<PAGE> 1
Filed Pursuant to Rule 424B3
Registration No. 333-43261
COMPUSERVE CORPORATION
5000 ARLINGTON CENTRE BOULEVARD
COLUMBUS, OHIO 43220
December 24, 1997
Dear Stockholder:
As you are probably aware, CompuServe Corporation ("CompuServe") has
entered into an agreement to merge with Walnut Acquisition Company, L.L.C., a
wholly owned subsidiary of WorldCom, Inc. ("WorldCom"). At a Special Meeting of
Stockholders of CompuServe to be held on January 30, 1998 (the "Special
Meeting") you will be asked to approve and adopt the Agreement and Plan of
Merger, dated as of September 7, 1997, by and among H&R Block, Inc. ("H&R
Block"), H&R Block Group, Inc. ("Block Group"), CompuServe, WorldCom and Walnut
Acquisition Company, L.L.C. (the "CompuServe Merger Agreement"). The
accompanying Proxy Statement/Prospectus and the appendices thereto present the
details of this proposed merger (the "CompuServe Merger"). It is anticipated
that the CompuServe Merger will be consummated on January 30, 1998, after the
Special Meeting, provided that the conditions to the CompuServe Merger are then
fulfilled or waived.
In the CompuServe Merger, each share of CompuServe common stock, par value
$.01 per share (the "CompuServe Common Stock"), will be converted into the right
to receive a fraction of a share of common stock, par value $.01 per share, of
WorldCom (the "WorldCom Common Stock") equal to the CompuServe Exchange Ratio
described in the next sentence. The CompuServe Exchange Ratio will be determined
as follows: (i) if the Average Trading Price (defined in the next sentence) of a
share of WorldCom Common Stock is greater than or equal to $29.54, the
CompuServe Exchange Ratio will equal 0.40625; (ii) if the Average Trading Price
of a share of WorldCom Common Stock is greater than or equal to $24.00 but less
than $29.54, the CompuServe Exchange Ratio will equal a fraction (rounded to the
nearest hundred-thousandth) determined by dividing $12.00 by the Average Trading
Price of a share of WorldCom Common Stock; and (iii) if the Average Trading
Price of a share of WorldCom Common Stock is less than $24.00, the CompuServe
Exchange Ratio will equal 0.5; however, CompuServe has the right to terminate
the CompuServe Merger Agreement if the Average Trading Price of a share of
WorldCom Common Stock is less than $24.00. The Average Trading Price of a share
of WorldCom Common Stock will be the average of the daily closing prices of a
share of WorldCom Common Stock, as quoted by The Nasdaq National Market and
reported in The Wall Street Journal, Eastern Edition, or if not reported
thereby, The New York Times, for the twenty consecutive full Nasdaq National
Market trading days ending on the date immediately prior to the third full
Nasdaq National Market trading day immediately preceding the date on which the
CompuServe Merger is consummated.
The merger consideration described above will be paid in shares of WorldCom
Common Stock, except that (i) WorldCom will pay cash in lieu of fractional
shares, and (ii) in order for the CompuServe Merger to qualify for certain
desired tax treatment, WorldCom will pay Block Group, which, as of the date of
this letter, owns approximately 80.1% of the outstanding CompuServe Common
Stock, $1 million in cash in lieu of issuing shares of WorldCom Common Stock
valued at $1.1 million, based on the Average Trading Price. See "Plan of
Merger -- General Description of the CompuServe Merger" in the accompanying
Proxy Statement/ Prospectus.
If the Average Trading Price of WorldCom Common Stock, calculated as of the
proposed date of consummation of the CompuServe Merger, were to be less than
$24.00, the Board of Directors of CompuServe would determine at such time
whether or not to exercise its right to terminate the CompuServe Merger
Agreement. The Board's determination would be made in accordance with its
fiduciary duties under Delaware law to all of the stockholders of CompuServe,
including H&R Block and Block Group as the holders of approximately 80.1% of the
outstanding CompuServe Common Stock, and the Board's business judgment,
<PAGE> 2
based on the facts and circumstances existing at such time, regarding the best
interests of CompuServe and its stockholders.
Holders of CompuServe Common Stock may call toll free to 1-800-780-6378
from January 5, 1998 until the date that the CompuServe Merger is consummated to
hear a tape recorded message stating what the Average Trading Price and the
CompuServe Exchange Ratio would be if the CompuServe Merger were to be
consummated on that day. Holders of CompuServe Common Stock may call the same
toll free number from the date the CompuServe Merger is consummated until ten
business days thereafter to hear a tape recorded message stating the actual
Average Trading Price and CompuServe Exchange Ratio.
The Board of Directors of CompuServe has carefully reviewed the terms and
conditions of the CompuServe Merger Agreement. In addition, the Board of
Directors of CompuServe has received a written opinion from its financial
advisor, Goldman, Sachs & Co., to the effect that as of September 7, 1997, and
based upon and subject to various qualifications and assumptions described
therein, the CompuServe Exchange Ratio was fair, from a financial point of view,
to the holders (excluding Block Group) of CompuServe Common Stock.
CompuServe's Board of Directors has determined that the CompuServe Merger
Agreement and the transactions contemplated thereby are fair to, and in the best
interests of, its stockholders. THE COMPUSERVE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT HOLDERS OF COMPUSERVE COMMON STOCK VOTE FOR APPROVAL AND
ADOPTION OF THE COMPUSERVE MERGER AGREEMENT.
For further information regarding the CompuServe Merger, I urge that you
read carefully the accompanying Notice of Special Meeting of Stockholders and
Proxy Statement/Prospectus.
The affirmative vote of the holders of a majority of the outstanding shares
of CompuServe Common Stock is necessary for approval and adoption of the
CompuServe Merger Agreement. H&R BLOCK AND BLOCK GROUP HAVE AGREED TO VOTE ALL
OF THE SHARES OF COMPUSERVE COMMON STOCK OWNED BY BLOCK GROUP IN FAVOR OF
APPROVING AND ADOPTING THE COMPUSERVE MERGER AGREEMENT, WHICH NUMBER OF SHARES
IS SUFFICIENT TO APPROVE AND ADOPT THE COMPUSERVE MERGER AGREEMENT. See "Plan of
Merger -- Stockholders Agreement" in the accompanying Proxy
Statement/Prospectus.
If the CompuServe Merger Agreement is approved and adopted and the
CompuServe Merger is consummated, you will be sent a letter of transmittal with
instructions for surrendering your certificates representing shares of
CompuServe Common Stock. Please do not send your share certificates until you
receive these materials.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING, YOU
ARE URGED PROMPTLY TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN
THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. If
you attend the Special Meeting and desire to revoke your proxy in writing and
vote in person, you may do so; in any event, a proxy may be revoked in writing
at any time before it is exercised. Your prompt cooperation will be appreciated.
Sincerely,
/s/ FRANK L. SALIZZONI
Frank L. Salizzoni
Chairman of the Board and
Acting Chief Executive Officer
2
<PAGE> 3
COMPUSERVE CORPORATION
5000 ARLINGTON CENTRE BOULEVARD
COLUMBUS, OHIO 43220
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 30, 1998
To the Stockholders of COMPUSERVE CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of CompuServe Corporation, a Delaware corporation ("CompuServe"), will
be held on January 30, 1998, at 5000 Arlington Centre Boulevard, Columbus, Ohio,
commencing at 9:00 a.m., local time, for the following purpose:
To consider and vote upon a proposal to approve and adopt the Agreement and
Plan of Merger (the "CompuServe Merger Agreement"), dated as of September 7,
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, WorldCom, Inc., a Georgia corporation
("WorldCom"), and Walnut Acquisition Company, L.L.C., a Delaware limited
liability company which is wholly owned by WorldCom ("Acquisition Subsidiary"),
pursuant to which, among other things, (a) Acquisition Subsidiary will be merged
with and into CompuServe (the "CompuServe Merger"), with CompuServe as the
surviving corporation of the CompuServe Merger, and (b) each outstanding share
of common stock, par value $0.01 per share, of CompuServe (the "CompuServe
Common Stock") will be converted into the right to receive a fraction of a share
of WorldCom common stock, par value $.01 per share (the "WorldCom Common
Stock"), equal to the CompuServe Exchange Ratio described in the next sentence.
The CompuServe Exchange Ratio will be determined as follows: (i) if the Average
Trading Price (defined in the next sentence) of a share of WorldCom Common Stock
is greater than or equal to $29.54, the CompuServe Exchange Ratio will equal
0.40625; (ii) if the Average Trading Price of a share of WorldCom Common Stock
is greater than or equal to $24.00 but less than $29.54, the CompuServe Exchange
Ratio will equal a fraction (rounded to the nearest hundred-thousandth)
determined by dividing $12.00 by the Average Trading Price of a share of
WorldCom Common Stock; and (iii) if the Average Trading Price of a share of
WorldCom Common Stock is less than $24.00, the CompuServe Exchange Ratio will
equal 0.5; however, CompuServe has the right to terminate the CompuServe Merger
Agreement if the Average Trading Price of a share of WorldCom Common Stock is
less than $24.00. The Average Trading Price of a share of WorldCom Common Stock
will be the average of the daily closing prices of a share of WorldCom Common
Stock, as quoted by The Nasdaq National Market and reported in The Wall Street
Journal, Eastern Edition, or if not reported thereby, The New York Times, for
the twenty consecutive full Nasdaq National Market trading days ending on the
date immediately prior to the third full Nasdaq National Market trading day
immediately preceding the date on which the CompuServe Merger is consummated.
It is anticipated that the CompuServe Merger will be consummated on January
30, 1998, after the Special Meeting, provided that the conditions to the
CompuServe Merger are then fulfilled or waived. If the Average Trading Price of
WorldCom Common Stock, calculated as of the proposed date of consummation of the
CompuServe Merger, were to be less than $24.00, the Board of Directors of
CompuServe would determine at such time whether or not to exercise its right to
terminate the CompuServe Merger Agreement. The Board's determination would be
made in accordance with its fiduciary duties under Delaware law to all of the
stockholders of CompuServe, including H&R Block and Block Group as the holders
of approximately 80.1% of the outstanding CompuServe Common Stock, and the
Board's business judgment, based on the facts and circumstances existing at such
time, regarding the best interests of CompuServe and its stockholders.
Holders of CompuServe Common Stock may call toll free to 1-800-780-6378
from January 5, 1998 until the date that the CompuServe Merger is consummated to
hear a tape recorded message stating what the Average Trading Price and the
CompuServe Exchange Ratio would be if the CompuServe Merger were to be
<PAGE> 4
consummated on that day. Holders of CompuServe Common Stock may call the same
toll free number from the date the CompuServe Merger is consummated until ten
business days thereafter to hear a tape recorded message stating the actual
Average Trading Price and CompuServe Exchange Ratio.
Information regarding the proposed CompuServe Merger, the CompuServe Merger
Agreement and related matters is contained in the accompanying Proxy
Statement/Prospectus and the appendices thereto, which are incorporated by
reference herein and form a part of this Notice. A copy of the CompuServe Merger
Agreement is attached as Appendix I to the accompanying Proxy
Statement/Prospectus.
Only stockholders of record at the close of business on December 12, 1997
are entitled to notice of, and to vote at, the Special Meeting and any
adjournment or postponement of the Special Meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to
complete, sign and return the enclosed proxy card as promptly as possible in the
enclosed postage-prepaid envelope.
By Order of the Board of Directors,
/s/ FRANK L. SALIZZONI
Frank L. Salizzoni
Chairman of the Board and
Acting Chief Executive Officer
Columbus, Ohio
December 24, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. DO
NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
2
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<TABLE>
<S> <C> <C>
COMPUSERVE LOGO COMPUSERVE CORPORATION
PROXY STATEMENT
FORSPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 30, 1998.
</TABLE>
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<TABLE>
<S> <C> <C>
WORLDCOM LOGO WORLDCOM, INC.
PROSPECTUS
A MAXIMUM OF 47,130,956 SHARES OF COMMON STOCK
</TABLE>
---------------------
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is being
furnished to the holders of common stock, par value $0.01 per share (the
"CompuServe Common Stock"), of CompuServe Corporation, a Delaware corporation
("CompuServe"), in connection with the solicitation of proxies by the Board of
Directors of CompuServe for use at the Special Meeting of Stockholders of
CompuServe to be held at 5000 Arlington Centre Boulevard, Columbus, Ohio, on
January 30, 1998, at 9:00 a.m., local time, and at any and all adjournments or
postponements thereof (the "Special Meeting").
This Proxy Statement/Prospectus relates to the proposed merger (the
"CompuServe Merger") of Walnut Acquisition Company, L.L.C. ("Acquisition
Subsidiary"), a wholly owned subsidiary of WorldCom, Inc., a Georgia corporation
("WorldCom"), with and into CompuServe pursuant to an Agreement and Plan of
Merger, dated as of September 7, 1997, by and among H&R Block, Inc. ("H&R
Block"), H&R Block Group, Inc. ("Block Group"), CompuServe, WorldCom and
Acquisition Subsidiary (the "CompuServe Merger Agreement"), a copy of which is
attached hereto as Appendix I. Upon consummation of the CompuServe Merger,
CompuServe will become a wholly owned subsidiary of WorldCom. As a result of the
CompuServe Merger, each share of CompuServe Common Stock will be converted into
the right to receive a fraction of a share of WorldCom common stock, par value
$0.01 per share ("WorldCom Common Stock"), equal to the CompuServe Exchange
Ratio described in the next sentence. The CompuServe Exchange Ratio will be
determined as follows: (i) if the Average Trading Price (defined in the next
sentence) of a share of WorldCom Common Stock is greater than or equal to
$29.54, the CompuServe Exchange Ratio will equal 0.40625; (ii) if the Average
Trading Price of a share of WorldCom Common Stock is greater than or equal to
$24.00 but less than $29.54, the CompuServe Exchange Ratio will equal a fraction
(rounded to the nearest hundred-thousandth) determined by dividing $12.00 by the
Average Trading Price of a share of WorldCom Common Stock; and (iii) if the
Average Trading Price of a share of WorldCom Common Stock is less than $24.00,
the CompuServe Exchange Ratio will equal 0.5; however, CompuServe has the right
to terminate the CompuServe Merger Agreement if the Average Trading Price of a
share of WorldCom Common Stock is less than $24.00. The "Average Trading Price"
of a share of WorldCom Common Stock will be the average of the daily closing
prices of a share of WorldCom Common Stock, as quoted by The Nasdaq National
Market and reported in The Wall Street Journal, Eastern Edition, or if not
reported thereby, The New York Times, for the twenty consecutive full Nasdaq
National Market trading days ending on the date immediately prior to the third
full Nasdaq National Market trading day immediately preceding the date on which
the CompuServe Merger is consummated.
(continued on following page)
SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE EVALUATED IN CONNECTION WITH THE COMPUSERVE MERGER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------
This Proxy Statement/Prospectus, the Notice of Special Meeting and the
accompanying form of proxy were first mailed to the stockholders of CompuServe
on or about December 29, 1997.
The date of this Proxy Statement/Prospectus is December 24, 1997.
<PAGE> 6
(cover continued from previous page)
The merger consideration described above (the "CompuServe Merger
Consideration") will be paid in shares of WorldCom Common Stock, except that (i)
WorldCom will pay cash in lieu of fractional shares, and (ii) in order for the
CompuServe Merger to qualify for certain desired tax treatment, WorldCom will
pay Block Group, which, as of the date of this Proxy Statement/Prospectus, owns
approximately 80.1% of the shares of outstanding CompuServe Common Stock, $1.0
million in cash (the "Cash Payment") in lieu of issuing shares of WorldCom
Common Stock valued at $1.1 million, based on the Average Trading Price. For
additional information regarding the CompuServe Merger Consideration, including
the WorldCom Common Stock, see "Summary -- Market Prices," "Plan of
Merger -- General Description of the CompuServe Merger," "Description of
WorldCom Capital Stock" and "Comparative Rights of Shareholders."
Prior to the Effective Time (as hereinafter defined), the CompuServe Board
of Directors (or a committee of that Board) will cause all outstanding and
unexercised options exercisable for shares of CompuServe Common Stock
("CompuServe Stock Options") to be cancelled in exchange for cash payments. See
"Plan of Merger -- Terms and Conditions of the Proposed CompuServe
Merger -- Treatment of Stock Options" and "Plan of Merger -- Interests of
Certain Persons in the CompuServe Merger."
In connection with the CompuServe Merger Agreement, H&R Block, Block Group
and WorldCom entered into a Stockholders Agreement dated September 7, 1997 (the
"Stockholders Agreement"), a copy of which is attached hereto as Appendix II.
Pursuant to the Stockholders Agreement and the CompuServe Merger Agreement, H&R
Block and Block Group have agreed that at any meeting of the stockholders of
CompuServe, however called, Block Group will vote, and H&R Block will cause
Block Group to vote, all of the shares of CompuServe Common Stock owned by Block
Group (i) in favor of the approval and adoption of the CompuServe Merger
Agreement and the transactions contemplated by the CompuServe Merger Agreement,
(ii) against any proposal relating to certain transactions with any party other
than WorldCom and (iii) in favor of any other matter necessary for the
consummation of the transactions contemplated by the CompuServe Merger Agreement
with respect to which Block Group may be entitled to vote. In addition, pursuant
to the Stockholders Agreement, H&R Block and Block Group have irrevocably
appointed WorldCom, or any nominee of WorldCom, as agent and proxy to vote the
shares of CompuServe Common Stock owned by Block Group at any stockholder
meeting or otherwise as described above, and have granted WorldCom an option to
purchase the shares of CompuServe Common Stock owned by Block Group under
certain circumstances. See "Plan of Merger -- Stockholders Agreement." AS A
RESULT OF THESE AGREEMENTS, THE COMPUSERVE MERGER AGREEMENT WILL BE APPROVED AND
ADOPTED REGARDLESS OF HOW OR WHETHER STOCKHOLDERS OF COMPUSERVE OTHER THAN BLOCK
GROUP VOTE THEIR SHARES.
