled to vote.
Accordingly, the relative per share voting rights of WorldCom group
stock and MCI group stock will fluctuate depending on changes in the relative
market values of shares of the series of common stock.
Upon implementation of the tracking stock proposal, we expect that
WorldCom group stock will retain a substantial majority of the total voting
power of WorldCom because we expect that initially the total market value of the
outstanding shares of WorldCom group stock will be substantially greater than
the total market value of the outstanding shares of MCI group stock.
We will set forth the number of outstanding shares of WorldCom group
stock and MCI group stock in our annual report on Form 10-K and our quarterly
reports on Form 10-Q filed under the Securities Exchange Act of 1934. We will
disclose in any proxy statement for a shareholders' meeting the number of
outstanding shares and per share voting rights of WorldCom group stock and MCI
group stock.
If shares of only one series of common stock are outstanding, each
share of that series will have one vote. If any series of common stock is
entitled to vote as a separate voting group with respect to any matter, each
share of that series will, for purpose of that vote, have one vote on that
matter.
The holders of WorldCom group stock and the holders of MCI group stock
will not have any rights to vote separately as a voting group on any matter
coming before our shareholders, except in the limited circumstances provided
under Georgia law described below or by NASDAQ listing rules, our charter or our
bylaws. Our board of directors could also decide, in its sole discretion, to
condition the taking of any action upon the approval of a series of common
stock, voting as a separate voting group.
The holders of the outstanding shares of a series are entitled to vote
as a separate voting group on a proposed amendment to our charter if the
amendment would:
o effect an exchange or reclassification of all or part of the
shares of the series into shares of the other series;
o effect an exchange or reclassification, or create the right of
exchange, of all or part of the shares of the other series into
shares of the series;
o change the designation, rights, preferences or limitations of
all or part of the shares of the series;
o change the shares of all or part of the series into a different
number of shares of the same series;
o create a new series of shares having rights or preferences with
respect to distributions or to dissolution that are prior, superior
or substantially equal to the shares of the series;
o increase the rights, preferences or number of authorized shares of
any series that, after giving effect to the amendment, have rights
or preferences with respect to distributions or to dissolution that
are prior, superior or substantially equal to the shares of the
series; or
o cancel, redeem or repurchase all or part of the shares of
the series.
If the holders of shares of a series would otherwise be entitled to
vote as a separate voting group on a proposed charter amendment, but the
amendment would affect the other series of common stock in the same or a
substantially similar way, the holders of all the affected series would vote
together on the amendment as a single voting group.
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The following illustrations demonstrate the calculation of the number
of votes to which each share of MCI group stock would be entitled on all matters
on which the holders of WorldCom group stock and the holders of MCI group stock
vote together as a single voting group.
The values for the shares used in these and the other illustrations
included in this proxy statement and prospectus are for illustrative purposes
only and are not intended to be indicative of actual or future trading values.
If:
o 3 billion shares of WorldCom group stock and 120 million shares
of MCI group stock were outstanding;
o the average market value for the 20-trading day valuation period
for MCI group stock was $50 per share; and
o the average market value for the 20-trading day valuation period
for WorldCom group stock was $40 per share;
then each share of WorldCom group stock would have one vote and each share of
MCI group stock would have 1.25 votes based on the following calculation:
<Table>
average market value of
MCI group stock $50 per share
----------------------- = ------------- = 1.25 votes per share
average market value of $40 per share of MCI group stock
WorldCom group stock
</Table>
As a result, the shares of WorldCom group stock would represent 3
billion votes, which would equal 95.24% of our total voting power, and the
shares of MCI group stock would represent 150 million votes, which would equal
4.76% of our total voting power. These amounts are calculated as follows:
<Table>
1 vote per share of x 3 billion shares of = 3 billion votes for
WorldCom group stock WorldCom group stock WorldCom group stock
1.25 votes per share 120 million shares = 150 million votes for
of MCI group stock of MCI group stock MCI group stock
</Table>
<Table>
3 billion votes for WorldCom group stock 95.24% of total voting power
---------------------------------------- = held by WorldCom group stock
150 million votes for MCI group stock
+ 3 billion votes for WorldCom group stock
150 million votes for MCI group stock 4.76% of total voting power
------------------------------------- = held by MCI group
150 million votes for MCI group stock
+ 3 billion votes for WorldCom group stock
</Table>
Conversion and Redemption
Our charter does not provide for either mandatory or optional
conversion or redemption of our existing common stock. The articles of amendment
will permit the conversion or redemption of WorldCom group stock and MCI group
stock as described below.
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Conversion of MCI Group Stock at Our Option at Any Time
Our board of directors may at any time, without shareholder approval,
convert each share of MCI group stock into a number of shares of WorldCom group
stock equal to a percentage, set forth below under "-Conversion Ratios," of the
ratio of the average market value of one share of MCI group stock to the average
market value of one share of WorldCom group stock.
Except as described below under "Mandatory Dividend, Redemption or
Conversion of Stock if Disposition of Group Assets Occurs," our board of
directors may not convert shares of WorldCom group stock into shares of MCI
group stock without shareholder approval.
Conversion Ratios. The percentage of the ratio of the average market
values will be as follows:
o during the first three years after the implementation of the
tracking stock proposal-110%; and
o beginning on the third anniversary of implementation of the
tracking stock proposal-100%.
