EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
By and Among
H&R BLOCK, INC.,
H&R BLOCK GROUP, INC.,
COMPUSERVE CORPORATION,
WORLDCOM, INC.
AND
WALNUT ACQUISITION COMPANY, L.L.C.
Dated as of
September 7, 1997
TABLE OF CONTENTS
ARTICLE I TERMS OF THE MERGER...............................................2
1.1 The Merger............................................................2
1.2 Effective Time........................................................2
1.3 Merger Consideration..................................................3
1.4 Stockholders' Rights upon Merger......................................4
1.5 Surrender and Exchange of Shares......................................4
1.6 Certificate of Incorporation..........................................5
1.7 Bylaws................................................................5
1.8 Other Effects of Merger...............................................5
1.9 No Dissenters' Rights.................................................5
1.10 Additional Actions...................................................5
ARTICLE II ASSET TRANSFER; SETTLEMENT OF INTERCOMPANY ACCOUNTS;
RELEASE OF CLAIMS.........................................................6
2.1 Transfer of Assets....................................................6
2.2 Intercompany Accounts.................................................6
2.3 Release of Claims.....................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING COMPUSERVE..............7
3.1 Organization, Existence and Good Standing.............................7
3.2 CompuServe Capital Stock..............................................8
3.3 Ownership of CompuServe Entities' Capital Stock; Investments..........8
3.4 Power and Authority; Non-Contravention; Filing and Consents...........9
3.5 CompuServe SEC Documents; Financial Information......................10
3.6 Subsequent Events....................................................11
3.7 Legal Proceedings....................................................13
3.8 Contracts............................................................13
3.9 Accounts Receivable..................................................15
3.10 Taxes...............................................................15
3.11 Employee Benefit Plans; Employment Matters..........................16
3.12 Compliance with Laws; Permits.......................................18
3.13 Patents, Trademarks, Etc............................................19
3.14 Labor Matters.......................................................20
3.15 Insurance...........................................................20
3.16 Rights Agreement....................................................20
3.17 Commissions and Fees................................................21
3.18 Vote Required.......................................................21
3.19 Opinion of Financial Advisor........................................21
3.20 Takeover Statutes...................................................21
ARTICLE IV REPRESENTATIONS AND WARRANTIES REGARDING H&R BLOCK...............21
4.1 Organization, Existence and Good Standing............................21
4.2 H&R Block Ownership of Capital Stock.................................22
4.3 Power and Authority; Non-Contravention; Filings and Consents.........22
4.4 Taxes................................................................23
4.5 Assets and Employees Used in CompuServe's Business...................24
4.6 Legal Proceedings....................................................24
4.7 Rights Agreement.....................................................24
4.8 Commissions and Fees.................................................24
4.9 Opinion of Financial Advisor.........................................25
i
ARTICLE V REPRESENTATIONS AND WARRANTIES REGARDING BLOCK GROUP..............25
5.1 Organization, Existence and Good Standing............................25
5.2 Block Group Ownership of CompuServe Entities' Capital Stock..........25
5.3 Power and Authority; Non-Contravention; Filings and Consents.........25
5.4 Legal Proceedings....................................................27
ARTICLE VI REPRESENTATIONS AND WARRANTIES REGARDING WORLDCOM................27
6.1 Organization, Existence and Good Standing............................27
6.2 WorldCom Capital Stock...............................................27
6.3 Power and Authority; Non-Contravention; Filings and Consents.........28
6.4 WorldCom SEC Documents; Financial Information........................29
6.5 Subsequent Material Adverse Change...................................30
6.6 Legal Proceedings....................................................30
6.7 Taxes................................................................31
6.8 Compliance with Laws in General......................................31
6.9 Vote Required........................................................31
6.10 Commissions and Fees................................................31
ARTICLE VII REPRESENTATIONS AND WARRANTIES REGARDING WAC....................31
7.1 Organization, Existence, Good Standing and Ownership Interest........31
7.2 Power and Authority; Non-Contravention...............................32
7.3 Consents and Approvals...............................................32
7.4 Legal Proceedings....................................................33
7.5 No Contracts or Liabilities..........................................33
7.6 Commissions and Fees.................................................33
ARTICLE VIII COVENANTS......................................................33
8.1 Interim Conduct of CompuServe and the CompuServe Entities............33
8.2 Voting of Shares.....................................................36
8.3 No Transfers.........................................................37
8.4 Indemnification......................................................37
8.5 No Contribution......................................................40
8.6 Meeting of CompuServe Stockholders...................................41
8.7 Registration Statement; Proxy Statement..............................41
8.8 Access to Information................................................43
8.9 Confidentiality......................................................44
8.10 HSR Act Compliance, Etc.............................................44
8.11 Public Disclosures..................................................44
8.12 Resignation of Directors and Officers...............................45
8.13 Notification of Certain Matters.....................................45
8.14 No Solicitation.....................................................45
8.15 Other Actions.......................................................47
8.16 Cooperation.........................................................47
8.17 CompuServe and CompuServe Entity Employees..........................48
8.18 CompuServe Name.....................................................49
8.19 Affiliate Letters...................................................49
8.20 Noncompete and Nonsolicitation Agreement............................50
8.21 Facilities Agreements...............................................50
8.22 SEC and Stockholder Filings.........................................50
8.23 Takeover Statutes...................................................50
8.24 Comfort Letters.....................................................50
8.25 Interim Conduct of WorldCom.........................................51
8.26 Stock Options.......................................................51
ii
ARTICLE IX TAX MATTERS......................................................52
9.1 Section 338 Election.................................................52
9.2 Tax Indemnification..................................................54
9.3 Tax Related Adjustments..............................................59
9.4 Transfer Taxes.......................................................60
ARTICLE X CONDITIONS TO CLOSING.............................................60
10.1 Mutual Conditions...................................................60
10.2 Conditions to Obligations of WorldCom and WAC.......................61
10.3 Conditions to Obligations of H&R Block, Block Group and CompuServe..62
ARTICLE XI TERMINATION, AMENDMENT AND WAIVER................................63
11.1 Termination.........................................................63
11.2 Effect of Termination...............................................64
11.3 Amendment...........................................................64
11.4 Waiver..............................................................65
11.5 Expenses............................................................65
ARTICLE XII MISCELLANEOUS...................................................66
12.1 Representations and Warranties; Survival............................66
12.2 Notices.............................................................66
12.3 Governing Law and Dispute Resolution................................68
12.4 Specific Performance................................................68
12.5 Severability........................................................68
12.6 Captions............................................................68
12.7 Entire Agreement....................................................68
12.8 Counterparts........................................................68
12.9 Binding Effect; Assignability.......................................69
12.10 Director and Officer Indemnification...............................69
12.11 No Rule of Construction............................................69
12.12 Schedules..........................................................69
ARTICLE XIII DEFINITIONS....................................................70
iii
Exhibits
Exhibit A Form of Stockholders Agreement
Exhibit B Form of Standstill Agreement
Exhibit C Form of Affiliate Letter
Exhibit D Form of Noncompete/Nonsolicitation Agreement
Exhibit E Form of Opinions of counsel to H&R Block, Block Group and
CompuServe
Exhibit F Form of Opinion of Counsel to H&R Block
Exhibit G Form of Opinions of Counsel to WorldCom
Exhibit H Form of Opinion of Counsel to WorldCom
Exhibit I Form of Registration Rights Letter
Schedules of CompuServe
Schedule 3.1 Organization, Existence and Good Standing
Schedule 3.2 CompuServe Capital Stock
Schedule 3.3(a) CompuServe Entities' Capital Stock; Investments
Schedule 3.3(b) CompuServe Entities' Capital Stock; Investments
Schedule 3.5 CompuServe SEC Documents; Financial Information
Schedule 3.6 Subsequent Events
Schedule 3.7 Legal Proceedings
Schedule 3.8(a) Contracts
Schedule 3.8(b) Contracts
Schedule 3.8(c) Contracts (International Distribution Agreements)
Schedule 3.8(d) Contracts (Network Services Agreements)
Schedule 3.8(e) Contracts (Government Contracts)
Schedule 3.8(f) Consents (Waivers and Approvals)
Schedule 3.10 Tax Disclosure
Schedule 3.10(g) Tax Disclosure (Tax Sharing Agreements)
Schedule 3.11(a) Employee Benefit Plans; Employment Matters (employee benefit
plans)
Schedule 3.11(b) Employee Benefit Plans; Employment Matters (unions;
employment agreements or plans affected by the Agreement)
Schedule 3.12 Compliance with Laws; Permits
Schedule 3.13 Patents, Trademarks, Etc.
Schedule 8.1(c) Interim Conduct of CompuServe and the CompuServe Entities
Schedule 8.4(b) General Indemnification by CompuServe and H&R Block
Schedule 8.17 CompuServe Entity Employees
Schedule 8.26 CompuServe Stock Option Payments
iv
Schedules of H&R Block
Schedule 2.2 Amounts Owed From CompuServe to H&R Block
Schedule 4.2 H&R Block Ownership of CompuServe Entities Capital Stock
Schedule 4.4 H&R Block Tax Returns
Schedule 4.5(a) Assets Used Principally in CompuServe's Business
Schedule 4.5(b) Other Assets Used in CompuServe's Business
Schedule 4.6 Legal Proceedings
Schedules of Block Group
Schedule 5.2 Block Group Capital Stock
Schedule 5.4 Legal Proceedings
Schedules of WorldCom
Schedule 6.2 WorldCom Common Shares Agreements
Schedule 6.7 Taxes
v
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), made and entered into
as of the 7th day of September, 1997, by and among H&R BLOCK, INC., a Missouri
corporation ("H&R Block"), H&R BLOCK GROUP, INC., a Delaware corporation and a
wholly-owned subsidiary of H&R Block ("Block Group"), COMPUSERVE CORPORATION, a
Delaware corporation and a majority-owned subsidiary of Block Group
("CompuServe"), WORLDCOM, INC., a Georgia corporation ("WorldCom"), and WALNUT
ACQUISITION COMPANY, L.L.C., a Delaware limited liability company which is
wholly-owned by WorldCom ("WAC"). All capitalized terms used in this Agreement
and not defined in the text hereof have the meanings set forth in Article XIII.
W I T N E S S E T H:
WHEREAS, the Boards of Directors of H&R Block, Block Group, CompuServe and
WorldCom, and the sole member (WorldCom) of WAC each have determined that it is
in the best interests of their respective stockholders or member that they enter
into this Agreement, which provides for the merger of WAC with and into
CompuServe (the "Merger") in accordance with the laws of the State of Delaware
and the provisions of this Agreement, and have authorized their respective
officers to execute and deliver this Agreement on their behalf;
WHEREAS, the Board of Directors of CompuServe has determined it is in the
best interests of its stockholders to consummate the Merger and has adopted a
resolution approving and adopting this Agreement, subject to authorization by
resolution of the stockholders of CompuServe;
WHEREAS, the Board of Directors of H&R Block, as sole stockholder of Block
Group, has determined it is in the best interests of its shareholders to
consummate the transactions contemplated by this Agreement and has adopted a
resolution approving and adopting the Agreement;
WHEREAS, WorldCom, as the sole member of WAC, has approved this Agreement;
WHEREAS, as a condition and inducement to WorldCom's and WAC's entering
into this Agreement and incurring the obligations set forth herein, concurrently
with the execution and delivery of this Agreement, H&R Block and Block Group are
entering into a stockholder's agreement with WorldCom in the form attached
hereto as Exhibit A (the "Stockholders Agreement"), pursuant to which, among
other things, Block Group has agreed to grant WorldCom an irrevocable option to
purchase all of the capital stock of CompuServe held by Block Group, agreed to
vote all of its CompuServe Common Shares in favor of the Merger and granted
WorldCom an irrevocable proxy to vote such shares;
WHEREAS, as a condition and inducement to WorldCom's and WAC's entering
into this Agreement and incurring the obligations set forth herein, concurrently
with the execution and delivery of this Agreement, H&R Block and Block Group are
entering into a standstill agreement
in the form attached hereto as Exhibit B (the "Standstill Agreement"), pursuant
to which, among other things, H&R Block and Block Group agree to restrictions
with respect to the acquisition of WorldCom Common Shares;
WHEREAS, the parties intend that WorldCom's acquisition of CompuServe
through the Merger shall constitute a qualified stock purchase within the
meaning of Section 338(d)(3) of the Code; and
WHEREAS, H&R Block, Block Group, CompuServe, WorldCom and WAC desire to
make certain representations, warranties, covenants and agreements in connection
with the transactions contemplated by this Agreement and also to prescribe
various conditions to the consummation thereof;
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto do hereby agree as follows:
ARTICLE I
Terms of the Merger
1.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, the Merger shall be consummated in accordance with the DGCL
and the DLLCA. At the Effective Time (as defined in Section 1.2 below), upon
the terms and subject to the conditions of this Agreement, WAC shall be merged
with and into CompuServe in accordance with the DGCL and the DLLCA and the
separate existence of WAC shall thereupon cease, and CompuServe, 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 applicable requirements of the DGCL and the DLLCA 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 DGCL and the DLLCA 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 CompuServe
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."
2
1.3 Merger Consideration.
(a) (i) Subject to the provisions of this Agreement and any
applicable backup or other withholding requirements, each of the CompuServe
Common Shares outstanding 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 CompuServe Common Shares, a fraction of a share of
WorldCom Common Stock equal to the Exchange Ratio (defined below), subject to
the payment of cash in lieu of any fractional share as provided in Section
1.3(b) (such share of WorldCom Common Stock, together with such cash payment,
the """Merger Consideration"). The "Exchange Ratio" shall be determined as
follows: (i) if the Average Trading Price of a WorldCom Common Share is greater
than or equal to $29.54, the Exchange Ratio shall equal 0.40625; (ii) if the
Average Trading Price of a WorldCom Common Share is greater than or equal to
$24.00 but less than $29.54, the Exchange Ratio shall equal a fraction (rounded
to the nearest hundred-thousandth) determined by dividing $12.00 by the Average
Trading Price of a WorldCom Common Share; and (iii) if the Average Trading Price
of a WorldCom Common Share is less than $24.00, the Exchange Ratio shall equal
0.5. 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 Common Stock or the CompuServe
Common Stock.
(ii) In order to allow the transaction contemplated by this Agreement
to constitute a qualified stock purchase under Section 338 of the Code and not a
tax-free reorganization, Block Group shall have the right to elect to (x) reduce
the aggregate Merger Consideration otherwise payable to Block Group pursuant to
the Merger by such number of shares of WorldCom Common Stock the aggregate value
of which, based on the Average Trading Price, is equal to $1,100,000, 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 Common Stock and not reflected in the Average Trading Price, and (y) in
lieu of such shares, receive $1,000,000 in cash.
(b) No fractional shares of WorldCom Common 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 Common 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 the Average Trading Price, 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 Common
Stock and not reflected in the Average Trading Price.
(c) Each share of CompuServe Common Stock held in the treasury of
CompuServe or by a wholly owned subsidiary of CompuServe shall be canceled as of
the Effective Time and no Merger Consideration shall be payable with respect
thereto.
3
(d) Subject to the provisions of this Agreement, at the Effective
Time, the interest of WorldCom in WAC 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, par value $.01
per share, 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 CompuServe Common 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.
1.5 Surrender and Exchange of Shares. (a) Prior to the Closing Date,
WorldCom shall appoint The Bank of New York or such other entity as may be
serving as WorldCom's transfer agent 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 Common 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 payment required pursuant
to Section 1.3(a)(ii) above if elected by Block Group, and the cash payments in
respect of fractional shares contemplated by Section 1.3(b) above.
(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 CompuServe 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 CompuServe Common Share
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 Common Stock into which such holder's CompuServe Common
Shares have been converted pursuant to this Agreement, subject to the cash
payment required pursuant to Section 1.3(a)(ii) above if elected by Block Group
and the cash payment in lieu of any fractional share contemplated by Section
1.3(b) above. Until so surrendered and exchanged, each outstanding Certificate
after the Effective Time shall be deemed for all purposes to evidence only the
right to receive that number of whole shares of WorldCom Common Stock into which
the CompuServe Common Shares have been converted pursuant to this Agreement,
subject to the cash payment required pursuant to Section 1.3(a)(ii) above if
elected by Block Group and the cash payment in lieu of any fractional share
contemplated by Section 1.3(b) above; provided, however, that no dividends or
-------- -------
other distributions, if any, in respect of the shares of WorldCom Common Stock,
declared after the
4
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
are exchanged 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 unpaid dividends or other distributions, without interest
thereon, which have become payable after the Effective Time with respect to the
number of shares of WorldCom Common Stock for which such Certificates were
exchangeable. Holders of any unsurrendered Certificates shall not be entitled to
vote WorldCom Common Stock or exercise other rights of the holders of WorldCom
Common Stock until such Certificates are exchanged pursuant to this Agreement.
(d) At the Effective Time, the stock transfer books of CompuServe shall be
closed, and no transfer of CompuServe Common Shares shall be made thereafter.
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 Common Stock and cash as provided in Section 1.3(a)(ii) if so elected
by Block Group and Section 1.3(b) above.
(e) Neither CompuServe nor WorldCom nor the Exchange Agent shall be liable
to any holder of CompuServe Common Shares for any such shares of WorldCom Common
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 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 CompuServe in effect at the Effective Time
(subject to any subsequent amendment).
1.7 Bylaws. At and after the Effective Time, the Bylaws of CompuServe
in effect at the Effective Time shall be the Bylaws of the Surviving Corporation
(subject to any subsequent amendment).
1.8 Other Effects of Merger. The Merger shall have all further effects
as specified in the applicable provisions of the DGCL and the DLLCA.
1.9 No Dissenters' Rights. The holders of the CompuServe Common
Shares are not entitled to appraisal rights under the DGCL. H&R Block and
CompuServe jointly and severally represent and warrant that the holders of the
CompuServe Common Shares are not entitled to appraisal rights under the
Certificate of Incorporation of CompuServe.
1.10 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 WAC or CompuServe 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 WAC or
CompuServe, all such deeds, bills of sale, assignments and assurances and to
take and do, in the name and on behalf of WAC or CompuServe, all such other
5
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.
ARTICLE II
ASSET TRANSFER; SETTLEMENT OF INTERCOMPANY ACCOUNTS; RELEASE OF CLAIMS
2.1 Transfer of Assets. H&R Block, Block Group and CompuServe
agree that, prior to the Closing, any interests, assets or rights owned, leased
or held by or in the possession or control of H&R Block or any H&R Block Entity
which are principally used in or principally related to the business of
CompuServe or any of the CompuServe Entities, whether tangible or intangible,
and whether fixed, contingent or otherwise, including contracts, contractual
rights, licenses and intellectual property rights, will be transferred and
contributed for no additional consideration to CompuServe or such CompuServe
Entity as directed by WorldCom; provided, however, that such interests, assets
or rights shall not include (x) assets held under any H&R Block employee benefit
plans, such as life insurance policies and deferred compensation plans for the
benefit of CompuServe Employees, or (y) any other H&R Block insurance policy
(except, in the case of clauses (x) and (y), any pre-paid benefits or coverage
under insurance policies which inure to CompuServe or any of the CompuServe
Entities and coverage with respect to such policies for accrued or past claims
or losses). In connection therewith, H&R Block, Block Group and CompuServe
agree to use all reasonable efforts to obtain any required consents, approvals
or waivers. To the extent that any such interests, assets or rights have not
been so contributed to CompuServe or a CompuServe Entity prior to or at the
Closing, H&R Block and Block Group shall, and shall cause the other H&R Block
Entities to, use all reasonable efforts, including acting after the Closing and
to the maximum extent permitted by law as CompuServe's agent, to effectuate such
transfer and contribution to CompuServe or such other CompuServe Entity as soon
as practicable after the Closing for no additional consideration.
2.2 Intercompany Accounts. Immediately prior to the Closing, H&R Block
and each other H&R Block Entity shall pay CompuServe and each CompuServe Entity
all amounts then owing from H&R Block and each other H&R Block Entity to
CompuServe and each CompuServe Entity, respectively (including all amounts owed
to CompuServe and each CompuServe Entity pursuant to the Tax Sharing Agreement
or any other Tax sharing agreement), if any, less all amounts then owing, if
any, from CompuServe and such CompuServe Entity to H&R Block and/or a H&R Block
Entity. Such payment shall be accomplished without incurrence of any liability
for Taxes by CompuServe or any CompuServe Entity (other than Taxes with respect
to which H&R Block and Block Group have agreed to and do fully indemnify
WorldCom). To the extent that any such amounts have not been paid prior to or
at the Closing, H&R Block and any other H&R Block Entity shall, as soon as
practicable following the Closing, pay to CompuServe and each CompuServe Entity
all such unpaid amounts together with interest thereon as provided by the terms
of such obligations. H&R Block and Block Group jointly and severally represent
and warrant that, as of July 31, 1997, the aggregate net amount owed by H&R
6
Block and the H&R Block Entities to CompuServe and the CompuServe Entities is
set forth on Schedule 2.2 hereto.
------------
2.3 Release of Claims. Effective as of the Effective Time, H&R Block,
for itself and on behalf of each of the H&R Block Entities, releases and forever
discharges CompuServe and the CompuServe Entities from any and all claims,
demands, proceedings, causes of action, orders, obligations, contracts,
agreements, debts, and liabilities whatsoever, that H&R Block or any H&R Block
Entity now has, has ever had, or may hereafter have against CompuServe or the
CompuServe Entities arising at or prior to the Effective Time or on account of
or arising out of any matter, cause, or event occurring at or prior to the
Effective Time, including, but not limited to, any rights to indemnification,
contribution or reimbursement from CompuServe or any of the CompuServe Entities,
and whether or not relating to matters pending on, or asserted after, the
Effective Time. Further, H&R Block and each of the H&R Block Entities, as of
the Effective Time, irrevocably covenants to refrain from, directly or
indirectly, asserting any claim or demand, or commencing, instituting, or
causing to be commenced, any proceeding of any kind against CompuServe or any of
the CompuServe Entities, based upon any matter purported to be released hereby.
ARTICLE III
Representations and Warranties Regarding CompuServe
H&R Block, Block Group and CompuServe, jointly and severally, hereby
make the following representations and warranties to WorldCom and WAC:
3.1 Organization, Existence and Good Standing. CompuServe is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. CompuServe has all necessary corporate power and
authority to own, lease, operate and transfer its properties and to conduct its
business as currently conducted. Each CompuServe Entity is duly organized,
validly existing and, to the extent such concept is applicable under the laws of
such jurisdiction, in good standing in its respective jurisdiction of
organization, and has all necessary corporate power to own, lease, operate and
transfer its properties and carry on its business as currently conducted, except
where the failure to be so organized, existing and in good standing or to have
such power and authority would not have a Material Adverse Effect. CompuServe
and each CompuServe Entity is duly qualified to do business and, to the extent
such concept is applicable in such jurisdictions, is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so duly qualified and in good standing would not
have a Material Adverse Effect. CompuServe has made available to WorldCom
complete and correct copies of its Certificate of Incorporation and Bylaws and
other comparable charter or organizational documents of each CompuServe Entity,
in each case as amended to the date of this Agreement. Schedule 3.1 sets forth
------------
a complete and accurate list of all CompuServe Entities and their jurisdiction
of incorporation or organization and qualification or license, and a description
of the interest of CompuServe and any other holder in each such entity.
7
3.2 CompuServe Capital Stock. The authorized capital stock of
CompuServe consists of (i) 250,000,000 CompuServe Common Shares, of which as of
September 3, 1997, 92,600,000 shares were issued and outstanding and no shares
were issued and held as treasury shares and (ii) 10,000,000 shares of preferred
stock, par value $.01 per share, of which, as of the date of this Agreement, no
shares are issued and outstanding and no shares are issued and held as treasury
shares. All of the issued and outstanding CompuServe Common Shares are duly
authorized, validly issued, fully paid and non-assessable. As of September 5,
1997, options (the "CompuServe Stock Options") to purchase an aggregate of
1,712,411 CompuServe Common Shares (subject to adjustment on the terms set forth
in the CompuServe Stock Plans) were outstanding under the 1996 CompuServe
Corporation Long-Term Incentive Plan, the CompuServe Corporation 1996 Employee
Stock Purchase Plan, the CompuServe 1996 Outside Directors Plan, and the Crystal
Club Plan (the "CompuServe Stock Plans"), which are the only existing stock
option, purchase or other plans, arrangements or agreements relating to
CompuServe Common Shares. Schedule 3.2 sets forth a complete and accurate list
------------
of all outstanding CompuServe Stock Options held by current or former CompuServe
Employees and directors of CompuServe (including a vesting schedule and the
exercise price of each option grant) as of September 5, 1997, and no additional
CompuServe Stock Options have been issued or granted since such date. Except as
provided in the preceding sentences of this Section 3.2 and except for
CompuServe Common Shares issued after September 5, 1997 pursuant to the exercise
of CompuServe Stock Options in accordance with their terms, there are no
options, preemptive rights, warrants, or similar rights granted by CompuServe in
respect of shares of CompuServe capital stock or any other agreements to which
CompuServe is a party providing for the issuance or sale by it of any additional
securities. Except as set forth on Schedule 3.2 or in the CompuServe SEC
------------
Documents, there are no outstanding CompuServe debt securities or other
agreements or instruments issued by CompuServe or to which H&R Block, any H&R
Block Entity, CompuServe or any CompuServe Entity or, to the knowledge of
CompuServe, any other Person is a party, entitling the holders thereof or
parties thereto to vote or to direct or otherwise restrict the vote of the
holders of CompuServe Common Shares or which are convertible into or
exchangeable for capital stock of CompuServe. Except as set forth on Schedule
--------
3.2 or as otherwise provided in this Agreement, neither CompuServe nor any
---
CompuServe Entity, nor to the knowledge of H&R Block, Block Group or CompuServe,
any stockholder of CompuServe, is a party to any voting trust, voting agreement,
proxy or similar agreement. As of the date of this Agreement, except for an
aggregate of 4,000,000 CompuServe Common Shares reserved for issuance upon the
exercise of CompuServe Stock Options granted or which may be granted under the
CompuServe Stock Plans and an aggregate of 2,500,000 shares of Series A Junior
Participating Preferred Stock reserved for issuance under the CompuServe Rights
Agreement, there are no shares of authorized capital stock of CompuServe
reserved for issuance. There is no liability for or obligations with respect to
any dividends, distributions or similar participation interests declared or
accumulated but unpaid with respect to any shares of CompuServe capital stock.