On September 7, 1997, WorldCom also entered into a Purchase and Sale
Agreement (the "AOL Agreement") with America Online, Inc. ("AOL"), under which
WorldCom agreed to (a) transfer to AOL the online services businesses of
CompuServe and Spry, Inc., a CompuServe subsidiary ("Spry"), which WorldCom will
acquire as a result of the CompuServe Merger, and (b) acquire all outstanding
shares of ANS Communications, Inc. ("ANS"), a wholly-owned subsidiary of AOL
which provides Internet and other networking services to AOL and other
customers. In addition to the transfer of the online services businesses of
CompuServe and Spry, WorldCom will pay AOL $175 million in cash, subject to
certain adjustments specified in the AOL Agreement. The closing of the
transactions contemplated by the AOL Agreement (collectively, the "AOL
Transaction") is conditioned on, and is expected to occur immediately after, the
closing of the CompuServe Merger (the "Closing"). The closing of the AOL
Transaction is also subject to certain other conditions. See "Plan of
Merger -- Terms and Conditions of the Proposed CompuServe Merger -- WorldCom's
Conditions," "Plan of Merger -- Terms and Conditions of the Proposed CompuServe
Merger -- Termination," "Plan of Merger -- Terms and Conditions of the Proposed
CompuServe Merger -- Expenses; Termination Fees" and "Certain Related
Transactions -- AOL Transaction."
<PAGE> 7
(cover continued from previous page)
Termination of the CompuServe Merger Agreement by WorldCom or H&R Block,
Block Group or CompuServe under certain circumstances, including, without
limitation, failure to receive the approval of CompuServe's stockholders, will
require WorldCom, on the one hand, or H&R Block, Block Group and CompuServe, on
the other hand, depending on the circumstances, to pay a $15 million termination
fee to the other party or parties. In addition, termination of the CompuServe
Merger Agreement under certain circumstances will permit WorldCom to exercise an
option granted in the Stockholders Agreement to purchase Block Group's shares of
CompuServe Common Stock (approximately 80.1% of the outstanding CompuServe
Common Stock owned by Block Group as of the date of this Proxy
Statement/Prospectus) on substantially the same terms as those on which WorldCom
would have acquired such shares pursuant to the CompuServe Merger Agreement. See
"Plan of Merger -- Stockholders Agreement."
The exchange of shares of CompuServe Common Stock for shares of WorldCom
Common Stock will generally be a taxable disposition for United States federal
income tax purposes. Holders of shares of CompuServe Common Stock are urged to
consult their tax advisors regarding the federal, state, local and foreign tax
consequences of the exchange of shares of CompuServe Common Stock for shares of
WorldCom Common Stock. For a more complete discussion of the federal income tax
consequences of the exchange of shares of CompuServe Common Stock for shares of
WorldCom Common Stock, see "Plan of Merger -- Certain United States Federal
Income Tax Consequences."
This Proxy Statement/Prospectus also constitutes the Prospectus of WorldCom
with respect to an estimated (as of December 23, 1997) maximum of 47,130,956
shares of WorldCom Common Stock and associated preferred stock purchase rights
to be issued to holders of CompuServe Common Stock in connection with the
CompuServe Merger.
WorldCom Common Stock and CompuServe Common Stock are traded on The Nasdaq
National Market under the symbols "WCOM" and "CSRV," respectively. On December
23, 1997, the closing sale prices for WorldCom Common Stock and CompuServe
Common Stock, as reported on The Nasdaq National Market, were $30.56 per share
and $12.56 per share, respectively, and, based on an Average Trading Price as of
that date of $32.775, the resultant CompuServe Exchange Ratio would have been
0.40625.
It is anticipated that the CompuServe Merger will be consummated on January
30, 1998, after the Special Meeting, provided that the conditions to the
CompuServe Merger are then fulfilled or waived. Since the actual amount of
WorldCom Common Stock to be issued to holders of CompuServe Common Stock
pursuant to the CompuServe Merger Agreement will not be determined until three
trading days prior to the closing date of the CompuServe Merger, holders of
CompuServe Common Stock are urged to obtain current market information for
WorldCom Common Stock. Holders of CompuServe Common Stock may call toll free to
1-800-780-6378 from January 5, 1998 until the date that the CompuServe Merger is
consummated to hear a tape recorded message stating what the Average Trading
Price and the CompuServe Exchange Ratio would be if the CompuServe Merger were
to be consummated on that day. Holders of CompuServe Common Stock may call the
same toll free number from the date the CompuServe Merger is consummated until
ten business days thereafter to hear a tape recorded message stating the actual
Average Trading Price and CompuServe Exchange Ratio.
The Boards of Directors of CompuServe, WorldCom and Acquisition Subsidiary,
and WorldCom as the sole holder of all of the outstanding capital stock of
Acquisition Subsidiary, have approved and adopted the CompuServe Merger
Agreement. THE COMPUSERVE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOLDERS
OF COMPUSERVE COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE COMPUSERVE
MERGER AGREEMENT. See "Plan of Merger -- Recommendation of the CompuServe Board
of Directors."
Except in the case of Block Group, proxies for the Special Meeting may be
revoked, subject to the procedures described herein, at any time up to and
including the date of the Special Meeting. See "The Special Meeting -- Proxies."
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
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INDEX OF DEFINED TERMS................................. iii
AVAILABLE INFORMATION.................................. vi
INCORPORATION OF DOCUMENTS BY
REFERENCE............................................ vii
MCI INFORMATION........................................ viii
SUMMARY................................................ 1
Business of WorldCom................................. 1
Business of CompuServe............................... 1
The Proposed CompuServe Merger....................... 1
The Stockholders Agreement........................... 5
The AOL Transaction.................................. 5
Stockholder Approval Required........................ 6
Management and Operations After the CompuServe
Merger............................................. 6
WorldCom's Reasons for the CompuServe Merger......... 6
Recommendation of the CompuServe Board of Directors;
CompuServe's Reasons for the CompuServe Merger..... 6
Opinion of CompuServe's Financial Advisor............ 7
The CompuServe Special Meeting....................... 7
Interests of Certain Persons in the CompuServe
Merger............................................. 7
Accounting Treatment................................. 8
Certain United States Federal Income Tax
Consequences....................................... 8
Regulatory Filings and Approvals..................... 8
Absence of Appraisal Rights.......................... 9
Comparison of Shareholder Rights..................... 9
Risk Factors......................................... 9
Market Prices........................................ 10
Recent WorldCom Developments......................... 11
The MCI/WorldCom Merger............................ 11
The BFP Merger..................................... 12
Comparative Per Share Data........................... 13
Selected Historical Financial Data................... 15
Selected Unaudited Pro Forma Financial Information... 18
MCI WorldCom Pro Forma Combined...................... 18
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS........................................... 19
RISK FACTORS........................................... 19
Risks Related to the CompuServe Merger and Other
Acquisitions....................................... 19
Risks Relating to the Businesses and Operations of
the Combined Companies............................. 21
PLAN OF MERGER......................................... 27
General Description of the CompuServe Merger......... 27
Background of the CompuServe Merger.................. 29
CompuServe's Reasons for the CompuServe Merger....... 34
WorldCom's Reasons for the CompuServe Merger......... 36
Recommendation of the CompuServe Board of
Directors.......................................... 36
Opinion of CompuServe's Financial Advisor............ 37
Management and Operations After the CompuServe
Merger............................................. 43
Terms and Conditions of the Proposed CompuServe
Merger............................................. 43
Mutual Conditions.................................. 43
WorldCom's Conditions.............................. 43
CompuServe's and H&R Block's Conditions............ 44
Conduct of CompuServe Business Prior to the
CompuServe Merger................................ 45
</TABLE>
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Conduct of WorldCom Business Prior to the
CompuServe Merger................................ 47
Agreement Not to Solicit Other Offers.............. 47
Voting of CompuServe Shares; No Transfers of
CompuServe Common Stock.......................... 48
CompuServe and CompuServe Entity Employees......... 48
Treatment of Stock Options......................... 49
Facilities Agreements.............................. 49
Certain Other Covenants............................ 50
Tax Matters........................................ 51
Representations and Warranties..................... 52
Representations and Warranties Regarding
CompuServe..................................... 52
Representations and Warranties Regarding
H&R Block...................................... 52
Representations and Warranties Regarding
Block Group.................................... 52
Representations and Warranties Regarding
WorldCom....................................... 52
Representations and Warranties Regarding
Acquisition Subsidiary......................... 53
Indemnification.................................... 53
Indemnification by H&R Block and Block Group..... 53
Indemnification by WorldCom and Acquisition
Subsidiary..................................... 54
Termination........................................ 54
Expenses; Termination Fees......................... 55
Amendment and Waiver............................... 56
Stockholders Agreement............................... 56
Voting Agreement and Proxy......................... 56
No Disposition or Encumbrance of Shares............ 56
Grant of Option.................................... 56
Conditions to Closing.............................. 57
Closing............................................ 57
Representations, Warranties and Covenants.......... 58
Term............................................... 58
Standstill Agreement................................. 58
Surrender of Stock Certificates and Receipt of
CompuServe Merger Consideration.................... 58
Fractional Shares.................................... 59
Interests of Certain Persons in the CompuServe
Merger............................................. 59
Change in Control Agreements..................... 59
Severance Plan................................... 60
Stock Options and Other Awards................... 61
Completion Bonuses............................... 61
Employee Benefits................................ 61
Deferred Compensation Plan....................... 62
Indemnification.................................. 62
Registration Rights.............................. 62
Regulatory Filings and Approvals..................... 63
Accounting Treatment................................. 63
Public Trading Market................................ 64
Status Under Federal Securities Laws................. 64
Certain United States Federal Income Tax
Consequences....................................... 64
CERTAIN RELATED TRANSACTIONS........................... 65
Amendment of CompuServe Rights Agreement............. 65
AOL Transaction...................................... 66
Other................................................ 67
</TABLE>
i
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<TABLE>
<CAPTION>
THE SPECIAL MEETING.................................... 68
General.............................................. 68
PAGE
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<S> <C>
Matters to be Considered............................. 68
Board of Directors' Recommendation................... 68
Record Date; Voting Rights........................... 68
Quorum............................................... 68
Required Vote........................................ 68
Absence of Appraisal Rights.......................... 69
Proxies.............................................. 69
Solicitation of Proxies.............................. 69
PRO FORMA FINANCIAL INFORMATION........................ 71
WORLDCOM PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS........................................... 71
WORLDCOM PRO FORMA CONDENSED COMBINED BALANCE SHEET.... 72
WORLDCOM PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS........................................... 73
WORLDCOM PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS........................................... 74
NOTES TO WORLDCOM PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS................................. 75
ADDITIONAL PRO FORMA PRESENTATION...................... 77
NOTES TO ADDITIONAL PRO FORMA PRESENTATION............. 79
INFORMATION REGARDING COMPUSERVE....................... 81
Business of CompuServe............................... 81
Interactive Services............................... 81
CompuServe Interactive Service..................... 81
WOW!............................................... 82
SPRYNET............................................ 82
Network Services................................... 82
Recent Developments.................................. 82
INFORMATION REGARDING WORLDCOM......................... 83
Business of WorldCom................................. 83
Recent Developments.................................. 83
The BFP Merger....................................... 111
Management and Principal Shareholders................ 114
Management of WorldCom Following the MCI/WorldCom
Merger............................................. 117
</TABLE>
<TABLE>
<CAPTION>
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<S> <C>
DESCRIPTION OF WORLDCOM CAPITAL STOCK.................. 120
Common Stock......................................... 120
Preferred Stock...................................... 121
Series A Preferred Stock............................. 121
Series B Preferred Stock............................. 123
Depositary Shares.................................... 124
WorldCom Series 3 Preferred Stock.................... 125
Preferred Stock Purchase Rights...................... 126
Certain Charter and Bylaw Provisions................. 127
COMPARATIVE RIGHTS OF SHAREHOLDERS..................... 127
Election of Directors................................ 127
Removal of Directors................................. 128
Vacancies on the Board of Directors.................. 129
Action By Written Consent............................ 129
Amendments to Charter................................ 129
Amendments to Bylaws................................. 130
Special Meetings of Shareholders..................... 130
Vote on Extraordinary Corporate Transactions......... 130
Rights of Inspection................................. 131
Dividends............................................ 131
Appraisal Rights of Dissenting Shareholders.......... 132
Indemnification and Limitation of Liability of
Directors and Officers............................. 133
Preemptive Rights.................................... 135
Special Redemption Provisions........................ 135
Preferred Stock Purchase Rights...................... 136
Stockholder Suits.................................... 137
Business Combination Restrictions.................... 137
Disclosure of Interests.............................. 140
LEGAL MATTERS.......................................... 140
EXPERTS................................................ 141
APPENDIX I -- COMPUSERVE MERGER AGREEMENT
APPENDIX II -- STOCKHOLDERS AGREEMENT
APPENDIX III -- STANDSTILL AGREEMENT
APPENDIX IV -- GOLDMAN, SACHS & CO. OPINION
</TABLE>
ii
<PAGE> 10
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Acquisition Subsidiary................Cover Page
Aggregate Consideration................... 39
Ameritech................................. 24
Analyst Estimates......................... 41
ANS...................................Cover Page
Antitrust Division........................ 63
AOL...................................Cover Page
AOL Agreement.........................Cover Page
AOL Hart-Scott-Rodino Condition........... 4
AOL Transaction.......................Cover Page
AT&T...................................... 25
ATC Merger................................ 15
Average Trading Price.................Cover Page
Bellsouth................................. 24
Benefits Termination Date................. 107
BFP....................................... 12
BFP Common Stock.......................... 12
BFP Exchange Ratio............................12
BFP Merger................................ 12
BFP Merger Agreement...................... 12
BFP Notes................................. 112
Block DCP................................. 62
Block Group...........................Cover Page
Block Shares.............................. 56
BOCs...................................... 23
BT........................................ 12
BT Agreement.............................. 12
BTH....................................... 103
BT/MCI Merger Agreement................... 12
BT/MCI Joint Venture Agreement............ 103
Call Price................................ 122
Cash Payment..........................Cover Page
Certificate............................... 91
Change in Control Agreements.............. 7
Charter Amendment......................... 88
CLEC...................................... 112
Closing...............................Cover Page
Closing Date.............................. 4
CNS....................................... 82
Code...................................... 8
COLS...................................... 66
Commission................................ vi
Common Equivalent Rate.................... 122
Communications Act........................ 84
Compensation Committee.................... 120
Competitive Proposal...................... 4
CompuServe............................Cover Page
CompuServe 1997 Form 10-K................. vii
CompuServe Balance Sheet.................. 46
CompuServe Certificate.................... 9
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CompuServe Common Stock...............Cover Page
CompuServe DCP............................ 62
CompuServe Employees...................... 48
CompuServe Entities....................... 43
CompuServe Exchange Ratio.............Cover Page
CompuServe Material Breach................ 54
CompuServe Merger.....................Cover Page
CompuServe Merger Agreement...........Cover Page
CompuServe Merger Consideration.......Cover Page
CompuServe Merger Proposal................ 4
CompuServe Record Date.................... 7
CompuServe Stock Options..............Cover Page
Concert................................... 103
Confidentiality Agreement................. 95
Covered Executives........................ 107
CSi....................................... 81
Daily Exchange Ratio...................... 41
Deposit Agreement......................... 124
Depositary................................ 124
Depositary Receipts....................... 125
DGCL...................................... 9
DOJ....................................... 12
EBIT...................................... 42
EBITDA.................................... 41
EDGAR..................................... vi
Effective Time............................ 4
Eighth Circuit............................ 23
Election.................................. 8
Engagement Letter......................... 39
ESP....................................... 107
ESOP...................................... 109
European Commission....................... 12
Exchange Act.............................. vi
Exchange Agent............................ 29
Executive Retention Program............... 108
Extraordinary Cash Dividend............... 123
FCC....................................... 12
Fidelity.................................. 115
FTC....................................... 63
GBCC...................................... 120
Goldman Sachs............................. 7
GTE....................................... 26
H&R Block.............................Cover Page
H&R Block Indemnified Parties............. 53
H&R Block Material Breach................. 54
Hart-Scott-Rodino Act..................... 4
IDB....................................... 15
IDB Merger................................ 15
Initial Redemption Date................... 122
InterLATA................................. 24
</TABLE>
iii
<PAGE> 11
<TABLE>
<CAPTION>
PAGE
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<S> <C>
IPO....................................... 30
ISP....................................... 1
ISP Exemption............................. 24
ISUs...................................... 105
IXC....................................... 112
JV Purchase Date.......................... 103
JV Shareholders........................... 103
KEIP...................................... 61
LBO....................................... 41
Management Case........................... 40
Mandatory Conversion Date................. 122
Material Adverse Change................... 44
Material Adverse Effect................... 43
MCI....................................... viii
MCI 1996 Form 10-K........................ viii
MCI Bylaws................................ 108
MCI Capital Stock......................... 11
MCI Class A Common Stock.................. 11
MCI Class A Common Stock Merger
Consideration........................... 11
MCI Common Stock.......................... 11
MCI Common Stock Merger Consideration..... 11
MCI Exchange Ratio........................ 11
MCI Measurement Period.................... 11
MCI Merger Sub............................ 11
MCI Offer................................. 11
MCI Restated Certificate of
Incorporation........................... 108
MCI Restricted Shares..................... 105
MCI Right................................. 92
MCI Rights................................ 92
MCI Stock Option.......................... 99
MCI WorldCom.............................. 84
MCI/WorldCom Acquisition Proposal......... 94
MCI/WorldCom Average Price................ 11
MCI/WorldCom Closing Date................. 91
MCI/WorldCom Effective Time............... 11
MCI/WorldCom Merger....................... 11
MCI/WorldCom Merger Agreement............. 11
MCI/WorldCom Merger Consideration......... 11
MCI/WorldCom Surviving Corporation........ 89
MCI/WorldCom Termination Date............. 100
MCIT...................................... 119
Merger Control Regulation................. 20
Metromedia................................ 15
MFS....................................... 14
MFS Merger................................ 14
1996A Notes............................... 112
1996B Notes............................... 112
1997 Notes................................ 112
NASD...................................... vi
Option.................................... 56
Optional Conversion Rate.................. 122
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Proxy..................................... 56
Proxy Statement/Prospectus...........Cover Page
Previous Synergy Estimates................ 84
PSLRA..................................... 19
PUC....................................... 20
Purchase.................................. 56
Redemption Price.......................... 124
Registration Statement.................... vi
Reimbursement Amount...................... 101
Resurgens................................. vii
Revised Synergy Estimates................. 84
Salomon Brothers.......................... 30
SBC....................................... 24
Scenario One.............................. 42
Scenario Two.............................. 42
Securities Act............................ vi
Series B Conversion Rate.................. 124
Severance Plan............................ 7
Share Issuance............................ 12
Special Meeting......................Cover Page
Sprint.......................................25
Spry.................................Cover Page
State Applications........................ 89
Stock Acquisition Date.................... 126
Stockholders Agreement...............Cover Page
Subdivision............................... 124
Surviving Corporation..................... 1
Telecom Act............................... 23
The 1818 Funds............................ 116
Triggering Events......................... 57
Trust..................................... 17
United States Holder...................... 65
UUNET..................................... 1
UUNET Acquisition......................... 77
Ventures.................................. 103
VGE....................................... 114
Voting Debt............................... 93
Voting Preferred Stock.................... 123
WorldCom.............................Cover Page
WorldCom 1996 Form 10-K................... vii
WorldCom Acquiring Person................. 126
WorldCom Alternative Transaction Fee...... 101
WorldCom Articles......................... 9
WorldCom Common Stock................Cover Page
WorldCom Depositary Shares................ vii
WorldCom Distribution Date................ 126
WorldCom Entities......................... 44
WorldCom Material Breach.................. 55
WorldCom Pending Acquisitions............. 93
WorldCom Series A Preferred Stock......... vii
WorldCom Series B Preferred Stock......... vii
WorldCom Depositary Shares................ vii
</TABLE>
iv
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
WorldCom Right............................ 126
WorldCom Rights Agreement................. 27
WorldCom Series 3 Preferred Stock......... 125
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
WorldCom Special Meeting.................. 88
WTO Agreement............................. 24
</TABLE>
v
<PAGE> 13
NO PERSON HAS BEEN AUTHORIZED BY WORLDCOM OR COMPUSERVE TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EITHER WORLDCOM OR
COMPUSERVE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER
THAN THE SHARES OF WORLDCOM COMMON STOCK TO WHICH IT RELATES OR AN OFFER OR
SOLICITATION TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED HEREBY
SHALL, UNDER ANY CIRCUMSTANCES, IMPLY OR CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF WORLDCOM OR COMPUSERVE OR IN THE INFORMATION
SET FORTH OR INCORPORATED BY REFERENCE HEREIN SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
WorldCom and CompuServe are each subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by each of WorldCom and CompuServe may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at Northeast
Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048
and Midwest Regional Office, Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can also be obtained
from the Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements and
other materials that are filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval ("EDGAR") system. This Web site can be
accessed at http://www.sec.gov. In addition, material filed by each of WorldCom
and CompuServe can be inspected at the offices of the National Association of
Securities Dealers, Inc. (the "NASD"), at 1735 K Street, N.W., Washington, D.C.