The premium described above that is provided upon any conversion of MCI
group stock is intended for the protection of the holders of that series of
stock since a decision by us to convert that stock may be made without the
consent of the holders of MCI group stock. The elimination of the premium after
the first three years the MCI group stock is outstanding is intended to allow us
greater flexibility in using these provisions over time. Provisions similar to
these, with comparable declining premiums, are included in the terms of tracking
stocks of other public companies that have issued tracking stock. Accordingly,
we believe these premiums are necessary in order for us to be able to balance
our need to maintain flexibility in our capital structure and the desire of
holders of MCI group stock to have a level of certainty regarding the underlying
businesses that their security is intended to track.
Calculation Periods. We will calculate the average market values during
the 20-trading day period ending on the fifth trading day prior to the date we
begin to mail the conversion notice to holders.
Tax Event. If at any time there is more than an insubstantial risk of
the adverse income tax consequences described below, the percentage of the ratio
of the average market values will be 100%. This means that the holders of the
MCI group stock to be converted will not receive any premium in a conversion
that is effected under such circumstances.
Our board of directors may exercise our conversion rights at any time
without a premium if we receive an opinion of our tax counsel to the effect
that, as a result of any amendment to, clarification of, or change or proposed
change in, the laws, or interpretation or application of the laws, of the United
States or any political subdivision or taxing authority of or in the United
States, including:
o the enactment of any legislation;
o the publication of any judicial or regulatory decision,
determination or pronouncement; or
o any announced proposed change in law by an applicable legislative
committee or the chairperson of an applicable legislative
committee,
regardless of whether the amendment, clarification, change or proposed change is
issued to or in connection with a proceeding involving us and regardless of
whether the amendment, clarification, change or proposed change is subject to
appeal, there is more than an insubstantial risk that:
o for tax purposes, any issuance of WorldCom group stock or MCI group
stock would be treated as a sale or other taxable disposition by us
or any of our subsidiaries of any of the assets, operations or
relevant subsidiaries to which WorldCom group stock or MCI group
stock relates;
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o the issuance or existence of WorldCom group stock or MCI group
stock would subject us, our subsidiaries or affiliates, or our or
their successors or shareholders to tax or other adverse tax
consequences; or
o for tax purposes, either WorldCom group stock or MCI group stock is
not, or at any time in the future will not be, treated solely as
common stock of WorldCom.
For purposes of rendering this opinion, tax counsel will assume that any
legislative or administrative proposals will be adopted or enacted as proposed.
Purposes of Optional Conversion Provisions; Shareholder Considerations.
These provisions allow us the flexibility to recapitalize WorldCom group stock
and MCI group stock into one series of common stock that would, after the
recapitalization, represent an equity interest in the combined businesses of the
WorldCom group and the MCI group.
The optional conversion could be exercised at any future time if our
board of directors determines that an equity structure consisting of these two
series of stock was no longer in the best interests of WorldCom. Our board of
directors may decide to convert MCI group stock into WorldCom group stock if the
equity capital markets were to use the same criteria in valuing MCI group stock
as they use to value WorldCom group stock. For example, if WorldCom group stock
were to be valued primarily on the basis of an earnings per share multiple and
dividends, rather than multiples of cash flow, and if the performance of the
underlying businesses were expected to be similarly based on those criteria,
then our board of directors may be more likely to consider converting MCI group
stock into WorldCom group stock and eliminate the separate series. A conversion
could be exercised, however, at a time that is disadvantageous to the holders of
the series of stock related to one group.
Conversion would be based upon the relative market values of WorldCom
group stock and MCI group stock. Many factors could affect the market values of
WorldCom group stock and MCI group stock, including:
o our results of operations and those of each of the groups,
o trading volume, and
o general economic and market conditions.
Market values also could be affected by decisions by our board of
directors or our management that investors perceive to affect differently the
series of stock related to one group compared to the series of stock related to
the other group. These decisions could include:
o changes to our tracking stock policies,
o transfers of assets and liabilities between groups,
o allocations of corporate opportunities, and
o financing resources between the groups and changes in dividend
policies.
The following illustration demonstrates the calculation of the number
of shares issuable upon conversion of MCI group stock into shares of WorldCom
group stock at our option during the first three years after the implementation
of the tracking stock proposal. The values for the shares are for illustrative
purposes only and are not intended to be indicative of actual or future trading
values.
If:
o there is not more than an insubstantial risk of adverse income
tax consequences;
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o 3 billion shares of WorldCom group stock and 120 million shares of
MCI group stock were outstanding immediately prior to the
conversion;
o the average market value of one share of MCI group stock over
the 20-trading day valuation period was $50 per share; and
o the average market value of one share of WorldCom group stock
over the 20-trading day valuation period was $40 per share
then each share of MCI group stock could be converted into 1.375 shares of
WorldCom group stock based on the following calculation:
average market value of MCI
group stock
110% X --------------------------- =
average market value of
WorldCom group stock
$50 per share
1.1 X --------------------------- = 1.375 shares
$40 per share
Redemption in Exchange for Stock of Subsidiary
Our board of directors may at any time, without shareholder approval,
redeem on a pro rata basis all of the outstanding shares of WorldCom group stock
or MCI group stock in exchange for shares of the common stock of one or more of
our wholly owned subsidiaries that own all of the assets and liabilities
attributed to the relevant group.
