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
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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
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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
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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
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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
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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
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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
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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."
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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.
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(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
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other distributions, if any, in respect of the shares of WorldCom Common Stock,
declared after the
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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
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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
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Block and the H&R Block Entities to CompuServe and the CompuServe Entities is
set forth on Schedule 2.2 hereto.
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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
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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.
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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)),
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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
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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
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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
<PAGE>
(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;
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(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
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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.
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(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);
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<PAGE>
(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,
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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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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 Goldman,
Sachs & Co. pursuant to the terms of the letter agreement between CompuServe and
Goldman, 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, Goldman, Sachs & 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
<PAGE>
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
<PAGE>
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
<PAGE>
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 Goldman,
Sachs & Co. pursuant to the terms of the letter agreement between CompuServe and
Goldman, Sachs & Co., the amount of and payment schedule for which have been
communicated to WorldCom, there are
24
<PAGE>
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
<PAGE>
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.
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5.4 Legal Proceedings. Except as set forth on Schedule 5.4,
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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
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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
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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