20006.
This Proxy Statement/Prospectus constitutes a part of a registration
statement on Form S-4 (together with all amendments and exhibits thereto, the
"Registration Statement") filed by WorldCom under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the offering of WorldCom Common
Stock in connection with the CompuServe Merger. As permitted by the rules and
regulations of the Commission, this Proxy Statement/Prospectus omits certain
information contained or incorporated by reference in the Registration
Statement. Reference is made to the Registration Statement for further
information with respect to WorldCom, the WorldCom Common Stock, CompuServe, and
the CompuServe Merger. Statements contained in this Proxy Statement/Prospectus
as to the contents of any contract or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference. For further information, reference is hereby made to
the Registration Statement.
As used in this Proxy Statement/Prospectus, the term "CompuServe" means
CompuServe Corporation and its subsidiaries, and the term "WorldCom" means
WorldCom, Inc. and its subsidiaries. All information contained or incorporated
by reference in this Proxy Statement/Prospectus relating to CompuServe was
provided by the management and Board of Directors of CompuServe. WorldCom
assumes no responsibility for the accuracy of such information. All information
contained or incorporated by reference in this Proxy Statement/Prospectus
relating to WorldCom was provided by the management and Board of Directors of
WorldCom. CompuServe assumes no responsibility for the accuracy of such
information.
vi
<PAGE> 14
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed with the Commission by WorldCom (formerly
Resurgens Communications Group, Inc. ("Resurgens")) under File No. 0-11258
(formerly File No. 1-10415) and by CompuServe under File No. 2-53193 (see also
File No. 0-8273) pursuant to the Exchange Act are incorporated herein by
reference:
(a) (1) WorldCom's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (the "WorldCom 1996 Form 10-K");
(2) WorldCom's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997;
(3) WorldCom's Current Reports on Form 8-K dated August 25, 1996
(filed August 26, 1996 and as amended on Forms 8-K/A filed November 4,
1996, November 20, 1996 and December 19, 1997), December 31, 1996 (filed
January 15, 1997), March 18, 1997 (filed March 24, 1997), March 26, 1997
(filed April 2, 1997), May 22, 1997 (filed June 6, 1997), June 30, 1997
(filed July 7, 1997), August 5, 1997 (filed August 5, 1997), August 8, 1997
(filed August 11, 1997), August 22, 1997 (filed August 25, 1997), August
28, 1997 (filed September 10, 1997), September 7, 1997 (filed September 17,
1997), October 1, 1997 (filed October 2, 1997), October 3, 1997 (filed
October 3, 1997), October 9, 1997 (filed October 10, 1997), October 10,
1997 (filed October 14, 1997), October 14, 1997 (filed October 14, 1997),
October 15, 1997 (filed October 16, 1997), October 16, 1997 (filed October
17, 1997), October 23, 1997 (filed October 23, 1997), October 31, 1997
(filed November 3, 1997) and November 9, 1997 (filed November 12, 1997);
(4) the description of WorldCom's (formerly Resurgens') Common Stock
as contained in Item 1 of Resurgens' Registration Statement on Form 8-A
dated December 12, 1989, as updated by the descriptions contained in
WorldCom's Registration Statement on Form S-4 (File No. 333-16015), as
declared effective by the Commission on November 14, 1996, which includes
the Joint Proxy Statement/ Prospectus dated November 14, 1996 with respect
to WorldCom's Special Meeting of Shareholders held on December 20, 1996,
under the following captions: "Description of WorldCom Capital Stock" and
"Comparative Rights of Shareholders";
(5) the description of WorldCom's Preferred Stock Purchase Rights
contained in WorldCom's Registration Statement on Form 8-A dated August 26,
1996, as updated by WorldCom's Current Report on Form 8-K dated May 22,
1997 (filed June 6, 1997); and
(6) the descriptions of the WorldCom Series A 8% Cumulative
Convertible Preferred Stock (the "WorldCom Series A Preferred Stock"), the
WorldCom Series B Convertible Preferred Stock (the "WorldCom Series B
Preferred Stock") and the WorldCom Depositary Shares (the "WorldCom
Depositary Shares") contained in WorldCom's Registration Statements on Form
8-A dated November 13, 1996.
(b) (1) CompuServe's Annual Report on Form 10-K for the fiscal year
ended April 30, 1997 (as amended by CompuServe's Annual Report on Form
10-K/A for the fiscal year ended April 30, 1997, filed August 18, 1997)
(the "CompuServe 1997 Form 10-K");
(2) CompuServe's Quarterly Reports on Form 10-Q for the quarters ended
July 31, 1997 and October 31, 1997;
(3) CompuServe's Current Reports on Form 8-K dated September 7, 1997
(filed September 10, 1997) and November 10, 1997 (filed November 13, 1997);
(4) the description of CompuServe's Common Stock as contained in Item
1 of CompuServe's Registration Statement on Form 8-A dated April 13, 1996;
and
(5) the description of CompuServe's Rights to Purchase Junior
Participating Preferred Shares as contained in Item 1 of CompuServe's
Registration Statement on Form 8-A dated April 13, 1996.
vii
<PAGE> 15
All documents filed by WorldCom, CompuServe and MCI (as defined below) with
the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date hereof and prior to the termination of the offering
of any securities offered hereby shall be deemed to be incorporated by reference
into this Proxy Statement/Prospectus and to be a part hereof from the date of
filing of such documents. See "Available Information" and "MCI Information." Any
statement contained herein, or in a document incorporated or deemed to be
incorporated herein by reference, shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein or in any other subsequently filed document incorporated or
deemed to be incorporated herein by reference, which statement is also
incorporated herein by reference, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS
(EXCLUDING EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE INTO THE INFORMATION INCORPORATED HEREIN) WILL BE PROVIDED BY FIRST
CLASS MAIL WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS
IS DELIVERED, INCLUDING ANY BENEFICIAL OWNER OF COMPUSERVE COMMON STOCK, UPON
WRITTEN OR ORAL REQUEST BY SUCH PERSON AS FOLLOWS: WITH RESPECT TO WORLDCOM OR
MCI (AS DEFINED BELOW), TO WORLDCOM, INC., 515 EAST AMITE STREET, JACKSON,
MISSISSIPPI 39201-2702, ATTENTION: STEPHANIE Q. SCOTT, DIRECTOR OF FINANCIAL
REPORTING (TELEPHONE: (601) 360-8600); AND WITH RESPECT TO COMPUSERVE, TO
COMPUSERVE CORPORATION, 5000 ARLINGTON CENTRE BLVD., COLUMBUS, OHIO 43220,
ATTENTION: HERBERT J. KAHN, EXECUTIVE VICE PRESIDENT, CORPORATE OPERATIONS
(TELEPHONE: (614)-538-3854). IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JANUARY 23, 1998.
MCI INFORMATION
As described herein, WorldCom has announced an agreement to acquire MCI
Communications Corporation, a Delaware corporation ("MCI"). See "Information
Regarding WorldCom -- Recent Developments -- The MCI/WorldCom Merger." MCI is
also subject to the informational requirements of the Exchange Act, and in
accordance therewith files reports, proxy statements and other information with
the Commission that may be inspected at the public reference facilities
identified above under "Available Information" under File No. 0-6457, including
the following documents, which are incorporated herein by reference:
(1) MCI's Annual Report on Form 10-K for the year ended December 31,
1996, and the financial information incorporated by reference therein to
MCI's Current Report on Form 8-K dated February 10, 1997 (the "MCI 1996
Form 10-K");
(2) MCI's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997 and September 30, 1997; and
(3) MCI's Current Reports on Form 8-K dated February 10, 1997, July
14, 1997, August 26, 1997 and November 12, 1997, as amended.
viii
<PAGE> 16
SUMMARY
The following is a summary of certain important terms of the proposed
CompuServe Merger and related information discussed elsewhere in this Proxy
Statement/Prospectus. This summary does not purport to be complete and is
qualified in its entirety by reference to the more detailed information included
in this Proxy Statement/Prospectus and the appendices hereto, including, but not
limited to, the CompuServe Merger Agreement and the Stockholders Agreement set
forth as Appendix I and Appendix II hereto, respectively. Stockholders of
CompuServe are urged to read this Proxy Statement/Prospectus and the appendices
hereto in their entirety and to consider carefully the information set forth
under the headings "Summary -- Market Prices," "Cautionary Statement Regarding
Forward-Looking Statements" and "Risk Factors."
BUSINESS OF WORLDCOM
WorldCom is one of the largest telecommunications companies in the United
States, serving local, long distance and Internet customers domestically and
internationally. WorldCom provides telecommunications services to business,
government, telecommunications companies and consumer customers, through its
network of fiber optic cables, digital microwave, and fixed and transportable
satellite earth stations.
WorldCom is one of the first major facilities-based telecommunications
companies with the capability to provide businesses with high quality local,
long distance, Internet, data and international communications services over its
global networks. With service to points throughout the nation and the world,
WorldCom provides telecommunications products and services including: switched
and dedicated long distance and local products, 800 services, calling cards,
domestic and international private lines, broadband data services, debit cards,
conference calling, advanced billing systems, enhanced fax and data connections,
high speed data communications, facilities management, local access to long
distance companies, local access to ATM-based back bone service and
interconnection via Network Access Points to Internet service providers
("ISPs"). In addition, WorldCom's subsidiary, UUNET Technologies, Inc.
("UUNET"), is an international ISP.
WorldCom's principal executive offices are located at 515 East Amite
Street, Jackson, Mississippi 39201-2702, and its telephone number is (601)
360-8600. For more information regarding WorldCom and recent developments
regarding WorldCom, see "Summary -- Recent Developments Regarding WorldCom" and
"Information Regarding WorldCom."
BUSINESS OF COMPUSERVE
CompuServe is engaged in providing worldwide online and Internet access
services for users, as well as worldwide network access, management and
applications and Internet services to businesses.
CompuServe's principal executive offices are located at 5000 Arlington
Centre Boulevard, Columbus, Ohio 43220, and its telephone number is (614)
457-8600. See "Information Regarding CompuServe."
THE PROPOSED COMPUSERVE MERGER
Subject to the satisfaction of the terms and conditions set forth in the
CompuServe Merger Agreement, which are described below and elsewhere herein,
Acquisition Subsidiary, a wholly owned subsidiary of WorldCom, will merge with
and into CompuServe. Upon consummation of the CompuServe Merger, Acquisition
Subsidiary's separate existence will terminate and CompuServe will continue as
the surviving corporation (the "Surviving Corporation"). It is anticipated that
the CompuServe Merger will be consummated on January 30, 1998, after the Special
Meeting, provided that the conditions to the CompuServe Merger are then
fulfilled or waived.
As a result of the CompuServe Merger, each share of CompuServe Common Stock
will be converted into the right to receive a fraction of a share of WorldCom
Common Stock equal to the CompuServe Exchange Ratio described in the next
sentence. The CompuServe Exchange Ratio will be determined as follows: (i) if
the Average Trading Price (defined in the next sentence) of a share of WorldCom
Common Stock is greater than or equal to $29.54, the CompuServe Exchange Ratio
will equal 0.40625, and (ii) if the Average Trading Price of a share of WorldCom
Common Stock is greater than or equal to $24.00 but less than $29.54, the
1
<PAGE> 17
CompuServe Exchange Ratio will equal a fraction (rounded to the nearest
hundred-thousandth) determined by dividing $12.00 by the Average Trading Price
of a share of WorldCom Common Stock; and (iii) if the Average Trading Price of a
share of WorldCom Common Stock is less than $24.00, the CompuServe Exchange
Ratio will equal 0.5; however; CompuServe has the right to terminate the
CompuServe Merger Agreement if the Average Trading Price of a share of WorldCom
Common Stock is less than $24.00. The Average Trading Price of a share of
WorldCom Common Stock will be the average of the daily closing prices of a share
of WorldCom Common Stock, as quoted by The Nasdaq National Market and reported
in The Wall Street Journal, Eastern Edition, or if not reported thereby, The New
York Times, for the twenty consecutive full Nasdaq National Market trading days
ending on the date immediately prior to the third full Nasdaq National Market
trading day immediately preceding the date on which the CompuServe Merger is
consummated.
It is anticipated that the CompuServe Merger will be consummated on January
30, 1998, after the Special Meeting, provided that the conditions to the
CompuServe Merger are then fulfilled or waived. If the Average Trading Price of
WorldCom Common Stock, calculated as of proposed date of consummation of the
CompuServe Merger, were to be less than $24.00, the Board of Directors of
CompuServe would determine at such time whether or not to exercise its right to
terminate the CompuServe Merger Agreement. The Board's determination would be
made in accordance with its fiduciary duties under Delaware law to all of the
stockholders of CompuServe, including H&R Block and Block Group as the holders
of approximately 80.1% of the outstanding CompuServe Common Stock, and the
Board's business judgment, based on the facts and circumstances existing at such
time, regarding the best interests of CompuServe and its stockholders.
Holders of CompuServe Common Stock may call toll free to 1-800-780-6378
from January 5, 1998 until the date that the CompuServe Merger is consummated to
hear a tape recorded message stating what the Average Trading Price and the
CompuServe Exchange Ratio would be if the CompuServe Merger were to be
consummated on that day. Holders of CompuServe Common Stock may call the same
toll free number from the date the CompuServe Merger is consummated until ten
business days thereafter to hear a tape recorded message stating the actual
Average Trading Price and CompuServe Exchange Ratio.
For additional information regarding the CompuServe Merger Consideration,
including the WorldCom Common Stock, see "Plan of Merger -- General Description
of the CompuServe Merger" and "Description of WorldCom Capital Stock."