These provisions give us increased flexibility with respect to
splitting off the assets attributed to one of the groups by allowing us to
transfer all of the assets attributed to that group to one or more wholly owned
subsidiaries and redeeming the related series of common stock with the stock of
those subsidiaries. As a result of this redemption, the holders of WorldCom
group stock and the holders of MCI group stock would hold securities of separate
legal entities operating in distinct lines of business, and would no longer have
an interest in WorldCom, Inc. as a whole.
We currently do not have any intention of redeeming the WorldCom group
stock or the MCI group stock for the assets of the relevant group. A redemption,
however, could be authorized by our board of directors at any time in the future
if it determines that an equity structure comprised of WorldCom group stock and
MCI group stock is no longer in the best interests of WorldCom.
We may redeem shares of WorldCom group stock or MCI group stock for
subsidiary stock only if we have funds legally available for distribution under
Georgia law.
Mandatory Dividend, Redemption or Conversion of Stock if Disposition
of Group Assets Occurs
If we dispose of 80% or more of the then fair value of the properties
and assets attributed to either the WorldCom group or the MCI group in a
transaction or series of related transactions, our board of directors is
required to take action that returns the value of the net proceeds of those
assets to the holders of the stock related to that group. That action could take
the form of a special dividend, a redemption of shares or a conversion into
WorldCom group stock. There are exceptions, however, to this requirement that
are described below under "-Exceptions to the Mandatory Dividend, Redemption and
Conversion Requirement if a Disposition Occurs."
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If no exception applies, our board of directors will elect, without
shareholder approval, to do one of the following:
o pay a special dividend to the holders of shares of the stock
related to that group in cash and/or securities or other property
having a fair value equal to the net proceeds of the disposition;
o if the disposition involves:
o 100% of the properties and assets attributed to that group,
redeem all outstanding shares of the stock series related to
that group in exchange for cash and/or securities or other
property having a fair value equal to the net proceeds of the
disposition;
o 80% or more but less than 100% of the then fair market value
of the properties and assets attributed to that group,
redeem a number of whole shares of the stock related to that
group in exchange for cash and/or securities or other
property having a fair value equal to the net proceeds of
the disposition; the number of shares so redeemed will have
in the aggregate an average market value, during the period
of ten consecutive trading days beginning on the 51st
trading day following the disposition date, closest to the
net proceeds of the disposition; or
o convert each outstanding share of MCI group stock into a
number of shares of WorldCom group stock equal to 110%, in the
case of the sale of assets attributed to the MCI group, or 100%
in the case of the sale of assets attributed to the WorldCom
group, of the ratio of the average market value of one share of
the MCI group stock to the average market value of one share of
the WorldCom group stock. However, if, in the case of the sales
of assets attributed to the MCI group, the disposition is
consummated after the third anniversary of the implementation
of the tracking stock proposal, the number of shares to be
issued as a result of a conversion will equal 100% of the
applicable ratio. We will calculate the average market values
during the ten-trading day period beginning on the 51st trading
day following the disposition date.
If we dispose of 80% or more of the then fair value of the properties
and assets attributed to the WorldCom group and distribute the net proceeds of
the disposition by means of a special dividend or redemption as described in the
preceding paragraph, we may at any time thereafter convert each outstanding
share of WorldCom group stock into a number of shares of MCI group stock equal
to the ratio of the average market value of one share of WorldCom group stock to
the average market value of one share of MCI group stock.
We may only pay a special dividend or redeem shares of WorldCom group
stock or MCI group stock if we have funds for distributions under Georgia law
and the amount to be paid to holders is less than or equal to the available
distribution amount for the group. We will pay the special dividend or complete
the redemption or conversion on or prior to the 120th trading day following the
disposition date.
The "net proceeds" of a disposition means an amount equal to what
remains of the gross proceeds of the disposition after any payment of, or
reasonable provision is made as determined by our board of directors for:
o any taxes we estimate will be payable by us, or which we estimate
would have been payable but for the utilization of tax benefits
attributable to another group, in respect of the disposition or in
respect of any resulting dividend or redemption;
o any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses; and
o any liabilities attributed to the group whose assets are
disposed of, including, without limitation:
o any liabilities for deferred taxes;
o any indemnity or guarantee obligations incurred in
connection with the disposition or otherwise;
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o any liabilities for future purchase price adjustments; and
o any preferential amounts plus any accumulated and unpaid
dividends in respect of any preferred stock attributed to that
group.
We may elect to pay the special dividend or redemption price either in:
o the same form as the proceeds of the disposition were received; or
o any other combination of cash, securities or other property that
our board of directors or, in the case of securities that have not
been publicly traded for a period of at least 15 months, an
independent investment banking firm, determines will have a total
market value of not less than the fair value of -the net proceeds.
The factors our board of directors will consider when it is required to
choose among paying a special dividend, redeeming shares or converting shares of
MCI group stock into WorldCom group stock will depend upon all of the facts and
circumstances at the time. Generally, if we dispose of 80% or more of the
properties and assets attributed to a group, we probably would redeem the series
of common stock related to that group and exercise our conversion option with
respect to the remaining shares of that series because the scope or scale of the
remaining properties and assets attributed to the group would likely not provide
a reasonable basis for a tracking stock for that group. We may wish to convert
the MCI group stock into the WorldCom group stock, even at the applicable
premium, if it was then desirable for us to retain the proceeds of the sale for
our remaining businesses. However, the likely taxability of an asset sale and
dividend or redemption at both the corporate and shareholder levels makes it
unlikely that we would dispose of any substantial amount of properties or assets
in this manner.