The CompuServe Common Shares held by Block Group entitle Block Group to exercise
80.13% of the voting power of all of the outstanding CompuServe Common Shares.
3.3 Ownership of CompuServe Entities' Capital Stock; Investments. (a)
CompuServe owns (directly or through one or more CompuServe Entities as set
forth on Schedule 3.3(a)),
8
beneficially and (except for de minimis numbers of shares held by nominees as
required by the laws of certain foreign jurisdictions) of record, the issued and
outstanding shares of capital stock or other securities of or interests in the
CompuServe Entities as set forth on Schedule 3.3(a), all of which shares or
---------------
other securities or interests are duly authorized, validly issued and
outstanding, fully paid and non-assessable, and free and clear of all Liens or
Other Encumbrances. As of the date of this Agreement, except as set forth on
Schedule 3.3(a), there are no preemptive rights, options, warrants or similar
---------------
rights granted by CompuServe or any CompuServe Entity in respect of shares of
capital stock or other securities of or interests in the CompuServe Entities or
any agreements to which CompuServe or any CompuServe Entity is a party providing
for the issuance or sale by CompuServe or any CompuServe Entity of capital stock
or other securities of or interests in any CompuServe Entity. There are no
outstanding debt securities, agreements or interests of any CompuServe Entity,
or other instruments issued by or to which CompuServe, or any CompuServe Entity
or, to the knowledge of H&R Block, Block Group or CompuServe, any other Person
is a party, entitling the holders thereof or parties thereto to vote or to
direct or otherwise restrict the vote of the holders of the capital stock or
other securities of or interests in any CompuServe Entity or which are
convertible into or exchangeable for capital stock or other securities of or
interests in any CompuServe Entity. No capital stock or other securities of or
interests in any CompuServe Entity are reserved for issuance under any stock
plans or otherwise, and there is no liability for or obligations with respect to
any dividends, distributions or similar participation rights declared or
accumulated but unpaid with respect to any securities or interests of any
CompuServe Entity.
(b) Except for the CompuServe Entities or as set forth on Schedule
--------
3.3(b), CompuServe and the CompuServe Entities do not own, beneficially or
------
otherwise, any shares of capital stock or other securities of or interests in,
or any direct or indirect interest of any nature in, any other corporation,
partnership, limited liability company, joint venture or other entity.
3.4 Power and Authority; Non-Contravention; Filings and Consents.
(a) CompuServe has full corporate power and authority to execute, deliver and
perform its obligations under this Agreement and all agreements and other
documents executed and delivered, or to be executed and delivered, by it
pursuant to this Agreement and, except for the calling of the CompuServe
Stockholders Meeting and the vote of Block Group as the majority stockholder of
CompuServe to approve this Agreement, has taken all action required by its
Certificate of Incorporation, its Bylaws or otherwise, to duly and validly
authorize the execution, delivery and the performance of its obligations under
this Agreement and such related documents and the consummation of the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement by CompuServe do not and, subject to the receipt of the requisite
vote of CompuServe's stockholders as aforesaid, the consummation of the
transactions contemplated by this Agreement and such related documents by
CompuServe will not (i) conflict with or violate any provisions of its
Certificate of Incorporation or its Bylaws, or (ii) constitute a breach of or
default under or result in the creation of any Liens or Other Encumbrances or
Tax on or against, any assets, rights or property of CompuServe or any
CompuServe Entity or give rise, with or without notice or lapse of time (other
than under any of the CompuServe Stock Plans as set forth on Schedule 3.2), to
-------------
any third-party right of termination, cancellation, material modification or
acceleration under any note, bond, mortgage, pledge, lien, lease, agreement,
9
license, commitment or instrument, applicable to CompuServe or any CompuServe
Entity, or to which CompuServe or any CompuServe Entity is a party or by which
CompuServe or any CompuServe Entity, or any of their respective assets is or are
bound, or conflict with or violate any restrictions of any kind to which they
are subject, which breach, default, lien, encumbrance, Tax, termination,
cancellation, modification or acceleration would have a Material Adverse Effect
or which would prevent or materially delay the consummation of the transactions
contemplated by this Agreement or otherwise prevent CompuServe from performing
its obligations hereunder in any material respect, or (iii) subject to obtaining
the consents, approvals, orders, authorizations and registrations, and making
the filings described in Section 3.4(b) below, violate any law, order, writ,
judgment, award, statute, rule, regulation or decree of any Governmental Entity
or arbitrator, which, if violated or accelerated, would have a Material Adverse
Effect or which would prevent or materially delay the consummation of the
transactions contemplated by this Agreement or otherwise prevent CompuServe from
performing its obligations hereunder in any material respect. The execution,
delivery and performance of this Agreement have been approved by the Board of
Directors of CompuServe. This Agreement has been duly executed and delivered by
CompuServe and, assuming this Agreement constitutes a valid and binding
obligation of WorldCom and WAC enforceable against such parties in accordance
with its terms, constitutes a valid and binding obligation of CompuServe
enforceable against CompuServe in accordance with its terms.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required to be obtained,
made or filed by CompuServe or any CompuServe Entity in connection with the
execution and delivery of this Agreement by CompuServe, the consummation by
CompuServe of the transactions contemplated by this Agreement, except for (i)
filings with and, where required, approval by one or more non-U.S. competition
or antitrust regulatory bodies, (ii) the filing with the SEC of (x) the
Registration Statement and the CompuServe Proxy Statement and (y) such reports
under the Exchange Act as may be required in connection with this Agreement and
the transactions contemplated by this Agreement, (iii) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware and
appropriate documents with the relevant authorities of states in which
CompuServe is qualified to do business, and (iv) such consents, approvals,
orders, authorizations, registrations, declarations, or filings the failure of
which to be obtained, made or filed would not (A) impair in any material respect
the ability of CompuServe to perform its obligations hereunder, (B) prevent or
impede, in any material respect, the consummation of the transactions
contemplated by this Agreement, or (C) have a Material Adverse Effect.
3.5 CompuServe SEC Documents; Financial Information. CompuServe
has filed with the SEC all reports, proxy statements, forms, and other documents
required to be filed therewith (the "CompuServe SEC Documents") prior to the
date of this Agreement, and, as of the Closing Date, CompuServe shall have filed
with the SEC all CompuServe SEC Documents required to be filed prior thereto.
As of their respective dates, (i) the CompuServe SEC Documents complied, and all
similar documents filed with the SEC after the date of this Agreement but prior
to the Closing will comply, in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such CompuServe SEC
Documents and similar
10
documents and (ii) none of the CompuServe SEC Documents contained, nor will any
similar documents filed after the date of this Agreement but prior to the
Closing contain, any untrue statement of a material fact and none of the
CompuServe SEC Documents omitted, nor will any similar document filed after the
date of this Agreement but prior to the Closing omit, to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements (including any related notes
and schedules) of CompuServe included in the CompuServe SEC Documents (including
any similar documents filed with the SEC after the date of this Agreement but
prior to the Closing) comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto and have been or will be prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q under
the Exchange Act) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position of CompuServe and its
consolidated subsidiaries (including all applicable CompuServe Entities) as of
the dates thereof and the consolidated results of their operations and cash
flows for the periods then-ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments consistent with prior years). Nothing in
this Section 3.5 shall constitute a representation or warranty by H&R Block,
Block Group or CompuServe to the extent that any untrue statement, omission or
failure to comply results from information supplied by WorldCom to CompuServe
for inclusion in any documents filed by CompuServe with the SEC. Except as set
forth on Schedule 3.5 or as disclosed in the CompuServe SEC Documents and the
------------
April 30, 1997 consolidated balance sheet included in the CompuServe SEC
Documents (the "CompuServe Balance Sheet"), and except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since the date of the CompuServe Balance Sheet, neither CompuServe nor
any of CompuServe's consolidated subsidiaries has any liabilities or obligations
of any nature (whether accrued, absolute, contingent or otherwise) which would
be required by GAAP to be set forth on a consolidated balance sheet of
CompuServe and its consolidated subsidiaries or in the notes thereto that are
not so included or disclosed and which would reasonably be expected to have a
Material Adverse Effect.
3.6 Subsequent Events. Except as set forth on Schedule 3.6 or
------------
disclosed in the CompuServe SEC Documents or as otherwise contemplated
hereunder, neither CompuServe nor any CompuServe Entity has since the date of
the CompuServe Balance Sheet to the date hereof:
(a) Suffered any Material Adverse Change;
(b) Discharged or satisfied any Material Liens or Other Encumbrances,
or paid, satisfied or incurred any Material obligation or liability (absolute,
accrued, contingent or otherwise) other than (i) liabilities shown or reflected
on the CompuServe Balance Sheet or (ii) liabilities incurred since the date of
the CompuServe Balance Sheet in the ordinary course of business, the discharge,
satisfaction or incurrence of which would not have a Material Adverse Effect;
11
(c) Increased or established any reserve for Taxes or any other
liability on its books or otherwise provided therefor which, if paid in full,
would have a Material Adverse Effect;
(d) Mortgaged, pledged or subjected to any Liens or Other
Encumbrances, any of their assets, tangible or intangible, which event would,
individually or in the aggregate, cause a Material Adverse Effect;
(e) Sold or transferred any of the assets of CompuServe or any
CompuServe Entity other than in the ordinary course of business and consistent
with past practice or canceled any debts or claims or waived any rights Material
to CompuServe or any CompuServe Entity;
(f) Granted any general or uniform increase in the rates of pay of
employees or any increase in compensation payable or to become payable by
CompuServe or any CompuServe Entity to any director, officer or employee,
consultant or agent of CompuServe or any CompuServe Entity (other than increases
in the ordinary course consistent with past practice), or by means of any bonus
or pension plan, or similar contract or agreement, increased the compensation of
any director, officer or employee (other than increases in the ordinary course
consistent with past practice);
(g) Except for this Agreement and any other agreement executed and
delivered pursuant to this Agreement, entered into any Material transaction
other than in the ordinary course of business or expressly permitted under other
provisions hereof;
(h) Issued, sold, transferred, pledged, disposed of or encumbered any
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of
capital stock of any class or interest in or securities of any kind to acquire,
any shares of capital stock of any class of or interest in or securities of
CompuServe or any CompuServe Entity, other than shares issued upon the exercise
of CompuServe Stock Options in accordance with the terms of such CompuServe
Stock Options existing on the date of exercise;
(i) Made capital commitments which in the aggregate were in excess of
the amounts contemplated in CompuServe's May 23, 1997 business plan for fiscal
1998 as furnished to WorldCom;
(j) Taken any action to (a) amend its Articles of Incorporation or
Certificate of Incorporation, as the case may be, or Bylaws or similar
organizational documents; (b) declare, set aside or pay any dividend or other
distribution with respect to capital stock payable in cash, stock, securities or
property other than dividends paid by CompuServe's wholly owned subsidiaries to
CompuServe or another of CompuServe's wholly owned subsidiaries; or (c) except
pursuant to the Employee Stock Purchase Plan and the Crystal Club Plan, redeem,
purchase or otherwise acquire, directly or indirectly, any of the capital stock
or any interest in or securities of CompuServe or any CompuServe Entity;
12
(k) Adopted a plan of complete or partial liquidation, dissolution,
merger, consolidation, share exchange, restructuring, recapitalization or other
reorganization of CompuServe or any CompuServe Entity;
(l) Changed in any material respect its Tax or accounting methods,
principles or practices (including any changes in depreciation or amortization
policies or rates or any changes in any assumptions underlying any method of
calculating reserves), other than as required by a change in GAAP or other
applicable law; or
(m) Entered into any agreement, contract, commitment or arrangement to
take any of the actions contemplated in the foregoing clauses (a) through (l),
or authorized, recommended, proposed or announced an intention to take any such
action.
3.7 Legal Proceedings. Except as set forth on Schedule 3.7, or
------------
disclosed in the CompuServe SEC Documents, there is no action, suit, claim,
demand, proceeding or investigation pending, or to the knowledge of CompuServe,
threatened against CompuServe or any of the CompuServe Entities or affecting the
consummation of the transactions contemplated by this Agreement which, if
resolved adversely to CompuServe or any of the CompuServe Entities, would have a
Material Adverse Effect or which could prevent or materially delay the
consummation of the transactions contemplated by this Agreement. Except as set
forth on Schedule 3.7, there are no Material judgments, decrees, injunctions or
------------
orders of any Governmental Entity or arbitrator against CompuServe or any of the
CompuServe Entities.
3.8 Contracts. (a) CompuServe and the CompuServe Entities have
made available to WorldCom or, in the case of certain customer contracts,
WorldCom's counsel true and complete copies of all outstanding contracts,
intellectual property licenses, leases, agreements and arrangements which are
Material. Except as otherwise disclosed on Schedule 3.8(a), all of such
---------------
contracts, leases, intellectual property licenses, agreements and arrangements
are valid, binding and enforceable in accordance with their terms (assuming the
other parties thereto are bound, as to which none of H&R Block, Block Group or
CompuServe has any reasonable basis to believe otherwise) and in full force and
effect, except where any such invalidity or failure to be binding, enforceable
or in full force and effect would not have a Material Adverse Effect. Except as
otherwise indicated on Schedule 3.8(a), neither CompuServe nor any CompuServe
---------------
Entity is, and to the knowledge of CompuServe, no other party to such contracts,
leases, licenses, agreements and arrangements is in default thereunder, and no
event has occurred which, with or without the lapse of time or the giving of
notice or both, would constitute a default thereunder, except in each case for
defaults as would not have, individually, or in the aggregate, a Material
Adverse Effect.
(b) Except as set forth on Schedule 3.8(b) and except for contracts
---------------
which may be canceled by CompuServe or any CompuServe Entity party thereto
within 30 days without penalty, there are no contracts to which CompuServe or
any of the CompuServe Entities is a party or by which CompuServe or any of the
CompuServe Entities is bound which: (i) provide for ongoing obligations with
respect to any or all of the Online Services Business or the network services
business or any other business of CompuServe and the CompuServe Entities after
December 31, 2000; (ii) are network services customer, lease or other agreements
containing
13
change of control or anti-assignment provisions granting to another
party or other parties thereto the right to terminate such agreements or take
other action adverse to CompuServe or any of the CompuServe Entities upon or
following the transactions contemplated by this Agreement which termination or
adverse action would have a Material Adverse Effect; or (iii) purport to limit
CompuServe or any of the CompuServe Entities from providing any service in any
jurisdiction, whether under the CompuServe name or otherwise, or grant any
exclusive geographic, segment or other rights to any third-party, except where
the existence of which after the Closing would not have a Material Adverse
Effect on CompuServe.
(c) CompuServe and the CompuServe Entities have made available to
WorldCom true and complete copies of all agreements material to the relationship
of CompuServe or any of the CompuServe Entities with international distributors,
including those certain license and distributorship agreements with
international distributors into which CompuServe, a CompuServe Entity or, to the
knowledge of CompuServe, licensees thereof, have entered (collectively, the
"International Distribution Agreements"). Each International Distribution
Agreement is valid, binding and enforceable in accordance with its terms
(assuming the other parties thereto are bound, as to which none of H&R Block,
Block Group or CompuServe has any reasonable basis to believe otherwise) and in
full force and effect, except where any such invalidity or failure to be
binding, enforceable or in full force and effect would not have a Material
Adverse Effect. Except as set forth on Schedule 3.8(c), to the knowledge of
---------------
CompuServe, no party to any International Distribution Agreement is in violation
of the terms and provisions of any such agreement, except for violations which
would not have a Material Adverse Effect.
(d) CompuServe and the CompuServe Entities have made available to
WorldCom true and complete copies of the 40 largest (based upon annualized
revenue as estimated by CompuServe) contracts and agreements with customers of
the network services business of CompuServe and the CompuServe Entities (the
"Network Services Agreements"). To the knowledge of CompuServe, each Network
Services Agreement is valid, binding and enforceable in accordance with its
terms (assuming the other parties thereto are bound, as to which none of
CompuServe, Block Group or H&R Block has any reasonable basis to believe
otherwise) and in full force and effect, except where any such invalidity or
failure to be binding, enforceable or in full force and effect would not have a
Material Adverse Effect. To the knowledge of CompuServe, and except as set forth
in Schedule 3.8(d), no party to any such Network Services Agreement is in
---------------
violation of the terms and provisions thereof, except for violations which would
not have a Material Adverse Effect.
(e) Schedule 3.8(e) contains a list of each contract between
---------------
CompuServe or any of the CompuServe Entities and a Governmental Entity which is
to be performed by or through CompuServe or a CompuServe Entity and which
accounted for at least 5% of the network services revenues of CompuServe during
the 12-month period ended April 30, 1997 (the "Government Contracts"), true and
complete copies of which have been made available to WorldCom. To the knowledge
of CompuServe, Block Group or H&R Block, all Government Contracts have been
legally awarded and are binding on the parties thereto and are not currently the
subject of protest proceedings, except as would not have a Material Adverse
Effect.
14
(f) Except as set forth on Schedule 3.8(f), no notice, consent,
---------------
waiver or approval is contemplated by or required to or from any party to the
contracts, intellectual property licenses, leases, agreements and arrangements
listed on Schedules 3.8(a) through 3.8(e) in connection with the execution and
---------------- ------
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
3.9 Accounts Receivable. Since the date of the CompuServe Balance
Sheet, neither CompuServe nor any CompuServe Entity has materially changed any
principle or practice with respect to the recordation of accounts receivable or
the calculation of reserves therefor, or any material collection, discount or
write-off policy or procedure except as required by GAAP or statutory accounting
principles.
3.10 Taxes. Except as disclosed in the CompuServe SEC Documents or as
set forth on Schedule 3.10:
-------------
(a) All federal, state, local and foreign Tax Returns required to be filed
by or on behalf of CompuServe or any CompuServe Entity have been timely filed or
requests for extension have been timely filed and any such extension has been
granted and has not expired, and all such filed Tax Returns are accurate and
complete in all material respects, except for such failures to be complete and
accurate as would not, individually or in the aggregate, have a Material Adverse
Effect;
(b) All Taxes required to be paid (including all required estimated Tax
payments and with respect to Taxes required to be withheld) by CompuServe and
any CompuServe Entity have been paid in full or adequately reserved in
accordance with GAAP on the consolidated financial statements of CompuServe,
other than any failure to pay or reserve for as would not have a Material
Adverse Effect;
(c) As of the date hereof, there is no outstanding Tax audit, inquiry or
assessment (and no written notice of any such audit or inquiry has been
received) with respect to CompuServe or any CompuServe Entity that would have a
Material Adverse Effect;
(d) There are no waivers of the statute of limitations for the assessment
or payment of any Tax by CompuServe or any CompuServe Entity that would be
material to CompuServe and the CompuServe Entities, taken as a whole, their
Online Services Business or their network services business;
(e) Neither CompuServe nor any CompuServe Entity has made any payment(s),
is obligated to make any payment(s) or is a party to any agreement that could
obligate it to make any payment(s) that, whether as a result of the Merger or
otherwise, would not be deductible under Code Section 280G or would constitute
compensation in excess of the limitation set forth in Code Section 162(m);
15
(f) Neither CompuServe nor any CompuServe Entity has executed or entered
into any closing agreement under Code Section 7121 (or any similar provision of
state, local or foreign law) or has agreed to make any adjustment to its income
or deductions pursuant to Code Section 481(a) (or similar provision of state,
local or foreign law), in either case that could affect its Tax liability after
the Closing Date to any material extent;
(g) Except as disclosed in Schedule 3.10(g), neither CompuServe nor any
----------------
CompuServe Entity is a party to a tax sharing, tax indemnity or similar
agreement (whether or not in writing);
(h) There are no Liens or Other Encumbrances with respect to Taxes upon any
of the assets or properties of CompuServe or any of the CompuServe Entities,
other than with respect to Taxes not yet due and payable;
(i) Neither CompuServe nor any CompuServe Entity has been a member of an
affiliated group (within the meaning of the Code) filing a consolidated federal
income Tax Return other than a group the common parent of which is H&R Block;
and
(j) CompuServe is and will be as of the Closing Date a member of H&R
Block's selling consolidated group as defined in Treasury Regulation Section
1.338(h)(10)-1(c)(3) and upon making a Section 338(h)(10) election will be a
Section 338(h)(10) target within Treasury Regulation Section 1.338(h)(10)-
1(c)(1).
3.11 Employee Benefit Plans; Employment Matters. (a) Except as
set forth on Schedule 3.11(a), neither CompuServe nor any CompuServe Entity has
----------------
established or maintains or is obligated to make contributions to or under or
otherwise participates in with respect to any current or former employee,
director, officer or agent of CompuServe or any of the CompuServe Entities: (i)
any stock option, restricted stock, stock appreciation rights, bonus or other
type of incentive compensation plan, program, agreement or arrangement; (ii) any
severance, pension, profit-sharing, thrift or savings, retirement, deferred
compensation, employee stock ownership, employee stock purchase or supplemental
executive retirement plan, agreement or arrangement, including, but not limited
to, those described in Section 3(2) of the ERISA; (iii) any life insurance,
death benefit, health and hospitalization, disability, cafeteria or Section 125,
employee assistance, education or tuition assistance, vacation benefit or fringe
benefit plan, or other employee benefit plan, program, agreement or arrangement,
including, but not limited to, those described in Section 3(1) of ERISA; or (iv)
any grantor trust to provide funding for non-tax-qualified employee benefits or
compensation. Except as disclosed on Schedule 3.11(a), all such plans listed on
----------------
Schedule 3.11(a) in which United States-based employees participate
----------------
(collectively, the "CompuServe Benefit Plans") have been operated and
administered in all material respects in accordance with all applicable laws,
rules and regulations, including, but not limited to ERISA and the Code (and any
similar statute of a state or other jurisdiction, domestic or foreign, if
applicable). With respect to each CompuServe Benefit Plan, CompuServe and the
CompuServe Entities have made available to WorldCom the following (to the extent
they exist with respect to such CompuServe Benefit Plan): (i) the document(s)
governing such plan, including, if applicable, the plan document, the trust
agreement, any insurance contract,
16
administrative services agreement, investment manager agreement, and any
amendments thereto; (ii) the two most recent annual reports of such plan on the
appropriate IRS Form 5500-series form; (iii) the financial statements of the
plan for the two most recent plan years, and if applicable, actuarial valuation
or other actuarial reports for the plan for the two most recent plan years; (iv)
the most recent summary plan description for the plan and any subsequent summary
of material modifications; (v) the most recent ruling letter with respect to the
tax-exempt status of any voluntary employee's beneficiary association under
Section 501(c)(9) of the Code which is implementing such plan; and (vi) for each
plan that is intended to be qualified under Section 401(a) of the Code, a copy
of the most recent IRS determination or opinion letter. Except as disclosed on
Schedule 3.11(a), and except as would not have a Material Adverse Effect, no act
----------------
or failure to act by CompuServe or any of the CompuServe Entities (i) has
resulted in a "prohibited transaction" (as defined in ERISA) with respect to the
CompuServe Benefit Plans that is not subject to a statutory or regulatory
exception; or (ii) has resulted or could reasonably be expected to result in the
imposition of any Tax, penalty or other liability in any material amount on
CompuServe or any of the CompuServe Entities pursuant to any provision of the
Code or ERISA or any other applicable law. No CompuServe Benefit Plan is subject
to Title IV of ERISA; and no circumstance exists or will exist as a result of
the consummation of the transactions contemplated by this Agreement that could
result in the existence of any Liens or Other Encumbrances on the property of
CompuServe or any of the CompuServe Entities under the provisions of Title IV of
ERISA (other than one or more Liens or Other Encumbrances that are disclosed in
Schedule 3.11(a) and would not have a Material Adverse Effect). Neither
----------------
CompuServe nor any CompuServe Entity has previously made, is currently making,
or is obligated in any way to make, any contributions to any multi-employer plan
within the meaning of Section 3(37) of ERISA. CompuServe and each CompuServe
Entity has made all contributions or payments required under the terms of or in
connection with all CompuServe Benefit Plans or has properly reserved for such
amounts on the CompuServe Balance Sheet. Except as disclosed on Schedule 3.11(a)
----------------
no CompuServe Benefit Plan provides health and hospitalization or other medical
or life insurance benefits to terminated or retired employees or independent
contractors (other than benefits mandated by applicable law). Except as set
forth on Schedule 3.11(a), neither CompuServe nor any CompuServe Entity has any
----------------
obligation or commitment (formal or informal) to create any new benefit plan or
program, or to amend any existing CompuServe Benefit Plan to increase the
benefits thereunder. CompuServe and each CompuServe Entity is in compliance with
all requirements applicable to any retirement or other employee benefit plan
maintained for its non-United States employees other than any failures to comply
that would not individually or in the aggregate have a Material Adverse Effect,
and there is no material unfunded liability with respect to any such plan which
is not properly reflected in or reserved for in the CompuServe Balance Sheet.
(b) Except as set forth on Schedule 3.11(b) or Schedule 8.17, neither
---------------- -------------
CompuServe nor any CompuServe Entity is a party to any oral or written (i)
union, guild or collective bargaining agreement which covers employees in the
United States (nor is CompuServe or H&R Block aware of any union organizing
activity currently being conducted in respect to any of CompuServe's or any
CompuServe Entity's employees), (ii) agreement with any director, officer,
employee or agent the material benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction of the nature
contemplated by this
17
Agreement or which provides for any payment or payments (including any
severance, unemployment compensation, golden parachute, bonus or otherwise) of
more than an aggregate of $50,000 to such officer or employee upon such
occurrence, or (iii) agreement or plan, including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, or with respect to vesting, will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement.