2
<PAGE> 18
The following table illustrates the number of shares of WorldCom Common
Stock (assuming 94,261,911 shares of CompuServe Common Stock outstanding,
including shares issuable upon exercise of CompuServe Stock Options) and the
corresponding per share value of the CompuServe Merger Consideration issuable in
the CompuServe Merger, at various assumed Average Trading Prices:
<TABLE>
<CAPTION>
AGGREGATE
SHARES OF
WORLDCOM VALUE PER SHARE OF
AVERAGE TRADING COMPUSERVE COMMON STOCK COMPUSERVE
PRICE EXCHANGE RATIO ISSUABLE COMMON STOCK
--------------- -------------- ------------ ------------------
<S> <C> <C> <C>
$34.00................................ 0.40625 38,293,901 $13.81
$33.00................................ 0.40625 38,293,901 $13.41
$32.00................................ 0.40625 38,293,901 $13.00
$31.00................................ 0.40625 38,293,901 $12.59
$30.00................................ 0.40625 38,293,901 $12.19
$29.54................................ 0.40625 38,293,901 $12.00
- ----------------------------------------------------------------------------------------------
$29.00................................ 0.41379 39,004,636 $12.00
$28.00................................ 0.42857 40,397,827 $12.00
$27.00................................ 0.44444 41,893,764 $12.00
$26.00................................ 0.46153 43,504,700 $12.00
$25.00................................ 0.48000 45,245,717 $12.00
- ----------------------------------------------------------------------------------------------
$24.00................................ 0.50000 47,130,956 $12.00
$23.00................................ 0.50000 47,130,956 $11.50
$22.00................................ 0.50000 47,130,956 $11.00
$21.00................................ 0.50000 47,130,956 $10.50
$20.00................................ 0.50000 47,130,956 $10.00
</TABLE>
Based on the number of outstanding shares of CompuServe Common Stock (as of
December 15, 1997), BFP Common Stock (as defined herein) (as of December 22,
1997) and MCI Common Stock (as defined herein) (as of October 31, 1997) (without
adjustment for stock options, rights, warrants or convertible securities) and
assuming completion by WorldCom of the CompuServe Merger, the BFP Merger and the
MCI/WorldCom Merger (see "Information Regarding WorldCom -- Recent
Developments"), the number of outstanding shares of WorldCom Common Stock would
increase from 909,044,560 shares outstanding on December 15, 1997 to between
1,715,059,496 shares and 2,022,680,634 shares, respectively, and the number of
shares of WorldCom Common Stock issuable upon exercise of WorldCom options,
rights and warrants would increase from 80,849,248 shares to between 185,934,659
shares and 228,006,125 shares, respectively. A total of 94,992 shares of
WorldCom Series A Preferred Stock and 12,427,866 shares of WorldCom Series B
Preferred Stock were also outstanding as of December 15, 1997, which were
convertible into 32,703,276 and 1,210,364 shares, respectively, of WorldCom
Common Stock. Based on the number of outstanding shares of CompuServe Common
Stock (as of December 15, 1997), BFP Common Stock (as of December 22, 1997), MCI
Common Stock (as of October 31, 1997) and WorldCom Common Stock (as of December
15, 1997) (without adjustment for stock options, rights or warrants) and
assuming a CompuServe Exchange Ratio of 0.5, a BFP Exchange Ratio of 1.85 and an
MCI Exchange Ratio of 1.7586, CompuServe stockholders would hold approximately
(a) 4.8%, (b) 4.4% and (c) 2.3% of the outstanding WorldCom Common Stock after
completion of (a) the CompuServe Merger, (b) the CompuServe Merger and the BFP
Merger, and (c) the CompuServe Merger, the BFP Merger and the MCI/WorldCom
Merger, respectively, assuming no exercise of WorldCom options, rights or
warrants, but assuming the conversion of WorldCom convertible securities. Actual
exchange ratios may vary as described herein.
The CompuServe Merger Agreement provides that the consummation of the
CompuServe Merger is subject to certain terms and conditions, including: (i)
approval and adoption of the CompuServe Merger Agreement by the requisite number
of stockholders of CompuServe; (ii) receipt by WorldCom and CompuServe of
opinions from their respective tax counsel regarding certain tax matters; (iii)
approval of the shares of WorldCom Common Stock comprising consideration for the
CompuServe Merger for quotation on The Nasdaq National Market; (iv) expiration
or termination of any mandatory waiting period applicable to the CompuServe
Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the
3
<PAGE> 19
"Hart-Scott-Rodino Act"), any foreign law or other similar law; (v) there not
having been enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order, whether temporary, preliminary or
permanent which has or would have the effect of making the transactions
contemplated by the CompuServe Merger Agreement illegal or restraining or
prohibiting consummation of such transactions; (vi) neither CompuServe nor any
CompuServe Entity (as hereinafter defined) shall have suffered a Material
Adverse Change (as hereinafter defined) from April 30, 1997 to the Closing Date;
(vii) expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Act with respect to the AOL Transaction (the "AOL
Hart-Scott-Rodino Condition"); and (viii) satisfaction of other conditions
customary to transactions of this nature. Except as noted in clauses (iv) and
(vii) above, receipt of any required governmental or third party approvals is
not a condition to the CompuServe Merger. The applicable waiting period under
the Hart-Scott-Rodino Act with respect to the AOL Transaction has expired,
thereby satisfying the AOL Hart-Scott-Rodino Condition. The applicable waiting
period with respect to the CompuServe Merger has also expired. Certain of the
terms and conditions of the CompuServe Merger, other than the requirement of
stockholder approval, may be waived by one or all of the parties.
The CompuServe Merger will become effective at the time of the filing,
after satisfaction or waiver of all the conditions to the CompuServe Merger, of
a Certificate of Merger with the Secretary of State of the State of Delaware or
at such later time as may be specified in the Certificate of Merger (the
"Effective Time"). The date on which the Effective Time occurs is referred to
herein as the "Closing Date." See "Plan of Merger -- Terms and Conditions of the
Proposed CompuServe Merger."
Pursuant to the CompuServe Merger Agreement, CompuServe has agreed that,
commencing on the date of the CompuServe Merger Agreement, it will, among other
things, immediately cease any discussions or negotiations with any parties that
may be ongoing with respect to a Competitive Proposal (defined below) and will,
among other things, not (i) solicit, initiate or encourage (including by way of
furnishing information), or take any other action designed or reasonably likely
to facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Competitive Proposal, or (ii)
participate in any discussions or negotiations regarding any Competitive
Proposal. "Competitive Proposal" means any inquiry, proposal or offer from any
person relating to any acquisition or purchase of 10% or more of the assets of
CompuServe and the CompuServe Entities or 10% or more of any class of equity
securities of CompuServe or any of the CompuServe Entities, or certain other
significant transactions that may impede or interfere with the CompuServe Merger
involving CompuServe or any of the CompuServe Entities, other than the
transactions contemplated by the CompuServe Merger Agreement and the
Stockholders Agreement. Except to the extent the Board of Directors of
CompuServe determines it is required to do otherwise in accordance with its
fiduciary duties, neither the Board of Directors of CompuServe nor any committee
thereof shall withdraw or modify, or propose publicly to withdraw or modify, in
a manner adverse to WorldCom, the approval or recommendation by such Board of
Directors or such committee of the CompuServe Merger Agreement and the
transactions contemplated by the CompuServe Merger Agreement (the "CompuServe
Merger Proposal"). Neither the Board of Directors of CompuServe nor any
committee thereof may approve or recommend, or propose publicly to approve or
recommend, any Competitive Proposal or cause CompuServe to enter into any letter
of intent, agreement in principle, acquisition agreement or other similar
agreement related to a Competitive Proposal. Additionally, H&R Block has agreed
that it will, among other things, immediately cease any discussions or
negotiations with any parties that may be ongoing with respect to a Competitive
Proposal. H&R Block has, among other things, agreed not to (i) solicit, initiate
or encourage (including by way of furnishing information), or take any other
action designed or reasonably likely to facilitate, any inquiries or the making
of any proposal which constitutes, or may reasonably be expected to lead to, any
Competitive Proposal, or (ii) participate in any discussions or negotiations
regarding any Competitive Proposal. H&R Block and CompuServe have each agreed to
immediately advise WorldCom orally and in writing of any request for information
or of any Competitive Proposal and the material terms and conditions thereof and
to keep WorldCom fully informed of the status and details (including amendments
or proposed amendments) of any such request or Competitive Proposal. See "Plan
of Merger -- Terms and Conditions of the Proposed CompuServe Merger -- Agreement
Not to Solicit Other Offers."
4
<PAGE> 20
The CompuServe Merger Agreement may be amended at any time before the
CompuServe Merger Agreement is approved by the holders of the CompuServe Common
Stock, subject to applicable law, by the mutual written consent of the parties.
The CompuServe Merger Agreement may be terminated at any time prior to the
Closing (i) by the mutual consent of the parties, (ii) by any of WorldCom, H&R
Block, Block Group or CompuServe if the Closing shall not have occurred on or
before March 1, 1998, unless the failure to do so is the result of a breach of
the CompuServe Merger Agreement by the party seeking to terminate the CompuServe
Merger Agreement; (iii) by WorldCom if the Board of Directors of CompuServe or
any committee thereof resolves to or does withdraw or modify in a manner adverse
to WorldCom its approval or recommendation of the CompuServe Merger Proposal,
fails to reconfirm its recommendation within fifteen business days after a
written request to do so, or approves or recommends any Competitive Proposal;
(iv) by CompuServe, if the Average Trading Price of a share of WorldCom Common
Stock is less than $24.00; or (v) under certain other circumstances. See "Plan
of Merger -- Terms and Conditions of the Proposed CompuServe
Merger -- Termination." Termination of the CompuServe Merger Agreement by
WorldCom or H&R Block, Block Group or CompuServe under certain circumstances,
including, without limitation, failure to receive the approval of CompuServe's
stockholders, will require WorldCom, on the one hand, or H&R Block, Block Group
and CompuServe, on the other hand, depending on the circumstances, to pay a $15
million termination fee to the other party or parties. Further, in the event the
CompuServe Merger Agreement is terminated under certain circumstances and the
AOL Hart-Scott-Rodino Condition has not been fulfilled or waived prior to the
date of termination, WorldCom will be obligated to pay CompuServe $45 million.
See "Plan of Merger -- Terms and Conditions of the Proposed CompuServe
Merger --Expenses; Termination Fees." However, because the applicable waiting
period under the Hart-Scott-Rodino Act with respect to the AOL Transaction has
expired, the AOL Hart-Scott-Rodino Condition has been fulfilled.
THE STOCKHOLDERS AGREEMENT
In connection with the CompuServe Merger Agreement, H&R Block, Block Group
and WorldCom entered into the Stockholders Agreement dated September 7, 1997, a
copy of which is attached hereto as Appendix II. Pursuant to the Stockholders
Agreement and the CompuServe Merger Agreement, H&R Block and Block Group have
agreed that at any meeting of the stockholders of CompuServe, however called,
Block Group will vote, and H&R Block will cause Block Group to vote, all of the
shares of CompuServe Common Stock owned by Block Group (i) in favor of the
approval and adoption of the CompuServe Merger Agreement and the transactions
contemplated by the CompuServe Merger Agreement, (ii) against any proposal
relating to certain transactions with any party other than WorldCom and (iii) in
favor of any other matter necessary for the consummation of the transactions
contemplated by the CompuServe Merger Agreement with respect to which Block
Group may be entitled to vote. In addition, pursuant to the Stockholders
Agreement, H&R Block and Block Group have irrevocably appointed WorldCom, or any
nominee of WorldCom, as agent and proxy to vote the shares of CompuServe Common
Stock owned by Block Group at any stockholder meeting or otherwise as described
above, and have granted WorldCom an option to purchase the shares of CompuServe
Common Stock owned by Block Group under certain circumstances. See "Plan of
Merger -- Stockholders Agreement." AS A RESULT OF THESE AGREEMENTS, THE
COMPUSERVE MERGER AGREEMENT WILL BE APPROVED AND ADOPTED REGARDLESS OF HOW OR
WHETHER STOCKHOLDERS OF COMPUSERVE OTHER THAN BLOCK GROUP VOTE THEIR SHARES.
THE AOL TRANSACTION
On September 7, 1997, WorldCom also entered into the AOL Agreement with
AOL, under which WorldCom agreed to (a) transfer to AOL the online services
businesses of CompuServe and Spry, Inc., a CompuServe subsidiary, which WorldCom
will acquire as a result of the CompuServe Merger, and (b) acquire all
outstanding shares of ANS, a wholly-owned subsidiary of AOL which provides
Internet and other networking services to AOL and other customers. In addition
to the transfer of the online services businesses of CompuServe and Sprynet,
WorldCom will pay AOL $175 million in cash, subject to certain adjustments
specified in the AOL Agreement. The closing of the AOL Transaction is
conditioned on, and is expected to occur immediately after, the closing of the
CompuServe Merger. The closing of the AOL
5
<PAGE> 21
Transaction, which will be accounted for as a purchase, is subject to certain
other conditions. The applicable waiting period under the Hart-Scott-Rodino Act
with respect to the AOL Transaction has expired. See "Plan of Merger -- Terms
and Conditions of the Proposed CompuServe Merger -- WorldCom's Conditions,"
"Plan of Merger -- Terms and Conditions of the Proposed CompuServe
Merger -- Termination," "Plan of Merger -- Terms and Conditions of the Proposed
CompuServe Merger -- Expenses; Termination Fees" and "Certain Related
Transactions -- AOL Transaction." Neither WorldCom nor CompuServe assumes
responsibility for the accuracy of any of the information contained herein
relating to AOL.
STOCKHOLDER APPROVAL REQUIRED
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of CompuServe Common Stock
entitled to vote as of the CompuServe Record Date is necessary to constitute a
quorum at the Special Meeting. The approval and adoption of the CompuServe
Merger Agreement requires the affirmative vote of the holders of a majority of
the votes entitled to be cast in respect of all outstanding shares of CompuServe
Common Stock voting as a single class. See "The Special Meeting -- Quorum" and
"-- Required Vote." As of the CompuServe Record Date, directors and executive
officers of CompuServe and their affiliates, including Block Group (as a group),
were entitled to vote shares of CompuServe Common Stock representing
approximately 81% of the outstanding shares of CompuServe Common Stock entitled
be cast at the Special Meeting. H&R BLOCK AND BLOCK GROUP HAVE AGREED TO VOTE
ALL OF THE SHARES OF COMPUSERVE COMMON STOCK OWNED BY BLOCK GROUP IN FAVOR OF
APPROVING AND ADOPTING THE COMPUSERVE MERGER AGREEMENT, WHICH NUMBER OF SHARES
IS SUFFICIENT TO APPROVE AND ADOPT THE COMPUSERVE MERGER AGREEMENT. See "Plan of
CompuServe Merger -- Stockholders Agreement." All such other persons have
indicated their intention to vote their shares for the approval and adoption of
the CompuServe Merger Agreement.
MANAGEMENT AND OPERATIONS AFTER THE COMPUSERVE MERGER
After the CompuServe Merger and the AOL Transaction, CompuServe is expected
to continue to operate CompuServe's network services business and ANS is
expected to operate its Internet services business, each as a subsidiary of
WorldCom. The AOL Agreement provides that, if so requested at least five
business days before the closing of the AOL Transaction, WorldCom will cause
Stephen M. Case, Chairman of the Board, Chief Executive Officer and President of
AOL, to be appointed to the Board of Directors of WorldCom. See "Certain Related
Transactions -- AOL Transaction" and "Information Regarding
WorldCom -- Management and Principal Shareholders."
WORLDCOM'S REASONS FOR THE COMPUSERVE MERGER
In reaching its decision to approve the CompuServe Merger Agreement, the
Board of Directors of WorldCom consulted with its management team and advisors
and independently considered a variety of factors and the business and
operations of CompuServe. The Board of Directors of WorldCom concluded that the
CompuServe Merger, in combination with the AOL Transaction, was in the best
interests of WorldCom and its shareholders. See "Plan of Merger -- WorldCom's
Reasons for the CompuServe Merger."
RECOMMENDATION OF THE COMPUSERVE BOARD OF DIRECTORS; COMPUSERVE'S REASONS FOR
THE COMPUSERVE MERGER
The CompuServe Board of Directors believes that the terms of the CompuServe
Merger Agreement and the transactions contemplated thereby are fair to and in
the best interests of CompuServe and its stockholders and has unanimously
approved the CompuServe Merger Agreement and the transactions contemplated
thereby. THE COMPUSERVE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF COMPUSERVE APPROVE AND ADOPT THE COMPUSERVE MERGER AGREEMENT.
The recommendation of the CompuServe Board of Directors is based on a number of
factors as described in "Plan of Merger -- CompuServe's Reasons for the
CompuServe Merger." In considering the recommendation of the CompuServe Board of
Directors, holders of CompuServe Common
6
<PAGE> 22
Stock should be aware that certain non-director members of CompuServe's
management have certain interests in the CompuServe Merger in addition to the
interests of stockholders of CompuServe generally. The CompuServe Board of
Directors was aware of these other interests and considered them, among other
matters, in approving the CompuServe Merger Agreement and the transactions
contemplated thereby, including the CompuServe Merger. See "Plan of
Merger -- Interests of Certain Persons in the CompuServe Merger."
OPINION OF COMPUSERVE'S FINANCIAL ADVISOR
On September 7, 1997, Goldman, Sachs & Co. ("Goldman Sachs"), financial
advisor to CompuServe, delivered its oral opinion to the CompuServe Board of
Directors, which it subsequently confirmed in writing as of such date, that, on
and as of the date of such opinion, based upon the procedures and subject to the
assumptions described in such opinion, the CompuServe Exchange Ratio was fair,
from a financial point of view, to the holders (excluding Block Group) of
CompuServe Common Stock. A copy of Goldman Sachs' opinion is attached as
Appendix IV to this Proxy Statement/Prospectus, and holders of CompuServe Common
Stock are urged to read the opinion in its entirety. See "Plan of
Merger -- Opinion of CompuServe's Financial Advisor."
THE COMPUSERVE SPECIAL MEETING
The Special Meeting will be held on January 30, 1998, at 9:00 a.m., local
time, at 5000 Arlington Centre Boulevard, Columbus, Ohio. At such meeting,
CompuServe stockholders will be asked to consider and vote upon a proposal to
approve and adopt the CompuServe Merger Agreement.
Approval and adoption of the CompuServe Merger Agreement requires the
affirmative vote of the holders of a majority of the votes entitled to be cast
in respect of all outstanding shares of CompuServe Common Stock voting as a
single class. The CompuServe Board of Directors has fixed the close of business
on December 12, 1997 as the record date for determining holders entitled to
notice of and to vote at the Special Meeting (the "CompuServe Record Date"). As
of the CompuServe Record Date, there were approximately 92,600,000 shares of
CompuServe Common Stock outstanding, each of which will be entitled to one vote.
See "The Special Meeting."
H&R BLOCK AND BLOCK GROUP HAVE AGREED TO VOTE ALL OF THE SHARES OF
COMPUSERVE COMMON STOCK OWNED BY BLOCK GROUP IN FAVOR OF APPROVING AND ADOPTING
THE COMPUSERVE MERGER AGREEMENT, WHICH NUMBER OF SHARES IS SUFFICIENT TO APPROVE
AND ADOPT THE COMPUSERVE MERGER AGREEMENT. See "Plan of Merger -- Stockholders
Agreement."