The following illustrations demonstrate the application of the
provisions requiting a mandatory special dividend, redemption or conversion if a
disposition occurs prior to the third anniversary of the implementation of the
tracking stock. The values for the shares are for illustrative purposes only and
are not intended to be indicative of actual or future trading values.
If:
o 120 million shares of MCI group stock were outstanding;
o the net proceeds of the sale of more than 80% but less than 100% of
the properties and assets attributed to the MCI group equals $5.4
billion;
o the average market value of MCI group stock during the
ten-trading day valuation period was $50 per share; and
o the average market value of WorldCom group stock during the
ten-trading day valuation period was $40 per share;
then we could do any one of the following:
(1) pay a special dividend to the holders of MCI group stock equal to:
net proceeds
----------------------------------- =
number of outstanding shares of
MCI group stock
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$5.4 billion
---------------------- = $45 per share
120 million shares
(2) redeem for $50 per share a number of shares of MCI group stock
equal to:
net proceeds
------------------------- =
average market value of
MCI group stock
$5.4 billion
------------------------- = 108 million shares
$50 per shares
(3) convert each outstanding share of MCI group stock into a number of
shares of WorldCom group stock equal to:
average market value of MCI
group stock
110% X ------------------------------ =
average market value of
WorldCom group stock
1.1 X $50 per share
------------------------------ = 1.375 shares
$40 per share
Exceptions to the Mandatory Dividend, Redemption or Conversion
Requirement if a Disposition Occurs. We are not required to take any of the
above actions for any disposition of 80% or more of the properties and assets
attributed to either group in a transaction or series of related transactions
that results in our receiving for those properties and assets primarily equity
securities of any entity that:
o acquires those properties or assets or succeeds to the business
conducted with those properties or assets or that controls the
acquirer or successor; and
o is primarily engaged or proposes to engage primarily in one or more
businesses similar or complementary to the businesses conducted by
that group prior to the disposition, as determined by our board of
directors.
The purpose of this exception is to enable us technically to "dispose"
of properties or assets of a group to other entities engaged or proposing to
engage in businesses similar or complementary to those of that group without
requiring a special dividend on, or a redemption or conversion of, the series of
stock related to that group, so long as we receive an equity interest in that
entity. We are not required to control that entity, whether by ownership or
contract provisions.
In addition, we are not required to effect a special dividend,
redemption or conversion if a disposition is:
o of 80% or more of our properties and assets in one transaction or
a series of related transactions in connection with our
dissolution and the distribution of our assets to shareholders;
o on a pro rata basis, such as in a split-off;
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o made to any person or entity controlled by us, as determined by
our board of directors; or
o a disposition conditioned upon the affirmative vote of a majority
of the votes entitled to be cast by the holders of the stock
related to that group, voting as a separate voting group.
Notices if Disposition of Group Assets Occurs. Not later than the 45th
trading day after the disposition date, we will announce publicly by press
release:
o the net proceeds of the disposition;
o the number of shares outstanding of the series of common stock
related to the group to which the disposed assets were attributed;
o the number of shares of that series of common stock into or for
which convertible securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price of those
convertible securities; and
o if applicable, the outstanding shares fraction on the date of
the notice.
Not earlier than the 61st trading day and not later than the 65th
trading day after the disposition date, we will announce publicly by press
release whether we will pay a special dividend or redeem shares of stock with
the net proceeds of the disposition or convert the MCI group stock into WorldCom
group stock.
We will mail to each holder of shares of the series of stock related to
the group to which the disposed assets were attributed the additional notices
and other information required by our articles of amendment.
Disposition of Less than 80% of the Assets. If we dispose of less than
80% of the properties and assets attributed to either the WorldCom group or the
MCI group in a transaction or series of transactions, we will attribute the
proceeds to the group to which the disposed assets were attributed. We will use
those proceeds:
o in the business of that group;
o for distribution to the holders of the series of stock related
to that group; or
o to buy back shares of the series of stock related to that group
in the open market.
We may use those proceeds in the business of another group only if we
reattribute to the group to which the disposed assets and proceeds were
originally attributed consideration with an equivalent fair value.
Selection of Shares for Redemption
If fewer than all of the outstanding shares of a series of stock are to
be redeemed, we will redeem those shares proportionately from among the holders
of outstanding shares of that series of stock or by a method as may be
determined by our board of directors to be equitable.
Fractional Interests; Transfer Taxes
We are not required to issue fractional shares of any capital stock or
any fractional securities to any holder of either series of stock upon any
conversion, redemption, dividend or other distribution described above. If a
fraction is not issued to a holder, we will pay cash instead of that fraction.
We will pay all documentary, stamp or similar issue or transfer taxes
that may be payable in respect of the issue or delivery of any shares of capital
stock and/or other securities to the holders of record on redemption or
conversion of shares.