(c) Neither any of the companies with which CompuServe is a member of
a "controlled group" within the meaning of Section 1563(a) of the Code nor any
administrator or fiduciary of any employee benefit plan adopted by a member of
such controlled group (or any agent of any of the foregoing) has engaged in any
transaction or acted or failed to act in a manner which is reasonably likely to
subject WorldCom to any material liability (to individuals, the IRS, the Pension
Benefit Guaranty Corporation, or any other party) for breach of fiduciary
duties, accumulated funding deficiencies, termination or other liability under
ERISA, the Code, or any other applicable laws.
3.12 Compliance with Laws; Permits. (a) Except as disclosed in
the CompuServe SEC Documents or on Schedule 3.12, neither CompuServe nor any
-------------
CompuServe Entity has violated, failed to comply with or acted or failed to act
in any material respect so as to incur liability under any federal, state, local
or foreign law, regulation or ordinance, judgment, decree or order relating to
its business, operations, properties or assets including the Occupational Safety
and Health Act, the Americans with Disabilities Act, export control laws, and
any Environmental Laws, except where a violation, action or failure to act would
not have a Material Adverse Effect, and no notice of any pending investigation
or violation of, non-compliance with or alleged liability under, any such law,
regulation, ordinance, judgment, decree or order has been received by H&R Block,
any H&R Block Entity, CompuServe or any CompuServe Entity which, if it were
determined that a violation had occurred, would have a Material Adverse Effect.
(b) CompuServe and each CompuServe Entity possess all Governmental
Authorizations necessary to enable it to conduct its business as presently
conducted, except for those Governmental Authorizations the failure to possess
which would not have a Material Adverse Effect. All such Governmental
Authorizations are valid and in full force and effect, except for those
authorizations the failure of which to be valid and in full force and effect
would not have a Material Adverse Effect. CompuServe and each CompuServe Entity
is, and at all times since May 1, 1995 has been, in compliance with the terms
and requirements of each such Governmental Authorization, except where the
failure to be so in compliance would not have a Material Adverse Effect. Since
May 1, 1995, neither CompuServe nor any CompuServe Entity has received any
notice or other communication from any Governmental Entity asserting (a) any
violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (b) any revocation, withdrawal, suspension,
cancellation, termination or modification of any Governmental Authorization,
except where any such violation, failure to comply, revocation, withdrawal,
suspension, cancellation, termination or modification would not have a Material
Adverse Effect.
18
3.13 Patents, Trademarks, Etc. (a) Except as disclosed on
Schedule 3.13 hereto, CompuServe and the CompuServe Entities own, free and clear
-------------
of all Liens or Other Encumbrances, and have the exclusive right to use, sell,
license or dispose of or otherwise has rights to use, such patents, copyrights,
trademarks, service marks, and applications and registrations therefor, and
trade names, trade secrets, customer lists, proprietary technology processes and
formulae, source code, object code, know-how, inventions, other confidential and
proprietary information, and other intellectual property rights as are necessary
to permit CompuServe and the CompuServe Entities to carry on their business as
currently conducted (the "CompuServe Rights"), except for failures to own free
and clear, license to use or otherwise have sufficient rights to use as would
not have a Material Adverse Effect. Schedule 3.13 sets forth all registered
-------------
patents, copyrights, trademarks and service marks of CompuServe and the
CompuServe Entities included in the CompuServe Rights, all of which are in full
force and effect and are not subject to any Taxes or maintenance fees, except as
set forth on Schedule 3.13 or except where the failure to be in full force or
-------------
effect or to be so subject would not have a Material Adverse Effect. Except as
set forth on Schedule 3.13, neither CompuServe nor any of the CompuServe
-------------
Entities has licensed or granted to anyone the right to use the name
"CompuServe" or any other name associated with or used by CompuServe or the
CompuServe Entities. Except as set forth on Schedule 3.13, (i) neither
-------------
CompuServe nor any of the CompuServe Entities has licensed or granted to anyone
rights of any nature to use any CompuServe Rights that would limit the exercise
of such CompuServe Rights by CompuServe or any of the CompuServe Entities
against such licensee or grantee if such licensee or grantee were to use the
property protected by such CompuServe Rights in direct or potential competition
with CompuServe or the CompuServe Entities or that would limit CompuServe or any
of the CompuServe Entities from using, selling, licensing or disposing of the
CompuServe Rights in any market or geographic region, including in direct
competition with any licensee of such CompuServe Rights in such geographic
region; and (ii) neither CompuServe nor any of the CompuServe Entities is
obligated or pays royalties, fees or other payments to anyone for use of any
individual CompuServe Right in an amount exceeding $2,000,000 annually; and
(iii) neither CompuServe nor any of the CompuServe Entities has received notice
from any third party, to the knowledge of CompuServe, that any of the CompuServe
Rights or any services or products marketed or sold by CompuServe or any of the
CompuServe Entities violates any intellectual property right of a third party,
except for such violations as would not have a Material Adverse Effect; and (iv)
to the knowledge of CompuServe, none of the CompuServe Rights or any services or
products marketed or sold by CompuServe or any of the CompuServe Entities
violates any intellectual property rights of any third parties, except for such
violations as would not have a Material Adverse Effect. To the knowledge of
CompuServe, there exists no infringement by any third party of any of the
CompuServe Rights that would have a Material Adverse Effect and there is no
pending or, to the knowledge of CompuServe threatened claim or litigation
against CompuServe or any of the CompuServe Entities contesting its use of any
of the CompuServe Rights, asserting the misuse of any of the CompuServe Rights,
or asserting the infringement or other violation of any rights of a third party,
nor, to the knowledge of CompuServe, is there any reasonable basis for any such
claim, where, in any such case, individually or in the aggregate, such
infringement, claim or litigation would have a Material Adverse Effect.
19
(b) All copyrightable works, inventions and know-how conceived by
employees or independent contractors of CompuServe or any CompuServe Entity
within the scope of their employment or retention, as the case may be, and
related to the business of CompuServe or any CompuServe Entity were and are
"works for hire" or if they were or are not, then all right, title, and interest
therein were transferred and assigned to, or vested in, CompuServe or any
CompuServe Entity, except where the failure to be "works for hire" or to have
been so transferred assigned or vested would not have a Material Adverse Effect.
(c) Except as set forth on Schedule 3.13, the consummation of the
-------------
transactions contemplated by this Agreement will not alter, impair or extinguish
any of the CompuServe Rights, the alteration, impairment or extinguishing of
which would have a Material Adverse Effect. Except as set forth on Schedule
--------
3.13, upon the consummation of the transactions contemplated hereby, CompuServe
----
or a CompuServe Entity will own, free and clear of all Liens or Other
Encumbrances, and have the exclusive right to use, sell, license or dispose of
or otherwise will have rights to use, the CompuServe Rights, except for such
exceptions as would not have a Material Adverse Effect and except for such
CompuServe Rights that will expire or terminate by their terms prior to the
consummation of the transactions contemplated by this Agreement.
3.14 Labor Matters. Neither CompuServe nor any CompuServe Entity
is the subject of any proceeding (a) asserting that CompuServe or a CompuServe
Entity has committed an unfair labor practice or (b) seeking to compel
CompuServe or any of the CompuServe Entities to bargain with a labor union or
labor organization, and there are no pending or, to the knowledge of CompuServe,
threatened, nor has there been for the past five (5) years any, labor strike,
dispute, walkout, work stoppage, slow-down or lockout involving CompuServe or
any of the CompuServe Entities, except in each case as did not or would not have
a Material Adverse Effect.
3.15 Insurance. Each of CompuServe and the CompuServe Entities has
obtained and maintains in full force and effect insurance with responsible and
reputable insurance companies or associations in such amounts, on such terms and
covering such risks, including fire and other risks insured against by extended
coverage, as is reasonably deemed necessary by CompuServe, and each has
maintained in full force and effect public liability insurance, insurance
against claims for personal injury or death or property damage occurring in
connection with the activities of CompuServe or the CompuServe Entities or any
properties owned, occupied or controlled by CompuServe, or the CompuServe
Entities, except for failures to obtain or maintain as would not have a Material
Adverse Effect.
3.16 Rights Agreement. CompuServe has effected an amendment to the
CompuServe Rights Agreement with the effect that (a) (i) neither WorldCom nor
WAC will be deemed to be an "Acquiring Person" (as defined in the CompuServe
Rights Agreement), (ii) neither the "Shares Acquisition Date" nor the
"Distribution Date" (each as defined in the CompuServe Rights Agreement) will be
deemed to occur, and (iii) the "Rights" (as defined in the CompuServe Rights
Agreement) will not separate from the CompuServe Common Shares, in any such
event as a result of the execution, delivery or performance of this Agreement,
the Stockholders
20
Agreement or any other agreement provided for herein or therein or the taking of
any action provided for herein or therein; and (b) effective upon the Effective
Time, the CompuServe Rights Agreement will terminate and the Rights shall be of
no further force or effect.
3.17 Commissions and Fees. Except for fees payable to Xxxxxxx,
Xxxxx & Co. pursuant to the terms of the letter agreement between CompuServe and
Xxxxxxx, Sachs & Co., the amount of and payment schedule for which have been
communicated to WorldCom, there are no claims for brokerage commissions,
investment bankers' fees or finder's or similar fees in connection with the
transactions contemplated by this Agreement and the Stockholders Agreement which
may be now or hereafter asserted against WorldCom, WAC, CompuServe or any of the
CompuServe Entities resulting from any action taken by CompuServe, any
CompuServe Entity, H&R Block or any H&R Block Entity or their stockholders,
directors, officers, employees or agents.
3.18 Vote Required. The affirmative vote of the holders of a
majority of the CompuServe Common Shares (Block Group being the majority
stockholder of CompuServe) is the only vote of the holders of any class or
series of CompuServe's capital stock necessary to approve and adopt this
Agreement and consummate the transactions contemplated by this Agreement.
3.19 Opinion of Financial Advisor. CompuServe has received the
written opinion of its financial advisors, Xxxxxxx, Xxxxx & Co., to the effect
that, as of the date hereof, the Exchange Ratio is fair to the holders of
CompuServe Common Shares, other than H&R Block.
3.20 Takeover Statutes. The Board of Directors of CompuServe has
taken all necessary actions so that the restrictions contained in Section 203 of
the DGCL will not apply to the execution, delivery or performance of this
Agreement or the Stockholders Agreement by CompuServe, H&R Block, WorldCom or
WAC or the consummation of the Merger and the transactions contemplated hereby
or thereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES REGARDING H&R BLOCK
H&R Block hereby makes the following representations and warranties to
WorldCom and WAC:
4.1 Organization, Existence and Good Standing. H&R Block is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Missouri and has all necessary corporate power and authority to
own, lease, operate and transfer its properties and to conduct its business as
currently conducted. H&R Block has made available to WorldCom complete and
correct copies of its Restated Articles of Incorporation and Bylaws as amended
to the date of this Agreement.
21
4.2 H&R Block Ownership of Capital Stock. H&R Block owns, beneficially
and of record, the issued and outstanding shares of capital stock or other
securities of or interests in Block Group, all of which shares or other
securities or interests are duly authorized, validly issued and outstanding,
fully paid and nonassessable, and free and clear of all Liens or Other
Encumbrances. As of the date of this Agreement, except as set forth on Schedule
--------
4.2, there are no pre-emptive rights, options, warrants or similar rights
---
granted by H&R Block or any H&R Block Entity in respect of shares of capital
stock or other securities of or interests in CompuServe or the CompuServe
Entities or any agreements to which H&R Block or any H&R Block Entity is a party
providing for the issuance or sale by H&R Block or a H&R Block Entity of capital
stock or other securities of or interests in CompuServe or any CompuServe
Entity.
4.3 Power and Authority; Non-Contravention; Filings and Consents"""".
(a) H&R Block has full corporate power and authority to execute, deliver and
perform its obligations under this Agreement, the Stockholders Agreement, and
the Standstill Agreement and all agreements and other documents executed and
delivered, or to be executed and delivered, by it pursuant to this Agreement,
the Stockholders Agreement, and the Standstill Agreement and has taken all
action required by law, its Articles of Incorporation, its Bylaws or otherwise,
to duly and validly authorize the execution, delivery and performance of this
Agreement, the Stockholders Agreement, and the Standstill Agreement and such
related documents and the consummation of the transactions contemplated hereby
and thereby. The execution and delivery of, and the performance of its
obligations under, this Agreement, the Stockholders Agreement, and the
Standstill Agreement by H&R Block do not and the consummation of the
transactions contemplated by this Agreement, the Stockholders Agreement, and the
Standstill Agreement will not (i) conflict with or violate any provisions of the
Restated Articles of Incorporation or Bylaws of H&R Block; or (ii) constitute a
breach of or default under or result in the creation of any Liens or Other
Encumbrances or Tax on or against, any assets, rights or property of H&R Block,
CompuServe or any of the CompuServe Entities or give rise, with or without
notice or lapse of time, to any third-party right of termination, cancellation,
material modification or acceleration under any note, bond, mortgage, pledge,
lien, lease, agreement, license, commitment or instrument, applicable to H&R
Block, CompuServe or any of the CompuServe Entities, or to which H&R Block,
CompuServe or any of the CompuServe Entities is a party or by which H&R Block,
CompuServe or any of the CompuServe Entities or any of their respective assets
is or are bound, or conflict with or violate any restrictions of any kind to
which they are subject, which breach, default, lien, encumbrance, Tax,
termination, cancellation, modification or acceleration would have a Material
Adverse Effect on CompuServe or which would prevent or materially delay the
consummation of the transactions contemplated by this Agreement, the
Stockholders Agreement, and the Standstill Agreement or otherwise prevent H&R
Block from performing its obligations hereunder or thereunder in any material
respect; or (iii) subject to obtaining the consents, approvals, orders,
authorizations and registrations, and making the filings described in Section
4.2(b) below, violate any law, order, writ, judgment, award, statute, rule,
regulation or decree of any Governmental Entity or arbitrator, which, if
violated or accelerated, would have a Material Adverse Effect on CompuServe or
which would prevent or materially delay the consummation of the transactions
contemplated by this Agreement, the Stockholders Agreement, and the Standstill
Agreement or otherwise prevent H&R Block from performing its obligations
hereunder or thereunder in any material respect. The execution, delivery and
performance of this
22
Agreement, the Stockholders Agreement, and the Standstill Agreement have been
approved by the Board of Directors of H&R Block. This Agreement, the
Stockholders Agreement, and the Standstill Agreement have been duly executed and
delivered by H&R Block and, assuming this Agreement, the Stockholders Agreement,
and the Standstill Agreement constitute valid and binding obligations of
WorldCom, enforceable against WorldCom in accordance with their respective
terms, constitute valid and binding obligations of H&R Block, enforceable
against H&R Block in accordance with their respective terms.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required to be obtained,
made or filed by H&R Block in connection with the execution and delivery of this
Agreement, the Stockholders Agreement, and the Standstill Agreement by H&R Block
or the performance by H&R Block of its obligations hereunder, except for (i) the
filing of a premerger notification and report form by H&R Block under the HSR
Act, (ii) filings with and, where required, approval by one or more non-U.S.
competition or antitrust regulatory bodies, (iii) the filing with the SEC of
such reports under the Exchange Act, as may be required in connection with this
Agreement, the Stockholders Agreement, and the Standstill Agreement and the
transactions contemplated by this Agreement hereby and thereby, and (iv) such
consents, approvals, orders, authorizations, registrations, declarations, or
filings the failure of which to be obtained, made or filed would not (A) impair
in any material respect the ability of H&R Block to perform its obligations
hereunder, (B) prevent or impede, in any material respect, the consummation of
the transactions contemplated by this Agreement, the Stockholders Agreement, and
the Standstill Agreement, or (C) have a Material Adverse Effect on CompuServe.
4.4 Taxes. Except as disclosed in the H&R Block SEC Documents or as or
set forth on Schedule 4.4:
------------
(a) All federal, state, local and foreign Tax Returns required to be filed
by or on behalf of H&R Block or any H&R Block Entity have been timely filed or
requests for extensions have been timely filed and any such extension has been
granted and has not expired, and all such filed tax returns are accurate and
complete in all material respects, except for such failures to file and/or to be
complete and accurate as would not, individually or in the aggregate, have a
Material Adverse Effect on CompuServe or any CompuServe Entity;
(b) All Taxes required to be paid (including with respect to Taxes required
to be withheld) by H&R Block and any H&R Block Entity as of the date of the H&R
Block SEC documents have been paid in full or adequately reserved against in
accordance with GAAP on the consolidated financial statements of H&R Block other
than any failure to pay or reserve for as would not have a Material Adverse
Effect on CompuServe or any CompuServe Entity; and
(c) As of the date hereof, there is no outstanding Tax audit, inquiry or
assessment (and no written notice of any such audit or inquiry has been
received), with respect to H&R Block or any H&R Block Entity that, individually
or in the aggregate, would have a Material Adverse Effect on CompuServe or any
CompuServe Entity.
23
4.5 Assets and Employees Used in CompuServe's Business. ' (a)
Except as set forth on Schedule 4.5(a), neither H&R Block nor any H&R Block
---------------
Entity owns, leases, holds, possesses or controls any interests, assets or
rights which are principally used in or principally related to the business of
CompuServe or any of the CompuServe Entities, whether tangible or intangible,
and whether fixed, contingent or otherwise, including contracts, contractual
rights, licenses and intellectual property rights (which, if owned by CompuServe
or a CompuServe Entity, would constitute a CompuServe Right) principally used in
or principally related to the business of CompuServe and the CompuServe
Entities; provided, however, that such interests, assets or rights shall not
include (x) assets held under any H&R Block employee benefit plans, such as life
insurance policies and deferred compensation plans for the benefit of CompuServe
Employees, or (y) any other H&R Block insurance policy (except, in the case of
clauses (x) and (y), any pre-paid benefits or coverage under insurance policies
which inure to CompuServe or any of the CompuServe Entities and coverage with
respect to such policies for accrued or past claims or losses). Except as set
forth in Schedule 4.5(a), no employees of H&R Block or any H&R Block Entity are
---------------
used in the business of or provide services to CompuServe or any CompuServe
Entity. All of the interests, assets or rights set forth on Schedule 4.5(a)
---------------
will be transferred and contributed for no additional consideration to
CompuServe or a CompuServe Entity at or prior to the Closing, as directed by
WorldCom, pursuant to Section 2.1 hereof.
(b) Schedule 4.5(b) sets forth all interests, assets and rights,
---------------
whether tangible or intangible, and whether fixed, contingent or otherwise,
which H&R Block or any H&R Block Entity owns, leases, holds, possesses, or
controls which are used in or related to the business of CompuServe and the
CompuServe Entities, except for any such interests, assets or rights set forth
on Schedule 4.5(a). None of the interests, assets or rights set forth on
---------------
Schedule 4.5(b) is Material to CompuServe.
---------------
4.6 Legal Proceedings"""". Except as set forth on Schedule 4.6,
------------
there is no action, suit, claim, demand, proceeding or investigation pending or
to the knowledge of H&R Block, threatened against H&R Block or any H&R Block
Entity or affecting the transactions contemplated by this Agreement which, if
resolved adversely to H&R Block or such H&R Block Entity, could prevent or
materially delay the consummation of the transactions contemplated by this
Agreement and the Stockholders Agreement.
4.7 Rights Agreement. """" Under the terms of the H&R Block Rights
Agreement, (i) neither WorldCom nor WAC will be deemed to be an "Acquiring
Person" (as defined in the H&R Block Rights Agreement), (ii) neither the "Stock
Acquisition Date" nor the "Distribution Date" (each as defined in the H&R Block
Rights Agreement) will be deemed to occur, and (iii) the "Rights" (as defined in
the H&R Block Rights Agreement) will not separate from the H&R Block Common
Shares, in any such event as a result of the execution, delivery or performance
of this Agreement, the Stockholders Agreement, the Standstill Agreement or any
other agreement provided for herein or therein or the taking of any action
provided for herein or therein.
4.8 Commissions and Fees. Except for fees payable to Xxxxxxx,
Xxxxx & Co. pursuant to the terms of the letter agreement between CompuServe and
Xxxxxxx, Sachs & Co., the amount of and payment schedule for which have been
communicated to WorldCom, there are
24
no claims for brokerage commissions, investment bankers' fees or finder's or
similar fees in connection with the transactions contemplated by this Agreement
and the Stockholders Agreement which may be now or hereafter asserted against
WorldCom, WAC, CompuServe or any of the CompuServe Entities resulting from any
action taken by H&R Block or any H&R Block Entity or their stockholders,
directors, officers, employees or agents.
4.9 Opinion of Financial Advisor. H&R Block has received the
written opinion of its financial advisors, Salomon Brothers Inc, to the effect
that, as of the date hereof, the Merger Consideration is fair to H&R Block. H&R
Block will be solely responsible for the payment of the fees of Salomon Brothers
Inc. in connection with such opinion, this Agreement, the Stockholders Agreement
and the transactions contemplated hereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES REGARDING BLOCK GROUP
Block Group hereby makes the following representations and warranties to
WorldCom and WAC:
5.1 Organization, Existence and Good Standing. Block Group is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all necessary corporate power and authority to
own, lease, operate and transfer its properties and to conduct its business as
currently conducted. Block Group has made available to WorldCom complete and
correct copies of its Certificate of Incorporation and Bylaws as amended to the
date of this Agreement.
5.2 Block Group Ownership of CompuServe Entities' Capital Stock. Block
Group owns, beneficially and of record, the issued and outstanding shares of
capital stock or other securities of or interests in CompuServe and the
CompuServe Entities as set forth on Schedule 5.2, all of which shares or other
------------
securities or interests are duly authorized, validly issued and outstanding,
fully paid and nonassessable, and free and clear of all Liens or Other
Encumbrances.
5.3 Power and Authority; Non-Contravention; Filings and Consents"""".
(a) Block Group has full corporate power and authority to execute, deliver and
perform its obligations under this Agreement, the Stockholders Agreement, and
the Standstill Agreement and all agreements and other documents executed and
delivered, or to be executed and delivered, by it pursuant to this Agreement,
the Stockholders Agreement, and the Standstill Agreement and has taken all
action required by law, its Certificate of Incorporation, its Bylaws or
otherwise, to duly and validly authorize the execution, delivery and performance
of this Agreement, the Stockholders Agreement, and the Standstill Agreement and
such related documents and the consummation of the transactions contemplated
hereby and thereby. The execution and delivery of, and the performance of its
obligations under, this Agreement, the Stockholders Agreement, and the
Standstill Agreement by Block Group do not and the consummation of the
transactions
25
contemplated by this Agreement, the Stockholders Agreement, and the
Standstill Agreement will not (i) conflict with or violate any provisions of the
Certificate of Incorporation or Bylaws of Block Group; (ii) constitute a breach
of or default under or result in the creation of any Liens or Other Encumbrances
or Tax on or against, any assets, rights or property of CompuServe or any of the
CompuServe Entities or give rise, with or without notice or lapse of time, to
any third-party right of termination, cancellation, material modification or
acceleration under any note, bond, mortgage, pledge, lien, lease, agreement,
license, commitment or instrument, applicable to CompuServe or any of the
CompuServe Entities, or to which CompuServe or any of the CompuServe Entities is
a party or by which CompuServe or any of the CompuServe Entities or any of their
respective assets is or are bound, or conflict with or violate any restrictions
of any kind to which they are subject, which breach, default, lien, encumbrance,
Tax, termination, cancellation, modification or acceleration would have a
Material Adverse Effect on CompuServe or which would prevent or materially delay
the consummation of the transactions contemplated by this Agreement, the
Stockholders Agreement, and the Standstill Agreement or otherwise prevent Block
Group from performing its obligations hereunder or thereunder in any material
respect; or (iii) subject to obtaining the consents, approvals, orders,
authorizations and registrations, and making the filings described in Section
5.2(b) below, violate any law, order, writ, judgment, award, statute, rule,
regulation or decree of any Governmental Entity or arbitrator, which, if
violated or accelerated, would have a Material Adverse Effect on CompuServe or
which would prevent or materially delay the consummation of the transactions
contemplated by this Agreement, the Stockholders Agreement, and the Standstill
Agreement or otherwise prevent Block Group from performing its obligations
hereunder or thereunder in any material respect. The execution, delivery and
performance of this Agreement, the Stockholders Agreement, and the Standstill
Agreement have been approved by the Board of Directors and the sole stockholder
of Block Group. This Agreement, the Stockholders Agreement, and the Standstill
Agreement have been duly executed and delivered by Block Group and, assuming
this Agreement, the Stockholders Agreement, and the Standstill Agreement
constitute valid and binding obligations of WorldCom and WAC, enforceable
against WorldCom and WAC in accordance with their respective terms, constitute
valid and binding obligations of Block Group, enforceable against Block Group in
accordance with their respective terms.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required to be obtained,
made or filed by Block Group in connection with the execution and delivery of
this Agreement, the Stockholders Agreement, and the Standstill Agreement by
Block Group or the performance by Block Group of its obligations hereunder,
except for (i) the filing with the SEC of such reports under the Exchange Act,
as may be required in connection with this Agreement, the Stockholders
Agreement, and the Standstill Agreement and the transactions contemplated by
this Agreement, and (ii) such consents, approvals, orders, authorizations,
registrations, declarations, or filings the failure of which to be obtained,
made or filed would not (A) impair in any material respect the ability of Block
Group to perform its obligations hereunder, (B) prevent or impede, in any
material respect, the consummation of the transactions contemplated by this
Agreement and the Stockholders Agreement, or (C) have a Material Adverse Effect
on CompuServe.