INTERESTS OF CERTAIN PERSONS IN THE COMPUSERVE MERGER
In considering the recommendations of the CompuServe Board of Directors,
stockholders of CompuServe should be aware that certain non-director members of
CompuServe's management have certain interests in the CompuServe Merger that are
in addition to the interests of stockholders of CompuServe generally. The
CompuServe Merger will result in a change in control of CompuServe for purposes
of certain severance agreements entered into by CompuServe with its four
executive officers (the "Change in Control Agreements") and for purposes of the
CompuServe Change in Control Severance Plan, which covers substantially all of
the employees of CompuServe, including officers (the "Severance Plan"). As a
result, if any employee covered under either the Change in Control Agreements or
the Severance Plan is terminated, or elects to terminate employment under
certain circumstances, during the two-year period after the Effective Time, such
employee will be entitled to certain enhanced severance benefits. In addition,
pursuant to the terms of the CompuServe 1996 Stock Option Plan and the terms of
the CompuServe Merger Agreement, all outstanding CompuServe Stock Options
(whether or not then vested or unvested, exercisable or non-exercisable) will be
terminated and replaced with a right to receive an amount in cash as of the
Effective Time. Completion bonuses in an amount equal to 50% of base salary will
also be payable to certain executive officers as of the Effective Time. See
"Plan of Merger -- Interests of Certain Persons in the CompuServe Merger."
7
<PAGE> 23
ACCOUNTING TREATMENT
WorldCom intends to account for the CompuServe Merger using the purchase
method. Accordingly, the aggregate CompuServe Merger Consideration will be
allocated to the assets and liabilities of CompuServe based on their estimated
fair value. Any excess of cost over the fair value of net tangible assets of
CompuServe acquired will be recorded as in-process research and development,
goodwill and other intangible assets. WorldCom expects that goodwill and other
intangible assets will be amortized over periods not to exceed 10 years. See
"Plan of Merger -- Accounting Treatment."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The exchange of shares of CompuServe Common Stock for shares of WorldCom
Common Stock generally will be a taxable disposition for United States federal
income tax purposes. As a result, a holder of shares of CompuServe Common Stock
generally will recognize a gain or loss for United States federal income tax
purposes in an amount equal to the difference between the sum of the fair market
value of the shares of WorldCom Common Stock received (with such fair market
value equal to the mean of the high and low trading prices of shares of WorldCom
Common Stock on the Closing Date) and the cash received in lieu of a fractional
share of WorldCom Common Stock and such holder's tax basis in the CompuServe
Common Stock exchanged therefor. Holders of shares of CompuServe Common Stock
are urged to consult their tax advisors regarding the federal, state, local, and
foreign tax consequences of the exchange of shares of CompuServe Common Stock
for shares of WorldCom Common Stock.
H&R Block and WorldCom intend to make an election (the "Election") under
Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"Code"), with respect to the CompuServe Merger. The effect of the Election is
that the CompuServe Merger will be treated for federal income tax purposes as a
taxable sale of assets by CompuServe to WorldCom (with the entire amount of the
tax borne by H&R Block) followed by a tax-free deemed liquidation of CompuServe.
The tax liability or treatment of CompuServe's public shareholders will be the
same regardless of whether or not H&R Block and WorldCom make the Election.
For a more complete discussion of the federal income tax consequences of
the exchange of shares of CompuServe Common Stock for shares of WorldCom Common
Stock, see "Plan of Merger -- Certain United States Federal Income Tax
Consequences."
REGULATORY FILINGS AND APPROVALS
Hart-Scott-Rodino Act
In October 1997, each of WorldCom and H&R Block filed notification and
report forms with respect to the CompuServe Merger and the other transactions
contemplated by the CompuServe Merger Agreement and the Stockholders Agreement
in accordance with the Hart-Scott-Rodino Act. The applicable waiting period
under the Hart-Scott-Rodino Act with respect to the CompuServe Merger has
expired. Although WorldCom and CompuServe believe the CompuServe Merger complies
with the antitrust laws, at any time before or after the Effective Time the DOJ
or others could take action under the antitrust laws with respect to the
CompuServe Merger, including seeking to enjoin the consummation of the
CompuServe Merger, to rescind the CompuServe Merger or to require divestiture of
substantial assets of WorldCom or CompuServe. There can be no assurance that a
challenge to the CompuServe Merger on antitrust grounds will not be made or, if
such a challenge is made, that it would not be successful. See "Plan of
Merger -- Regulatory Filings and Approvals." See "Plan of Merger -- Terms and
Conditions of the Proposed CompuServe Merger -- WorldCom's Conditions" and
"Certain Related Transactions -- AOL Transaction."
Other Regulatory Filings and Approvals
The consummation of the CompuServe Merger is also contingent upon
notification to and/or approval by governmental authorities in certain foreign
countries where WorldCom and/or CompuServe and/or AOL or its affiliates conduct
business. WorldCom and CompuServe conduct operations in a number of foreign
8
<PAGE> 24
countries. As of the date of this Proxy Statement/Prospectus, the parties have
made all pre-merger notification filings which they consider to be necessary.
All foreign governmental approvals required to be obtained before the CompuServe
Merger may be consummated have been obtained. In the United Kingdom, the parties
filed a voluntary notification on October 31, 1997. The U.K. notification is
subject to the standard review process, and the parties anticipate a decision by
December 31, 1997. Prior approval from the U.K. competition authority is not
necessary under the laws of the U.K., or under the terms of the CompuServe
Merger Agreement, for the CompuServe Merger to be consummated. See "Plan of
Merger -- Regulatory Filings and Approvals."
ABSENCE OF APPRAISAL RIGHTS
Holders of CompuServe Common Stock will not be entitled to any dissenters'
or appraisal rights under Section 262 of the Delaware General Corporation Law
(the "DGCL") in connection with the CompuServe Merger because: (i) shares of
CompuServe Common Stock were, at the CompuServe Record Date for the Special
Meeting, designated as Nasdaq National Market securities; (ii) CompuServe
stockholders will not be required to accept anything in exchange for their
shares of CompuServe Common Stock other than shares of WorldCom Common Stock,
which will be designated as Nasdaq National Market securities as of the
Effective Time, and cash in lieu of fractional shares of such stock; and (iii)
the CompuServe Certificate of Incorporation (the "CompuServe Certificate") does
not otherwise provide CompuServe stockholders with dissenters' or appraisal
rights applicable to the CompuServe Merger. See "The Special Meeting -- Absence
of Appraisal Rights."
COMPARISON OF SHAREHOLDER RIGHTS
The rights of CompuServe stockholders currently are governed by Delaware
law, the CompuServe Certificate and the CompuServe Bylaws. Upon consummation of
the CompuServe Merger, stockholders of CompuServe will become shareholders of
WorldCom, which is a Georgia corporation, and their rights as shareholders of
WorldCom will be governed by Georgia law, the Second Amended and Restated
Articles of Incorporation of WorldCom (the "WorldCom Articles") and the WorldCom
Bylaws. See "Description of WorldCom Capital Stock" and "Comparative Rights of
Shareholders" for a summary of certain differences between the rights of the
holders of CompuServe Common Stock and WorldCom Common Stock.
RISK FACTORS
Holders of CompuServe Common Stock, in voting on the adoption of the
CompuServe Merger Agreement, should consider, among other things, the following:
(i) uncertainties in integrating acquired companies and achieving cost savings,
(ii) risks associated with obtaining governmental approvals in connection with
the MCI/WorldCom Merger, (iii) the potential effect of stock price fluctuations
on the CompuServe Merger Consideration, (iv) interests of certain persons in the
CompuServe Merger, (v) risks associated with WorldCom's debt service, interest
rate fluctuations, other restrictive covenants, and capital spending, (vi) the
risks of the combined company's acquisition strategy, (vii) risks of
international business, (viii) risks of overseas business operations, (ix) risks
of rapid technological change and dependence on product development, (x)
regulation risks, (xi) risks of competition and (xii) the anti-takeover
provisions in the WorldCom Articles and the WorldCom Bylaws. See "Cautionary
Statement Regarding Forward-Looking Statements" on page 19 and "Risk Factors"
beginning on page 19.
9
<PAGE> 25
MARKET PRICES
The WorldCom Common Stock and the CompuServe Common Stock are traded on The
Nasdaq National Market under the symbols "WCOM" and "CSRV," respectively. The
following table sets forth the high and low intra-day sales prices per share of
such stock as reported on The Nasdaq National Market based on published
financial sources, for the periods indicated. Because CompuServe Common Stock
was not publicly traded prior to April 19, 1996, no market prices for CompuServe
Common Stock are shown prior to such date. Neither WorldCom nor CompuServe has
ever paid any cash dividends on its respective common stock. The per share
information presented below and elsewhere in this Proxy Statement/Prospectus has
been adjusted to reflect all stock splits and stock dividends of WorldCom and
CompuServe.
<TABLE>
<CAPTION>
WORLDCOM COMMON COMPUSERVE
STOCK COMMON STOCK
---------------- ----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1995:
First Quarter............................................ $13.13 $ 9.56 -- --
Second Quarter........................................... 13.69 11.56 -- --
Third Quarter............................................ 17.06 13.38 -- --
Fourth Quarter........................................... 17.94 14.88 -- --
1996:
First Quarter............................................ 23.31 16.25 -- --
Second Quarter........................................... 27.72 21.31 35.50 20.00
Third Quarter............................................ 28.88 18.38 21.75 10.75
Fourth Quarter........................................... 26.13 21.00 13.63 8.63
1997:
First Quarter............................................ 27.88 21.75 11.63 8.88
Second Quarter........................................... 32.97 21.25 13.63 9.00
Third Quarter............................................ 37.75 29.88 14.56 10.50
Fourth Quarter (through December 23, 1997)............... 39.88 28.50 14.56 11.50
</TABLE>
WorldCom and CompuServe entered into the CompuServe Merger Agreement on
September 7, 1997. The following table sets forth the closing prices for a share
of WorldCom Common Stock and a share of CompuServe Common Stock, as reported by
The Nasdaq National Market, on September 5, 1997, the last trading day preceding
the public announcement of the execution of the CompuServe Merger Agreement, and
on December 23, 1997, the last practicable trading day before the printing of
this Proxy Statement/ Prospectus.
<TABLE>
<CAPTION>
CLOSING PRICE CLOSING PRICE
OF WORLDCOM OF COMPUSERVE
DATE COMMON STOCK COMMON STOCK
---- ------------- -------------
<S> <C> <C>
September 5, 1997........................................... $31.50 $13.50
December 23, 1997........................................... $30.56 $12.56
</TABLE>
Based on an assumed CompuServe Exchange Ratio of 0.40625, the pro forma
equivalent per share value of CompuServe Common Stock was $12.80 on September 5,
1997 and was $12.42 on December 23, 1997. The pro forma equivalent per share
value of CompuServe Common Stock on any date, based on an assumed CompuServe
Exchange Ratio of 0.40625, equals the closing price of WorldCom Common Stock on
such date multiplied by 0.40625.
The actual dollar value of the WorldCom Common Stock to be issued to the
holders of CompuServe Common Stock pursuant to the CompuServe Merger Agreement
will not be determined until three trading days prior to the closing date of the
CompuServe Merger, and may be substantially more or less than the pro forma
equivalent per share value of CompuServe Common Stock on September 5, 1997 or
December 23, 1997. For example, between September 5, 1997 and December 23, 1997,
the closing price of the WorldCom Common Stock has ranged from a high of $39.88
to a low of $28.50, and as of December 23, 1997, the Average Trading Price would
have been $32.775 and the resultant CompuServe Exchange Ratio would have been
0.40625. THE COMPUSERVE EXCHANGE RATIO WILL NOT BE INCREASED IF THE WORLDCOM
AVERAGE TRADING PRICE IS BELOW $24.00 PER SHARE. If the Average Trading Price of
WorldCom Common Stock, calculated as of
10
<PAGE> 26
the proposed date of consummation of the CompuServe Merger, were to be less than
$24.00, the Board of Directors of CompuServe would determine at such time
whether or not to exercise its right to terminate the CompuServe Merger
Agreement. The Board's determination would be made in accordance with its
fiduciary duties under Delaware law to all of the stockholders of CompuServe,
including H&R Block and Block Group as the holders of approximately 80.1% of the
outstanding CompuServe Common Stock, and the Board's business judgment, based on
the facts and circumstances existing at such time, regarding the best interests
of CompuServe and its stockholders.
COMPUSERVE STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
WORLDCOM COMMON STOCK AND COMPUSERVE COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS
TO THE MARKET PRICES OF WORLDCOM COMMON STOCK OR COMPUSERVE COMMON STOCK AT THE
EFFECTIVE TIME OF THE COMPUSERVE MERGER. BECAUSE THE COMPUSERVE EXCHANGE RATIO
IS NOT CORRELATED DIRECTLY TO THE MARKET VALUE OF WORLDCOM COMMON STOCK AND
BECOMES FIXED IF THE AVERAGE TRADING PRICE OF WORLDCOM COMMON STOCK IS LESS THAN
$24.00 OR GREATER THAN OR EQUAL TO $29.54, AND BECAUSE COMPUSERVE HAS THE RIGHT
TO TERMINATE THE COMPUSERVE MERGER AGREEMENT ONLY IF THE AVERAGE TRADING PRICE
OF WORLDCOM COMMON STOCK IS LESS THAN $24.00, THE MARKET VALUE OF SHARES OF
WORLDCOM COMMON STOCK THAT HOLDERS OF COMPUSERVE COMMON STOCK WILL RECEIVE UPON
CONSUMMATION OF THE COMPUSERVE MERGER MAY VARY SIGNIFICANTLY FROM THE MARKET
VALUE OF THE SHARES OF WORLDCOM COMMON STOCK THAT HOLDERS OF COMPUSERVE COMMON
STOCK WOULD HAVE RECEIVED IF THE COMPUSERVE MERGER WERE CONSUMMATED ON THE DATE
OF THIS PROXY STATEMENT/PROSPECTUS. HOLDERS OF COMPUSERVE COMMON STOCK MAY CALL
TOLL FREE TO 1-800-780-6378 FROM JANUARY 5, 1998 UNTIL THE DATE THAT THE
COMPUSERVE MERGER IS CONSUMMATED TO HEAR A TAPE RECORDED MESSAGE STATING WHAT
THE AVERAGE TRADING PRICE AND THE COMPUSERVE EXCHANGE RATIO WOULD BE IF THE
COMPUSERVE MERGER WERE TO BE CONSUMMATED ON THAT DAY. HOLDERS OF COMPUSERVE
COMMON STOCK MAY CALL THE SAME TOLL FREE NUMBER FROM THE DATE THE COMPUSERVE
MERGER IS CONSUMMATED UNTIL TEN BUSINESS DAYS THEREAFTER TO HEAR A TAPE RECORDED
MESSAGE STATING THE ACTUAL AVERAGE TRADING PRICE AND COMPUSERVE EXCHANGE RATIO.
RECENT WORLDCOM DEVELOPMENTS
THE MCI/WORLDCOM MERGER. On October 1, 1997, WorldCom announced its
intention to commence an exchange offer to acquire all of the outstanding shares
of MCI common stock, par value $.10 per share ("MCI Common Stock"), for $41.50
of WorldCom Common Stock, subject to adjustment in certain circumstances as set
forth in materials filed by WorldCom with the Commission (the "MCI Offer"). On
November 9, 1997, WorldCom entered into an Agreement and Plan of Merger (the
"MCI/WorldCom Merger Agreement") with MCI and a wholly-owned acquisition
subsidiary of WorldCom ("MCI Merger Sub"), providing for the merger (the
"MCI/WorldCom Merger") of MCI with and into MCI Merger Sub, with MCI Merger Sub
surviving as a wholly-owned subsidiary of WorldCom. As a result of the
MCI/WorldCom Merger, the separate corporate existence of MCI will cease, and MCI
Merger Sub (which will be renamed "MCI Communications Corporation") will succeed
to all the rights and be responsible for all the obligations of MCI in
accordance with the DGCL. Subject to the terms and conditions of the
MCI/WorldCom Merger Agreement, each share of MCI Common Stock outstanding
immediately prior to the effective time of the MCI/WorldCom Merger (the
"MCI/WorldCom Effective Time") will be converted into the right to receive that
number of shares of WorldCom Common Stock equal to the MCI Exchange Ratio (as
defined below) (the "MCI Common Stock Merger Consideration"), and each share of
MCI Class A common stock, par value $.10 per share ("MCI Class A Common Stock"
and, together with the MCI Common Stock, the "MCI Capital Stock"), outstanding
immediately prior to the MCI/WorldCom Effective Time will be converted into the
right to receive $51.00 in cash, without interest thereon (the "MCI Class A
Common Stock Merger Consideration" and, collectively with the MCI Common Stock
Merger Consideration, the "MCI/WorldCom Merger Consideration"). The "MCI
Exchange Ratio" means the quotient (rounded to the nearest (1)/10,000)
determined by dividing $51.00 by the average of the high and low sales prices of
WorldCom Common Stock (the "MCI/WorldCom Average Price") as reported on The
Nasdaq National Market on each of the 20 consecutive trading days ending with
the third trading day immediately preceding the MCI/WorldCom Effective Time (the
"MCI Measurement Period"); provided, however, that the MCI Exchange Ratio will
not be less than 1.2439 or greater than 1.7586. Cash will be paid in lieu of the
issuance of any fractional share of WorldCom Common Stock in the MCI/WorldCom
Merger.