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Liquidation Rights
Currently, in the event of our dissolution, the holders of existing
common stock are entitled to share equally in our net assets after payment or
provision for payment of our debts and other liabilities and the payment of full
preferential amounts to which the holders of any preferred stock are entitled.
Under our articles of amendment, in the event of our dissolution, the
holders of WorldCom group stock, the holders of MCI group stock and the holders
of any additional series of common stock that is subsequently created will be
entitled to receive our assets on a per share basis in proportion to the
liquidation units per share of that series. Similar to our existing common
stock, however, holders of WorldCom group stock and MCI group stock will be
entitled to receive our assets only after payment or provision for payment of
the debts and other liabilities of WorldCom and full preferential amounts to
which holders of any preferred stock are entitled. In the event of our
dissolution, no holder of either series of common stock will have any special
right to receive specific assets attributed to the related group.
The liquidation rights of the series of common stock will be as
follows:
o each outstanding share of WorldCom group stock will have one
liquidation unit; and
o each outstanding share of MCI group stock will have 1/25 of one
liquidation unit.
The number of liquidation units to which each share of WorldCom group
stock and MCI group stock is entitled will not be changed without the approval
of the holders of each series of common stock voting as a separate voting group,
except in the limited circumstances described below. As a result, the
liquidation rights of the holders of the respective series of common stock may
not bear any relationship to the relative market values, the relative voting
rights of the series of common stock or the relative value of the assets
attributed to the groups.
If we subdivide or combine the outstanding shares of a series of common
stock or declare a dividend or other distribution of shares of a series of
common stock to holders of that series of common stock, the number of
liquidation units of the other series of common stock will be appropriately
adjusted. Our board of directors will make this adjustment to avoid any dilution
in the relative liquidation rights of any series of common stock.
Neither a merger or share exchange of WorldCom into or with any other
corporation, nor any sale, lease, exchange or other disposition of 80% or more
of our assets, will, alone, cause the dissolution of WorldCom for purposes of
these liquidation provisions.
Shares Reserved for Another Group or for Issuance to the Holders of
the Series of Stock Related to that Group
The articles of amendment will allow us to reserve shares of stock
related to one group for the other group or for issuance to the holders of the
other series of common stock. For example, if one group transfers assets to the
other group we may reserve shares related to the other group instead of
transferring cash or other assets in exchange for these assets or incurring
indebtedness to the transferor group. Any common stock related to one group that
we reserve for the other group or for issuance to the holders of the other
series of common stock are not outstanding shares and are not entitled to vote
until we actually issue them.
At any time that there are shares of stock related to one group
reserved for the other group or for issuance to the holders of the other series
of common stock, we will use what we refer to as the outstanding shares fraction
to allocate to the other group any dividend or redemption payment made to the
holders of the other stock.
In addition, if at the time of any split off of a group by means of
redemption of the stock related to that group for shares of one or more wholly
owned subsidiaries, there are shares of stock related to the other group
reserved for the split group or for issuance to the holders of stock related to
the split group, we will distribute the reserved shares of stock to the split
group or the holders of the stock related to the split group.
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The outstanding shares fraction indicates the relationship between the
number of shares of a series of common stock held by the public and the number
of shares reserved for the other group or for issuance to the holders of the
other series of common stock. It is calculated by dividing the number of shares
of a series of common stock issued to the public by the sum of the number of
shares of that series of stock issued to the public plus the number of shares of
that series of stock then reserved for the other group or for issuance to the
holders of the other series of common stock.
The outstanding shares fraction will equal 1.0 at any time that there
are no shares of a series of common stock reserved for the other group or for
issuance to the holders of the other series of common stock. Immediately after
the implementation of the tracking stock proposal, there will be no shares of
MCI group stock or WorldCom group stock reserved for the other group or for
issuance to the holders of the other series of common stock.
The following illustration demonstrates the calculation of the
outstanding shares fraction.
If:
o 120 million shares of MCI group stock were outstanding; and
o 30 million shares of MCI group stock were reserved for the
WorldCom group or for issuance to the holders of WorldCom
group stock;
then the outstanding shares fraction with respect to the MCI group stock would
equal 4/5 based on the following calculation:
Number of shares of MCI group stock
outstanding
------------------------------------------- =
Number of shares of MCI group stock
outstanding + Number of reserved shares of
MCI group stock
120 million shares
------------------------------------------- = 4/5
120 million shares + 30 million shares
The number of shares of a series of common stock reserved for the other group or
for issuance to the holders of the other series of common stock would be
increased, without shareholder approval, to reflect:
o share dividends on that series of common stock;
o reclassifications of that series of common stock resulting in a
greater number of shares of that series of common stock
outstanding;
o purchases of that series of common stock with assets attributed
to the other group;
o transfers to the group related to that series of common stock of
assets attributed to the other group; and
o transfers to the other group of liabilities attributed to the
group related to that series of common stock.
The number of shares of a series of common stock reserved for the other group or
for issuance to the holders of the other series of common stock would be
decreased, without shareholder approval, to reflect:
o sales of that series of common stock for the account of the
other group;
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o share dividends of that series of common stock to the holders of
the other common stock;
o the issuance of that series of common stock when convertible
securities are converted if those shares of stock were reserved for
the other group or for issuance to the holders of the other series
of common stock;
o the issuance of that series of common stock when securities
convertible into that stock and issued as a distribution to the
holders of the other series of common stock are converted;
o reclassifications of that series of common stock resulting in a
smaller number of shares of that series of common stock
outstanding;
o the redemption of shares of that series of common stock as
described under "Mandatory Dividend, Redemption or Conversion of
Stock if Disposition of Group Assets Occurs" above;
o transfers to the other group of assets attributed to the group
related to that series of common stock; and
o transfers to that group of liabilities attributed to the
other group.