26
5.4 Legal Proceedings. Except as set forth on Schedule 5.4,
------------
there is no action, suit, claim, demand, proceeding or investigation pending or
to the knowledge of Block Group, threatened against Block Group or affecting the
transactions contemplated by this Agreement which, if resolved adversely to
Block Group, could prevent or materially delay the consummation of the
transactions contemplated by this Agreement and the Stockholders Agreement.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES REGARDING WORLDCOM
WorldCom hereby makes the following representations and warranties to H&R
Block, Block Group and CompuServe:
6.1 Organization, Existence and Good Standing. WorldCom is a
corporation duly organized, and validly existing and in good standing under the
laws of the State of Georgia and has all necessary corporate power and authority
to own, lease and operate its properties and to conduct its business as
currently conducted. Each WorldCom Entity is duly organized, validly existing
and, to the extent such concept is applicable under the laws of such
jurisdictions, in good standing in its respective jurisdiction of organization,
and has all necessary corporate power to own, lease and operate its properties
and to carry on its business as currently conducted, except where the failure to
be so organized, existing and in good standing or to have such power and
authority would not have a Material Adverse Effect. WorldCom and each WorldCom
Entity is duly qualified to do business and, to the extent such concept is
applicable in such jurisdictions, is in good standing in each jurisdiction in
which the properties owned, leased or operated by it or the nature of the
business conducted by it makes qualification necessary, except where the failure
to be so duly qualified and in good standing would not have a Material Adverse
Effect. WorldCom has made available to H&R Block and CompuServe complete and
correct copies of its Second Amended and Restated Articles of Incorporation, as
amended, and Bylaws, as amended.
6.2 WorldCom Capital Stock. The authorized capital stock of
WorldCom consists of (i) 2,500,000,000 WorldCom Common Shares, of which, as of
September 3, 1997, 905,153,690 shares were issued and outstanding, and no shares
were issued and held as treasury shares, and (ii) 50,000,000 shares of Preferred
Stock, par value $.01 per share ("WorldCom Preferred Stock"), of which 94,992
shares are designated Series A 8% Cumulative Convertible Preferred Stock (94,992
of which shares were issued and outstanding as of September 3, 1997), 15,000,000
shares are designated Series B Convertible Preferred Stock (12,461,640 of which
shares were issued and outstanding as of September 3, 1997), and 2,500,000
shares are designated Series 3 Junior Participating Preferred Stock in
connection with the WorldCom Rights Agreement (none of which shares are issued
and outstanding as of September 3, 1997). All of the issued and outstanding
WorldCom Common Shares and shares of WorldCom Preferred Stock are duly
authorized, validly issued, fully paid and non-assessable. As of September 3,
1997, WorldCom Stock Options to purchase an aggregate of 81,876,997 WorldCom
Common Shares were
27
outstanding under WorldCom's stock plans (the "WorldCom Stock Plans").
Except as provided herein and except for WorldCom Common Shares issued
or WorldCom Stock Options granted or awarded after September 3, 1997, pursuant
to the terms of the WorldCom Stock Plans, as of the date of this Agreement there
are no preemptive rights, options, warrants, or similar rights granted by
WorldCom in respect of shares of WorldCom capital stock or any other agreements
to which WorldCom is a party providing for the issuance or sale by it of any
additional securities, nor are there outstanding any WorldCom debt securities or
other instruments issued by WorldCom or to which WorldCom is a party entitling
the holders thereof to vote or to direct or otherwise restrict the vote of the
holders of WorldCom Common Shares or which are convertible into or exchangeable
for any voting securities of WorldCom. As of the date hereof, except as set
forth on Schedule 6.2, neither WorldCom, nor any WorldCom Entity, nor to the
------------
knowledge of WorldCom, any shareholder of WorldCom is a party to any voting
trust, voting agreement, proxy or similar agreements relating to the WorldCom
Common Shares. As of the date of this Agreement, except for WorldCom Common
Shares reserved for issuance upon the exercise of warrants and stock options
granted or which may be granted under the WorldCom Stock Plans, an aggregate of
2,500,000 shares of Series 3 Junior Participating Preferred Stock reserved for
issuance in connection with the WorldCom Rights Agreement (and WorldCom Common
Shares to which a rights holder may become entitled in certain circumstances to
purchase under the WorldCom Rights Agreement), and an aggregate of 33,916,930
WorldCom Common Shares reserved for issuance pursuant to conversion of the
Series A 8% Cumulative Convertible Preferred Stock and the Series B Convertible
Preferred Stock, there are no shares of authorized capital stock of WorldCom
reserved for issuance. As of the date hereof, there is no liability for or
obligations with respect to any dividends declared or accumulated but unpaid
with respect to any shares of WorldCom capital stock.
6.3 Power and Authority; Non-Contravention; Filings and Consents.
(a) WorldCom has full corporate power and authority to execute, deliver and
perform its obligations under this Agreement, the Stockholders Agreement, and
all agreements and other documents executed and delivered, or to be executed and
delivered, by it pursuant to this Agreement and the Stockholders Agreement, and
has taken all action required by law, its Second Amended and Restated Articles
of Incorporation, its Bylaws or otherwise, to duly and validly authorize the
execution and delivery of, and the performance of its obligations under, this
Agreement, the Stockholders Agreement, and the Standstill Agreement, and such
related documents and the consummation of the transactions contemplated hereby
and thereby. The execution and delivery of and the performance of its
obligations under this Agreement, the Stockholders Agreement, and the Standstill
Agreement do not and the consummation of the transactions contemplated by this
Agreement, the Stockholders Agreement, and the Standstill Agreement will not (i)
conflict with or violate any provisions of the Second Amended and Restated
Articles of Incorporation or Bylaws of WorldCom, (ii) constitute a breach of or
default under or result in the creation of any Lien or Other Encumbrances or Tax
on or against, any assets, rights or property of WorldCom or give rise, with or
without notice or lapse of time, to any third-party right of termination,
cancellation, material modification or acceleration under any note, bond,
mortgage, pledge, lien, lease, agreement, license, commitment or instrument,
applicable to WorldCom or any WorldCom Entity, or to which WorldCom or any
WorldCom Entity is a party or by which WorldCom or any WorldCom Entity is bound,
or conflict with or violate any restrictions of any kind to which they
28
are subject, which breach, default, lien, encumbrance, Tax, termination,
cancellation, modification or acceleration would have a Material Adverse Effect,
or which would prevent or materially delay the consummation of the transactions
contemplated by this Agreement, the Stockholders Agreement, and the Standstill
Agreement or otherwise prevent WorldCom from performing its obligations
hereunder in any material respect, or (iii) subject to obtaining the consents,
approvals, orders, authorizations and registrations, and making the filings
described in Section 6.3(b) below, violate any law, order, writ, judgment,
award, statute, rule, regulation or decree of any Governmental Entity or
arbitrator, which, if violated or accelerated, would have a Material Adverse
Effect or which would prevent or materially delay the consummation of the
transactions contemplated by this Agreement or otherwise prevent WorldCom from
performing its obligations hereunder in any material respect. The execution and
delivery of this Agreement, the Stockholders Agreement, and the Standstill
Agreement have been approved by the Board of Directors of WorldCom. This
Agreement, the Stockholders Agreement, and the Standstill Agreement have been
duly executed and delivered by WorldCom and, assuming this Agreement, the
Stockholders Agreement, and the Standstill Agreement constitute valid and
binding obligations of H&R Block, Block Group and CompuServe, enforceable
against them in accordance with their respective terms, constitute valid and
binding obligations of WorldCom, enforceable against WorldCom in accordance with
its terms.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required to be obtained,
made or filed by WorldCom or any WorldCom Entity in connection with the
execution and delivery of this Agreement by WorldCom or the consummation by
WorldCom of the transactions contemplated hereby, except for (i) the filing of a
pre-merger notification and report form by WorldCom under the HSR Act, (ii)
filings with and, where required, approval by one or more non-U.S. competition
or antitrust regulatory bodies, (iii) filings with the SEC of (x) the
Registration Statement and related prospectus and (y) such reports under the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (iv) the filing of such notices and
other reports as may be required by any applicable securities or "blue sky" laws
of states or other jurisdictions, and (v) such consents, approvals, orders,
authorizations, registrations, declarations, or filings the failure of which to
be obtained, made or filed would not (A) impair in any material respect the
ability of WorldCom to perform its obligations hereunder, (B) prevent or impede,
in any material respect, the consummation of the transactions contemplated by
this Agreement, or (C) have a Material Adverse Effect on WorldCom.
6.4 WorldCom SEC Documents; Financial Information. WorldCom has
filed with the SEC all reports, proxy statements, forms, and other documents
required to be filed therewith prior to the date of this Agreement (the
"WorldCom SEC Documents") and, as of the Closing Date, WorldCom shall have filed
with the SEC all WorldCom SEC Documents required to be filed prior thereto. As
of their respective dates, (i) the WorldCom SEC Documents complied, and all
similar documents filed with the SEC after the date of this Agreement but prior
to the Closing Date will comply, in all material respects, with the requirements
of the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such WorldCom SEC
Documents and (ii) none of the WorldCom SEC Documents contained, nor will any
similar document filed after the date of this Agreement but
29
prior to the Closing Date contain, any untrue statement of a material fact and
none of the WorldCom SEC Documents omitted, nor will any similar document filed
after the date of this Agreement but prior to the Closing Date omit, to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements (including any related notes and
schedules) of WorldCom included in the WorldCom SEC Documents (including any
similar documents filed with the SEC after the date of this Agreement but prior
to the Closing Date) comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto and have been or will be prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Form 10-Q under
the Exchange Act) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position of WorldCom and its
consolidated subsidiaries (including all applicable WorldCom Entities) as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then-ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Nothing in this Section 6.4 shall constitute
a representation or warranty by WorldCom to the extent that any untrue
statement, omission or failure to comply results from information supplied by
H&R Block, Block Group or CompuServe to WorldCom for inclusion in any documents
filed by WorldCom with the SEC. Except as disclosed in the WorldCom SEC
Documents, and except for liabilities and obligations incurred in the ordinary
course of business consistent with past practice since the date of the most
recent consolidated balance sheet included in the WorldCom SEC Documents (the
"WorldCom Balance Sheet"), neither WorldCom nor any WorldCom Entity has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) which would be required by GAAP to be set forth on a consolidated
balance sheet of WorldCom and its consolidated subsidiaries or in the notes
thereto that are not so included or disclosed and which would reasonably be
expected to have a Material Adverse Effect.
6.5 Subsequent Material Adverse Change. Except as disclosed in the
WorldCom SEC Documents or as otherwise permitted hereunder, through the date
hereof (i) WorldCom has not, since the date of the WorldCom Balance Sheet,
suffered any Material Adverse Change, and (ii) no event has occurred which would
prevent or materially impair WorldCom's ability to perform its obligations
hereunder.
6.6 Legal Proceedings. Except as set forth in the WorldCom
disclosure letter of even date herewith or disclosed in the WorldCom SEC
Documents, there is no action, suit, claim, demand, proceeding or investigation
pending or, to the knowledge of WorldCom, threatened against WorldCom or any of
the WorldCom Entities or affecting the consummation by WorldCom of the
transactions contemplated hereby which, if resolved adversely to WorldCom or any
of the WorldCom Entities, would have a Material Adverse Effect or which could
prevent or materially delay the consummation of the transactions contemplated by
this Agreement and the Stockholders Agreement. There are no Material judgments,
decrees, injunctions or orders of any Governmental Entity or arbitrator against
WorldCom or any WorldCom Entity.
30
6.7 Taxes. Except as disclosed in the WorldCom SEC Documents or as
set forth on Schedule 6.7: (i) WorldCom has filed all Material Tax Returns
------------
required to be filed by it or requests for extensions to file such returns or
reports have been timely filed and granted and have not expired, except to the
extent that such failures to file, taken together, would not have a Material
Adverse Effect; (ii) all Taxes required to be paid by WorldCom have been paid or
adequately reserved in accordance with GAAP in the financial statements of
WorldCom other than the failure to pay or reserve as would not have a Material
Adverse Effect; (iii) WorldCom has not been notified that any Tax Returns of
WorldCom are currently under audit by the IRS or, except for Tax Returns that
are not Material to WorldCom or do not involve any Material amounts of Taxes
shown to be due on any Returns, any state, local or foreign Tax agency; and (iv)
there are no waivers of the statute of limitations for the assessment or payment
of any federal, state, local or foreign Taxes by WorldCom that would be Material
to WorldCom.
6.8 Compliance with Laws in General. Except as disclosed in the
WorldCom SEC Documents, neither WorldCom nor any WorldCom Entity has violated,
failed to comply with or acted or failed to act in any material respect so as to
incur liability under any federal, state, local or foreign law, regulation or
ordinance, judgment, decree or order relating to its business, operations,
properties or assets including the Occupational Safety and Health Act, the
Americans with Disabilities Act and any Environmental Laws, except where such a
violation, action or failure to act would not have a Material Adverse Effect,
and no notice of any pending investigation or inquiry of a potential violation
of, non-compliance with or alleged liability under any such law, regulation or
ordinance, judgment, decree or order has been received by WorldCom, which, if it
were determined that a violation had occurred, would have a Material Adverse
Effect.
6.9 Vote Required. No vote is required of the holders of any class
or series of WorldCom capital stock to approve this Agreement and consummate the
transactions contemplated hereby.
6.10 Commissions and Fees. There are no valid claims for brokerage
commissions, investment bankers' fees or finder's or similar fees in connection
with any of the other transactions contemplated by this Agreement and the
Stockholders Agreement which may be now or hereafter be asserted against H&R
Block or CompuServe resulting from any action taken by WorldCom or any of
WorldCom's directors, officers, employees or agents.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES REGARDING WAC
WorldCom and WAC, jointly and severally, hereby make the following
representations and warranties to H&R Block, Block Group and CompuServe:
7.1 Organization, Existence, Good Standing and Ownership
Interest. WAC is a limited liability company duly organized, validly
existing and in good standing under the laws of
31
the State of Delaware and has all necessary limited liability company power to
own its properties and assets and to carry on its business as contemplated to be
conducted. WorldCom is the sole member of WAC. There are no options, warrants or
debt securities or other instruments or securities outstanding which are
convertible into, or which grant the holder thereof the right to acquire any
securities of or interests in WAC.
7.2 Power and Authority; Non-Contravention. WAC has full limited
liability company power and authority to execute, deliver and perform its
obligations under this Agreement and all other agreements and other documents
executed and delivered, or to be executed and delivered, by it pursuant to this
Agreement and has taken or will have taken all actions required by law, its
Certificate of Formation, its Limited Liability Company Agreement or otherwise,
to duly and validly authorize the execution and delivery of, and the performance
of its obligations under, this Agreement and such related documents and the
consummation of the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement do not and the
consummation of the transactions contemplated by this Agreement will not (i)
conflict with or violate any provisions of the Certificate of Formation or
Limited Liability Company Agreement of WAC, or (ii) constitute a breach of or
default under or result in the creation of any Lien or Other Encumbrance or Tax
on or against, any assets, rights or property of WAC or give rise, with or
without notice or lapse of time, to any third-party right of termination,
cancellation, material modification or acceleration under any note, bond,
mortgage, pledge, lien, lease, agreement, license, commitment or instrument,
applicable to WAC or to which WAC is a party or by which WAC is bound, or
conflict with or violate any restrictions of any kind to which they are subject,
which breach, default, lien, encumbrance, Tax, termination, cancellation,
modification or acceleration would prevent or materially delay the consummation
of the transactions contemplated by this Agreement or otherwise prevent WAC from
performing its obligations hereunder in any material respect, or (iii) subject
to obtaining the consents, approvals, orders, authorizations and registrations,
and making the filings described in Section 7.3 below, violate any law, order,
writ, judgment, award, statute, rule, regulation or decree of any Governmental
Entity or arbitrator, which, if violated or accelerated, would prevent or
materially delay the consummation of the transactions contemplated by this
Agreement or otherwise prevent WAC from performing its obligations hereunder or
thereunder in any material respect. The execution, delivery and performance of
this Agreement have been approved by WorldCom as the sole member of WAC. This
Agreement has been duly executed and delivered by WAC and, assuming this
Agreement constitutes a valid and binding obligation of CompuServe, Block Group
and H&R Block, enforceable against them in accordance with their respective
terms, constitutes a valid and binding obligation of WAC, enforceable against
WAC in accordance with its terms.
7.3 Consents and Approvals. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required to be obtained, made or filed by WAC in connection with the
execution and delivery of this Agreement by WAC or the consummation by WAC of
the transactions contemplated by this Agreement, except for such consents,
approvals, orders, authorizations, registrations, declarations, or filings the
failure of which to be obtained, made or filed would not (a) impair in any
material respect the ability of
32
WAC to perform its obligations hereunder or (b) prevent or impede, in any
material respect, the consummation of the transactions contemplated by this
Agreement.
7.4 Legal Proceedings. There are no actions, suits, claims,
demands or proceedings pending or, to the knowledge of WAC, threatened against
WAC.
7.5 No Contracts or Liabilities. WAC has not engaged in any
business activities of any type or kind whatsoever, other than preparation for
the transactions contemplated by this Agreement, and, other than its obligations
under this Agreement, is not obligated under any contracts, claims, leases,
liabilities (contingent or otherwise), loans or otherwise.
7.6 Commissions and Fees. There are no valid claims for
brokerage commissions, investment bankers' fees or finder's or similar fees in
connection with any of the other transactions contemplated by this Agreement
which may be now or hereafter asserted against H&R Block or CompuServe resulting
from any action taken by WAC, WorldCom as its sole member or any of WorldCom's
or WAC's directors, officers, employees or agents.
ARTICLE VIII
COVENANTS
8.1 Interim Conduct of CompuServe and the CompuServe Entities.
Each of H&R Block and Block Group covenants to use all reasonable efforts to
ensure, and H&R Block, Block Group and CompuServe jointly and severally,
covenant and agree with WorldCom and WAC, that, except (1) as contemplated by
this Agreement or (2) with the prior written consent of WorldCom, which consent
will not be unreasonably withheld, after the date hereof and until the earlier
of the termination of this Agreement pursuant to Article XI and the Closing
Date:
(a) Subject to the other provisions of this Section 8.1, the business
of each of CompuServe and the CompuServe Entities, including investment
practices and policies, will be conducted only in the ordinary course of
business consistent with past practice, and CompuServe and the CompuServe
Entities will use all reasonable efforts to preserve their business
organizations and maintain their existing relations with all of their customers,
suppliers, employees, creditors and business partners;
(b) Neither CompuServe nor any CompuServe Entity will, directly or
indirectly, split, combine or reclassify the outstanding shares of capital stock
of CompuServe or any outstanding capital stock, interest in or security of any
CompuServe Entity;
(c) Neither CompuServe nor any CompuServe Entity will: (i) amend its
Articles of Incorporation or Certificate of Incorporation, as the case may be,
or Bylaws or similar organizational documents; (ii) declare, set aside or pay
any dividend or other distribution with respect to capital stock payable in
cash, stock, securities or property other than dividends paid by
33
CompuServe's wholly-owned, direct or indirect, subsidiaries to CompuServe or one
of CompuServe's wholly-owned, direct or indirect, subsidiaries; (iii) issue,
sell, transfer, grant, award, pledge, dispose of or encumber any shares of, or
securities convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital stock of any
class of CompuServe (except for CompuServe Common Shares issued pursuant to the
terms of CompuServe Stock Options outstanding as of the date of this Agreement,
or pursuant to the terms of the Crystal Club Plan in the ordinary course of
business consistent with past practice)) or interest in or securities of any
CompuServe Entity; (iv) transfer, lease, license, sell, mortgage, pledge,
dispose of, or encumber any of its assets, in an amount in any instance or
series of related instances exceeding $1,000,000 in the aggregate (measured in
terms of net book value), except pursuant to the existing terms of contracts
entered into prior to the date hereof and set forth on Schedule 8.1(c); or (v)
---------------
redeem, purchase or otherwise acquire, directly or indirectly, any of the
capital stock of CompuServe or any interest in or securities of any CompuServe
Entity (except for CompuServe Common Shares acquired pursuant to the terms of
the Employee Stock Purchase Plan and the Crystal Club Plan in the ordinary
course of business consistent with past practice);
(d) CompuServe and the CompuServe Entities will not: (i) hire
employees and consultants such that the total number of employees and
consultants of CompuServe and the CompuServe Entities would exceed 3,080 or (ii)
terminate employees and consultants such that the net decrease in the number of
employees and consultants of CompuServe and the CompuServe Entities resulting
therefrom would exceed 200 (which net decrease calculation shall be based on a
starting point of 2,880 employees and consultants and shall not include
employees and consultants who voluntarily terminate their employment or
services); (iii) grant any increase in the compensation or bonus payable or to
become payable by CompuServe or any of the CompuServe Entities to any director,
officer or employee of CompuServe or any of the CompuServe Entities, except (1)
to the extent that each such grant or increase is in the ordinary course of
business and consistent with past practice and the aggregate of all such grants
or increases does not exceed $6,000,000 on an annualized basis, and (2) bonuses
in an aggregate amount not in excess of $15,000,000 (half of which shall be paid
by H&R Block) to key employees (equitably distributed as between the Online
Services Business and the other businesses of CompuServe and the CompuServe
Entities) as CompuServe deems necessary in order to encourage such employees to
continue their employment from the date hereof until the Effective Time, payable
only if such employment so continues; (iv) adopt any new, or amend or otherwise
increase, or accelerate the payment or vesting of the amounts payable or to
become payable under any existing CompuServe Benefit Plan, except as
contemplated in Section 8.26; (v) enter into any, or amend any existing,
employment, consulting or severance agreement with, or grant any severance or
termination pay to, any officer, director or employee of CompuServe or any of
the CompuServe Entities; (vi) make any additional contributions to any grantor
trust created by CompuServe or any of the CompuServe Entities to provide funding
for non-tax-qualified employee benefits or compensation except as required by
the terms of any grantor trust of CompuServe existing on the date hereof; or
(vii) provide any new severance program to or increase the benefits under any
existing severance program of CompuServe or any of the CompuServe Entities;
34
(e) Except in the ordinary course of business and consistent with past
practice, neither CompuServe nor any CompuServe Entity will in any respect
modify, amend or terminate any of its contracts, intellectual property licenses,
leases or other agreements and arrangements, or waive, release or assign any
rights or claims thereto or thereunder;
(f) Except as would not be Material, neither CompuServe nor any
CompuServe Entity will permit any insurance policy naming CompuServe or any of
the CompuServe Entities as a beneficiary or a loss payable payee to be canceled
or terminated;
(g) Neither CompuServe nor any CompuServe Entity will: (i) incur or
assume any debt except for borrowings under existing credit facilities which are
identified in the CompuServe SEC Documents or in the ordinary course of business
consistent with past practice in an amount not exceeding $1,000,000 in the
aggregate; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other Person in an amount exceeding $1,000,000 in the aggregate, whether or
not in the ordinary course of business or consistent with past practice, except
for customary indemnification obligations pursuant to agreements entered into in
the ordinary course of business, consistent with past practice; (iii) make any
loans, advances or capital contributions to, or investments in, any other Person
(other than a wholly-owned CompuServe Entity) in an amount exceeding $1,000,000
in the aggregate, or modify any credit policies or practices granted to
customers or make any concessions or offer any inducements to accelerate
payments; (iv) other than as contemplated by CompuServe's May 23, 1997 business
plan for fiscal 1998 as furnished to WorldCom, enter into any financial
commitments (including any capital expenditure or asset purchase), whether or
not in the ordinary course of business or consistent with past practice, in an
amount exceeding $1,000,000 in the aggregate; (v) other than in the ordinary
course of business consistent with past practice, enter into any contract
granting any third-party geographic or market or programming or content
exclusivity; or (vi) other than contracts entered into for capital expenditures
in accordance with CompuServe's May 23, 1997 business plan, enter into any
contract that is not terminable without penalty on or prior to December 31, 2000
involving payments by CompuServe or any of the CompuServe Entities in excess of
$1,000,000 individually or $10,000,000 in the aggregate;
(h) Except as would not be Material, neither CompuServe nor any
CompuServe Entity will change any of the accounting principles or practices used
by it unless required by statutory accounting principles or GAAP and notice
thereof is given to WorldCom promptly following such change;
(i) Neither CompuServe nor any CompuServe Entity will pay, discharge
or satisfy any claims, liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction of any such claims, liabilities or obligations (i) reflected or
reserved against in, or contemplated by, the CompuServe Balance Sheet in an
amount not in excess of that in the CompuServe Balance Sheet; (ii) incurred in
the ordinary course of business consistent with past practice and in accordance
with the other restrictions contained herein, and which by their terms have
become due and payable since the date of the CompuServe Balance Sheet; (iii)
which are legally required to be paid, discharged or
35
satisfied and are paid in accordance with the terms of such claims, liabilities
or obligations in existence as of the date of this Agreement; or (iv) out of
insurance proceeds not in excess of $1,000,000 in the aggregate;
(j) Neither CompuServe nor any CompuServe Entity will adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation, share
exchange, restructuring, recapitalization or other reorganization of CompuServe
or any of the CompuServe Entities;
(k) Other than in the ordinary course of business consistent with past
practice, and except as contemplated by this Agreement, neither CompuServe nor
any CompuServe Entity will engage in any transaction, or enter into any
agreement, arrangement, or understanding with, directly or indirectly, any
Related Party except on terms no less favorable than would be available in
competitive arm's-length transactions;
(l) Except as would not be Material or as contemplated by Article IX
hereof, neither CompuServe nor any CompuServe Entity will make any Tax election
or increase or establish any reserve for Taxes or any other liability on its
books or otherwise provided therefor, except as required by applicable law or
GAAP and as to which CompuServe has provided prompt notice after any such
election, or increase or establishment of reserve to WorldCom;
(m) Neither CompuServe nor any CompuServe Entity will settle any
litigation, other proceeding or arbitration requiring a payment in an amount
equal to or greater than $250,000 individually or $1,000,000 in the aggregate or
involving any material limitation on its future actions or the surrender or
compromise of any of its material rights;
(n) Neither CompuServe nor any CompuServe Entity will enter into an
agreement, contract, commitment or arrangement to do any of the foregoing, or to
authorize, recommend, propose or announce an intention to do any of the
foregoing; and
(o) Neither CompuServe nor any CompuServe Entity will act, or fail or
omit to act, so as to cause any Material Adverse Change.