11
<PAGE> 27
Based on the number of shares MCI Common Stock outstanding as of October
31, 1997 and assumed MCI Exchange Ratios of 1.2439 and 1.7586, approximately
703,178,763 shares and 994,139,540 shares, respectively, of WorldCom Common
Stock would be issued in the MCI/WorldCom Merger. In addition, outstanding
rights and options to purchase shares of MCI Common Stock would be converted in
the MCI/ WorldCom Merger to rights and options to acquire an aggregate of
approximately 100,263,626 shares and 141,750,634 shares, respectively, of
WorldCom Common Stock, and the exercise price would be adjusted to reflect the
MCI Exchange Ratio, so that, on exercise, the holders would receive, in the
aggregate, the same number of shares of WorldCom Common Stock as they would have
received had they exercised prior to the MCI/WorldCom Merger, at the same
exercise price.
The MCI/WorldCom Merger is subject to the approvals of the MCI stockholders
and the WorldCom shareholders as well as approvals from the Federal
Communications Commission (the "FCC"), the Department of Justice ("DOJ") and
various state government bodies. In addition, the MCI/WorldCom Merger is subject
to review by the Commission of the European Communities (the "European
Commission"). WorldCom anticipates that the MCI/WorldCom Merger will close
within six to nine months.
Termination of the MCI/WorldCom Merger Agreement by MCI or WorldCom under
certain conditions, including the failure to receive the approval of MCI's
stockholders of the MCI/WorldCom Merger or the MCI/WorldCom Merger Agreement,
will require MCI to pay WorldCom $750 million as a termination fee and to
reimburse WorldCom the $450 million alternative transaction fee paid by WorldCom
to British Telecommunications plc ("BT"). Further, termination of the
MCI/WorldCom Merger Agreement by MCI or WorldCom under certain conditions,
including the failure to receive the approval of WorldCom's shareholders of the
issuance of shares pursuant to the MCI/WorldCom Agreement (the "Share
Issuance"), will require WorldCom to pay MCI $1.635 billion as a termination
fee.
Pursuant to an agreement (the "BT Agreement") among MCI, WorldCom and BT,
the prior merger agreement between BT and MCI (the "BT/MCI Merger Agreement")
was terminated, and WorldCom agreed to pay BT an alternative transaction fee of
$450 million and expenses of $15 million payable to BT in accordance with the
BT/MCI Merger Agreement. These fees were paid on November 12, 1997. WorldCom
also agreed to pay to BT an additional payment of $250 million in the event that
WorldCom is required to make the $1.635 billion payment to MCI in accordance
with the MCI/WorldCom Merger Agreement. In addition, pursuant to the BT
Agreement, BT agreed to vote (or cause to be voted) its shares of MCI Class A
Common Stock in favor of the MCI/WorldCom Merger Agreement, the adoption by MCI
of the MCI/WorldCom Merger Agreement and the approval of the other transactions
contemplated by the MCI/WorldCom Merger Agreement.
THE BFP MERGER. WorldCom entered into an Amended and Restated Agreement and
Plan of Merger dated as of October 1, 1997 (the "BFP Merger Agreement") with
Brooks Fiber Properties, Inc. ("BFP") and a wholly owned acquisition subsidiary
of WorldCom, providing for the merger of such WorldCom subsidiary with and into
BFP (the "BFP Merger"). In the BFP Merger, each share of common stock, par value
$.01, of BFP (the "BFP Common Stock") will be converted into a fraction of a
share of WorldCom Common Stock equal to the BFP Exchange Ratio. The "BFP
Exchange Ratio" will be determined as follows: (i) if the average trading price
(generally based on the average reported closing prices for a specified
twenty-day period prior to closing) of a share of WorldCom Common Stock is
greater than or equal to $35.15, the BFP Exchange Ratio will equal 1.65 (ii) if
such average trading price is greater than or equal to $31.35 but less than
$35.15, the BFP Exchange Ratio will equal a fraction determined by dividing
$58.00 by such average trading prices; and (iii) if such average trading price
is less than $31.35, the BFP Exchange Ratio will equal 1.85. Based on (i) BFP
Common Stock outstanding as of December 23, 1997 (including an estimated 73,000
shares that will be issuable immediately prior to the effective time of the BFP
Merger pursuant to an employee stock purchase plan) and (ii) assumed BFP
Exchange Ratios of 1.65 and 1.85, approximately 64,729,280 shares and 72,575,253
shares, respectively, of WorldCom Common Stock will be issued in the BFP Merger
(the "BFP Exchange Ratio"). In addition, outstanding warrants and options to
purchase shares of BFP Common Stock would be converted in the BFP Merger to
warrants and options to acquire an aggregate of approximately 4,634,777 shares
and 5,196,569 shares, respectively, of WorldCom Common Stock, and the exercise
price would be adjusted to reflect the BFP Exchange Ratio, so that, on exercise,
the holders would
12
<PAGE> 28
receive, in the aggregate, the same number of shares of WorldCom Common Stock as
if they had exercised prior to the BFP Merger, at the same aggregate exercise
price. The BFP Merger has been structured to qualify as a pooling of interests.
Consummation of the BFP Merger is subject to the fulfillment of a number of
conditions, including the expiration or termination of any applicable waiting
period under the Hart-Scott-Rodino Act and the receipt of other required
regulatory approvals (which condition has been satisfied), and the absence of
certain material adverse changes. Consummation of the BFP Merger is also subject
to the approval and adoption of the BFP Merger Agreement by the stockholders of
BFP. The BFP Merger Agreement may be terminated if the effective time has not
occurred on or before March 31, 1998 and under certain other circumstances.
Termination of the BFP Merger Agreement by WorldCom or BFP under certain
circumstances will require one party to make a $40 million payment to the other
party. Each of BFP's directors has agreed to vote his or her beneficially owned
shares of BFP stock in favor of the BFP Merger Agreement. The closing of the BFP
Merger is expected to occur on or about January 29, 1998, provided that the
conditions to the BFP Merger are then fulfilled or waived. Neither WorldCom nor
MCI assumes any responsibility for the accuracy of any information contained
herein related to BFP.
For more information concerning the recent developments regarding WorldCom,
see "Information Regarding WorldCom -- Recent Developments."
COMPARATIVE PER SHARE DATA
The following table sets forth for WorldCom Common Stock and CompuServe
Common Stock, for the periods indicated, selected historical per share data and
the corresponding unaudited pro forma combined and pro forma equivalent per
share amounts, calculated assuming a CompuServe Exchange Ratio of 0.40625 shares
of WorldCom Common Stock and giving effect to the proposed CompuServe Merger.
The actual CompuServe Exchange Ratio may vary as described herein. The data
presented are based upon the historical consolidated financial statements and
related notes of each of WorldCom and CompuServe incorporated by reference in
this Proxy Statement/Prospectus. This information should be read in conjunction
with and is qualified in its entirety by reference to the historical financial
statements of WorldCom and CompuServe and related notes thereto. The data
presented is not necessarily indicative of the future results of operations of
the consolidated companies or the actual results that would have occurred if the
CompuServe Merger had been consummated prior to the periods indicated. No
adjustment has been included for any anticipated cost savings or other synergies
or in respect of the BFP Merger, the AOL Transaction or the MCI/WorldCom Merger.
See "Available Information" and "Incorporation of Documents By Reference."
<TABLE>
<CAPTION>
WORLDCOM/
COMPUSERVE COMPUSERVE
WORLDCOM COMPUSERVE PRO FORMA PRO FORMA
HISTORICAL HISTORICAL(1) COMBINED(2) EQUIVALENT(3)
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Book value per common share:
December 31, 1996.......................... $13.75 $ 7.03 $14.58 $ 5.92
September 30, 1997......................... 13.44 6.85 14.23 5.78
Cash dividends per common share:
Year ended December 31, 1996............... -- -- -- --
Nine months ended September 30, 1997....... -- -- -- --
Income (loss) per common share from
continuing operations (after preferred
dividend requirement):
Primary:
Year ended December 31, 1996(4)......... (5.50) (1.29) (5.35) (2.17)
Nine months ended September 30, 1997.... 0.25 (0.19) 0.18 0.07
Fully Diluted:
Year ended December 31, 1996(4)......... (5.50) (1.29) (5.35) (2.17)
Nine months ended September 30, 1997.... 0.25 (0.19) 0.18 0.07
</TABLE>
13
<PAGE> 29
- ---------------
(1) CompuServe reports results of operations based on an April 30 fiscal
year-end. CompuServe's historical book value per share as of April 30, 1997
and October 31, 1997 is included in the December 31, 1996 and September 30,
1997 rows, respectively. CompuServe's historical results of operations for
the year ended April 30, 1997 and the six months ended October 31, 1997 are
included in the year ended December 31, 1996 and nine months ended September
30, 1997 rows, respectively.
(2) For purposes of the WorldCom/CompuServe Pro Forma Combined column, book
value per common share is based on WorldCom's historical book value per
common share as of December 31, 1996 and September 30, 1997, combined with
CompuServe's historical book value per common share as of January 31, 1997
and October 31, 1997, respectively. Additionally, results of operations are
based on WorldCom's historical results of operations for the year ended
December 31, 1996 and the nine months ended September 30, 1997 combined with
CompuServe's results of operations for the twelve months ended January 31,
1997 and nine months ended October 31, 1997, respectively.
(3) The CompuServe pro forma equivalent represents the WorldCom/CompuServe pro
forma combined book value, dividends and income (loss) per common share
multiplied by an assumed CompuServe Exchange Ratio of 0.40625. If the
maximum CompuServe Exchange Ratio of 0.5 is assumed, the CompuServe Pro
Forma Equivalent book value per share as of December 31, 1996 and September
30, 1997 would be $7.29 and $7.12, respectively. The CompuServe Pro Forma
Equivalent primary income (loss) per share would be $(2.68) and $0.09 for
the year ended December 31, 1996 and nine months ended September 30, 1997,
respectively, while the CompuServe Pro Forma Equivalent fully diluted income
(loss) per share would be $(2.68) and $0.09 for the year ended December 31,
1996 and nine months ended September 30, 1997, respectively. The actual
CompuServe Exchange Ratio may vary as described herein.
(4) In December 1996, WorldCom acquired MFS Communications Company, Inc. ("MFS")
in a transaction accounted for as a purchase (the "MFS Merger"). WorldCom's
historical results for 1996 include a $2.14 billion charge for in-process
research and development related to the MFS Merger. The charge was based
upon a valuation analysis of the technologies of MFS' worldwide information
system, the Internet network expansion system of UUNET, and certain other
identified research and development projects purchased in the MFS Merger.
Additionally, 1996 results include other after-tax charges of $121.0 million
for employee severance, employee compensation charges, alignment charges,
and costs to exit unfavorable telecommunications contracts and $343.5
million after-tax write-down of operating assets within WorldCom's non-core
businesses. On a pre-tax basis, these charges totaled $600.1 million.
(5) The data in the table excludes the MCI/WorldCom Merger as well as the BFP
Merger and the AOL Transaction. If the MCI/WorldCom Merger were included,
selected pro forma combined per share amounts would reflect a book value per
common share of $24.47 as of September 30, 1997, primary income (loss) per
share of $(1.40) and $0.03 for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively, and fully diluted income
(loss) per share of $(1.40) and $0.03 for the year ended December 31, 1996
and the nine months ended September 30, 1997, respectively.
14
<PAGE> 30
SELECTED HISTORICAL FINANCIAL DATA
The summary below sets forth selected historical financial data. This
historical data should be read in conjunction with and is qualified in its
entirety by reference to the historical financial statements and notes thereto
contained in the WorldCom 1996 Form 10-K, CompuServe 1997 Form 10-K and MCI 1996
Form 10-K, all incorporated by reference herein. See "Available Information,"
"Incorporation of Documents by Reference" and "MCI Information."
Selected Historical Financial Data of WorldCom. The selected historical
financial data of WorldCom set forth below has been derived from financial
statements of WorldCom as they appeared in WorldCom's Annual Reports on Form
10-K filed with the Commission for each of the five fiscal years in the period
ended December 31, 1996 and WorldCom's Quarterly Reports on Form 10-Q filed with
the Commission for the periods ending September 30, 1997 and September 30, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED AND AT DECEMBER 31, AND AT SEPTEMBER 30,
--------------------------------------------------------------- ------------------------
1996 1995 1994 1993 1992 1997 1996
----------- ---------- ---------- ---------- ---------- ----------- ----------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
WORLDCOM -- HISTORICAL
Revenues............... $ 4,485,130 $3,696,345 $2,245,663 $1,474,257 $ 948,060 $ 5,348,522 $3,251,026
Income (loss) from
continuing operations
(after preferred
dividend
requirement):
Total................ (2,189,804) 233,080 (151,779) 112,638 6,232 220,889 (48,466)
Per common share:
Primary............ (5.50) 0.64 (0.48) 0.41 0.03 0.25 (0.12)
Fully diluted...... (5.50) 0.64 (0.48) 0.40 0.03 0.25 (0.12)
Dividends per common
share................ -- -- -- -- -- -- --
Total assets........... 19,861,977 6,656,629 3,441,474 3,236,718 1,241,278 20,813,368 6,854,966
Long-term debt......... 4,803,581 3,391,598 794,001 730,023 448,496 5,348,638 3,276,641
Shareholders'
investment........... 12,959,976 2,187,681 1,827,410 1,911,800 478,823 13,366,000 2,442,342
</TABLE>
- ---------------
(1) On December 31, 1996, WorldCom completed the MFS Merger. The MFS Merger was
accounted for as a purchase; accordingly, the operating results for MFS are
reflected from the date of acquisition.
(2) WorldCom's results for 1996 include a $2.14 billion charge for in-process
research and development related to the MFS Merger. The charge was based
upon a valuation analysis of the technologies of MFS' worldwide information
system, the Internet network expansion system of UUNET, and certain other
identified research and development projects purchased in the MFS Merger.
Additionally, 1996 results include other after-tax charges of $121.0 million
for employee severance, employee compensation charges, alignment charges,
and costs to exit unfavorable telecommunications contracts and $343.5
million after-tax write-down of operating assets within WorldCom's non-core
businesses. On a pre-tax basis, these charges totaled $600.1 million.
(3) In 1995, Metromedia Company ("Metromedia") converted its Series 1 Preferred
Stock into WorldCom Common Stock, exercised warrants to acquire WorldCom
Common Stock and immediately sold its position of 61,699,096 shares of
WorldCom Common Stock in a public offering. In connection with the preferred
stock conversion, WorldCom made a non-recurring payment of $15.0 million to
Metromedia, representing a discount to the minimum nominal dividends that
would have been payable on the Series 1 Preferred Stock prior to the
September 15, 1996 optional call date of approximately $26.6 million (which
amount includes an annual dividend requirement of $24.5 million plus accrued
dividends to such call date).
(4) As a result of the acquisitions of IDB Communications Group, Inc. ("IDB") in
1994 (the "IDB Merger") and of Advanced Telecommunications Corporation in
1992 (the "ATC Merger"), WorldCom initiated plans to reorganize and
restructure its management and operational organization and facilities to
eliminate duplicate personnel, physical facilities and service capacity, to
abandon certain products and marketing activities, and to take further
advantage of the synergies available to the combined entities. Also, during
the fourth quarter of 1993, plans were approved to reduce IDB's cost
structure and to improve productivity. Accordingly, in 1994, 1993 and 1992,
WorldCom charged to operations the
15
<PAGE> 31
estimated costs of such reorganization and restructuring activities,
including employee severance, physical facility abandonment and duplicate
service capacity. These costs totaled $43.7 million in 1994, $5.9 million in
1993 and $79.8 million in 1992. Also, during 1994 and 1992, WorldCom
incurred direct merger costs of $15.0 million and $7.3 million,
respectively, related to the IDB Merger (in 1994) and the ATC Merger (in
1992). These costs include professional fees, proxy solicitation costs,
travel and related expenses and certain other direct costs attributable to
these mergers.
(5) Long-term debt as of December 31, 1995 includes $1.1 billion under
WorldCom's previous credit facilities which were classified as a current
maturity on the December 31, 1995 balance sheet.
Selected Historical Financial Data of CompuServe. The selected historical
financial data of CompuServe set forth below has been derived from financial
statements of CompuServe as they appeared in CompuServe's Annual Reports on Form
10-K filed with the Commission for each of the five fiscal years in the period
ended April 30, 1997 and CompuServe's Quarterly Reports on Form 10-Q filed with
the Commission for the periods ending October 31, 1997 and October 31, 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED AND AT APRIL 30, AND AT OCTOBER 31,
----------------------------------------------------- -------------------
1997 1996 1995 1994 1993 1997 1996
--------- -------- -------- -------- -------- -------- --------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
COMPUSERVE -- HISTORICAL
Revenues................ $ 841,887 $793,165 $582,793 $429,886 $315,399 $411,141 $422,985
Income (loss) from
continuing operations
(after preferred
dividend requirement):
Total................. (119,834) 49,094 8,798 62,093 45,577 (17,543) (87,650)
Per common share:
Primary............ (1.29) 0.66 0.12 0.84 0.61 (0.19) (0.95)
Fully diluted...... (1.29) 0.66 0.12 0.84 0.61 (0.19) (0.95)
Dividends per common
share................. -- -- -- -- -- -- --
Total assets............ 802,536 965,828 323,557 330,867 240,365 792,409 860,954
Due from Parent......... 70,228 17,377 -- -- -- 13,421 60,205
Due to Parent........... -- -- 142,400 -- -- -- --
Stockholders' equity.... 651,436 770,666 79,858 241,677 179,389 634,632 684,312
</TABLE>
- ---------------
(1) In October 1996, CompuServe changed its rate of amortization of deferred
subscriber acquisition costs to more closely correlate with the recent
trends in subscriber retention rates and member net revenues. The new rate
of amortization is 50% in the first three months, 30% in the next nine
months, and 20% in the subsequent year, compared to the previous policy of
60% in the first 12 months and 40% in the subsequent year. In conjunction
with this change in amortization rates, CompuServe accelerated amortization
of previously deferred CSI subscriber acquisition costs with a writedown
totaling $34.5 million as of October 31, 1996. Additionally, all previously
deferred subscriber acquisition costs totaling $8.3 million for WOW! and
$2.5 million for SPRYNET were also written off, reflecting the high costs to
service these high usage, flat-priced services. WOW! was withdrawn from
service effective January 31, 1997.