Our board of directors could, without shareholder approval, also
increase or decrease the number of shares of a series of common stock reserved
for the other group or for issuance to the holders of the other series of common
stock under other circumstances as our board of directors determines appropriate
to reflect the economic substance of any other event or circumstance.
Determinations by Our Board of Directors
Any determinations made in good faith by our board of directors with
respect to a series of common stock will be final and binding on all of our
shareholders.
Preemptive Rights
The holders of any series of common stock will not have any preemptive
rights.
Anti-Takeover Provisions of Georgia Law, Our Charter and Bylaws
The following discussion concerns material provisions of Georgia law,
our charter and bylaws and our restated rights agreement that could be viewed as
having the effect of discouraging an attempt to obtain control of WorldCom, Inc.
Number and Election of Directors
Our existing bylaws provide that the number of members of the board of
directors is fixed by the board of directors, but cannot be less than three.
Currently, our board of directors has 12 members. Neither our existing articles
of incorporation nor our existing bylaws provide for a staggered board of
directors.
Our existing bylaws provide that directors are elected by a plurality
of the votes cast by shareholders entitled to vote in the election at a meeting
at which a quorum is present. No class or series of our shares may elect any
director solely by vote of that class or series. Currently, however, no
directors are elected by a separate class or series. Our existing articles of
incorporation do not provide for cumulative voting.
Vacancies on the Board of Directors
Our existing bylaws provide that any vacancy on our board of directors
caused by an increase in the number of directors by action of the shareholders
will be filled by the shareholders in the same manner as at an annual meeting.
Any vacancy created by an increase in the number of directors by action of the
board of directors or
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by the removal or resignation of a director will be filled by the affirmative
vote of a majority of the remaining directors, except that a class of
shareholders may fill a vacancy created by the removal or resignation of a
director elected by that class. Currently, no directors are elected by a
separate class or series of shares of our capital stock.
Shareholder Nominations and Proposals
Under our bylaws, in order for a shareholder to nominate a candidate
for director, timely notice of the nomination must be given to and received by
us in advance of the meeting. Ordinarily, notice must be given and received not
less than 120 nor more than 150 days before the first anniversary of the
preceding year's annual meeting. However, if the date of the annual meeting is
advanced by more than 30 days or delayed by more than 60 days from that
anniversary date, then notice must be given by the shareholder and received by
not earlier than 150 days before the annual meeting and not later than the close
of business on the later of the 120th day before the annual meeting or the 10th
day following the day on which public announcement of the meeting is first made.
In some cases, notice may be delivered and received later if the number of
directors to be elected to our board of directors is increased. The shareholder
submitting the notice of nomination must describe various matters as specified
in the bylaws, including the name, age and address of each proposed nominee, his
or her occupation, and the class and number of shares held by the nominee.
In the case of special meetings of shareholders, the only business that
will be conducted, and the only proposals that will be acted upon, will be those
that are brought pursuant to our notice of meeting. Nominations for persons for
election to the board of directors at a special meeting for which the election
of directors is a stated purpose in the notice of meeting may be made by any
shareholder who complies with the notice and other requirements of the bylaws.
If we call a special meeting of shareholders to elect one or more directors, any
shareholder may nominate a candidate, if notice from the shareholder is given
and received not earlier than 150 days before the special meeting and not later
than the close of business on the later of the 120th day before the special
meeting or the 10th day following the day on which public announcement of the
meeting and/or of the nominees proposed by us is first made. The notice from the
shareholder must also include the same information described above.
In order for a shareholder to bring other business before an annual
meeting, timely notice must be given to and received by us within the time
limits described above. The shareholder's notice must include:
o a description of the proposed business, which must be a proper
subject for action by the shareholders,
o the reasons for conducting the business, and
o other matters specified in the bylaws.
Proposals of other business may be considered at a special meeting
requested in accordance with the bylaws only if the requesting shareholder gives
and we receive a notice containing the same information as required for an
annual meeting at the time the meeting is requested.
Rights Plan
Under our current rights agreement, each share of our existing common
stock has associated with it one preferred stock purchase right. Each of these
rights entitles its holders to purchase at a purchase price of $160, subject to
adjustment, two-thirds of 1/1000 of a share of our Series 3 preferred stock
under the circumstances provided for in our current rights agreement.
Our board of directors reviewed our rights plan in connection with the
tracking stock proposal and a shareholder proposal approved at the 2000 annual
meeting which requested that our board consider the adoption of a bylaw
amendment requiring shareholder approval of rights plans. As a result of this
review, our board determined to amend our existing rights plan to reflect the
creation of the tracking stocks, but otherwise to wait until closer to the
September 6, 2001 scheduled expiration of our rights plan to take any further
action regarding rights plans.