8.2 Voting of Shares. H&R Block and Block Group hereby jointly and
severally agree that at any meeting of stockholders of CompuServe, however
called, Block Group will vote, and H&R Block will cause Block Group to vote, all
of Block Group's CompuServe Common Shares (i) in favor of the adoption and
approval of this Agreement (as amended from time to time) and the transactions
contemplated by this Agreement by the stockholders of CompuServe, (ii) against
any proposal for any recapitalization, merger (other than the Merger), share
exchange, exchange offer, tender offer, sale of assets, sale of stock or other
business combination between or among CompuServe or any of the CompuServe
Entities, on the one hand, and any other Person other than WorldCom or any
WorldCom Entity, on the other hand, or any liquidation, dissolution or other
action or agreement, that would result in a breach of any representation,
warranty, covenant or other obligation or agreement of H&R Block, Block Group or
CompuServe under this Agreement or that would result in any of the conditions to
the obligations of any party under this Agreement not being fulfilled, and (iii)
in favor of any other
36
matter necessary for the consummation of the transactions contemplated by this
Agreement with respect to which Block Group may be entitled to vote.
8.3 No Transfers. Each of H&R Block, Block Group and CompuServe
hereby covenants and agrees that, until the termination of this Agreement
pursuant to Article XI, it will not, and H&R Block will not cause or permit
Block Group to, sell, transfer, tender, assign, hypothecate or otherwise dispose
of, or create or permit to exist any Liens or Other Encumbrances on, whether
directly or indirectly, any of the CompuServe Common Shares or securities of
interests in a CompuServe Entity, respectively, or any of the assets required to
be transferred to CompuServe pursuant to Section 2.1 hereof (except in
accordance with Section 2.1).
8.4 Indemnification. (a) Indemnification by H&R Block. H&R Block
and Block Group, jointly and severally, hereby agree to indemnify, defend and
hold harmless WorldCom and WAC and, after the Closing Date, CompuServe and the
CompuServe Entities, each of their respective successors-in-interest and
assigns, and each of their respective past and current directors, officers,
employees, consultants, representatives and agents (the "H&R Block Indemnified
Parties"), from and against any and all Losses and Expenses which are based on,
arise out of or relate to, directly or indirectly (i) the conduct of the
business or affairs of H&R Block, Block Group or any other H&R Block Entity on
or prior to the Closing Date; (ii) any action, suit, claim, demand, proceeding
or investigation brought by or on behalf of persons who were, at or prior to the
Effective Time, holders of the capital stock of H&R Block, Block Group or
CompuServe which suit, claim, demand, action, proceeding or investigation
alleges that any action or failure to act of the issuer of such capital stock,
any Affiliate of such issuer or any director, officer, employee or agent of such
issuer or any Affiliate of such issuer in connection with this Agreement, the
Stockholders Agreement, or the Standstill Agreement or any of the transactions
contemplated hereby or thereby was a breach of fiduciary duty, or a violation of
law or unauthorized, ultra xxxxx or otherwise wrongful or illegal; or (iii) any
breach of the representations, warranties, covenants or agreements of H&R Block
or Block Group set forth in this Agreement or pursuant to the certificates
contemplated in Section 10.2(d) relating to Sections 2.1, 2.2, 2.3, 4.1, 4.2,
4.3, 4.5 or 4.6, Article V, or Sections 8.2, 8.3, 8.6, 8.7 (as to H&R Block or
Block Group), 8.10 (as to H&R Block or Block Group), 8.15 (as to H&R Block or
Block Group), 8.16 (as to H&R Block or Block Group), 8.18, 8.20, 8.21, or 8.23
(as to H&R Block or Block Group) or (iv) any action, suit, claim, demand or
proceeding or investigation brought in connection with the enforcement of any or
all of the foregoing clauses (i), (ii) or (iii).
(b) General Indemnification by H&R Block. H&R Block and Block Group
hereby agree, jointly and severally, to indemnify, defend and hold harmless the
H&R Block Indemnified Parties from and against 80.13% of any Losses and Expenses
which are based on, arise out of or relate to, directly or indirectly, (i) the
matters set forth in Schedule 8.4(b) whether or not disclosed on any other
---------------
Schedule to this Agreement or otherwise, each of which shall be deemed to be a
Third-Party Claim (as defined in Section 8.4(e)(i) below) as to which any
required notification of claim for indemnification shall be deemed to have been
given; (ii) any breach of the representations, warranties, covenants or
agreements set forth in this Agreement or pursuant to the certificates
contemplated in Section 10.2(d) relating to Sections 3.1, 3.2, 3.3, 3.4, 3.17,
37
3.18, 8.6, 8.7 (as to CompuServe) or 8.10 (as to CompuServe); (iii) any breach
of any representations, warranties, covenants or agreements of H&R Block, Block
Group or CompuServe herein (or in the certificates contemplated by Section
10.2(d)), other than those described in the foregoing clause (ii) and without
regard to any qualification as to materiality stated herein (including any
reference to Material, Material Adverse Change or Material Adverse Effect), with
regard to any claim for indemnification relating to any matter for which
indemnification is provided by WorldCom pursuant to or arising out of any
agreement providing for or relating to the divestiture by WorldCom of any or all
of the Online Services Business, if and to the extent that the aggregate of all
Losses and Expenses based on, arising out of or related to all breaches (other
than with respect to a knowing or intentional breach of any such representation,
warranty, covenant or agreement, as to which no dollar threshold shall apply)
described in this clause (iii) exceeds $10 million; (iv) any breach of any
representations, warranties, covenants or agreements, other than those described
in the foregoing clause (ii) and without regard to any qualification as to
materiality stated herein (including any reference to Material, Material Adverse
Change or Material Adverse Effect), with regard to any claim for indemnification
regarding any matter other than matters covered in the foregoing clause (iii),
if and to the extent that the aggregate of all Losses and Expenses based on,
arising out of or related to all breaches (other than with respect to a knowing
or intentional breach of any such representation, warranty, covenant or
agreement, as to which no dollar threshold shall apply) described in this clause
(iv) exceeds $10 million; or (v) any action, suit, claim, demand or proceeding
brought in connection with the enforcement of the foregoing clauses (i), (ii),
(iii) and (iv). Any matter covered by both of the foregoing clauses (iii) and
(iv) shall be apportioned equally to both thresholds.
(c) Indemnification by WorldCom and WAC. WorldCom and WAC and, after
the Closing, CompuServe, hereby agree, jointly and severally, to indemnify,
defend and hold harmless H&R Block, Block Group, their respective successors in-
interest and assigns, and each of their respective past and current directors,
officers, employees, consultants, representatives and agents from and against
any Losses and Expenses which are based on, arise out of or relate to, directly
or indirectly, (i) the conduct of the business of CompuServe after the Closing
as long as and to the extent that CompuServe constitutes a WorldCom Entity; or
(ii) any action, claim or proceeding brought in connection with the enforcement
of the foregoing clause (i).
(d) Notification of Claims. For the purpose of this Section 8.4, the
term "Indemnifying Party" shall mean the party having an obligation hereunder to
indemnify the other party or parties pursuant to this Section 8.4, and the term
"Indemnified Party" shall mean the party having the right to be indemnified
pursuant to this Section 8.4. Whenever any claim shall arise for
indemnification under this Section 8.4, the Indemnified Party shall promptly
notify the Indemnifying Party in writing of such claim and, when known, the
facts constituting the basis for such claim (in reasonable detail). Failure by
the Indemnified Party to so notify the Indemnifying Party shall not relieve the
Indemnifying Party of any liability hereunder unless and only to the extent such
failure prejudices the Indemnifying Party. The H&R Block Indemnified Parties
shall not be entitled to indemnification under Section 8.4(b)(ii) unless, prior
to March 15, 1999, a H&R Block Indemnified Party has notified H&R Block and
Block Group in writing of the existence of any Losses and Expenses that may
reasonably be expected to give rise to any such
38
indemnification obligation. Notwithstanding any provision herein to the
contrary, (i) any claim for indemnification related to or arising out of any Tax
matter may be brought at any time prior to 60 Business Days after the expiration
of the applicable Tax statute of limitations with respect to the relevant
taxable period (including all extensions obtained, whether automatic or
permissive) and (ii) any claim for indemnification based on, related to or
arising out of any Tax matter set forth in Section 9.2(a) and Section 9.2(b)
shall be governed solely by Section 9.2 hereof.
(e) Indemnification Procedures.
(i) After the giving of notice by an Indemnified Party as
required by paragraph (d) of any claim of the commencement of any action by
a Person or Governmental Entity who is not a party to this Agreement or an
Affiliate of such a party (a "Third-Party Claim"), if the Indemnifying
Party undertakes to defend any such claim, it shall be required to take
control of the defense and investigation with respect to such claim and to
employ and engage reputable attorneys of its own choice reasonably
acceptable to the Indemnified Party to handle and defend the same, at the
Indemnifying Party's cost, risk and expense, upon written notice to the
Indemnified Party of such election, which notice acknowledges the
Indemnifying Party's obligation to provide indemnification hereunder. The
Indemnifying Party shall not settle any Third-Party Claim that is the
subject of indemnification without the written consent of the Indemnified
Party, which consent shall not be unreasonably withheld or delayed. The
Indemnified Party shall cooperate in all reasonable respects with the
Indemnifying Party and its attorneys in the investigation, trial and
defense of any lawsuit or action with respect to such claim and any appeal
arising therefrom (including the filing in the Indemnified Party's name of
appropriate crossclaims and counterclaims). In connection with any Third-
Party Claim, each Indemnified Party shall use reasonable efforts to make
available to the Indemnifying Party, upon written request and at reasonable
times, its and its subsidiaries' officers, directors, employees and agents
to act as witnesses to the extent that such persons may reasonably be
required to be available in connection with any claim under this Section
8.4. The Indemnified Party may, at its own cost, participate in any
investigation, trial and defense of such lawsuit or action controlled by
the Indemnifying Party and any appeal arising therefrom. If there are one
or more legal defenses available to the Indemnified Party that conflict
with those available to the Indemnifying Party, the Indemnified Party shall
have the right, at the expense of the Indemnifying Party, to assume the
defense of the lawsuit or action; provided, however, that the Indemnified
Party may not settle such lawsuit or action without the consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. Notwithstanding anything to the contrary in this paragraph
(e)(i), if a Third-Party Claim is for money damages asserted in an amount
not to exceed $1,000,000 and is principally for non-monetary relief that
would have a continuing Material Adverse Effect on the Indemnified Party,
then the Indemnified Party shall be entitled to take control of the defense
and investigation with respect to such claim and to employ and engage
reputable attorneys of its own choice reasonably acceptable to the
Indemnifying Party to handle and
39
defend the same, at the Indemnifying Party's cost, risk and expense, upon
written notice to the Indemnifying Party of such election
(ii) If, within a reasonable time following receipt of a notice
of a Third-Party Claim pursuant to paragraph (d), the Indemnifying Party
does not undertake to defend any such claim, the Indemnified Party may, but
shall have no obligation to, contest at the expense of the Indemnifying
Party to the extent provided in this Section 8.4 any lawsuit or action with
respect to such claim and the Indemnifying Party shall be bound by the
result obtained with respect thereto by the Indemnified Party (including
the settlement thereof without the consent of the Indemnifying Party).
(iii) Any claim of indemnification for Losses and Expenses which
does not result from a Third-Party Claim shall be asserted by written
notice given by the party claiming a right of indemnification
("Indemnitee") to the party from whom indemnification is sought
("Indemnitor") specifying in reasonable detail the nature and basis for the
claim and the Losses and Expenses incurred. Such Indemnitor shall have a
period of 30 days after the receipt of such notice within which to respond
thereto. If the Indemnitor does not respond within such 30-day period,
such Indemnitor shall be deemed to have refused to accept responsibility to
make payment. If such Indemnitor does not respond within such 30-day
period or rejects such claim in whole or in part, the Indemnitee shall be
free to pursue such remedies as may be available to such party, under
applicable law or under this Agreement.
(iv) If the amount of any Losses and Expenses shall, at any time
subsequent to the payment required by this Agreement, be reduced by
recovery, settlement, insurance proceeds or otherwise, the amount of such
reduction, less any expenses incurred in connection therewith, shall
promptly be repaid by the Indemnitee to the Indemnitor.
(f) Tax-Related Adjustment. An indemnity payment otherwise due and
payable hereunder (i) shall be decreased (but not below zero) to the extent of
any net actual reduction in federal income Tax liability that is actually
realized by the Indemnified Party at the time of its payment of an indemnifiable
loss and (ii) shall be increased to indemnify the Indemnified Party for any
additional federal income Taxes payable by the Indemnified Party by reason of
the receipt or accrual of such indemnity payment.
8.5 No Contribution. Each of H&R Block and Block Group, for itself
and on behalf of the other H&R Block Entities, waives, and acknowledges and
agrees that it and they will not have and will not exercise or assert (or
attempt to exercise or assert), any right of contribution, right of subrogation,
right of indemnity or other similar right or remedy against CompuServe or any of
the CompuServe Entities, with respect to any action or failure to act by H&R
Block, Block Group or any other H&R Block Entity or CompuServe or any CompuServe
Entity, occurring on or prior to the Effective Time in connection with any
actual or alleged breach of any representation, warranty, covenant or other
obligation or agreement set forth in this Agreement, or any Losses or Expenses
referred to in Section 8.4 or Section 9.2 of this Agreement, at or after the
Effective Time, for any other claim accrued as of the Effective Time.
40
8.6 Meeting of CompuServe Stockholders. CompuServe shall take all
steps necessary in accordance with its Certificate of Incorporation and Bylaws
and the DGCL to call, set a record date, give notice of, convene and hold a
special meeting of its stockholders (the "CompuServe Stockholders Meeting") to
occur as soon as practicable for the purpose of approving and adopting this
Agreement and authorizing the Merger and for such other purposes as may be
necessary (the "CompuServe Proposal"). Subject to Section 8.14(a) of this
Agreement, the Board of Directors of CompuServe shall (i) take all steps
necessary to present and recommend to its stockholders the approval and adoption
of this Agreement and approval of the transactions contemplated hereby to which
it is a party and any other matters to be submitted to its stockholders in
connection therewith and (ii) use all reasonable efforts to obtain the approval
and adoption by the CompuServe stockholders of this Agreement and any of the
transactions contemplated hereby requiring such stockholder approval.
8.7 Registration Statement; Proxy Statement. (a) As soon as
practicable after the date of this Agreement, WorldCom and CompuServe shall
prepare and file with the SEC the proxy statement relating to the CompuServe
Stockholders Meeting (the "CompuServe Proxy Statement" or "Proxy Statement"),
and WorldCom shall prepare a Registration Statement on Form S-4 (the
"Registration Statement") with respect to the Merger and registration of the
WorldCom Common Shares to be issued to CompuServe's stockholders in connection
therewith. Each of WorldCom, H&R Block and CompuServe shall use all reasonable
efforts to have the Registration Statement declared effective by the SEC as
promptly as practicable thereafter. The CompuServe Proxy Statement will be
mailed to the stockholders of CompuServe as soon as possible after the
Registration Statement is declared effective. No amendment or supplement to the
Proxy Statement shall be made without providing each other such party with
reasonable time to review and comment on such amendment or supplement and in any
case without prior written consent of WorldCom. No amendment (or supplement) to
the Registration Statement (or the prospectus forming a part thereof) shall be
made without providing each other such party with reasonable time to review and
comment on such amendment (or supplement) and in any case without prior approval
of CompuServe, which approval shall not be unreasonably withheld. Promptly
after receiving notice thereof, unless such notice was received from another
party hereto, each of WorldCom and CompuServe shall advise each such other party
of the time when the Registration Statement has become effective or any
amendment thereto or any supplement or amendment to the CompuServe Proxy
Statement has been filed, or the issuance of any stop order, or of any request
by the SEC or NASDAQ for amendment of the Registration Statement. WorldCom
shall also take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified or consenting to service of
process in any jurisdiction in any action other than one arising out of the
offering of the WorldCom Common Shares in such jurisdiction) reasonably required
to be taken under any applicable state securities or "blue sky" laws in
connection with the issuance of WorldCom Common Shares in connection with the
Merger, and each of CompuServe and H&R Block shall furnish all information
concerning CompuServe or H&R Block, as the case may be, as may be reasonably
requested in connection any such action. Except for the Proxy Statement or the
preliminary prospectus/proxy statement, none of WorldCom, CompuServe or H&R
Block shall distribute any written material that might
41
constitute a "prospectus" relating to the Merger within the meaning of the
Securities Act or any applicable state securities law, without the prior written
consent of WorldCom.
(b) Each of H&R Block, CompuServe and WorldCom covenants that none of the
information supplied or to be supplied by it for inclusion, or incorporated or
to be incorporated by reference, in (i) the Registration Statement will, at the
time the Registration Statement is filed with the SEC, at any time it is amended
or supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (ii) the CompuServe Proxy Statement will, at the date it is
first mailed to the stockholders of CompuServe, or at the time of the CompuServe
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. Each of H&R Block, CompuServe and WorldCom covenants that
the CompuServe Proxy Statement and the Registration Statement will comply as to
form in all material respects with the requirements of the Exchange Act or the
Securities Act, as the case may be. Notwithstanding the foregoing, (i) no
representation or covenant is made by CompuServe or H&R Block with respect to
statements made or incorporated by reference therein based on information
supplied by WorldCom for inclusion or incorporated by reference in the
CompuServe Proxy Statement or the Registration Statement and (ii) no
representation or covenant is made by WorldCom with respect to statements made
or incorporated by reference therein based on information supplied by CompuServe
or H&R Block for inclusion or incorporated by reference in the CompuServe Proxy
Statement or the Registration Statement. If at any time prior to the Effective
Time there shall occur (i) any event with respect to CompuServe or any
CompuServe Entity, or with respect to other information supplied by CompuServe
for inclusion or incorporated by reference in the Proxy Statement or the
Registration Statement, (ii) any event with respect to H&R Block or any H&R
Block Entity, or with respect to other information supplied by H&R Block for
inclusion or incorporated by reference in the Proxy Statement or the
Registration Statement or (iii) any event with respect to WorldCom, or with
respect to information supplied by WorldCom for inclusion or incorporated by
reference in the Proxy Statement or the Registration Statement, in any case
which event is required to be described in an amendment of, or a supplement to,
the CompuServe Proxy Statement or the Registration Statement, such event shall
be so described, and such amendment or supplement shall be promptly filed with
the SEC and, as required by law, disseminated to the stockholders of CompuServe.
(c) Each of CompuServe and WorldCom shall promptly notify the other parties
of the receipt of any comments from the SEC or its staff or any other
appropriate government official and of any requests by the SEC or its staff or
any other appropriate government official for amendments or supplements to any
of the filings with the SEC in connection with the Merger and other transactions
contemplated hereby or for additional information and shall supply the other
with copies of all correspondence between CompuServe or any of its respective
representatives, or WorldCom or any of its representatives, as the case may be,
on the one hand, and the SEC or its staff or any other appropriate government
official, on the other hand, with respect thereto. CompuServe and WorldCom
shall use all of their respective reasonable efforts
42
to respond to any comments of the SEC with respect to the Registration Statement
and the Proxy Statement as promptly as practicable. CompuServe, H&R Block and
WorldCom shall cooperate with each other and furnish all information necessary
in order to prepare the Registration Statement and the Proxy Statement, and
shall provide promptly to the other parties any information such party may
obtain that could necessitate amending or supplementing any such document.
(d) WorldCom covenants that it shall apply to have the WorldCom Common
Shares to be issued in connection with the Merger approved for quotation on
NASDAQ, subject to official notice of issuance.
(e) WorldCom covenants that it will not, without the prior written
consent of CompuServe, (i) agree to waive any obligations of AOL under Sections
5.6 or 5.12 of the Purchase and Sale Agreement or (ii) request from or deem be
to provided by AOL a waiver of any of WorldCom's obligations under such
sections.
8.8 Access to Information. Subject to the provisions of the
Confidentiality Agreement, between the date hereof and the Closing Date, each of
H&R Block, Block Group, CompuServe and WorldCom and their respective Entities
shall (i) give to each such other party and its counsel, accountants and other
representatives reasonable access, at reasonable times and after reasonable
notice, to all the properties, documents, contracts, personnel files (subject to
applicable law) and other records of such party; (ii) furnish the other party
with copies of such documents and with such information with respect to the
affairs of such party as the other party may from time to time reasonably
request; and (iii) shall disclose and make available to each such party and its
representatives all books, contracts, accounts, personnel records, letters of
intent, papers, records, communications with regulatory authorities and other
documents relating to the business and operations of such party as the other
party may from time to time reasonably request. In addition, CompuServe shall
make available to WorldCom all such banking, investment and financial
information as shall be necessary to allow for the efficient integration of
CompuServe's banking, investment and financial arrangements with those of
WorldCom at the Closing, including monthly financial statements. Nothing
contained in this Section 8.8 shall be deemed to create any duty or
responsibility on the part of any party to investigate or evaluate the value,
validity or enforceability of any contract, lease or other asset included in the
assets of any other party. With respect to matters as to which any party has
made express representations or warranties herein, the parties shall be entitled
to rely upon such express representations and warranties irrespective of any
investigations made by such parties. With respect to the obligations of H&R
Block, Block Group, CompuServe and their respective Entities under this Section
8.8, "other party" as used in clauses (i), (ii) and (iii), above, shall be
deemed to include AOL. None of H&R Block, the H&R Block Entities, CompuServe,
the CompuServe Entities, WorldCom or the WorldCom Entities shall be required to
provide access to customer identity or pricing information or to furnish any
documents or information that such party has been advised by counsel may not be
provided under applicable law, would result in the loss of a legal privilege or
would violate a confidentiality obligation, provided that, in the case of
documents or information subject to a legal duty, such party shall use its
reasonable best efforts to obtain any third party consents required to comply
with any confidentiality obligations giving rise to such
43
legal duty, in the case of customer identity or pricing information, such party
shall make arrangements for such information to be furnished to counsel for the
party requesting such information and, in the case of privileged information,
such party shall make arrangements for such documentation to be provided to
counsel for the party requesting such information, to the extent reasonable
assurance can be obtained that the legal privilege would not thereby be lost.
8.9 Confidentiality. CompuServe and WorldCom acknowledge and
confirm that they have entered into a letter agreement with AOL dated August 14,
1997 (the "Confidentiality Agreement") and that the Confidentiality Agreement
shall remain in full force and effect in accordance with its terms,
notwithstanding WorldCom's and CompuServe's entering into this Agreement and
whether or not the transactions contemplated by this Agreement are consummated
or terminated.
8.10 HSR Act Compliance, Etc. (a) H&R Block and WorldCom shall
promptly make their respective filings, and shall thereafter use their best
efforts to promptly make any required submissions, under the HSR Act with
respect to the transactions contemplated hereby. H&R Block, Block Group,
CompuServe and WorldCom shall use their respective reasonable efforts to
promptly make all other required filings and submissions with respect to all
other permits, authorizations, consents and approvals from third parties and
Governmental Entities necessary to consummate the transactions contemplated by
this Agreement and the Stockholders Agreement.
(b) H&R Block, Block Group, CompuServe and WorldCom also agree to take
any and all of the following actions to the extent necessary to obtain the
approval of any Governmental Entity with jurisdiction over the enforcement of
any applicable laws regarding the transactions contemplated by this Agreement
and the Stockholders Agreement: entering into negotiations; providing
information; substantially complying with any second request for information
pursuant to the HSR Act or any similar foreign antitrust law; and making
proposals. The parties hereto will consult, consistent with their respective
legal obligations, and cooperate with each other, and consider in good faith the
views of each other, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to the HSR Act or any other federal, state or foreign
antitrust or fair trade law.
8.11 Public Disclosures. H&R Block, Block Group, CompuServe and
WorldCom shall consult with each other before issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated by this Agreement or the Stockholders Agreement, and shall not
issue any such press release or make any such public statement prior to such
consultation except as may be required by applicable law or requirements of the
Exchange Act, NASDAQ or any national securities exchange as advised by counsel,
in which case the parties shall use their reasonable efforts to consult with
each other prior to issuing such a release or making such a statement.
WorldCom, H&R Block and CompuServe shall issue a joint press release, mutually
acceptable to H&R Block, CompuServe and WorldCom, promptly upon execution and
delivery of this Agreement. H&R Block, Block Group, CompuServe and WorldCom
shall cooperate and consult with each other to develop and implement guidelines
for
44
communications to employees, customers and suppliers of CompuServe regarding the
transactions contemplated by this Agreement.
8.12 Resignation of Directors and Officers. At or prior to the
Closing, CompuServe shall deliver to WorldCom if and as requested by WorldCom
evidence satisfactory to WorldCom of the resignation of the directors and
officers, solely in their capacities as such, of CompuServe and any CompuServe
Entity, such resignations to be effective at the Closing.