(2) In the first quarter of fiscal 1997, CompuServe incurred a nonrecurring
pretax charge of $17.7 million relating to the sale of certain assets and
business operations of the corporate computer software group of SPRY, Inc.;
the consolidation of U.S.-based staff functions and office facilities; the
renegotiation of certain third-party customer service agreements; and the
write-off of certain obsolete software costs for billing and customer
service systems. Of the total charge, $9.8 million required the outlay of
cash; the remaining $7.9 million involved no commitment of funds.
(3) In the second quarter of fiscal 1997, CompuServe incurred a nonrecurring
pretax charge of $7.9 million relating to the withdrawal of the
family-oriented WOW! on-line service. Of the total charge, $5.6 million
required the outlay of cash; the remaining $2.3 million involved no
commitment of funds.
(4) In the fourth quarter of fiscal 1997, CompuServe incurred a nonrecurring
pretax charge of $9.2 million relating to the further consolidation of
office facilities and the write-off of investments in certain content and
technology providers due to their deteriorated financial performance. Of the
total charge, $1.8 million required the outlay of cash; the remaining $7.4
million involved no commitment of funds.
16
<PAGE> 32
Selected Historical Financial Data of MCI. The selected historical
financial data of MCI set forth below has been derived from the financial
statements of MCI as they appeared in MCI's Annual Reports on Form 10-K filed
with the Commission for each of the five fiscal years in the period ended
December 31, 1996 and MCI's Quarterly Reports on Form 10-Q filed with the
Commission for the periods ending September 30, 1997 and September 30, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED AND AT DECEMBER 31, AND AT SEPTEMBER 30,
------------------------------------------------------------------- -------------------------
1996 1995 1994 1993 1992 1997 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
MCI -- HISTORICAL
Revenues...................... $18,494,000 $15,265,000 $13,338,000 $11,921,000 $10,562,000 $14,545,000 $13,741,000
Income from continuing
operations (after preferred
dividend requirement):
Total....................... 1,202,000 548,000 794,000 626,000 589,000 393,000 899,000
Per common share:
Primary................... 1.73 0.80 1.32 1.12 1.11 0.56 1.29
Fully diluted............. 1.72 0.79 1.32 1.11 1.10 0.56 1.29
Dividends per common share.... 0.05 0.05 0.05 0.05 0.05 0.025 0.025
Total assets.................. 22,978,000 19,301,000 16,366,000 11,276,000 9,678,000 24,717,000 21,509,000
Long-term debt................ 4,798,000 3,444,000 2,997,000 2,366,000 3,432,000 3,282,000 3,722,000
Stockholders' equity.......... 10,661,000 9,602,000 9,004,000 4,713,000 3,150,000 11,321,000 10,329,000
</TABLE>
- ---------------
(1) In May 1996, MCI Capital I, a wholly-owned Delaware statutory business trust
("Trust"), issued $750 million aggregate principal amount of 8% Cumulative
Quarterly Income Preferred Securities, Series A ("preferred securities") due
June 30, 2026. The Trust exists for the sole purpose of issuing the
preferred securities and investing the proceeds in MCI's 8% Junior
Subordinated Deferrable Interest Debentures, Series A due June 30, 2026.
(2) In September and November 1995, MCI acquired all of the outstanding shares
of common stock of Nationwide Cellular Service, Inc. and SHL Systemhouse
Inc., respectively. These acquisitions were accounted for as purchases;
accordingly, the net assets and results of operations of the acquired
companies are included in the information above since their respective
acquisition dates.
(3) In 1994, BT completed the purchase of 136 million shares of MCI Class A
Common Stock for $4.3 billion, which resulted in a 20% voting interest in
MCI. This purchase was achieved by MCI's issuance of 108.5 million shares of
MCI Class A Common Stock to BT for $3.5 billion on September 30, 1994 and
BT's conversion on that date of 13,736 shares of MCI Series D convertible
preferred stock, purchased for $830 million in June 1993, into 27.5 million
shares of MCI Class A Common Stock. This investment is included in MCI's
stockholders' equity.
17
<PAGE> 33
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following selected unaudited pro forma financial information presents
the combined consolidated balance sheets and income statements of WorldCom and
MCI as if the MCI/WorldCom Merger had occurred for the periods indicated. The
MCI/WorldCom Merger will be treated as a purchase for financial accounting
purposes. This information should be read in conjunction with and is qualified
in its entirety by reference to the consolidated financial statements and
accompanying notes of WorldCom and MCI included in the documents described under
"Incorporation of Documents by Reference" and "MCI Information" and the
unaudited pro forma condensed combined financial statements and accompanying
discussion and notes set forth under "Pro Forma Financial Information." The pro
forma amounts in the table below are presented for informational purposes and
are not necessarily indicative of the financial position or the results of
operations of the combined company that would have actually occurred had the
MCI/WorldCom Merger been consummated as of the dates or for the periods
presented. The pro forma amounts are also not necessarily indicative of the
financial position or future results of operations of the combined company. No
adjustment has been included in the pro forma amounts for any anticipated cost
savings or other synergies. The Selected Pro Forma Financial Information also
does not reflect amounts with respect to the CompuServe Merger, the BFP Merger
or the AOL Transaction because they are not material to WorldCom. See "Pro Forma
Financial Information."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED AND AT
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
MCI WORLDCOM PRO FORMA COMBINED
Revenues.................................................... $22,421 $19,614
Income (loss) from continuing operations (after preferred
dividend requirement):
Total..................................................... (1,663) 108
Per common share:
Primary................................................ (1.33) 0.06
Fully diluted.......................................... (1.33) 0.06
Dividends per common share.................................. -- --
Total assets................................................ 71,451
Long-term debt.............................................. 16,077
Shareholders' equity........................................ 44,177
</TABLE>
18
<PAGE> 34
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"PSLRA"):
(i) certain statements, including possible or assumed future results of
operations of WorldCom, CompuServe, MCI, BFP and ANS, contained in "Risk
Factors," "Plan of Merger -- Background of the CompuServe Merger," "Plan of
Merger -- WorldCom's Reasons for the CompuServe Merger," "Plan of
Merger -- CompuServe's Reasons for the CompuServe Merger; CompuServe Board
Recommendation," "Plan of Merger -- Opinion of CompuServe's Financial Advisor,"
"Information Regarding WorldCom -- Recent Developments -- The MCI/WorldCom
Merger -- Effects of MCI/WorldCom Merger; Estimated Synergies," and "Information
Regarding WorldCom -- Management and Principal Shareholders -- Information
Regarding Stephen M. Case," including any forecasts, projections and
descriptions of anticipated cost savings or other synergies referred to therein,
and certain statements incorporated by reference from documents filed with the
Commission by WorldCom, CompuServe and MCI, including any statements contained
herein or therein regarding the development of possible or assumed future
results of operations of WorldCom's, CompuServe's and MCI's businesses, the
markets for WorldCom's, CompuServe's and MCI's services and products,
anticipated capital expenditures, regulatory developments, competition or the
effects of the CompuServe Merger, the MCI/WorldCom Merger, the BFP Merger or the
AOL Transaction;
(ii) any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends" or similar expressions; and
(iii) other statements contained or incorporated by reference herein
regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements; factors that could cause actual results to differ
materially include, but are not limited to, those discussed under "Risk
Factors." CompuServe stockholders are cautioned not to place undue reliance on
such statements, which speak only as of the date thereof.
All subsequent written and oral forward-looking statements attributable to
WorldCom or CompuServe or persons acting on its or their behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to in this section. Neither WorldCom nor CompuServe undertakes any obligation to
release publicly any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RISK FACTORS
Holders of CompuServe Common Stock should consider carefully all of the
information contained in this Proxy Statement/Prospectus, including the
following factors:
RISKS RELATED TO THE COMPUSERVE MERGER AND OTHER ACQUISITIONS
Uncertainties in Integrating the Acquired Companies and Achieving Cost Savings
WorldCom and CompuServe have entered into the CompuServe Merger Agreement,
and WorldCom has entered into the MCI/WorldCom Merger Agreement, the BFP Merger
Agreement and the AOL Agreement, in each case with the expectation that the
transactions will result in certain benefits, including, without limitation,
cost savings, operating efficiencies, revenue enhancements and other synergies.
See "Plan of Merger -- WorldCom's Reasons for the CompuServe Merger," "Plan of
Merger -- CompuServe's Reasons for the CompuServe Merger," and "Information
Regarding WorldCom -- Recent Developments -- The MCI/WorldCom Merger -- Effects
of the MCI/WorldCom Merger; Estimated Synergies." Achieving the benefits of the
CompuServe Merger, as well as of the MCI/WorldCom Merger (which would be
significantly larger than previous acquisitions completed by WorldCom), the BFP
Merger and the AOL Transaction, will depend in part upon the integration of the
businesses of WorldCom and CompuServe, together with MCI, BFP and ANS, in an
efficient manner, and there can be no assurance that this will occur. The
consolidation of
19
<PAGE> 35
operations will require substantial attention from management. The diversion of
management attention and any difficulties encountered in the transition and
integration processes could have a material adverse effect on the revenues,
levels of expenses and operating results of the combined companies. There can be
no assurance that the combined companies will realize any of the anticipated
benefits of the CompuServe Merger, the MCI/WorldCom Merger, the BFP Merger or
the AOL Transaction. For a discussion of other factors and assumptions related
to the synergy estimates, see "Information Regarding WorldCom -- Recent
Developments -- The MCI/WorldCom Merger -- Effects of the MCI/WorldCom Merger;
Estimated Synergies."
Necessity of Receiving Governmental Approvals Prior to the MCI/WorldCom
Merger; Risks Associated with Failure to Obtain Approvals of Certain
Governmental Authorities
The consummation of the MCI/WorldCom Merger is conditioned upon the
expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Act and confirmation from the European Commission by way of a
decision under Council Regulation 4064/89 (the "Merger Control Regulation") that
the MCI/WorldCom Merger does not create or strengthen a dominant position as a
result of which competition would be significantly impeded in the common market.
In addition, other filings with, notifications to and authorizations and
approvals of, various governmental agencies, both domestic and foreign, with
respect to the transactions contemplated by the MCI/WorldCom Merger Agreement,
relating primarily to the FCC, and state public utility or service commissions
("PUCs"), must be made and received prior to consummation of the MCI/WorldCom
Merger. There can be no assurance that such authorizations, approvals or
decisions will be granted, or, if granted will not contain certain material
conditions or restrictions, that an injunction will not be issued before or
after receipt of MCI and WorldCom shareholder approval by a court of competent
jurisdiction enjoining the consummation of the MCI/WorldCom Merger or that a
challenge to the MCI/WorldCom Merger on the grounds that it is not compatible
with the common market will not be made, or if a challenge is made, what the
result will be.
Consummation of the MCI/WorldCom Merger is subject to additional approvals
from certain governmental authorities. If such approvals have not been received
at such time as all other material conditions to the MCI/WorldCom Merger have
been satisfied or waived, MCI and WorldCom may nonetheless determine to
consummate the MCI/WorldCom Merger. Although MCI and WorldCom are seeking such
approvals, it is uncertain whether such approvals will be timely received from,
among others, every jurisdiction in which MCI and WorldCom are authorized to do
business. If MCI and WorldCom determine to consummate the MCI/ WorldCom Merger
without having received all such approvals, no assurance can be given that any
resulting loss of business would not have a material adverse effect on the
businesses, prospects, financial condition or results of operations of WorldCom
and MCI on a combined basis. See "Information Regarding WorldCom -- Recent
Developments -- The MCI/WorldCom Merger -- Certain Regulatory Filings and
Approvals."
The Effect of Stock Price Fluctuations on the Consideration to be Received by
the Holders of CompuServe Common Stock in the CompuServe Merger
The relative stock prices of the CompuServe Common Stock and the WorldCom
Common Stock on the date of the Special Meeting and at the Effective Time may
vary significantly from the prices as of the date of execution of the CompuServe
Merger Agreement or the date hereof. These variances may be due to changes in
the businesses, operations, results and prospects of CompuServe or WorldCom, as
well as MCI, BFP and ANS, market assessments of the likelihood that the
CompuServe Merger, the MCI/WorldCom Merger, the BFP Merger and the AOL
Transaction will be consummated and the timing thereof, the effect of any
conditions or restrictions imposed on or proposed with respect to any of the
combined companies by regulatory agencies in connection with or following
consummation of the CompuServe Merger, the MCI/WorldCom Merger, the BFP Merger
or the AOL Transaction, general market and economic conditions, and other
factors. For example, between September 5, 1997 and December 23, 1997, the
closing sales price of WorldCom Common Stock has ranged from a high of $39.88 to
a low of $28.50; the closing sales price of the CompuServe Common Stock during
the same period has ranged from a high of $14.56 to a low of $11.50. In
addition, the stock market generally has experienced significant price and
volume fluctuations. These market fluctuations could have a material adverse
effect on the market price or liquidity of WorldCom Common Stock. The CompuServe
Exchange Ratio becomes fixed if the Average Trading Price is less than $24.00 or
20
<PAGE> 36
greater than $29.54. If the Average Trading Price is less than $24.00 or greater
than $29.54, holders of CompuServe Common Stock will receive for each share of
WorldCom Common Stock held by them a number of shares of WorldCom Common Stock
that is likely to have an initial value that is less than or greater than
$12.00, as the case may be. The actual number of shares of WorldCom Common Stock
to be issued to the holders of CompuServe Common Stock pursuant to the
CompuServe Merger Agreement will not be determined until three trading days
prior to the Closing Date. Holders of CompuServe Common Stock may call toll free
to 1-800-780-6378 from January 5, 1998 until the date that the CompuServe Merger
is consummated to hear a tape recorded message stating what the estimated
Average Trading Price and the CompuServe Exchange Ratio would be if the
CompuServe Merger were to be consummated on that day. Holders of CompuServe
Common Stock may call the same toll free number from the date the CompuServe
Merger is consummated until ten business days thereafter to hear a tape recorded
message stating the actual Average Trading Price and CompuServe Exchange Ratio.
Interests of Certain Persons in the CompuServe Merger
In considering the recommendation of the CompuServe Merger by the
CompuServe Board of Directors, the stockholders of CompuServe should be aware
that certain non-director members of CompuServe management have certain
interests in the CompuServe Merger that are in addition to those of the
CompuServe stockholders generally. Such interests, together with other relevant
factors, were considered by the CompuServe Board when it considered and approved
the CompuServe Merger Agreement and determined to recommend its approval and
adoption by holders of CompuServe Common Stock. See "Plan of Merger -- Interests
of Certain Persons in the CompuServe Merger."
RISKS RELATING TO THE BUSINESSES AND OPERATIONS OF THE COMBINED COMPANIES
Debt Service, Interest Rate Fluctuations, Other Restrictive Covenants and
Capital Spending
In connection with the MCI/WorldCom Merger, WorldCom has agreed to pay BT
$51.00 in cash without interest for each share of MCI Class A Common Stock it
owns, or $6.94 billion in the aggregate. Additionally, WorldCom has paid BT fees
of $465 million. See "Information Regarding WorldCom -- Recent
Developments -- The MCI/WorldCom Merger." WorldCom expects to fund this
commitment through a combination of bank and bond financing and believes that
the indebtedness incurred in connection with WorldCom's proposed acquisitions
may have an effect on WorldCom's credit rating. Increases in interest rates on
the Company's debt would have an adverse effect upon WorldCom's reported net
income and cash flow. WorldCom believes that the combined operations of
WorldCom, MCI, CompuServe, ANS and BFP would generate sufficient cash flow to
service WorldCom's debt and capital requirements upon consummation of the
MCI/WorldCom Merger, the CompuServe Merger, the AOL Transaction and the BFP
Merger; however, economic downturns, increased interest rates and other adverse
developments, including factors beyond WorldCom's control, could impair its
ability to service its indebtedness. In addition, the cash flow required to
service WorldCom's debt may reduce its ability to fund internal growth,
additional acquisitions and capital improvements.
The development of the businesses of the combined companies (including MCI,
CompuServe, ANS and BFP) and the installation and expansion of their domestic
and international networks would continue to require significant capital
expenditures. Failure to have access to sufficient funds on acceptable terms or
the failure to achieve capital expenditure synergies may require the combined
companies to delay or abandon some of their plans, which could have a material
adverse effect on the success of the proposed mergers and the combined
companies.
Acquisition Integration
A major portion of WorldCom's growth has resulted from acquisitions, which
involve certain operational and financial risks. Operational risks include the
possibility that an acquisition does not ultimately provide the
21
<PAGE> 37
benefits originally anticipated by WorldCom's management, while WorldCom would
continue to incur operating expenses to provide the services formerly provided
by the acquired company. Financial risks involve the incurrence of indebtedness
as a result of the acquisition and the consequent need to service that
indebtedness. In addition, the issuance of stock in connection with acquisitions
dilutes the voting power and may dilute certain other interests of existing
shareholders. In carrying out its acquisition strategy, WorldCom attempts to
minimize the risk of unexpected liabilities and contingencies associated with
acquired businesses through planning, investigation and negotiation, but there
can be no assurance that it will be successful in doing so. Nor can there be any
assurance that WorldCom will be successful in identifying attractive acquisition
candidates or completing additional acquisitions on favorable terms.
Risks of International Business
WorldCom and MCI derive substantial revenues from providing international
communications services to United States commercial and carrier customers. Such
operations are subject to certain risks such as changes in United States or
foreign government regulatory policies, disruption, suspension or termination of
operating agreements, carrier alliances and currency fluctuations. In
particular, WorldCom's and MCI's revenues and costs of sales are sensitive to
changes in international settlement rates and international traffic routing
patterns. The rates that WorldCom and MCI can charge their customers for
international services may decrease in the future due to the entry of new
carriers with substantial resources, aggressiveness on the part of new or
existing carriers, the widespread resale of international private lines to
provide switched voice services, the provision of international services via
non-traditional means including the Internet, the consummation of mergers, joint
ventures and alliances among large international carriers that facilitate
targeted pricing and cost reductions, and the rapid growth of international
circuit capacity due to the deployment of new undersea fiber optic cables and
new high capacity satellite systems in the Atlantic, Pacific and Indian Ocean
regions.