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Our board of directors will designate shares of our preferred stock as
Series 4 Preferred Stock and Series 5 Preferred Stock in connection with the
restated rights agreement. As a result, instead of rights currently applicable
to our existing common stock:
o each share of WorldCom group stock will have associated with it a
right to purchase 1/1000 of a share of series 4 preferred stock at
a purchase price described below; and
o each share of MCI group stock will have associated with it a right
to purchase 1/1000 of a share of series 5 preferred stock at a
purchase price described below.
The purchase price of the series 4 preferred stock will be equal to
$160 multiplied by a fraction the numerator of which is the opening price of the
WorldCom group stock on the Nasdaq National Market on the first day that stock
is traded after the recapitalization, and the denominator of which is the
closing trading price of our existing common stock on the last day immediately
prior to the recapitalization. The purchase price of the series 5 preferred
stock will equal the difference between $160 and the series 4 preferred stock
purchase price.
The rights will not become exercisable until the earlier of:
o 10 business days following a public announcement that a person or
group has become an "acquiring person";
o 10 business days after we first determine that a person or group
has become an acquiring person; or
o 10 business days, or a later date as may be determined by our board
of directors, following the commencement of, or the announcement of
an intention to commence, a tender offer or exchange offer that
would result in a person or group becoming an acquiring person.
Under our current rights agreement and the restated rights agreement, a
person becomes an "acquiring person" if the person, alone or together with a
group, acquires beneficial ownership of 15% or more of the total voting power of
all of our voting stock. For these purposes, the voting power of a person or
group will be determined at any time and from time to time as if the day on
which the determination is made is the record date for a vote of shareholders.
The restated rights agreement contains provisions designed to prevent
the inadvertent triggering of the rights. For example, it gives a person who
inadvertently acquired 15% or more of the total voting power of all of our
voting stock and does not have any intention of changing or influencing the
control of WorldCom the opportunity to sell a sufficient number of shares so
that the acquisition would not trigger the rights. In addition, the rights will
not be triggered and a divestiture of shares will not be required by:
o our repurchase of shares of voting stock, or
o any change in the market values of either series of common stock
which could raise the proportion of voting power held by a person
to over the applicable 15% threshold.
However, any person who exceeds the threshold as a result of our stock
repurchases or any changes in the market values will trigger the rights if the
person subsequently acquires any additional shares of voting stock.
Additionally, at any time a person or a group becomes an acquiring
person, the flip-in or flip-over features of our rights or, at the discretion of
the board of directors, the exchange features of our rights, may be exercised by
any holder, except for the acquiring person. A summary description of each of
these features follows:
"Flip In" Feature. In the event a person or group becomes an acquiring
person, each holder of a WorldCom group stock right or MCI group stock right,
except for the acquiring person, will have the right to acquire, upon exercise
of the right, instead of one ten-thousandth of a share of our Series 4 Preferred
Stock or Series
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5 Preferred Stock, shares of our WorldCom group stock or MCI group stock, having
a value equal to twice the exercise price of the right.
"Exchange" Feature. After the rights have been triggered, our board of
directors may, at its option, exchange the rights, other than rights owned by an
acquiring person, at an exchange ratio of one share of WorldCom group stock per
WorldCom group right and one share of MCI group stock per MCI group right.
"Flip Over" Feature. In the event we are acquired in a merger or other
business combination transaction or 50% or more of our assets or earning power,
are sold, each holder of a right, except for an acquiring person, will have the
right to receive, upon exercise of the right, the number of shares of the
acquiring company's capital stock with the greatest voting power having a value
equal to twice the exercise price of the right.
Redemption of Rights. At any time before the earlier to occur of:
o public disclosure that a person or group has become an acquiring
person, or
o our determination that a person or group has become an acquiring
person,
our board of directors may redeem all of the rights at a redemption price of
$0.01 per right, subject to adjustment. The right to exercise the rights will
terminate upon redemption, and at that time, the holders of the rights will have
the right to receive only the redemption price for each right held.
Amendment of Rights. At any time before a person or group becomes an
acquiring person, the terms of the restated rights agreement may be amended by
our board of directors without the consent of the holders of the rights,
including an amendment to lower the trigger thresholds to not less than the
greater of:
o any percentage greater than the largest percentage of the voting
power of all our voting stock then known to us to be beneficially
owned by any person or group, and
o 10% of the voting power of all of our voting stock.
However, if at any time after a person or group becomes an acquiring
person, or acquires a lower percentage as may be amended in the restated rights
agreement, of the voting power of our voting stock, our board of directors may
not adopt amendments to the restated rights agreement that adversely affect the
interests of holders of the rights. Furthermore, once the rights are no longer
redeemable, our board of directors may not adopt any amendment that would
lengthen the time period during which the rights are redeemable.
Termination of Rights. If not previously exercised, the rights will
expire on September 6, 2001, unless we earlier redeem or exchange the rights or
extend the final expiration date.
Anti-takeover Effects. The rights have anti-takeover effects. Once the
rights become exercisable, the rights will cause substantial dilution to a
person or group that attempts to acquire or merge with us. Accordingly, the
existence of the rights may deter potential acquirors from making a takeover
proposal or tender offer. Our rights should not interfere with any merger or
other business combination approved by our board of directors since we may
redeem our rights as described above and since a transaction approved by our
board of directors would not cause the rights to become exercisable.