8.13 Notification of Certain Matters. H&R Block, Block Group and
CompuServe shall give prompt notice to WorldCom, and WorldCom shall give prompt
notice to H&R Block, Block Group and CompuServe, of (a) the occurrence or non-
occurrence of any event the occurrence or non-occurrence of which would or could
reasonably be expected to cause any representation or warranty respectively made
by them and contained in this Agreement or the Stockholders Agreement to be
untrue or inaccurate at or prior to the Closing, as the case may be, and (b) any
failure of H&R Block, Block Group, CompuServe or WorldCom, as the case may be,
to comply with or satisfy any covenant, agreement or condition to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 8.13 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
8.14 No Solicitation. (a)(i) CompuServe 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 Competitive Proposal.
CompuServe shall not, nor shall it permit any of the CompuServe Entities 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 the CompuServe Entities to, directly or
indirectly, (A) 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 Competitive Proposal or (B)
participate in any discussions or negotiations regarding any Competitive
Proposal. "Competitive Proposal" means any inquiry, proposal or offer from any
Person relating to any direct or indirect acquisition or purchase of 10% or more
of the assets of CompuServe and the CompuServe Entities or 10% or more of any
class of equity securities of CompuServe or any of the CompuServe Entities, any
tender offer or exchange offer that if consummated would result in any Person
beneficially owning 10% or more of any class of equity securities of CompuServe
or any of the CompuServe Entities, any merger, consolidation, share exchange,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving CompuServe or any of the CompuServe Entities, other than
the transactions contemplated by this Agreement and the Stockholders 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 and the Stockholders Agreement.
45
(ii) Except to the extent the Board of Directors of CompuServe
determines it is required to do otherwise in accordance with its fiduciary
duties, neither the Board of Directors of CompuServe nor any committee thereof
shall 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 CompuServe Proposal. Neither the Board of Directors
nor any committee thereof shall approve or recommend, or propose publicly to
approve or recommend, any Competitive Proposal or cause CompuServe to enter into
any letter of intent, agreement in principle, acquisition agreement or other
similar agreement related to a Competitive Proposal. Any such withdrawal or
modification of the recommendation of the CompuServe Proposal shall not change
the approval of the Board of Directors of CompuServe for purposes of causing
Section 203 of the DGCL to be inapplicable to the CompuServe Proposal or the
status of WorldCom and WAC as other than an "Acquiring Person" under the
CompuServe Rights Agreement and shall not directly or indirectly cause a "Shares
Acquisition Date" or a "Distribution Date" (as such terms are defined in the
CompuServe Rights Agreement) to occur.
(iii) In addition to the obligations of CompuServe set forth in
paragraphs (a)(i) and (a)(ii) of this Section 8.14, CompuServe shall immediately
advise WorldCom orally and in writing of any request for information or of any
Competitive Proposal, the material terms and conditions of such request or
Competitive Proposal and the identity of the person making such request or
Competitive Proposal. CompuServe will keep WorldCom fully informed of the
status and details (including amendments or proposed amendments) of any such
request or Competitive Proposal.
(b) (i) H&R Block 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 Competitive Proposal. H&R Block shall not, nor shall
it permit any of the H&R Block Entities 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
the H&R Block Entities to, directly or indirectly, (A) 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
Competitive Proposal or (B) participate in any discussions or negotiations
regarding any Competitive Proposal.
(ii) In addition to the obligations of H&R Block set forth in
paragraph (b)(i) of this Section 8.14, H&R Block shall immediately advise
WorldCom orally and in writing of any request for information or of any
Competitive Proposal, the material terms and conditions of such request or
Competitive Proposal and the identity of the person making such request or
Competitive Proposal. H&R Block will keep WorldCom fully informed of the status
and details (including amendments or proposed amendments) of any such request or
Competitive Proposal.
(c) Nothing contained in this Section 8.14 shall prohibit CompuServe from
taking and disclosing to its stockholders a position contemplated by Rule 14e-
2(a) promulgated under the Exchange Act or from making any disclosure to its
stockholders if, in the good faith
46
judgment of the Board of Directors of CompuServe, after consultation with
outside counsel, failure so to disclose would be inconsistent with its fiduciary
duties to CompuServe's stockholders, under applicable law; provided, however,
-------- -------
neither CompuServe nor its Board of Directors nor any committee thereof shall,
except as permitted by Section 8.14(a)(ii), as applicable, withdraw or modify,
or propose publicly to withdraw or modify, its position with respect to the
CompuServe Proposal or approve or recommend, or propose publicly to approve or
recommend, a Competitive Proposal.
8.15 Other Actions. Unless such action or omission is required by
applicable law or otherwise contemplated or permitted by this Agreement
(including the assignment of the Online Services Business), neither H&R Block,
Block Group, nor CompuServe, nor WorldCom nor WAC shall knowingly or
intentionally take any action or omit to take any action, if such action or
omission would, or reasonably might be expected to, result in any of the
representations and warranties set forth herein being or becoming untrue or
inaccurate or any of the conditions to the Merger set forth in this Agreement or
to transactions contemplated by the Stockholders Agreement not being satisfied,
or would adversely affect the ability of CompuServe, Block Group, H&R Block,
WorldCom or WAC to obtain any consents or approvals required of it for the
consummation of the transactions contemplated by this Agreement and the
Stockholders Agreement, without imposition of a condition or restriction which
would have a Material Adverse Effect, or would, or might reasonably be expected
to, materially delay or prevent the holding of the CompuServe Stockholders
Meeting or the taking of a vote thereat, the filing and clearance of the
CompuServe Proxy Statement or the filing and effectiveness of the Registration
Statement or would, or might reasonably be expected to, otherwise materially
impair the ability of H&R Block, Block Group, CompuServe, WorldCom or WAC to
consummate the transactions contemplated by this Agreement and the Stockholders
Agreement, in accordance with the terms of this Agreement and the Stockholders
Agreement or materially delay any such consummation.
8.16 Cooperation. Each of H&R Block, Block Group, CompuServe,
WorldCom and WAC shall use its best efforts (i) to cooperate with each other in
determining whether any filings are required to be made or consents are required
to be obtained in any jurisdiction prior to the Closing (and the closing under
the Stockholders Agreement), in connection with the consummation of the
transactions contemplated hereby and thereby and cooperate in making any such
filings promptly and in seeking to obtain any such consents in a timely manner,
or (ii) to take, or cause to be taken, all actions necessary to comply promptly
with all legal requirements which may be imposed by agency or court order on
such party (or any subsidiaries or other Affiliates of such party) with respect
to this Agreement and the Stockholders Agreement, and (iii) to take, or cause to
be taken, all actions necessary to obtain (and to cooperate with the other party
to obtain) any consent, authorization, order or approval of, or any exemption
by, any Governmental Entity and/or any other public entity which is required to
be obtained or made by such party or any of its subsidiaries or other Affiliates
in connection with this Agreement and the Stockholders Agreement and the
transactions contemplated hereby and thereby. H&R Block and CompuServe shall
reasonably cooperate with WorldCom in furnishing financial information relating
to the Online Services Business, the network services business and any other
business of CompuServe for periods prior to the Closing to the extent such
information may be required to
47
prepare financial information required to be filed under the Securities Act, the
Exchange Act or the rules and regulations
promulgated by the SEC thereunder.
8.17 CompuServe and CompuServe Entity Employees. (a) All current
employees of CompuServe or a CompuServe Entity ("CompuServe Employees") as of
the Closing shall be employed, immediately after the Closing, by CompuServe or a
CompuServe Entity. On and after the Closing, WorldCom shall honor, and cause
CompuServe to honor, all provisions of all employment or severance agreements or
plans in effect for CompuServe Employees (or any former employee of CompuServe
or any CompuServe Entity) as of the Closing. H&R Block, Block Group and
CompuServe jointly and severally represent and warrant that Schedule 8.17 is a
-------------
complete list of all such employment and severance agreements and plans existing
as of the date hereof (the "Schedule 8.17 Agreements"). Notwithstanding the
foregoing, at any time after the Closing, the employment of any CompuServe
Employee may be terminated and any Schedule 8.17 Agreement may be amended or
terminated in accordance with its terms; provided, however, that WorldCom agrees
-------- -------
that it shall not, either directly or indirectly through control of CompuServe
or any CompuServe Entity, provide notice of a materially adverse amendment or
termination of any CompuServe severance plan, policy or agreement described in
Schedule 8.17 for a period of twelve months following the Closing Date.
-------------
(b) WorldCom, following the Closing Date, shall permit such CompuServe
Employees who are retained as CompuServe or CompuServe Entity employees or
become WorldCom employees thereafter, and who were participating in CompuServe
Benefit Plans immediately prior to the Closing Date, to participate in
corresponding employee compensation and benefit plans, programs, policies and
fringe benefits (including severance and post-employment benefits, if any) of
WorldCom which shall, in the aggregate, provide the CompuServe Employees with
benefits that are comparable to those provided under the CompuServe Benefit
Plans as of the Closing Date and substantially in accordance with the
eligibility criteria thereof, which shall be of general applicability, it being
understood that such plans, programs, policies and fringe benefits after the
Closing will be those of WorldCom immediately before the Closing and it being
further understood that such plans, programs, policies or fringe benefits may
not be materially and adversely amended, terminated or discontinued for a period
of six months following the Closing Date unless otherwise required by applicable
law. Notwithstanding the foregoing, (i) WorldCom may continue (or cause
CompuServe to continue after the Closing) one or more of the CompuServe Benefit
Plans, and WorldCom will be deemed to have satisfied its obligations under this
Section 8.17(b) with respect to the type of benefits provided under such
CompuServe Benefit Plan(s) and (ii) WorldCom agrees that it will not, either
directly or indirectly through its control of CompuServe, amend in any material
respect or terminate the CompuServe Deferred Compensation Plan for a period of
six months following the Closing Date. WorldCom shall credit prior service of
CompuServe Employees with CompuServe or any CompuServe Entity, as applicable,
for purposes of determining the vesting, eligibility, waiting periods or
qualification of or participation of such employees under WorldCom's benefit
programs and any successor benefit programs to the extent that such prior
service was recognized under such CompuServe Benefit Plans (which shall include
severance, if any, and vacation pay plans but shall not include stock option or
award plans and shall not result in duplication of benefits); such prior service
credited
48
under a WorldCom benefit program shall include service with other entities to
the extent that such service is credited by CompuServe or any CompuServe Entity
for purposes of any CompuServe Benefit Plan similar to such WorldCom benefit
plan. Any WorldCom benefit plan which is a Block Group health plan within the
meaning of Section 5000(b) of the Code shall waive all pre-existing condition
limitations with respect to the CompuServe Employees. WorldCom agrees that the
vacation benefits of the CompuServe Employees that have accrued and are unused
as of the Closing Date (including vacation days carried over in accordance with
the CompuServe vacation policy) shall be carried over for use after the Closing
Date in accordance with the CompuServe vacation policy so long as such policy
remains in effect.
(c) The parties hereto acknowledge and agree that (i) the consummation
of the transactions contemplated by this Agreement shall constitute a "change in
control" of CompuServe for purposes of the CompuServe Benefit Plans (including
the Schedule 8.17 Agreements) and (ii) the resignation of any officer or
director of CompuServe in his or her position as such pursuant to Section 8.12
of this Agreement shall not be treated as a voluntary termination of employment
of such officer or director for purposes of any Section 8.17 Agreement and will
not otherwise adversely affect the material rights of such officers or directors
under any Section 8.17 Agreement.
(d) Notwithstanding the provisions of Section 8.17(a), (b) and (c) or
any other provision of this Agreement, in the event WorldCom assigns or
transfers the Online Services Business to AOL (or its Affiliate or assignee),
WorldCom shall have no obligation hereunder to provide any employment,
compensation or benefits to any former employee of the Online Services Business,
but WorldCom shall provide, in the documents relating to such assignment or
transfer, that AOL (or such Affiliate or assignee) shall provide benefits to
such employees which are substantially equivalent in value to the benefits
otherwise called for under paragraph (b) above.
8.18 CompuServe Name. Each of H&R Block and Block Group
acknowledges that the name "CompuServe," whether alone or in combination with
one or more other words, and including any abbreviations or derivations of such
name, is an asset of CompuServe and will be an asset solely of CompuServe
immediately following the Closing. Nothing in this Agreement constitutes a
license or transfer of rights in or with respect to the word "CompuServe" or any
such abbreviation or derivation to H&R Block, Block Group or any other Person
(except WorldCom) after the Closing and neither H&R Block, Block Group nor any
such other Person shall use or purport to use, license or otherwise transfer the
word "CompuServe" or any such abbreviation or derivation for any business
purpose after the Closing. Following the Closing, each of H&R Block and Block
Group agrees to take all actions and to execute all documents and certificates
as WorldCom may reasonably request to effectuate the intention of this Section
8.18.
8.19 Affiliate Letters. At least 30 days prior to the Closing
Date, H&R Block, Block Group and CompuServe shall deliver to WorldCom a list of
names and addressees of those persons who were, in the reasonable judgment of
H&R Block, Block Group or CompuServe, as the case may be, at the record date for
the CompuServe Stockholders Meeting, "affiliates" (each such Person, a "Rule 145
Affiliate") of either H&R Block, Block Group or CompuServe within
49
the meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act. H&R Block and Block Group shall execute and deliver, and H&R
Block, Block Group and CompuServe shall use all reasonable efforts to deliver or
cause to be delivered to WorldCom, prior to the Closing Date, from each of their
respective Rule 145 Affiliates identified in the foregoing list, an Affiliate
Letter in the form attached as Exhibit C. WorldCom shall be entitled to place
legends as specified in such Affiliate Letters on the certificates evidencing
any WorldCom Common Shares to be received by such Rule 145 Affiliates pursuant
to the Merger and terms hereof, and to issue appropriate stop transfer
instructions to the transfer agent for the WorldCom Common Shares, consistent
with the terms of such Affiliate Letters.
8.20 Noncompete and Nonsolicitation Agreement. Subject to the
satisfaction of the conditions to its obligations in Article X, below, each of
H&R Block and Block Group shall execute and deliver to WorldCom at the Closing,
without further consideration, a noncompete and nonsolicitation agreement in
substantially the form attached hereto as Exhibit D (the
"Noncompete/Nonsolicitation Agreement").
8.21 Facilities Agreements. H&R Block hereby agrees that, for a
period of two years following the Closing, it will not terminate any of the
sublease agreements in effect on the date of this Agreement between H&R Block or
a H&R Block Entity, as sublessor, and CompuServe or a CompuServe Entity, as
sublessee, governing the use by CompuServe or such CompuServe Entity of office
space for the operation of communications processors and attendant equipment,
provided, however, that H&R Block or such H&R Block Entity may terminate any
such agreement in accordance with its terms if (i) H&R Block's or such H&R Block
Entity's tenancy under the applicable master lease agreement is terminated at
any time or (ii) CompuServe or such CompuServe Entity defaults in payment of
rent reserved under such sublease or shall materially breach or violate any
other term, covenant or condition of such sublease or of the applicable master
lease agreement.
8.22 SEC and Stockholder Filings. Each of CompuServe and WorldCom
shall send to the other 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.
8.23 Takeover Statutes. If any "fair price," "moratorium," "business
combination," "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 Section 203 of the DGCL, is or may become
-----------------
applicable to the Merger or the Stockholders Agreement, CompuServe, H&R Block
and the members of their respective Boards of Directors will grant such
approvals, and take such actions as are necessary so that the transactions
contemplated by this Agreement and the Stockholders 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.
8.24 Comfort Letters. (a) Upon the request of WorldCom, CompuServe
shall use reasonable business efforts to provide to WorldCom prior to the
Effective Time "comfort letters" from the independent certified public
accountants for CompuServe and the CompuServe Entities
50
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 CompuServe and WorldCom, covering such matters as WorldCom
shall reasonably request with respect to facts concerning the financial
condition of CompuServe and the CompuServe Entities and customary for such
certified public accountants to deliver in connection with a transaction similar
to the Merger.
(b) Upon the request of CompuServe, WorldCom shall use reasonable
business efforts to provide to CompuServe prior to the Effective Time "comfort
letters" from the independent certified public accountants for WorldCom and the
WorldCom Entities 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 CompuServe and WorldCom, covering such matters as
CompuServe shall reasonably request with respect to facts concerning the
financial condition of WorldCom and the WorldCom Entities and customary for such
certified public accountants to deliver in connection with a transaction similar
to the Merger.
8.25 Interim Conduct of WorldCom. WorldCom covenants and agrees with
H&R Block, Block Group and CompuServe that, except (i) as contemplated in this
Agreement, or (ii) with the prior written consent of H&R Block, which consent
shall not be unreasonably withheld, after the date hereof and until the earlier
of the termination of this Agreement pursuant to Article XI and the Closing
Date:
(a) WorldCom will not declare, set aside or pay any dividend or other
distribution payable in cash, stock, securities or property other than cash or
stock dividends on preferred stock or stock dividends;
(b) WorldCom will not adopt a plan of complete or partial liquidation,
dissolution or recapitalization of WorldCom; and
(c) Neither WorldCom nor any WorldCom Entity will enter into an
agreement, contract, commitment or arrangement to do any of the foregoing, or
authorize, recommend, propose or announce an intention to do any of the
foregoing.
8.26 Stock Options. WorldCom and CompuServe hereby agree that all
CompuServe Stock Options, including all rights, options or similar rights to
acquire CompuServe Common Stock, shall be canceled as of the Effective Time
without any further liability or obligation of CompuServe thereunder in
accordance herewith. On or as soon as practicable following the date of this
Agreement and prior to the Effective Time, the Board of Directors of CompuServe
(or, if appropriate, any committee administering the CompuServe Stock Option
Plans), shall adopt such resolutions or take such other actions as may be
required to cause all CompuServe Stock Options not previously exercised in
accordance with their terms to be canceled effective immediately prior to the
Effective Time (or earlier if permitted under the terms thereof), and only
entitle the holders thereof, upon surrender thereof, to receive an amount in
cash as set forth on Schedule 8.26 (the "CompuServe Stock Option Payments").
-------------
51
ARTICLE IX
TAX MATTERS
9.1 Section 338 Election. (a) The parties intend that the
acquisition of CompuServe by WorldCom through the Merger will constitute a
qualified stock purchase within the meaning of Section 338(d)(3) of the Code. In
order to effectuate such intent:
(i) Block Group acknowledges that pursuant to the terms of this
Agreement, as a consequence of the Merger it has the right to receive in
exchange for its shares of CompuServe Common Stock either (A) shares of
WorldCom Common Stock or (B) both shares of WorldCom Common Stock and
cash, as provided in Section 1.3(a)(ii) above, in either case subject to
receipt of cash in lieu of fractional shares as provided in Section 1.3(b)
above. In order to allow the transaction contemplated by this Agreement to
constitute a qualified stock purchase under Section 338 of the Code and not
a tax-free reorganization, by executing this Agreement Block Group hereby
elects to receive both shares of WorldCom Common Stock and cash, as
provided in Section 1.3(a)(ii), and agrees that such election shall be
irrevocable.
(ii) H&R Block (as the common parent of the selling consolidated
group within the meaning of Section 338(h)(10) of the Code), WorldCom and
CompuServe shall jointly make timely and irrevocable elections under
Section 338(h)(10) of the Code (which elections shall be made with respect
to the CompuServe and each of the eligible CompuServe Entities requested by
WorldCom) and, if permissible, similar elections under any applicable
state, local or foreign income tax laws (jointly, the "Elections"). H&R
Block and WorldCom agree to report the transfer of the CompuServe Common
Shares (and the deemed sale of the shares of the affected CompuServe
Entities) under this Agreement consistent with such Election and agree not
to take any action that could cause such Election to be invalid, and shall
take no position contrary thereto unless required to do so pursuant to a
determination (as defined in Section 1313(a) of the Code or any similar
state, local or foreign tax provision).
(b) (i) To the extent possible, WorldCom, H&R Block, and CompuServe
agree to execute at the Closing any and all forms necessary to effectuate the
Election (including Internal Revenue Service Form 8023-A and any similar forms
under applicable state, local and foreign income tax laws (the "Section 338
Forms")). In the event, however, any Section 338 Forms are not executed at the
Closing, WorldCom, H&R Block and CompuServe agree to prepare and complete each
such Section 338 Form no later than 10 Business Days prior to the date such
Section 338 Form is required to be filed. H&R Block and WorldCom shall each
cause the Section 338 Forms to be duly executed by an authorized person for H&R
Block and WorldCom, in each case, and shall duly and timely file the Section 338
Forms in accordance with applicable tax laws and the terms of this Agreement.
52
(ii) As soon as practicable after the Closing Date, WorldCom shall
deliver to H&R Block a written notice setting forth (with reasonable
specificity) WorldCom's good faith calculation of (1) the Modified
Aggregate Deemed Sales Price (as defined below) and the allocation thereof
among the assets of CompuServe and of the affected CompuServe Entities in
accordance with the principles of Treasury Regulation (S)1.338(h)(10)-
1(f)(1)(ii) and (2) the adjusted grossed-up basis of the assets of
CompuServe and of the assets of the affected CompuServe Entities pursuant
to Treasury Regulation (S)1.338(h)(10) - 1(e)(5) (the "Deemed Purchase
Price") (collectively, "Buyer's Allocation"). Within 20 Business Days
after receipt thereof, H&R Block shall deliver to WorldCom written notice
indicating whether H&R Block agrees or disagrees with Buyer's Allocation.
If H&R Block agrees with Buyer's Allocation or if H&R Block fails to
deliver such written notice within such 20 Business Days, Buyer's
Allocation shall constitute the "Agreed Allocation." If H&R Block provides
timely written notice to WorldCom of any disagreement with Buyer's
Allocation, the Agreed Allocation shall be determined through the Tax
Settlement Procedure. Except as determined to the contrary by the
appropriate taxing authority upon an audit of its (or its Affiliates') Tax
Returns, each of H&R Block, CompuServe, the affected CompuServe Entities
and WorldCom shall file all Tax Returns consistent with the Agreed
Allocation. For purposes of this Section 9.1, the term "Modified Aggregate
Deemed Sales Price" shall mean the amount resulting from the Elections,
determined pursuant to Treasury Regulation (S)1.338(h)(10)-1(f) without
regard to items described in Treasury Regulation (S)1.338(h)(10)-
1(f)(4)(ii) (it being understood that H&R Block may take such items into
account in filing Tax Returns).
(c) For purposes of this Agreement, the "Tax Settlement Procedure" is as
follows:
Upon receipt by H&R Block or by WorldCom, as the case may be (the
"Calculating Party"), of notice from the other party (the "Disputing Party") of
disagreement with any Tax calculation or determination supplied by the
Calculating Party, the Calculating Party and the Disputing Party shall begin
good faith negotiations to resolve such disagreement. If the Calculating Party
and the Disputing Party are able to resolve such disagreement within ten
Business Days after the Calculating Party's receipt of notice of disagreement
(or any longer period mutually agreed to by the parties), the relevant amount
will become the amount agreed upon by the Calculating Party and the Disputing
Party. If the Calculating Party and the Disputing Party are unable to resolve
any disagreement within ten (10) Business Days after the Calculating Party's
receipt of notice of disagreement, the Calculating Party and the Disputing Party
shall jointly request the national office of Xxxxxx Xxxxxxxx LLP, or, if such
firm is unavailable, another independent nationally recognized auditing firm
selected by the parties (the "Tax Settlement Auditor") to resolve any issue in
dispute as soon as possible and shall cooperate with the Tax Settlement Auditor
to resolve such dispute. The Tax Settlement Auditor shall make a determination
with respect to all disputed issues, which determination shall be set forth in a
written report delivered to the Calculating Party and the Disputing Party. The
Calculating Party and the Disputing Party shall each pay one-half of the fees
and expenses of the Tax Settlement Auditor with respect to such determination.
53
9.2 Tax Indemnification. (a) H&R Block and the H&R Block Entities
(other than CompuServe and the CompuServe Entities) jointly and severally shall
be responsible for, shall pay or cause to be paid, and shall indemnify and hold
harmless WorldCom and WAC and, after the Closing, CompuServe and the CompuServe
Entities (subject to the obligations of CompuServe and the CompuServe Entities
to make payments under Section 9.2(j)) and each of their respective successors-
in-interest from and against any and all Losses and Expenses for or in respect
of each of the following:
(i) Any and all Taxes with respect to any taxable period of CompuServe
or any of the CompuServe Entities (or any predecessor) ending on or before
the Closing Date (including any and all Taxes arising as a result of the
Elections), but excluding any transactions occurring after the Closing
(other than the Elections) which are not related to the Merger and the
other transactions contemplated by this Agreement ("Excluded
Transactions");
(ii) Any and all Taxes resulting from CompuServe or any of the
CompuServe Entities (or any predecessor) having been (or ceasing to be)
included in any affiliated, consolidated, combined or unitary Tax Return
that included CompuServe or any of the CompuServe Entities (or any
predecessor) for any taxable period (or portion thereof) ending on or
before the Closing Date (including any liability for Taxes resulting from
an acceleration of an "intercompany transaction" within the meaning of
Treasury Regulation (S)1.1502-13(d), any deferred income triggered by
Treasury Regulation (S)1.1502-14, and any excess loss accounts taken into
income under Treasury Regulation (S)1.1502-19 or any analogous or similar
provisions under state, local or foreign law or any predecessor provision
or regulation) that occurred on or before the Closing Date (but excluding
the Excluded Transactions);
(iii) Any and all Taxes of any member of an affiliated, consolidated,
combined or unitary group (other than CompuServe or any CompuServe Entity)
of which CompuServe or any CompuServe Entity (or any predecessor) is or was
a member on or prior to the Closing Date, by reason of the liability of
CompuServe or any CompuServe Entity (i) pursuant to Treasury Regulation
(S)1.1502-6(a) or any analogous or similar state, local or foreign law or
regulation, (ii) as a transferee or successor, or (iii) by contract or
otherwise (including under any Tax sharing, Tax indemnity, Tax allocation
or similar contracts (whether or not written) to which CompuServe or any of
the CompuServe Entities, any predecessor of CompuServe or any of the
CompuServe Entities, or any transferor to CompuServe or any of the
CompuServe Entities, is a party or is obligated thereunder;
(iv) Any and all Employment and Withholding Taxes with respect to all
periods prior to and as of the Closing Date;
(v) To the extent not previously paid, any and all real property Taxes
allocable to CompuServe or any CompuServe Entity (or any predecessor)
pursuant to Section 9.2(c) hereof (excluding real property Taxes resulting
from the Excluded Transactions
54
and any increase in real property Taxes arising from a revaluation of the
property as a result of the sale of the CompuServe Common Shares or the
Elections);
(vi) Any and all Taxes allocable to H&R Block, CompuServe or any
CompuServe Entity pursuant to Section 9.2(c) hereof and not previously paid
thereunder; and
(vii) Any breach of any representation or warranty contained in
Section 3.10 or of any covenant of H&R Block or any other H&R Block Entity
contained in Section 9.2.
