Frequently Asked Questions
Once the stock is "issued" (sold by the company to outsiders)
the company loses control of it. Those people that own the stock
can sell it to anyone at any price. An individual can choose to
buy some from someone else (if he/she can find a seller that
will agree to the price). The stock exchanges (NYSE, NASDAQ, etc.)
perform the function of matching buyers and sellers. The stock
is still trading because each day some people are deciding to
sell and others are willing to buy.
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I do not know and I am not aware of any way the general public
can learn this.
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A quick summary of the plan that was created by the bondholders
and company management is: 1) A new company will be created (MCI),
2) 90% of the debt held by the original WorldCom/MCI bondholders
will be converted into 100% of the stock in the new company, 3)
The stockholders of the "original WorldCom/MCI" will get nothing.
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I feel that a better plan would be to: 1) reduce the debt by 50%,
2) give those bondholders that turn in their bonds 50% of the
stock in the new company, and 3) give the original stockholders
50% of the stock in the new company.
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Why wasn't a better plan proposed?
From the standpoint of the people that created the plan (the
bondholders and the company management) there is no better
plan. The company managers get to keep their jobs in the new
company. The new company will have 30-40 billion dollars less
debt (lower interest expenses, higher profits, bigger bonuses).
The bondholders will own this new company after having
paid 10-15 cents on the dollar to buy the bonds. What could
be better (if you are a manager or bondholder)?
The stockholders were not invited to any of the meetings where
this plan was being created because the U.S. Trustee chose
to not appoint an equity committee. Since there was no stockholder
representation in the meetings, the stockholders got nothing
out of the reorganization plan that was created in those meetings.
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Our initial legal strategy was to make a standard objection to the
plan and argue that the plan, and the disclosure report behind it,
were flawed. Since we did not collect enough money in time to file an
objection before the deadline, we will have to find another strategy.
I suspect we will join with other individuals or companies that have
filed within the deadline and argue in favor of those motions that
are in agreement with our goals (fair treatment for the stockholders).
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There are two major kinds of business bankruptcies: Chapter 7 and
Chapter 11.
In Chapter 7 the company is "going out of business" and they don't
have enough money (assets) to pay their bills (creditors).
In Chapter 7 someone, normally the debtor in possession (original
company owners or managers) but sometimes a court appointed trustee,
sells off what can be sold and what money results is given to
the creditors on a pro-rated basis (10 cents on the dollar).
Chapter 11 is considered a "reorganization". If a business is basically
sound but there is some problem that must be solved before it can
operate profitably it can declare under chapter 11. The court will
"protect" the company so that it can keep doing business while a
"reorganization plan" is created that solves the problem.
Companies used Chapter 11 to deal with asbestos liability lawsuits, etc.
Under a chapter 11 reorganization plan the court has virtually unlimited
power. It can cancel leases, "break" contracts with negotiated prices,
close stores, invalidate labor contracts and so forth.
Prior to bankruptcy, a company's board of directors is supposed to be
responsible to the stockholders. In theory, the stockholders own
the company, the stockholders elect the board, the board hires
management, the management reports to the board, the management
operates the company in a way that keeps it going (pays the bills)
and continues as a viable entity (protects the investment of the
stockholders).
Once bankruptcy is filed conventional wisdom is that the management
and board are transformed into the "Debtor in Position". Their
obligation shifts from responding to and protecting stockholder
interests and becomes a responsibility to satisfy creditor (banks,
bondholders and supplier) claims.
Under bankruptcy the company will stop holding stockholder meetings.
The board of directors will not go out of office and there will
be no elections to replace them. They become totally immune to any
form of stockholder control or pressure.
The legal and consulting fees for the committees are paid by the "debtor
in possession" (bankrupt company). The company management hires lawyers
and consultants (paid for by the company) and the creditors (bondholders)
committee (which is always created) hires lawyers and consultants (paid
for by the company). There is, however, almost never an equity
(stockholder) committee appointed by the U.S. Trustee in a bankruptcy
case.
This means that if stockholders want to be represented by counsel in
a bankruptcy case they have to pay for their lawyers out of their own
back pockets. This puts the stockholders at a huge disadvantage since
both company management and the bondholders have essentially unlimited
legal and professional resources at no cost to them but the stockholders
have to pay their own way.
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In a bankruptcy process creditors and other interested parties
are formed into groups and these groups are represented by
committees. The U.S. Trustee appoints the committees. The Trustee
will always appoint a creditor committee. The Trustee will
sometimes appoint an equity (stockholder) committee.
The committees are allowed to hire attorneys and consultants to
assist them. The bills for these professionals are paid by the
bankrupt company so these professionals are working for the
committees at no cost to the committee members or the members
of the group represented by the committee.