Series 4 Preferred Stock. In connection with the creation of the
WorldCom group rights, as described above, the WorldCom board of directors
authorized the issuance of 4.85 million shares of preferred stock as series 4
junior participating preferred stock.
WorldCom has designed the dividend, liquidation, voting and redemption
features of the WorldCom series 4 preferred stock so that the value of 1/1000 of
a share of WorldCom series 4 preferred stock approximates the value of one share
of WorldCom group common stock. Shares of WorldCom series 4 preferred stock may
only be
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purchased after the WorldCom group rights have become exercisable, and each
share of the WorldCom series 4 preferred stock:
o is nonredeemable and junior to all other series of preferred stock,
except the series 5 preferred stock and unless otherwise provided
in the terms of those series of preferred stock;
o will have a preferential dividend in an amount equal to the greater
of $10 or 1,000 times any dividend declared on each share of
WorldCom group stock;
o in the event of liquidation, will entitle its holder to receive a
preferred liquidation payment equal to the greater of $1,000 or
1,000 times the payment made per share of WorldCom group stock;
o will have 1,000 votes, voting together with the common stock and
any other capital stock with general voting rights; and
o in the event of any merger, consolidation or other transaction in
which shares of WorldCom group stock are converted or exchanged,
will be entitled to receive 1,000 times the amount and type of
consideration received per share of WorldCom group stock.
The rights of the WorldCom series 4 preferred stock as to dividends,
liquidation and voting, and in the event of mergers and consolidations, are
protected by customary anti-dilution provisions.
Series 5 Preferred Stock. In connection with the creation of the MCI
group rights, as described above, the WorldCom board of directors authorized the
issuance of 150,000 shares of preferred stock as series 5 junior participating
preferred stock.
WorldCom designed the dividend, liquidation, voting and redemption
features of the WorldCom series 5 preferred stock so that the value of 1/1000 of
a share of WorldCom series 5 preferred stock approximates the value of one share
of MCI group stock. Shares of WorldCom series 5 preferred stock may only be
purchased after the MCI rights have become exercisable, and each share of the
WorldCom series 5 preferred stock:
o is nonredeemable and junior to all other series of preferred stock,
except the series 4 preferred stock and unless otherwise provided
in the terms of those series of preferred stock;
o will have a preferential dividend in an amount equal to the greater
of $10 or 1,000 times any dividend declared on each share of MCI
group stock;
o in the event of liquidation, will entitle its holder to receive a
preferred liquidation payment equal to the greater of $1,000 or
1,000 times the payment made per share of MCI group stock;
o will have 1,000 votes, voting together with the common stock and
any other capital stock with general voting rights; and
o in the event of any merger, consolidation or other transaction in
which shares of MCI group stock are converted or exchanged, will be
entitled to receive 1,000 times the amount and type of
consideration received per share of MCI group stock.
The rights of the WorldCom series 5 preferred stock as to dividends,
liquidation and voting, and in the event of mergers and consolidations, are
protected by customary anti-dilution provisions.
Business Combination Restrictions
Our existing articles of incorporation contain a provision, which will
be amended by Proposal 2, that requires the approval by the holders of at least
70% of the outstanding shares of our capital stock whose holders are present at
a meeting of shareholders and which entitle their holders to vote generally in
the election of directors,
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voting as a single voting group, as a condition to consummate a "business
transaction", as described below, involving WorldCom and a "related person", as
described below, or in which a related person has an interest, unless:
o the business transaction is approved by at least a majority of
our "continuing directors" as described below, then serving on
the board of directors or, if the votes of those continuing
directors would have been insufficient to constitute an act of
the board of directors, then the unanimous vote of the continuing
directors is sufficient to approve the transaction so long as at
least three continuing directors serve on the board of directors
at the time of the unanimous vote; or
o minimum price and other requirements are met.
A "business transaction" means:
o any merger, share exchange or consolidation involving us or any
of our subsidiaries;
o any sale, lease, exchange, transfer or other disposition by us
or any of our subsidiaries of more than 20% of its assets;
o any sale, lease, exchange, transfer or other disposition of more
than 20% of the assets of an entity to us or a subsidiary of us;
o the issuance, sale, exchange, transfer or other disposition by us
or a subsidiary of us of any securities of us or any subsidiary of
us in exchange for cash, securities or other property having an
aggregate fair market value of $15 million or more;
o any merger, share exchange or consolidation of us with any
subsidiary of us in which we are not the surviving corporation and
the charter of the surviving corporation does not contain
provisions similar to the business combination restrictions in the
existing articles of incorporation;
o any recapitalization or reorganization of us or reclassification of
our securities which would have the effect of increasing the voting
power of a related person or reducing the number of shares of each
class of voting securities outstanding;
o any liquidation, spin-off, split-off, split-up or dissolution of
us; or
o any agreement, contract or other arrangement providing for any of
the business transactions described above or having a similar
purpose or effect.
A "related person" generally means a person or entity that, together
with its affiliates and associates, beneficially owns 10% or more of the voting
power of our outstanding voting stock.
A "continuing director" means a director who either:
o was a member of the board of directors on September 15, 1993; or
o became a director after that date, and whose election, or
nomination for election, was approved by at least a majority of the
continuing directors then on the board of directors;
provided that any director who is a related person with an interest in the
business transaction to be voted upon, other than a proportionate interest as a
shareholder, is not considered a continuing director.
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