(b) WorldCom agrees to indemnify and hold harmless H&R Block and the other
H&R Block Entities from and against (and H&R Block and the other H&R Block
Entities shall have no liability under Section 9.2(a) on account of) any and all
Losses and Expenses for or in respect of any and all Taxes of CompuServe or any
of the CompuServe Entities (or any predecessor) that are not described in
Section 9.2(a) (including Taxes resulting from an Excluded Transaction).
(c) H&R Block and WorldCom shall, to the extent permitted by applicable
law, elect with the relevant taxing authority to close the taxable period of
CompuServe and the CompuServe Entities on the Closing Date. In any case where
applicable law does not permit CompuServe or any CompuServe Entity to close its
taxable year on the Closing Date (and in the case of Taxes described in Section
9.2(a)(v)), Taxes attributable to the taxable period of CompuServe or any
CompuServe Entity beginning on or before and ending after the Closing Date shall
be allocated (i) to H&R Block for the period up to and including the Closing
Date (excluding any Excluded Transaction and any increase in real property Taxes
arising from a revaluation of the property as a result of the merger or the
Elections), and (ii) to WorldCom, CompuServe or any CompuServe Entity, as
appropriate, for the period subsequent to the Closing Date (including any
Excluded Transaction and any increase in real property Taxes arising from a
revaluation of the property as a result of the merger or the Elections). Any
allocation required to determine any Taxes attributable to any period beginning
on or before and ending after the Closing Date (including any Taxes resulting
from a Tax audit or administrative or court proceeding) shall be made by means
of a closing of the books and records of CompuServe and the CompuServe Entities
as of the close of business on the Closing Date, excluding any Excluded
Transaction, and, to the extent not susceptible to such allocation, by
apportionment on the basis of elapsed days, except that extraordinary items
described in Treasury Regulation (S)1.1502-76(b)(2)(ii)(C) shall be allocated to
the day that they are taken into account. Real property Taxes (excluding those
arising from any Excluded Transaction and any increase in such Taxes arising
from a revaluation of the property as a result of the merger or the Elections)
shall be allocated on the basis of elapsed days.
(d) (i) Promptly after receipt by WorldCom, WAC, CompuServe or any of the
CompuServe Entities of written notice of the assertion or commencement of
any claim, audit, examination, or other proposed change or adjustment by
any taxing authority concerning any Tax covered by Section 9.2(a) (each a
"Tax Claim"), WorldCom shall notify H&R Block. Such notice shall contain
factual information (to the extent known by
55
WorldCom, CompuServe or any of the CompuServe Entities) describing the
asserted Tax Claim in reasonable detail and shall include copies of any
notice or other document received from any taxing authority in respect of
any such asserted Tax Claim. The failure of WorldCom to give H&R Block
prompt notice as provided herein shall not relieve H&R Block of any of its
obligations under Section 9.2, except and only to the extent that H&R Block
is materially prejudiced by such failure.
(ii) H&R Block shall promptly notify WorldCom of the commencement of
any claim, audit, examination or other proposed change or adjustment by any
taxing authority which could reasonably be expected to affect the liability
of CompuServe or any of the CompuServe Entities for Taxes. Such notice
shall contain factual information (to the extent known by H&R Block or any
H&R Block Entities) describing the asserted Tax Claim in reasonable detail
and shall include copies of any notice or other document received from any
taxing authority in respect of any such asserted Tax Claim. The failure of
H&R Block to give WorldCom prompt notice as provided herein shall not
relieve WorldCom of any of its obligations under Section 9.2, except and
only to the extent that WorldCom or any of the WorldCom Entities (including
CompuServe and any of the CompuServe Entities) is materially prejudiced by
such failure.
(iii) H&R Block shall have the sole right to represent CompuServe's
or any of the CompuServe Entities' interests in any Tax audit or
administrative or court proceeding relating to any Tax covered by Section
9.2(a) and to employ counsel of its choice, provided that if the results of
such Tax audit or proceeding could reasonably be expected to be material to
WorldCom, CompuServe, any of the CompuServe Entities or their Affiliates
for any taxable period including or ending after the Closing Date, then H&R
Block and WorldCom shall jointly control the defense and settlement of any
such Tax audit or proceeding and each party shall cooperate with the other
party at its own expense and there shall be no settlement or closing or
other agreement with respect thereto without the consent of the other
party, which consent shall not be unreasonably withheld; provided, however,
for a Tax audit or proceeding with respect to any Seller Consolidated and
Combined Return, WorldCom shall only be entitled to participate actively
with respect to those issues as to which they have an interest and not
control jointly the settlement of the entire audit. H&R Block shall
promptly notify WorldCom if it decides not to control the defense or
settlement of any such Tax audit or administrative or court proceeding and
WorldCom thereupon shall be permitted to defend and settle such Tax audit
or proceeding.
(e) (i) H&R Block shall properly prepare or cause to be properly
prepared, and shall timely file or cause to be timely filed, (x) all Tax
Returns which include CompuServe or any CompuServe Entities required to be
filed on or before the Closing Date, and (y) all Tax Returns which include
CompuServe or any CompuServe Entities or their assets or operations for all
taxable periods of CompuServe and of the CompuServe Entities ending on or
before the Closing Date (which Tax Returns shall include CompuServe and the
CompuServe Entities and the reportable items from the assets or operations
of CompuServe and the CompuServe Entities through and including the
56
Closing Date). Such Tax Returns (insofar as they relate to CompuServe or
any of the CompuServe Entities) shall be prepared in a manner consistent
with past practices and prior audit adjustments and H&R Block shall pay or
cause to be paid all Taxes shown as due on such Tax Returns or otherwise
levied or assessed upon CompuServe or any of the CompuServe Entities or any
of their assets on or prior to the Closing Date. Insofar as they relate to
CompuServe and the CompuServe Entities, such Tax Returns shall be provided
to WorldCom for WorldCom's review and comment 20 Business Days prior to
filing, and WorldCom shall be entitled to suggest to H&R Block any
reasonable changes to such Tax Returns, which suggestions may be rejected
by H&R Block in its discretion. H&R Block shall, subsequent to the Closing
Date, provide written notice to WorldCom of its intent to file any amended
Tax Return or claim for refund with respect to any taxable period ending on
or prior to the Closing Date that could reasonably be expected to be
material to WorldCom, CompuServe, any of the CompuServe Entities, or their
Affiliates for any taxable period including or ending after the Closing
Date, and H&R Block shall not make such filing without the consent of
WorldCom, which consent shall not be unreasonably withheld.
(ii) Except as set forth in clause (i) above, WorldCom shall be
responsible for the filing and payment (subject to WorldCom's right to
indemnification to the extent provided in Section 9.2(a)) of all other Tax
Returns required to be filed after the Closing Date by or on behalf of
CompuServe and any of the CompuServe Entities, or with respect to their
assets and operations. WorldCom shall, subsequent to the Closing Date,
provide written notice to H&R Block of its intent to file any amended Tax
Return that could reasonably be expected to be material to H&R Block, and
WorldCom shall not make such filing without the consent of H&R Block, which
consent shall not be unreasonably withheld.
(iii) With respect to any Tax Return required to be filed by WorldCom
for a taxable period of CompuServe or any of the CompuServe Entities
beginning on or before the Closing Date and ending after the Closing Date,
WorldCom shall deliver, at least 30 Business Days prior to the due date for
filing such Tax Return (including extensions), to H&R Block a statement
setting forth the amount of Tax allocated to H&R Block pursuant to Section
9.2(c), (the "Tax Statement") and copies of such Tax Returns, and WorldCom
shall cause CompuServe and the CompuServe Entities to pay all Taxes shown
as due on such Tax Returns. H&R Block shall have the right to review such
Tax Return and the Tax Statement prior to the filing of such Tax Return and
to suggest to WorldCom any reasonable changes to such Tax Returns. Any
disagreement between the parties will be resolved through the Tax
Settlement Procedure. If the Tax Settlement Auditor is unable to make a
determination with respect to any disputed issue within five Business Days
prior to the due date (including extensions) for the filing of the Tax
Return in question, then WorldCom may file such Tax Return on the due date
(including extensions) therefor without such determination having been made
and without H&R Block's consent. Notwithstanding the filing of such Tax
Return, the Tax Settlement Auditor shall make a determination with respect
to any disputed issue, and the amount of Taxes that are allocated to H&R
Block pursuant to Section 9.2(c) or Section 9.2(a)(v), as the case may
57
be, shall be as determined by the Tax Settlement Auditor. The fees and
expenses of the Tax Settlement Auditor shall be paid one-half by WorldCom,
on the one hand, and one-half by H&R Block, on the other. Nothing in this
Section 9.2(e)(iii) shall excuse H&R Block from its indemnification
obligations pursuant to Section 9.2 hereof if the amount of Taxes as
ultimately determined (on audit or otherwise), for the periods covered by
such Tax Returns and which are allocable to H&R Block pursuant to Section
9.2(c) or Section 9.2(a)(v), as the case may be, exceeds the amount
determined under this Section 9.2(e)(iii).
(iv) H&R Block and WorldCom shall cooperate fully with each other and
make available to each other in a timely fashion such Tax data and other
information as may be reasonably required by H&R Block or WorldCom for the
preparation and timely filing of any Tax Returns required to be prepared
and filed by H&R Block, WorldCom, CompuServe or any CompuServe Entity
hereunder (or by AOL as assignee of the Online Services Business) or in
connection with the preparation or filing of any election, claim for
refund, consent or certification.
(f) H&R Block and WorldCom shall provide to each other, and WorldCom shall
cause CompuServe and the CompuServe Entities to provide to H&R Block, full
access, at any reasonable time and from time to time, at the business location
at which the books and records are maintained, after the Closing Date, to such
Tax data of CompuServe and the CompuServe Entities as H&R Block or WorldCom, as
the case may be, may from time to time reasonably request and shall furnish, and
request the independent accountants and legal counsel of H&R Block, WorldCom,
CompuServe and the CompuServe Entities to furnish to H&R Block, WorldCom,
CompuServe and the CompuServe Entities as the case may be, such additional Tax
and other information and documents in the possession of such persons as H&R
Block, WorldCom, CompuServe and the CompuServe Entities may from time to time
reasonably request.
(g) Any claim for indemnity hereunder may be made at any time prior to 60
Business Days after the expiration of the applicable Tax statute of limitations
with respect to the relevant taxable period (including all extensions obtained,
whether automatic or permissive).
(h) The party seeking indemnification or other payment pursuant to this
Section 9.2 shall give the other party written notice of claim for
indemnification or payment, which notice shall include a calculation of the
amount of the requested indemnity or other payment and shall furnish to the
other party copies of all books, records and other information reasonably
requested by the other party to the extent necessary to substantiate such claim
and verify the amount thereof. If reasonably necessary in order to make or
substantiate a claim (or to determine if a claim should be made), each party
shall be permitted access to the other party's books, records and other
information in connection therewith. The party requested to make any indemnity
or other payment pursuant to this Section 9.2 shall deliver to the party
requesting payment, within 20 Business Days after receiving both the foregoing
notice and all books, records and other information reasonably requested by it,
a detailed statement describing its objections (if any) thereto. Any such
objections will be resolved through the Tax Settlement Procedure.
58
(i) H&R Block shall be responsible for, shall pay or cause to be paid, and
shall indemnify and hold harmless WorldCom, WAC, CompuServe, and the CompuServe
Entities, from and against any Losses and Expenses arising after the Closing
Date arising under any Tax sharing, Tax indemnity, Tax allocation or similar
contracts (whether or not written) to which CompuServe or any of the CompuServe
Entities, any predecessor of CompuServe or any of the CompuServe Entities, or
any transferor to CompuServe or any of the CompuServe Entities, is a party or is
obligated thereunder (other than the tax sharing agreement between H&R Block and
CompuServe dated April 22, 1996), in each case on or prior to the Closing Date.
None of WorldCom, WAC, CompuServe or any of the CompuServe Entities shall have
any liability pursuant to any such agreement after the Closing Date.
(j) All Tax sharing agreements between H&R Block and CompuServe shall
be terminated as of the Closing Date except for the Tax Sharing Agreement
between CompuServe and H&R Block dated April 22, 1996, as currently in effect,
which shall continue to apply as provided therein, except to the extent
inconsistent with the provisions of this Section 9.2, it being the intent of the
parties that CompuServe shall be entitled to all the benefits payable and shall
be subject to all the liabilities under that agreement (subject to adjustment as
provided therein) with respect to the taxable periods it was a member of the H&R
Block Group (as defined in that agreement); provided, however, any amounts due
and payable under that agreement shall be computed without taking into account
the Taxes resulting from the Elections (i.e., as though the Elections were not
made) to the extent such Tax liabilities are subject to indemnification under
Section 9.2.
9.3 Tax Related Adjustments. (a) H&R Block and WorldCom agree that any
indemnity payment made under this Agreement shall be treated by the parties on
their Tax Returns as an adjustment to the Exchange Ratio. If, notwithstanding
such treatment by the parties, any indemnity payment is determined to be taxable
to (i) H&R Block (other than as an adjustment to the Exchange Ratio) or (ii)
WorldCom, WAC, CompuServe or any CompuServe Entity, for federal income Tax
purposes by the IRS, the indemnifying party shall indemnify the indemnified
party for any additional federal income Taxes payable by the indemnified party
by reason of the receipt or accrual of such indemnity payment (including any
payments under this Section 9.3).
(b) An indemnity payment otherwise due and payable hereunder shall be
decreased (but not below zero) to the extent of any net actual reduction in
federal income Tax liability that is actually realized by the indemnified party
at the time of its payment of an indemnifiable loss.
(c) WorldCom shall pay to H&R Block, any refund of any Tax for which H&R
Block is responsible under Section 9.2(a) other than as a result of a carryback
of any credit or deduction from a taxable year ending after the Closing Date.
WorldCom shall pay to H&R Block such refund (including interest received
thereon) (reduced by any actual Tax increase or actual Tax detriment to
WorldCom, WAC, CompuServe or any of the CompuServe Entities as a result of the
receipt thereof, but increased by any actual Tax benefit resulting from such
payment) promptly upon receipt thereof by the recipient thereof. WorldCom
shall, if H&R Block requests,
59
cause the relevant entity to file for and obtain any refunds or equivalent
amounts to which H&R Block is entitled under this Section 9.3(c), and WorldCom
shall permit H&R Block to principally control the prosecution of any such refund
claim, provided, however, that WorldCom must consent to any such refund claim,
which consent may not be unreasonably withheld, and that any such refund claim
shall be at the sole expense of the H&R Block.
9.4 Transfer Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) ("Transfer Taxes") incurred in connection with the effectuation of the
Merger and all transactions pursuant to this Agreement (including the Elections)
shall be shared equally by H&R Block and WorldCom.. Any Tax Returns that must
be filed in connection with Transfer Taxes shall be prepared by H&R Block. At
least 20 Business Days prior to the date such Tax Returns are to be filed, H&R
Block shall provide copies of any such Tax Returns to WorldCom for WorldCom's
review. Any dispute as to the amount of such Taxes shall be resolved in
accordance with the Tax Settlement Procedure. H&R Block and WorldCom shall
cooperate in the timely completion and filing of all such Tax Returns.
ARTICLE X
CONDITIONS TO CLOSING
10.1 Mutual Conditions. The respective obligations of each party to
consummate the Merger shall be subject to the satisfaction, at or prior to the
Closing, of the following conditions:
(a) The holders of the requisite number of CompuServe Common Shares
shall have duly and validly approved and adopted this Agreement;
(b) Any mandatory waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act, any foreign
competition law or similar law shall have expired or been terminated;
(c) No Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, injunction or other order,
whether temporary, preliminary or permanent, which is in effect and which has or
would have the effect of making the transactions contemplated by this Agreement
illegal or restraining or prohibiting consummation of such transactions;
(d) The Registration Statement shall have been declared effective, no
stop order with respect to the Registration Statement shall be in effect, and no
proceeding for that purpose shall have been instituted or threatened by the SEC;
(e) The WorldCom Common Shares to be issued in connection with the
Merger shall have been approved for quotation on NASDAQ, subject to official
notice of issuance; and
60
(f) There shall not have occurred and be continuing any general
banking moratorium in the United States or any general suspension of trading of
securities on any national stock exchange or in the over-the-counter market.
10.2 Conditions to Obligations of WorldCom and WAC. The obligations of
WorldCom and WAC to consummate the Merger shall be subject to the satisfaction,
at or prior to the Closing, of the following conditions (any of which may be
waived prior to the Closing by WorldCom):
(a) The representations and warranties of H&R Block, Block Group and
CompuServe set forth in this Agreement that are qualified by Material Adverse
Effect or otherwise as to materiality shall be true and correct, and those that
are not so qualified shall be true and correct except for failures to be true
and correct as would not have a Material Adverse Effect on CompuServe, as of the
date of this Agreement and as of the Closing as though made at and as of the
Closing, except to the extent that such representations and warranties expressly
relate to a specific earlier date (in which case such representations and
warranties that are qualified by a Material Adverse Effect shall be true and
correct, and those that are not so qualified shall be true and correct except
for failures to be true and correct as would not, individually or in the
aggregate, have a Material Adverse Effect on CompuServe, on and as of such
earlier date). None of the representations or warranties regarding CompuServe
or any of the CompuServe Entities contained in Article III, disregarding any
qualifications regarding materiality (including any reference to Material,
Material Adverse Change or Material Adverse Effect), shall be untrue or
incorrect, except for such untrue or incorrect representations or warranties
that, when taken together as a whole, do not constitute a Material Adverse
Effect.
(b) Neither CompuServe nor any CompuServe Entity shall have suffered
a Material Adverse Change from the date of the CompuServe Balance Sheet to the
Closing Date.
(c) Each of the covenants and agreements of H&R Block, CompuServe and
Block Group to be performed or observed at or prior to the Closing Date pursuant
to the terms hereof shall have been duly performed or observed except where such
failure would not have a Material Adverse Effect on CompuServe or would not
materially impair the ability of H&R Block, Block Group or CompuServe to
consummate the Merger and the other transactions contemplated hereby.
(d) WorldCom shall have been furnished with certificates, executed by
duly authorized officers of H&R Block, CompuServe and Block Group, as the case
may be, dated the Closing Date, certifying as to the fulfillment of the
conditions set forth in the immediately preceding clauses (a) and (c) and
Section 10.1(a), which certificates shall constitute a restatement of each such
party's representations and warranties as of the Closing Date, except to the
extent a representation or warranty is specifically limited to a particular
date.
(e) WorldCom shall have received opinions of counsel to H&R Block,
Block Group and CompuServe, dated as of the Closing Date, in form and substance
reasonably satisfactory to WorldCom, covering the matters set forth in Exhibit
E.
61
(f) No Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, injunction or other order,
whether temporary, preliminary or permanent, which is in effect which would
impose Material restrictions on the conduct of WorldCom's business or
CompuServe's business following consummation of the Merger.
(g) WorldCom shall have received the opinion of counsel to WorldCom,
dated as of the Closing Date, in form and substance reasonably satisfactory to
WorldCom, covering the Tax matters set forth in Exhibit F.
(h) Each of H&R Block and Block Group shall have executed and
delivered to WorldCom an Affiliate Letter in the form attached hereto as Exhibit
C executed by an authorized officer of each of H&R Block and Block Group.
(i) The Standstill Agreement shall have been duly and validly executed
and delivered by each of H&R Block and Block Group to WorldCom and shall be a
valid and binding obligation of each of H&R Block and Block Group enforceable
against H&R Block and Block Group in accordance with its terms.
(j) The Noncompete/Nonsolicitation Agreement in the form attached as
Exhibit D shall have been duly and validly executed and delivered by each of H&R
Block and Block Group to WorldCom and shall be a valid and binding obligation of
each of H&R Block and Block Group enforceable against H&R Block and Block Group
in accordance with its terms.
(k) The conditions to closing set forth in Section 7.1(a) (in the form
existing as of the date of this Agreement) of the Purchase and Sale Agreement,
dated as of the date of this Agreement, by and among WorldCom, AOL and ANS shall
have been satisfied or waived by the applicable party.
10.3 Conditions to Obligations of H&R Block, Block Group and
CompuServe. The obligations of H&R Block, Block Group and CompuServe to
consummate the Merger shall be subject to the satisfaction, at or prior to the
Closing, of the following conditions (any of which may be waived prior to the
Closing by H&R Block, Block Group or CompuServe):
(a) The representations and warranties of WorldCom and WAC set forth
in this Agreement that are qualified by Material Adverse Effect or otherwise as
to materiality shall be true and correct, and those that are not so qualified
shall be true and correct except for failures to be true and correct as would
not have a Material Adverse Effect on WorldCom as of the date of this Agreement
and as of the Closing as though made at and as of the Closing, except to the
extent that such representations and warranties expressly relate to a specific
earlier date (in which case such representations and warranties that are
qualified by a Material Adverse Effect shall be true and correct, and those that
are not so qualified shall be true and correct except for failures to be true
and correct as would not, individually or in the aggregate, have a Material
Adverse Effect on WorldCom, on and as of such earlier date).
62
(b) Each of the covenants and agreements of WorldCom and WAC to be
performed or observed at or prior to the Closing Date pursuant to the terms
hereof shall have been duly performed or observed except where such failure
would not have a Material Adverse Effect on WorldCom or WAC or would not
materially impair the ability of WorldCom or WAC to consummate the Merger and
the other transactions contemplated hereby.
(c) Each of CompuServe, Block Group and H&R Block shall have been
furnished with a certificate, executed by a duly authorized officer of WorldCom,
dated the Closing Date, certifying as to the fulfillment of the conditions set
forth in the immediately preceding clauses (a) and (b), which certificate shall
constitute a restatement of WorldCom's and WAC's representations and warranties
as of the Closing Date, except to the extent a representation or warranty is
specifically limited to a particular date.
(d) Each of CompuServe, Block Group and H&R Block shall have received
opinions of counsel to WorldCom, dated as of the Closing Date, in form and
substance reasonably satisfactory to H&R Block, Block Group and CompuServe,
covering the matters set forth in Exhibit G.
(e) Each of Block Group and H&R Block shall have received the opinion
of counsel of Block Group and H&R Block, dated as of the Closing Date, covering
the Tax matters set forth in Exhibit H.
(f) The Registration Rights Letter in the form attached as Exhibit I shall
have been duly and validly executed and delivered by WorldCom to Block Group and
shall be a valid and binding obligation of WorldCom enforceable against it in
accordance with its terms.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination. This Agreement may be terminated at any time prior
to the Closing, whether before or after adoption and approval of the CompuServe
Proposal by the holders of CompuServe Common Shares:
(a) By mutual written consent of WorldCom, H&R Block, Block Group and
CompuServe;
(b) by any of WorldCom, H&R Block, Block Group or CompuServe if the
Closing shall not have occurred on or before March 1, 1998, unless the
failure to do so is the result of a breach of this Agreement by the
party seeking to terminate this Agreement (for which purposes
CompuServe shall be deemed to include H&R Block and Block Group, if
CompuServe is seeking to terminate this Agreement, and each of H&R
Block and Block Group shall be deemed to include CompuServe and each
other, if either H&R Block or Block Group is seeking to terminate this
Agreement);
63
(c) by WorldCom, if there occurs a breach by H&R Block, Block Group or
CompuServe under Section 8.14;
(d) by WorldCom, in the event of a breach by H&R Block, Block Group or
CompuServe of any representation, warranty, covenant or other
agreement contained in this Agreement which (i) would result in the
failure of a condition set forth Section 10.2 and (ii) cannot be or
has not been cured by March 1, 1998 (a "H&R Block Material Breach" or
a "CompuServe Material Breach," as the case may be), provided that
there is not then a WorldCom Material Breach (as hereinafter defined);
(e) by H&R Block, Block Group or CompuServe, in the event of a breach by
WorldCom of any representation, warranty, covenant or other agreement
contained in this Agreement which (i) would result in the failure of a
condition set forth in Section 10.3 and (ii) cannot be or has not been
cured by March 1, 1998 (a "WorldCom Material Breach"), provided that
there is not then a CompuServe Material Breach or H&R Block Material
Breach;
(f) by WorldCom if (i) the Board of Directors of CompuServe or any
committee thereof shall have withdrawn or modified in a manner adverse
to WorldCom its approval or recommendation of the CompuServe Proposal,
or failed to reconfirm its recommendation within fifteen business days
after a written request to do so, or approved or recommended any
Competitive Proposal or (ii) the Board of Directors of CompuServe or
any committee thereof shall have resolved to take any of the foregoing
actions;
(g) by CompuServe, if the Average Trading Price of a WorldCom Common Share
is less than $24.00.
11.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 11.1, this Agreement shall forthwith become void and be
of no further legal effect, without any liability or obligation on the part of
any party, other than the provisions of this Section 11.2 and Sections 8.4, 8.9,
11.5, 12.2, 12.3, 12.4, 12.5, 12.6, 12.7, 12.8, 12.10 and 12.11 and except that
nothing herein shall relieve any party from liability for any breach by a party
of any of its representations, warranties, covenants or agreements set forth in
this Agreement. In the event of any termination of this Agreement, the
Confidentiality Agreement shall also remain in full force and effect in
accordance with its terms.
11.3 Amendment. This Agreement may be amended by the parties at any time
before or after the approval and adoption of this Agreement by the holders of
CompuServe Common Shares; provided, however, that any such amendment shall be
consistent with the DGCL, the DLLCA and the MGBCL. This Agreement may not be
amended except by an instrument in writing signed on behalf of the party to be
charged by its duly authorized officer.