The lawyers for the committees meet with the lawyers for the
company and work out a "reorganization plan". This plan is
voted on by the interested parties and if approved it will be
submitted to the judge. If the judge approves the plan it is
a done deal and the plan will be placed in effect.
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This is a mystery to me. The rule of thumb is that if a company's
assets are less than the company's liabilities there is not an
equity committee appointed. In the case of WorldCom/MCI at the time
of the bankruptcy filing the assets were twice the liabilities. I
would have expected an equity committee to be formed immediately.
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The proposed reorganization plan, which heavily favors bondholders and
company management, is a direct result of the fact that an equity
committee was not appointed. The plan was created in secret meetings
that were conducted by the bondholders and company managment. Stockholder
representatives were not allowed to attend or offer input to these meetings.
The bondholder/management meetings resulted in a plan which favors
bondholders and company management.
If an equity committee had been formed and equity committee lawyers
attended the meetings, there is a possibility that the stockholders
would have gotten better treatment in the plan that resulted from the
meetings.
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The bankruptcy court for the Southern District of New York is well
known for being friendly to big money and management. It is known
informally as the "rocket docket" because the judges move large
and complex cases at lightning speed. One way they do this is by
ruling against people that want to slow down the bankruptcy process
(like stockholders).
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The company management makes a series of estimates of the market
value of various assets. These estimates are rubber stamped by a
large auditing firm and then published in the company financial
statements. For example, the company owns a truck. The management
can value the truck at $ 5,000.00 or $ 50,000.00. The company
management will set a value, record some logic to support their
estimate and submit it to the accountant for approval.
Last year the company management wanted the company to look good
so it made assumptions that were on the high side. These were approved
by the accountants and published. This year the company management
wants the company to look bad so they "revised" their estimates
downward (by 90%). It is important for the company to look bad at
this time because if the company looks healthy people will ask
embarrassing questions like "Why did you declare bankruptcy? You look
like a strong, healthy company." or "Why aren't the original stockholders
being given some stock in the new company? Your assets are greater
than your liabilities."
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Since the U.S. Trustee did not appoint an equity committee the
stockholders can not submit legal bills to the company to be paid.
In this situation the only way to pay the lawyers is to have someone
(stockholders) contribute funds to pay the lawyer.
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There is no cash award in the bankruptcy court. If the lawyer is successful
the company will revise the plan and 64,000 individual stockholders will
get something. But there is no single cash pay-out that the lawyer could
share.
In a class action lawsuit the lawyers will work for a percentage
because there is a cash award if the case is won. At this point this
is a bankruptcy case not a class action case.
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I originally stated that extra money would be donated to some nationally
known charity. I am currently thinking that if none of the money is
spent because we did not raise enough money to even file an objection
I will just refund the money to the original contributors. In any case
something reasonable and responsible will be done with the funds and
the disposition will be posted on the web site.
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The company management lacks the will to stand up to pressure
from the bondholders. After all it appears that after the
bankruptcy the bondholders will own the stock and therefore have
control of the board and therefore be the new bosses of the
company management. In addition, the bankruptcy laws have given
substantial power to the creditor (bondholder) committee and
no equity (stockholder) committee has even been appointed. The
bondholders see a chance to take it all and they are trying to
take it all.
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When a company goes into Chapter 11 it stops issuing normal financial
reports and stops having stockholder meetings. Since there are no meetings
there are no elections for directors. The directors cannot be voted out
when there are no elections.
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I cannot answer this question. First, I do not know what is going to
happen so I do not know if it would be wise to buy or sell. Second,
I am not a qualified financial consultant that can give advise on
buy/sell questions. Third, I am not willing to make a prediction and
risk being wrong.
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My understanding of the plan is that the current MCI stock will be
worthless and there will be "new MCI" stock issued that will be
given to the bondholders.
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This lawyer was brought to me by another stockholder that did a
search through the World Wide Web.
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Neal Nelson has been operating a small computer consulting business
in the Chicago area since 1973. Information about his company can
be found on the web site
www.nna.com
Neal has organized stockholders groups on two prior occasions
(Boston Chicken and Williams Communications). For over 30 years
in business and in the two previous stockholder efforts Neal's
behavior has been totally honest and above board. It is unlikely
that in this case he has suddenly transformed into a crook.
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Comment coming soon.
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I have had a personal meeting with a representative from the
SEC. I have concluded that the SEC is dominated by lawyers who
think in terms like "Does this activity fall within the letter
of the law?" rather than "Is this really necessary from a
business perspective?" or "Is there some other option that would
be better or more just?"
Their attitude seems to be that if it's legal, it's not their problem.
They will wait for congress to change the law.
Note: On May 19, 2003 the SEC announced that as a result of a
lawsuit that it had filed, a 500 million dollar fund would be set
up by WorldCom to pay damaged parties (including stockholders).