64
11.4 Waiver. Subject to the applicable provisions of the DGCL, the DLLCA
and the MGBCL, the parties hereto may waive any provision of this Agreement by a
writing signed by the party against whom the waiver is to be effective by a duly
authorized officer. No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights
herein provided shall be cumulative.
11.5 Expenses. (a) All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs and expenses, except that at the Closing, H&R Block
shall pay or reimburse all costs and expenses in excess of $2,200,000 in the
aggregate incurred by it and by CompuServe and any CompuServe Entity (including
the fees, commissions and expenses of all investment bankers, financial
advisors, legal advisors, consultants and accountants) in connection with this
Agreement and the transactions contemplated hereby and in connection with any
and all discussions, negotiations and other activities concerning any previously
contemplated possible transaction with any other Person. Notwithstanding the
foregoing, if this Agreement is terminated (i) by WorldCom, H&R Block, Block
Group or CompuServe pursuant to Section 11.1(b) after the failure of the holders
of CompuServe Common Shares to approve and adopt the CompuServe Proposal at the
CompuServe Stockholders Meeting, or (ii) by WorldCom pursuant to Section 11.1(c)
or, as a result of a willful or knowing breach, Section 11.1(d), (iii) by
WorldCom pursuant to Section 11.1(f), or (iv) by H&R Block, Block Group or
CompuServe pursuant to Section 11.1(e) as a result of a willful or knowing
breach, then in the case of clause (i), (ii) or (iii) H&R Block, Block Group and
CompuServe shall be obligated, jointly and severally, to pay, and shall
forthwith pay, to WorldCom the amount of $15,000,000 or in the case of clause
(iv), WorldCom shall be obligated to pay, and shall forthwith pay, to H&R Block,
Block Group and CompuServe the aggregate amount of $15,000,000, in each case in
immediately available funds. Further, if this Agreement is terminated pursuant
to Section 11.1(b); (A) by WorldCom and the condition set forth in Section
10.2(k) has not been satisfied or waived prior to the date of termination and no
other conditions to the parties' obligations to consummate the Merger, other
than conditions within the control of WorldCom, remain unsatisfied, or (B) by
H&R Block, Block Group or CompuServe on or after June 1, 1998, and prior thereto
the condition set forth in Section 10.2(k) has not been satisfied or waived,
WorldCom shall be obligated to pay, and shall forthwith pay, to CompuServe the
aggregate amount of $45,000,000 in immediately available funds. The parties
acknowledge and agree that any of the foregoing payments would be a non-
accountable reimbursement of certain direct and indirect expenses, costs and
lost opportunities of, consequences to and forbearances of the other party or
parties relating to discussions and negotiations regarding, and the preparation,
execution and partial performance of, this Agreement and the transactions
contemplated hereby, which amounts H&R Block, Block Group, CompuServe and
WorldCom agree is reasonable in the circumstances; provided, however, that
nothing in this Section 11.5 shall be deemed to be exclusive of any other rights
any party may have hereunder or at law or in equity for any willful or knowing
Material breach that occurred prior to the termination of this Agreement,
provided that any damages to which a party receiving a payment pursuant to this
paragraph is entitled shall be offset by such payments.
65
(b) H&R Block, Block Group, CompuServe and WorldCom acknowledge that the
provisions for the allocation of expenses in Section 11.5 are integral parts of
the transactions contemplated by this Agreement and that, without these
provisions, they would not have entered into this Agreement. Accordingly, if an
expense reimbursement or fee shall become due and payable by either party, and
such party shall fail to pay such expense or fee when due pursuant to Section
11.5, and, in order to obtain such payment, suit is commenced which results in a
judgment against such party therefor, such party shall pay the other party's
reasonable costs, fees and expenses (including reasonable attorneys' fees) in
connection with such suit, together with interest computed on any such amounts
determined to be due pursuant to Section 11.5 (computed from the date upon which
such amounts were due and payable pursuant to Section 11.5 on the basis of the
number of days elapsed) and such costs (computed from the date incurred) at the
prime or base rate of interest publicly announced from time to time by
NationsBank of Texas, N.A. for its most favored borrowers.
ARTICLE XII
MISCELLANEOUS
12.1 Representations and Warranties; Survival. The representations,
warranties, covenants and agreements in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Closing, subject to the
applicable time periods, if any, specified herein.
12.2 Notices. Any notices or other communications required or
desired to be given hereunder shall be deemed to have been properly given if
sent by hand delivery, facsimile and overnight courier, registered or certified
mail, return receipt requested, postage prepaid, to the parties hereto at the
following addresses, or at such other address as such party may advise the
others in writing from time to time by like notice:
If to WorldCom or WAC:
WorldCom, Inc.
000 Xxxx Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
66
with copies to:
WorldCom, Inc.
10777 Xxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xx. Xxxxx, Xxxxxxxx 00000
Attention: P. Xxxxx Xxxxxxxxx
Facsimile: (000) 000-0000
and
Xxxxx Xxxx LLP
Xxx Xxxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xx. Xxxxx, Xxxxxxxx 00000-0000
Attention: R. Xxxxxxx Xxxx
Facsimile: (000) 000-0000
If to H&R Block, Block Group or (prior to the Closing) CompuServe:
H&R Block, Inc.
World Headquarters
0000 Xxxx Xxxxxx
Xxxxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxxxxx
Facsimile: (000) 000-0000
with a copy to:
H&R Block, Inc.
World Headquarters
0000 Xxxx Xxxxxx
Xxxxxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxxxx
Facsimile: (000) 000-0000
and
Xxxxxxxx & Xxxxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx X. Xxxxxxxxx
Facsimile: (000) 000-0000
All such notices or other communications shall be deemed to have been duly given
on the date of hand delivery or telecopy or facsimile, if receipt is confirmed,
or on the next Business Day
67
following timely deposit of such communications with overnight courier or on the
third Business Day following the date of mailing, if delivered by registered or
certified mail.
12.3 Governing Law and Dispute Resolution. This Agreement shall be
interpreted, construed and enforced in accordance with the law of the State of
Delaware, applied without giving effect to any conflicts-of-law principles,
except to the extent that Missouri law is applicable to the internal affairs of
H&R Block or Georgia law is applicable to the internal affairs of WorldCom. Any
dispute relating to this Agreement or the transactions contemplated hereby shall
be resolved in the state courts of general jurisdiction, or the Chancery Court
if it has subject matter jurisdiction, of the State of Delaware or in the United
States District Court for the District of Delaware. Each party irrevocably
submits to such courts' exclusive jurisdiction and acknowledges that such courts
are a convenient forum and consents to service of process at the address for
such party set forth in Section 12.2.
12.4 Specific Performance. Each party acknowledges and agrees that, in
the event of an actual or threatened breach of any of the provisions of this
Agreement by such party, the harm to the others will be immediate, substantial
and irreparable and that monetary damages will be inadequate. Accordingly, each
party agrees that, in such an event, the others will be entitled to equitable
relief, including an injunction and an order of specific performance, in
addition to any and all other remedies at law or in equity.
12.5 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement or the application thereof to any Person or any
circumstance is invalid or unenforceable, (a) a suitable and equitable provision
shall be substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (b) the remainder of this Agreement and the application of such provision to
other persons, entities or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
12.6 Captions. The captions or headings in this Agreement are made for
convenience and general reference only and shall not be construed to describe,
define or limit the scope or intent of the provisions of this Agreement.
12.7 Entire Agreement. This Agreement, including all exhibits and
schedules attached hereto, contains the entire agreement of the parties and
supersedes any and all prior or contemporaneous agreements, written or oral,
between the parties with respect to the subject matter hereof, except the
Confidentiality Agreement.
12.8 Counterparts. This Agreement may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.
68
12.9 Binding Effect; Assignability. This Agreement shall be binding
on, and shall inure to the benefit of, the parties hereto, and their respective
successors and assigns. Other than the provisions of Sections 8.4, 8.17, 9.2
and 12.10, which provisions are intended to be for the benefit of, and shall be
enforceable by, the specified indemnified parties (in the case of Sections 8.4,
9.2 and 12.10), or the CompuServe Employees (in the case of Section 8.17) and
may be enforced by such beneficiaries, 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 that is not a party hereto or
thereto, or a successor or permitted assign of such party. No party may assign
or delegate any right or obligation hereunder without the prior written consent
of the other parties; provided, however, that WorldCom, WAC and, after the
Closing, CompuServe and the CompuServe Entities may assign any or all of their
rights and delegate any or all of their obligations under Sections 2.1, 2.3 8.16
(the last sentence only), 8.17 and 8.18 (the last sentence only) hereof;
provided, however, that, notwithstanding the foregoing, WorldCom shall remain
-------- -------
primarily liable for its obligations hereunder. Any assignment of rights or
delegation of obligations not in compliance herewith shall be null and void.
12.10 Director and Officer Indemnification. From and after the
Effective Time, WorldCom and the Surviving Corporation shall, jointly and
severally, indemnify, defend and hold harmless the directors and officers of
CompuServe as and to the extent provided in CompuServe'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,
provided that this Section 12.10 shall not relieve H&R Block or Block Group of
their obligations under Section 8.4 hereof. To the extent reasonably 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 CompuServe with
carriers comparable to CompuServe's existing carriers; provided, however, that
the Surviving Corporation shall not be required to pay an annual premium for
such insurance in excess of 150% of the last annual premium paid prior to the
date hereof, but in such case shall purchase as much coverage as possible for
such amount.
12.11 No Rule of Construction. The parties acknowledge that all parties
have read and negotiated the language used in this Agreement. The parties agree
that, because all parties participated in negotiating and drafting this
Agreement, no rule of construction shall apply to this Agreement which construes
ambiguous language in favor of or against any party by reason of that party's
role in drafting this Agreement.
12.12 Schedules. The Schedules in this Agreement shall be arranged in
separate parts corresponding to the numbered and lettered sections, and the
disclosure in any numbered or lettered part shall be deemed to relate to and to
qualify only the particular representation or warranty set forth in the
corresponding numbered or lettered section, and not any other representation or
warranty (unless an express and specific reference to any other Schedule which
clearly identifies the particular item being referred is set forth therein).
69
ARTICLE XIII
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
indicated below:
"Acquiring Person" has the meaning set forth in Section 3.16.
"Affiliate" means, with respect to any Person, at the time in question, any
other Person controlling, controlled by or under common control with such
Person. For purposes of this definition, "control" (including the terms
"controlling," "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities or otherwise.
"Agreed Allocation" has the meaning set forth in Section 9.1(b)(ii).
"Agreement" has the meaning set forth in the first paragraph of this
Agreement and Plan of Merger.
"ANS" means ANS Communications, Inc., a Delaware corporation and wholly
owned subsidiary of AOL.
"AOL" means America Online, Inc., a Delaware corporation.
"Average Trading Price" means the average of the daily closing prices per
WorldCom Common Share, as quoted by NASDAQ as reported in The Wall Street
---------------
Journal, Eastern Edition, or if not reported thereby, The New York Times, for
------- ------------------
the twenty consecutive full NASDAQ trading days ending on the date immediately
prior to the third full NASDAQ trading day immediately preceding the Closing
Date.
"Block Group" has the meaning set forth in the first paragraph of this
Agreement.
"H&R Block" has the meaning set forth in the first paragraph of this
Agreement.
"H&R Block Entity" or "H&R Block Entities" means any corporation, limited
liability company, partnership, limited partnership or other organization
whether incorporated or unincorporated, other than CompuServe or a CompuServe
Entity, (i) of which at least a majority of the securities or interests having
by the terms thereof ordinary voting power to elect at least a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by H&R Block and/or by any one or more of the H&R Block Entities, (ii) of which
H&R Block or any one or
70
more of the H&R Block Entities is the general partner or managing member or
(iii) which H&R Block or any one or more of the H&R Block Entities otherwise
controls.
"Business Day" means a day other than a Saturday, Sunday or a day on which
the banks in New York City are authorized or obligated by law or executive order
to close.
"Buyer's Allocation" has the meaning set forth in Section 9.1(b)(ii).
"Calculating Party" has the meaning set forth in Section 9.1(c).
"Certificate of Merger" has the meaning set forth in Section 1.1.
"Certificates" has the meaning set forth in Section 1.4.
"Closing" has the meaning set forth in Section 1.2.
"Closing Date" has the meaning set forth in Section 1.2.
"Code" means the Internal Revenue Code of 1986, as amended (including any
successor statute), and the rules and regulations promulgated thereunder.
"Competitive Proposal" has the meaning set forth in Section 8.14(a)(i).
"Confidentiality Agreement" has the meaning set forth in Section 8.9.
"CompuServe" has the meaning set forth in the first paragraph of this
Agreement.
"CompuServe Balance Sheet" has the meaning set forth in Section 3.5.
"CompuServe Benefit Plans" has the meaning set forth in Section 3.11(a).
"CompuServe Common Shares" means the shares of CompuServe Common Stock.
"CompuServe Common Stock" means the common stock, $.01 par value per share,
of CompuServe.
"CompuServe Employees" has the meaning set forth in Section 8.17(a).
"CompuServe Entity" or "CompuServe Entities" means any corporation, limited
liability company, partnership, limited partnership or other organization
whether incorporated or unincorporated (i) of which at least a majority of the
securities or interests having by the terms thereof ordinary voting power to
elect at least a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by CompuServe and/or by any one or more of the
CompuServe Entities, (ii) of which CompuServe or any one or more of the
CompuServe Entities is the general
71
partner or managing member or (iii) which CompuServe or any one or more of the
CompuServe Entities otherwise controls.
"CompuServe Material Breach" has the meaning set forth in Section 11.1(d).
"CompuServe Proposal" has the meaning set forth in Section 8.6(a).
"CompuServe Proxy Statement" has the meaning set forth in Section 8.7.
"CompuServe Rights" has the meaning set forth in Section 3.13.
"CompuServe Rights Agreement" means that certain Rights Agreement dated as
of April 19, 1996, as amended on September 7, 1997, between CompuServe and
Xxxxxx Trust and Savings Bank.
"CompuServe SEC Documents" has the meaning set forth in Section 3.5.
"CompuServe Stock Options" has the meaning set forth in Section 3.2.
"CompuServe Stock Plans" has the meaning set forth in Section 3.2.
"CompuServe Stockholders Meeting" has the meaning set forth in Section 8.6.
"CompuServe Stock Option Payments" has the meaning set forth in Section
8.26.
"CompuServe Stock Options" has the meaning set forth in Section 3.2.
"CompuServe Stock Plans" has the meaning set forth in Section 3.2.
"Deemed Purchase Price" has the meaning set forth in Section 9.1(b)(ii).
"DGCL" means the Delaware General Corporation Law.
"DLLCA" means the Delaware Limited Liability Company Act.
"Disputing Party" has the meaning set forth in Section 9.1(c).
"Distribution Date" has the meaning set forth in Section 3.16.
"Effective Time" shall have the meaning set forth in Section 1.2.
"Elections" has the meaning set forth in Section 9.1(a)(ii).
"Employment and Withholding Taxes" means all employment, payroll and
withholding Taxes payable with respect to salaries, wages, commissions, other
compensation or other
72
payments actually or constructively made by CompuServe or any CompuServe Entity
on or before the Closing Date, except to the extent such Taxes have been
withheld on or prior to the Closing Date and are required to be paid to the
appropriate taxing authority after the Closing Date.
"Environmental Laws" means any federal, state or local, domestic or foreign
statute, regulation, rule or ordinance, and any judicial or administrative
interpretation thereof, regulating the use, generation, handling, storage,
transportation, discharge, emission, spillage or other release of Hazardous
Substances or relating to the protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Exchange Agent" has the meaning set forth in Section 1.5(a).
"Exchange Ratio" has the meaning set forth in Section 1.3(a)(i).
"Excluded Transactions" has the meaning set forth in Section 9.2(a)(i).
"GAAP" means United States generally accepted accounting principles and its
foreign equivalents.
"Governmental Authorization" means any (a) permit, license, certificate,
franchise, permission, clearance, registration, qualification or authorization
issued, granted, given or otherwise made available by or under the authority of
any Governmental Entity or pursuant to any legal requirement; or (b) right under
any contract with any Governmental Entity.
"Government Contracts" has the meaning set forth in Section 3.8(e).
"Governmental Entity" means any federal, state or local government or any
court, administrative or regulatory agency, body or commission or other
government authority or agency, domestic or foreign.
"H&R Block Indemnified Parties" has the meaning set forth in Section
8.4(a).
"H&R Block Material Breach" has the meaning set forth in Section 11.1(d).
"H&R Block Rights Agreement" means that certain Rights Agreement dated as
of July 14, 1988, as amended on May 9, 1990, September 11, 1991 and May 10,
1995, between H&R Block and Boatmen's Trust Company.
"Hazardous Substances" means any hazardous substances as defined by 42
U.S.C. (S)9601(14), any pollutant or contaminant as defined by 42 U.S.C.
(S)9601(33) or any toxic
73
substance, oil or hazardous materials or other chemicals or substances regulated
by any Environmental Laws which the applicable party or any predecessor in
interest has generated, transported or disposed of or has been found at any
property owned or operated by such party.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended, and regulations promulgated thereunder.
"including" means, when following any general statement, term or matter,
"including but not limited to," "including, without limitation," or words of
similar import and shall not be construed to limit such statement, term or
matter to the specific terms or matters as provided immediately following the
word "including" or to similar items or matters, whether or not non-limiting
language is used with reference to the word "including" or similar items or
matters, but rather shall be deemed to refer to all other items or matters that
could reasonably fall within the broadest possible scope of the general
statement, term or matter.
"Indemnified Party" or "Indemnified Parties" has the meaning set forth in
Section 8.4(d).
"Indemnifying Party" has the meaning set forth in Section 8.4(d).
"Indemnitee" has the meaning set forth in Section 8.4(e)(iii).
"Indemnitor" has the meaning set forth in Section 8.4(e)(iii).
"International Distribution Agreements" has the meaning set forth in
Section 3.8(c).
"IRS" means the Internal Revenue Service of the United States of America.
"knowledge" means, with respect to H&R Block, Block Group, CompuServe or
WorldCom, the actual knowledge of, or knowledge which could reasonably be
obtained through reasonably diligent investigation or inquiry by, any director
or executive officer of the applicable entity, as the case may be, and, in the
case of CompuServe, shall also include the actual knowledge of, or knowledge
which could reasonably be obtained through reasonably diligent investigation or
inquiry by, H&R Block's Chief Executive Officer, Chief Financial Officer and
Vice President, Legal, Block Group's Chief Executive Officer, Chief Financial
Officer and Secretary, and CompuServe's General Counsel and his predecessor, and
the following additional CompuServe and CompuServe Entity officers and
employees: any persons principally responsible for the finance and accounting
function and operations of the Online Services Business of CompuServe and the
CompuServe Entities, the European Online Services Business of CompuServe and the
CompuServe Entities and the network services business of CompuServe and the
CompuServe Entities, and the officers of each CompuServe Entity.
"Liens or Other Encumbrance" means any lien, pledge, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any shareholder or other agreement or
encumbrance or any other rights of third parties.
74
"Losses and Expenses" means any and all damages, debts, liabilities,
obligations, losses, deficiencies, demands, claims, penalties, assessments,
judgments, fees, actions, proceedings, orders and suits of whatever kind and
nature, and regardless of whether or not related to a Third-Party Claim, a
direct claim or otherwise, and all costs and expenses related thereto (including
reasonable attorney's fees and disbursements).
"Material" means, when used in connection with any party hereto, material
with respect to the business, operations, properties, assets, liabilities,
condition (financial or otherwise) or prospects of such party, and its related
Entities, taken as a whole.
"Material Adverse Change" means, when used in connection with any party
hereto, any change which is materially adverse to the business, operations,
properties, assets, liabilities or condition (financial or otherwise) of such
party, and its related Entities, taken as a whole.
"Material Adverse Effect" means, when used in connection with any party
hereto, any effect that has a material adverse impact on the business,
operations, properties, assets, liabilities or condition (financial or
otherwise) of such party, and its related Entities, taken as a whole.
"Merger" has the meaning set forth in Section 1.1.
"Merger Consideration" has the meaning set forth in Section 1.3(a)(i).
"MGBCL" means the Missouri General Business and Corporation Law.
"Modified Aggregate Deemed Sales Price" has the meaning set forth in
Section 9.1(b)(ii).
"Network Services Agreements" has the meaning set forth in Section 3.8(d).
"NASDAQ" means the Nasdaq National Market.
"Noncompete/Nonsolicitation Agreement" has the meaning set forth in Section
8.20.
"Online Services Business" means electronic information services providing
access for computer users to "proprietary" content, services, entertainment
and/or other information, to "open" services such as the Internet, the World
Wide Web and/or a combination of the foregoing, including organization-specific
LANs, WANs and Intranets, regardless of means of delivery or transport media.
"Person" means and includes any natural person, corporation, limited
liability company, partnership, limited partnership, firm, joint venture,
association, joint-stock company, trust, business trust, unincorporated
organization, Governmental Entity or other entity.
"Proxy Statement" has the meaning set forth in Section 8.7.
"Purchase and Sale Agreement" has the meaning set forth in Section 10.2(k).
75
"Registration Statement" has the meaning set forth in Section 8.7.
"Related Party" means, with respect to any party, any of such party's or
its parent's or subsidiaries' directors, officers, 50% or greater shareholders,
employees or, except with respect to such party's primary relationship with such
other Person, a consultant or agent.
"Rights" has the meaning set forth in Section 3.16.
"Rule 145 Affiliate" has the meaning set forth in Section 8.19.
"Schedule 8.17 Agreements" has the meaning set forth in Section 8.17(a).
"SEC" means the Securities and Exchange Commission.
"Section 338 Forms" has the meaning set forth in Section 9.1(b)(i).
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Seller Consolidated and Combined Return" means any consolidated,
affiliated, combined or unitary income or franchise Tax Return of H&R Block,
Block Group or CompuServe which includes CompuServe and/or any CompuServe
Entity.
"Shares Acquisition Date" has the meaning set forth in Section 3.16.
"Standstill Agreement" has the meaning set forth in the recitals.
"Surviving Corporation" has the meaning set forth in Section 1.1.
"Surviving Corporation Common Stock" has the meaning set forth in Section
1.3(d).
"Takeover Statute" has the meaning set forth in Section 8.23.
"Tax" and "Taxes" means all taxes, charges, fees, levies, tariffs, duties
or other similar assessments, including, (i) income, gross receipts, gains,
surtax, severance, payroll, production, ad valorem or value added, surtax,
premium, excise, real property, personal property, windfall profit, sales, use,
transfer, duty, licensing, withholding, employment, payroll, estimated and
franchise taxes imposed by the United States of America, any state, local, or
foreign government, or any subdivision, agency, or other similar Person of the
United States or any such government, and (ii) any interest, fines, penalties,
assessments, or additions to tax resulting from, attributable to or incurred in
connection with any Tax or any contest, dispute or refund thereto; whether or
not imposed on a consolidated combined or unitary basis or as a result of
transferee, joint or several liability.
76
"Tax Claim" has the meaning set forth in Section 9.2(d)(i).
"Tax Return" means any report, return, statement or other information
required to be supplied to a taxing authority in connection with Taxes.
"Tax Settlement Auditor" has the meaning set forth in Section 9.1(c).
"Tax Settlement Procedure" has the meaning set forth in Section 9.1(c).
"Tax Sharing Agreement" means the Tax Sharing Agreement, dated as of April
22, 1996, between H&R Block and CompuServe.
"Tax Statement" has the meaning set forth in Section 9.2(e)(iii).
"Third-Party Claim" has the meaning set forth in Section 8.4(f)(i).
"Transfer Taxes" has the meaning set forth in Section 9.4.
"WAC" has the meaning set forth in the first paragraph of this Agreement.
"WorldCom" has the meaning set forth in the first paragraph of this
Agreement.
"WorldCom Balance Sheet" has the meaning set forth in Section 6.4.
"WorldCom Common Shares" means the shares of WorldCom Common Stock.
"WorldCom Common Stock" means the common stock, $.01 par value per share,
of WorldCom.
"WorldCom Entity" or "WorldCom Entities" means any corporation, limited
liability company, partnership, limited partnership or other organization
whether incorporated or unincorporated (i) of which at least a majority of the
securities or interests having by the terms thereof ordinary voting power to
elect at least a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by WorldCom and/or by any one or more of the
WorldCom Entities, (ii) of which WorldCom or any one or more of the WorldCom
Entities is the general partner or managing member or (iii) which WorldCom or
any one or more of the WorldCom Entities otherwise controls.
"WorldCom Material Breach" has the meaning set forth in Section 11.1(e).
"WorldCom Preferred Stock" has the meaning set forth in Section 6.2.
77
"WorldCom Rights Agreement" means that certain Rights Agreement dated as of
August 25, 1996 between WorldCom and The Bank of New York, as Rights Agent, as
amended by Amendment No. 1 to Rights Agreement dated as of May 22, 1997.
"WorldCom SEC Documents" has the meaning set forth in Section 6.4.
"WorldCom Stock Plans" has the meaning set forth in Section 6.2.
78
IN WITNESS WHEREOF, H&R Block, Block Group, CompuServe, WorldCom and WAC
have caused this Agreement and Plan of Merger to be executed by their respective
duly authorized officers, and have caused their respective corporate seals to be
hereunto affixed, all as of the day and year first above written.
H&R BLOCK, INC.
/s/ Xxxxx X. Xxxxxxxxx
By:_______________________________
H&R BLOCK GROUP, INC.
/s/ Xxxxx X. Xxxxxxxxx
By:_______________________________
COMPUSERVE CORPORATION
/s/ Xxxxx X. Xxxxxxxxx
By:_______________________________
WORLDCOM, INC.
/s/ Xxxxxxx X. Xxxxxxx
By:_______________________________
WALNUT ACQUISITION COMPANY, L.L.C.
/s/ Xxxxxxx X. Xxxxxxx
By:_______________________________
79