Maybe the new SEC chairman is making a difference.
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The charter for the U.S. Trustee program allows the trustee's
office broad powers to intervene in bankruptcy matters. They
can make motions and recommendations to the judge on any aspect
of a bankruptcy case or reorganization plan. The Trustees generally
have adopted a passive approach to their job. They rubber stamp the
appointment of committees and then sit back and do little else
during a bankruptcy case. Congress and the justice department gave
them the authority to act, but the current staff members in the trustee
program have generally decided that it is not necessary or appropriate to
exercise that authority.
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It seems that U.S. court judges limit their actions to approving
motions that are placed in front of them. They seem to be bound by
precedent and do not seem to be inclined to issue rulings that
make waves. Since the bondholders and company management have
agreed to split the company up between them (leaving the stockholders
with nothing), and the stockholders can not afford to hire lawyers
because an equity committee was not appointed by the U.S. Trustee,
the majority of the motions that are being presented to the judge
support the bondholder/company management position. It seems
unlikely that a U.S. judge, and particularly unlikely that one from
the southern district of New York, would stand up and say "This deal
stinks! Go back and work out something that is more fair to all
interested parties."
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This is an informal or "ad hoc" committee of WorldCom/MCI
stockholders. It is a "committee of the whole". There are no elected
officers at this time. Several individuals have come forward and
volunteered to help with specific tasks. A willingness to work will
entitle one to be a member of the "executive committee".
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Neal Nelson is a WorldCom stockholder. He bought his shares
about a year ago. His average share price is below a dollar a share.
A few years ago he has lost a significant amount of money because
a company "restructured" and it made him mad. Neal has been distressed
by the recent actions of corporate management where stockholders are
left with nothing after a "restructuring".
Since he has both the skills and equipment to organize
a stockholder group, via the world wide web, he decided to get
involved. He is serving as an unpaid volunteer but he will
probably benefit if the stockholders get a fair deal in the future.
Neal is a computer consultant from the Chicago area.
Neal has been running his own computer consulting
business since 1973. His company's web site is at
www.nna.com
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No. This is a strictly volunteer effort. All time and resources are
donated. There are no charges or dues of any kind.
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On the main page of the web site there is an option "Stockholders
can add their names to the email list by clicking here".
This option displays a screen
where a stockholder can enter various types of information. The
email address is the only "required" field.
After the stockholder has entered his/her information, he/she
should click the "Process" button on the screen. This completes
the registration process.
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The information is being maintained on a secure server in the
offices of Neal Nelson & Associates. It will only be used to
facilitate communication on stockholder matters. The email
addresses will be used to send out notices of significant
events. There will be no distribution or other use of the
email list. All information supplied will be kept in the
strictest confidence.
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Now that WorldCom is in Chapter 11 bankruptcy, there will be a number of
hearings, reports and motions over a period of time. Eventually the
company management will propose a reorganization "plan". This plan
will include a way to pay off the debtors (banks, bondholders) and it
will also specify what (if any) value will be left for the stockholders.
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The Equity Holders Committee is the next and very important step.
The U.S. Trustee in a bankruptcy case will not always appoint an
equity holders committee. Without an Equity Holders Committee the
stockholders (equity holders) have a very tough time affecting the
final outcome of the bankruptcy process.
Our group needs to convince the U.S. Trustee's office that an
Equity Holders Committee makes sense in this case. If an equity
holders committee is formed, it must then act quickly and effectively
to get some modifications to the company proposed reorganization plan.
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Not yet. The current reorganization plan will make the
stock worthless if it is approved in its current form.
There might
be changes to the plan before it is approved by the judge (several
months from now). It is too soon to tell what will be the outcome.
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I cannot offer advice on this topic. Depending on the final "plan"
that is approved by the judge the stock could have value or it could
be worthless. I do not know what the future will bring.
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The company plan will probably allow WorldCom to continue as a
company in a very similar form after the bankruptcy process is
complete. The major difference is that a month ago
the company had substantial debt (mostly in bonds) and the company
was "owned" by the current stockholders. The "new" WorldCom will
probably have very little debt and the current debtors (bondholders
mostly) will probably own most or all of the common stock for the
company. The current stockholders may own nothing of value in the
"new" company.
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A bankruptcy filing automatically puts all of the class action
lawsuits on hold until the end of the bankruptcy process. Many
(most) of the final reorganization plans that come out of a
bankruptcy process will deal with such lawsuits as part of the
total package.
For example, the bankruptcy plan may allocate a fixed amount of
money to settle any and all of the lawsuits pending. This amount
could be zero so all of the lawsuits would just be dismissed.
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Send E-Mail to our web site administrator at
neal@nna.com
© 2002, Neal Nelson & Associates.
This web site is not sponsored by or associated with
WorldCom/MCI, Inc. in any way.