Risks of Overseas Business Operations
WorldCom and MCI derive substantial revenues from providing services to
customers in overseas locations, particularly the United Kingdom, Germany and
Mexico. Such operations are subject to certain risks such as changes in the
legal and regulatory policies of the foreign jurisdiction, local political and
economic developments, currency fluctuations, exchange controls, royalty and tax
increases, retroactive tax claims, expropriation, and import and export
regulations and other laws and policies of the United States affecting foreign
trade, investment and taxation. In addition, in the event of any dispute arising
from foreign operations, WorldCom and MCI may be subject to the exclusive
jurisdiction of foreign courts and may not be successful in subjecting foreign
persons or entities to the jurisdiction of the courts in the United States.
WorldCom and MCI may also be hindered or prevented from enforcing their rights
with respect to foreign governments because of the doctrine of sovereign
immunity. There can be no assurance that the laws, regulations or administrative
practices of foreign countries relating to WorldCom or MCI's ability to do
business in that country will not change. Any such change could have a material
adverse effect on the business and financial condition of the combined
companies.
Rapid Technological Change; Dependence upon Product Development
The telecommunications industry is subject to rapid and significant changes
in technology. While WorldCom does not believe that, for the foreseeable future,
these changes will either materially or adversely affect the continued use of
fiber optic cable or materially hinder its ability to acquire necessary
technologies, the effect of technological changes, including changes relating to
emerging wireline and wireless transmission and switching technologies, on the
businesses of the combined companies cannot be predicted.
The market for the data communications products and services of MCI, UUNET,
CompuServe and ANS, including Internet access and related products, is
characterized by rapidly changing technology, evolving industry standards,
emerging competition and frequent new product and service introductions. There
can be no assurance that the combined companies will successfully identify new
product and service opportunities and develop and bring new products and
services to market in a timely manner. The combined
22
<PAGE> 38
companies also will be at risk from fundamental changes in the way data
communications, including Internet access, services are marketed and delivered.
The combined companies' Internet service strategy assumes that the Transmission
Control Protocol/Internet Protocol, utilizing fiber optic or copper-based
telecommunications infrastructures, will continue to be the primary protocol and
transport infrastructure for Internet-related services. Emerging transport
alternatives include wireless cable modems and satellite delivery of Internet
information; alternative open protocol and proprietary protocol standards have
been or are being developed. WorldCom's pursuit of necessary technological
advances may require substantial time and expense, and there can be no assurance
that WorldCom will succeed in adapting its data communications services business
to alternate access devices, conduits and protocols.
Regulation Risks
WorldCom's and MCI's operating subsidiaries are subject to varying degrees
of federal, state, local and international regulation. In the United States,
WorldCom's and MCI's subsidiaries are most heavily regulated by the states,
especially for the provision of local exchange services. Each such subsidiary
must be separately certified in each state to offer local exchange and
intrastate long distance services. No state, however, subjects WorldCom or MCI
to price cap or rate of return regulation, nor is WorldCom or MCI currently
required to obtain FCC authorization for installation or operation of its
network facilities used for domestic services, other than licenses for specific
terrestrial microwave and satellite earth station facilities which utilize radio
frequency spectrum. FCC approval is required, however, for the installation and
operation of international facilities and services. WorldCom and MCI are also
subject to varying degrees of regulation in the foreign jurisdictions in which
they conduct business including authorization for the installation and operation
of network facilities. Although the trend in federal, state, local and
international regulation appears to favor increased competition, no assurance
can be given that changes in current or future regulations adopted by the FCC,
state or foreign regulators or legislative initiatives in the United States and
abroad would not have a material adverse effect on WorldCom.
On February 8, 1996, President Clinton signed the Telecommunications Act of
1996 (the "Telecom Act"), which permits the Bell Operating Companies (the
"BOCs") to provide domestic and international long distance services to
customers located outside of the BOC's home regions; permits a petitioning BOC
to provide domestic and international long distance service to customers within
its operating area on a state by state basis upon a finding by the FCC that a
petitioning BOC has satisfied certain criteria for opening up its local exchange
network to competition and that its provision of long distance services would
further the public interest; and removes existing barriers to entry into local
service markets. Additionally, there were significant changes in: the manner in
which carrier-to-carrier arrangements are regulated at the federal and state
level; procedures to revise universal service standards; and penalties for
unauthorized switching of customers. The FCC has instituted and, in most
instances completed, proceedings addressing the implementation of this
legislation.
In implementing the Telecom Act, the FCC established nationwide rules
designed to encourage new entrants to participate in the local services markets
through interconnection with the ILECs, resale of ILECs' retail services, and
use of individual and combinations of unbundled network elements. These rules
set the groundwork for the statutory criteria governing BOC entry into the long
distance market. Appeals of the FCC order adopting those rules were consolidated
before the United States Court of Appeals for the Eighth Circuit (the "Eighth
Circuit"). The Eighth Circuit found constitutional challenges to certain
practices implementing cost provisions of the Telecom Act that were ordered by
certain state PUCs to be premature, but vacated significant portions of the
FCC's nationwide pricing rules, and vacated an FCC rule requiring that unbundled
network elements be provided on a combined basis. The Solicitor General, on
behalf of the FCC, and certain other parties, including WorldCom and MCI, sought
certiorari in the United States Supreme Court. Certain BOC's have also raised
constitutional challenges to restrictions in the Telecom Act preventing BOCs
from entering the long distance market in their home regions. WorldCom cannot
predict either the outcome of these or future challenges to the Telecom Act, any
related appeals of regulatory or court decisions, or the eventual effect on its
business or the industry in general.
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<PAGE> 39
The FCC has denied applications filed by Ameritech Corporation
("Ameritech") and SBC Corporation ("SBC") seeking authority to provide inter
local access transport area ("interLATA") long distance service in Michigan and
Oklahoma, respectively. SBC has appealed the FCC's denial of its application to
the Eighth Circuit. In its denial of an Ameritech application, the FCC provided
detailed guidance to applicants regarding the obligations of the applicants, the
format of future applications, the content of future applications, and the
review standards that it will apply in evaluating any future applications. The
National Association of Regulatory Utility Commissioners and several state
regulatory commissions have appealed jurisdictional aspects of that Ameritech
application denial to the Eighth Circuit. WorldCom cannot predict either the
outcome of these appeals, or the BOCs' willingness to abide by these FCC
guidelines, or the timing or outcome of future applications submitted to the
FCC. Additionally, the FCC is presently considering BellSouth Corporation
("BellSouth") applications for authority to provide interLATA service in South
Carolina and Louisiana. Other BOCs have either filed or announced their
intention to file applications at the FCC for authority to provide interLATA
services. WorldCom cannot predict the outcome of these proceedings.
On May 7, 1997, the FCC announced that it will issue a series of orders
that will reform Universal Service Subsidy allocations and adopted various
reforms to the existing rate structure for interstate access services provided
by the ILECs that are designed to reduce access charges, over time, to more
economically efficient levels and rate structures. It also affirmed that
information service providers (including, among others, ISPs) should not be
subject to existing access charges ("ISP Exemption"). Petitions for
reconsideration of, among other things, the access service and ISP Exemption
related actions were filed before the FCC and appeals taken to various United
States Courts of Appeals. On reconsideration, the FCC in significant part
affirmed the access charge and ISP Exemption actions, and the court appeals have
been consolidated before the Eighth Circuit. Also, several state agencies have
started proceedings to address the reallocation of implicit subsidies contained
in access rates and retail service rates to state universal service funds.
Access charges are a principal component of the combined companies' line cost
expense. Additionally, modification of the ISP Exemption could have an adverse
effect on the combined companies' Internet-related services business. WorldCom
cannot predict either the outcome of these appeals or whether or not the
result(s) will have a material impact upon its consolidated financial position
or results of operations.
The FCC issued on December 24, 1996 a Notice of Inquiry to seek comment on
whether it should consider various actions relating to interstate information
services and the Internet. The FCC recognized that these services and recent
technological advances may be constrained by current regulatory practices that
have their foundations in traditional circuit switched telecommunications
services and technologies. Based upon this and other proceedings, the FCC may
permit telecommunications companies, BOCs or others to increase the scope or
reduce the cost of their Internet access services. WorldCom cannot predict the
effect that the Notice of Inquiry, the Telecom Act or any future legislation,
regulation or regulatory changes may have on its consolidated financial position
or results of operations.
In December 1996, the FCC adopted a new policy that makes it easier for
United States international carriers to obtain authority to route international
public switched voice traffic to and from the United States outside of the
traditional settlement rate and proportionate return regimes. In February 1997,
the United States entered into a World Trade Organization Agreement (the "WTO
Agreement") that should have the effect of liberalizing the provision of
switched voice telephone and other telecommunications services in scores of
foreign countries over the next several years. In June 1997, in order to comply
with United States commitments to the WTO Agreement, the FCC proposed to
implement new rules that would liberalize existing policies regarding (i) the
services that may be provided by foreign affiliated United States international
common carriers, including carriers owned in part or controlled by foreign
carriers that have market power in their home markets, and (ii) the provision of
international switched voice services outside of the traditional settlement rate
and proportionate return regimes. The FCC voted on November 25, 1997 to adopt
these new rules.
In August 1997, the FCC adopted mandatory settlement rate benchmarks. These
benchmarks will reduce the rates that U.S. carriers pay foreign carriers, and
that foreign carriers pay United States carriers, to terminate traffic in their
home countries. The FCC will also prohibit a United States carrier affiliated
with a
24
<PAGE> 40
foreign carrier from providing facilities-based service to the foreign carrier's
home market until and unless the foreign carrier has implemented a settlement
rate within the benchmark. The FCC also adopted new rules that will liberalize
the provision of switched services over private lines, by allowing such services
on routes where 50% or more of United States billed traffic is being terminated
in the foreign country at or below the applicable settlement rate benchmark.
Although the FCC's new policies and implementation of the WTO Agreement may
result in lower costs to the combined companies, including MCI, to terminate
international traffic, there is a risk that the revenues that the combined
companies, including MCI, receive from inbound international traffic may
decrease to an even greater degree. The implementation of the WTO Agreement may
also make it easier for foreign carriers with market power in their home markets
to offer United States and foreign customers end-to-end services to the
disadvantage of the combined companies, which may continue to face substantial
obstacles in obtaining from foreign governments and foreign carriers the
authority and facilities to provide such end-to-end services. Further, many
foreign carriers have challenged, in court and at the FCC, the FCC's order
adopting mandatory settlement rate benchmarks. If the FCC's settlement rate
benchmark order were to be overturned, it would accelerate the full-fledged
entry of foreign carriers into the United States and make it far easier for
foreign carriers to route international traffic into the United States at low,
cost-based termination rates, while United States carriers would continue to
have little choice but to route international traffic into most foreign
countries at much higher, above cost, settlement rates.
Competition
Virtually every aspect of the telecommunications industry is extremely
competitive, and WorldCom expects that competition will intensify in the future.
The combined companies (including MCI, CompuServe, ANS and BFP) face significant
competition from carriers and other companies with greater market share and
financial resources. The combined companies compete domestically with incumbent
providers, which have historically dominated local telecommunications, and with
long distance carriers, for the provision of long distance services. Sometimes
the incumbent provider offers both local and long distance services. The ILECs
presently have numerous advantages as a result of their historic monopoly
control over local exchanges. A continuing trend toward business combinations
and alliances in the telecommunications industry may create significant new
competitors to the combined companies. Many of the combined companies' existing
and potential competitors have financial, personnel and other resources
significantly greater than those of the combined companies. The subsidiaries of
the combined companies also face competition from one or more competitors in
most markets in which it operates, including CLECs operating fiber optic
networks, in some cases in conjunction with the local cable television operator.
AT&T Corp. ("AT&T") and Sprint Corporation ("Sprint") have indicated their
intention to offer local telecommunications services in major United States
markets using its own facilities or by resale of the local exchange carriers' or
other providers' services. In addition, subsidiaries of the combined companies
compete with equipment vendors and installers and telecommunications management
companies with respect to certain portions of their businesses.
Overseas, subsidiaries of the combined companies compete with incumbent
providers, many of which still have special regulatory status and the exclusive
rights to provide certain services, and virtually all of which have historically
dominated their local, domestic long distance and international services
business. These incumbent providers have numerous advantages, including existing
facilities, customer loyalty and substantial financial resources. The combined
companies also compete with other service providers, many of which are
affiliated with incumbent providers in other countries. Typically, the combined
companies must devote extensive resources to obtaining regulatory approvals
necessary to operate overseas, and then to obtaining access to interconnection
with the incumbent's network on a non-discriminatory basis.
The combined companies may also be subject to additional competition due to
the development of new technologies and increased availability of domestic and
international transmission capacity. For example, even though fiber optic
networks, such as that of WorldCom, are now widely used for long distance
transmission, it is possible that the desirability of such networks could be
adversely affected by changing technology. The telecommunications industry is in
a period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite and fiber optic
transmission capacity for services similar
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to those provided by subsidiaries of the combined companies. WorldCom cannot
predict which of many possible future product and service offerings will be
important to maintain its competitive position or what expenditures will be
required to develop and provide such products and services.
Under the Telecom Act and ensuing federal and state regulatory initiatives,
barriers to local exchange competition are being removed. The introduction of
such competition, however, also establishes, in part, the predicate for the BOCs
to provide in-region interexchange long distance services. The BOCs are
currently allowed to offer certain "incidental" long distance service in-region
and to offer out-of-region long distance services. Once the BOCs are allowed to
offer in-region long distance services, they could be in a position to offer
single source local and long distance service similar to that being offered by
the combined companies. WorldCom expects that the increased competition made
possible by regulatory reform will result in certain pricing and margin
pressures in the domestic telecommunications services business.
The combined companies will also compete in offering data communications
services, including Internet access and related services. This is also an
extremely competitive business. WorldCom expects that competition will continue
to intensify in the future. WorldCom believes that the ability of the combined
companies to compete successfully in this arena depends on a number of factors,
including: industry presence; the ability to execute a rapid expansion strategy;
the capacity, reliability and security of its network infrastructure; ease of
access to and navigation on the Internet; the pricing policies of its
competitors and suppliers; the timing of the introduction of new products and
services by the combined companies and their competitors; the combined
companies' ability to support industry standards; and industry and general
economic trends. The success of the combined companies will depend heavily upon
the combined companies' ability to provide high quality data communication
services, including Internet connectivity and value-added Internet services, at
competitive prices.
Major telecommunications companies have expanded their current services to
compete fully in offering data communication services, including Internet
services, and WorldCom expects additional telecommunications companies to
continue to compete in this arena. WorldCom believes that new competitors,
including large computer hardware, software, media and other technology and
telecommunications companies, will also offer data communications services,
resulting in even greater competition for the combined companies. Certain
companies, including AT&T, GTE Corporation ("GTE"), Intermedia Communications,
Inc., Teleport Communications Group and PSINet, Inc., have obtained or expanded
their Internet access products and services as a result of acquisitions and
strategic investments. Such acquisitions may permit the combined companies'
competitors to devote greater resources to the development and marketing of new
competitive products and services and the marketing of existing competitive
products and services. WorldCom expects these acquisitions and strategic
investments to increase, thus creating significant new competitors to the
combined companies.
As the combined companies continue to expand data communications operations
outside of the United States, the combined companies will be forced to compete
with and buy services from incumbent providers, many of which are
government-owned and/or still have special regulatory status and the exclusive
rights to provide certain essential services. The combined companies will also
encounter competition from companies whose operating styles are substantially
different from those that they usually encounter. For example, in Europe,
WorldCom's subsidiaries compete directly with: (1) telecommunications companies,
such as BT, Deutsche Telecom and others; (2) other Internet access providers,
such as Demon Internet Limited and EUnet GB Limited; and (3) on-line services
providers, such as AT&T. Foreign competitors may also possess a better
understanding of their local markets and may have better working relationships
with, or control of, local telecommunications companies. There can be no
assurance that the combined companies can obtain similar levels of local
knowledge, and failure to obtain that knowledge could place the combined
companies at a serious competitive disadvantage.
Anti-Takeover Provisions
The WorldCom Articles contain provisions (a) requiring a 70% vote for
approval of certain business combinations with certain 10% shareholders unless
approved by a majority of the continuing members of the
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<PAGE> 42
WorldCom Board of Directors or unless certain minimum price, procedural and
other requirements are met; (b) restricting aggregate beneficial ownership of
the capital stock of WorldCom by foreign shareholders to 20% of the total
outstanding capital stock, and subjecting excess shares to redemption; and (c)
authorizing WorldCom's Board of Directors to issue preferred stock in one or
more classes without any action on the part of shareholders. In addition,
WorldCom has entered into the Rights Agreement between WorldCom and The Bank of
New York, as Rights Agent, dated as of August 25, 1996, as amended (the
"WorldCom Rights Agreement"), which will cause substantial dilution to a person
or group that attempts to acquire WorldCom on terms not approved by WorldCom's
Board of Directors. Further, WorldCom's Bylaws (a) contain requirements
regarding advance notice of nomination of directors by shareholders and (b)
restrict the calling of special meetings by shareholders to those owning shares
representing not less than 40% of the votes to be cast. These provisions,
including the WorldCom Rights Agreement, may have an "anti-takeover" effect. See
"Description of WorldCom Capital Stock" and "Comparative Rights of
Shareholders."
PLAN OF MERGER
The following is a summary of the material terms and conditions of the
CompuServe Merger Agreement, a copy of which is attached as Appendix I to this
Proxy Statement/Prospectus and incorporated herein by reference. The information
regarding the CompuServe Merger Agreement in this Proxy Statement/ Prospectus
does not purport to be complete and is qualified in its entirety by reference to
the full text of the CompuServe Merger Agreement.
GENERAL DESCRIPTION OF THE COMPUSERVE MERGER
Pursuant to the CompuServe Merger Agreement, at the Effective Time,
WorldCom will acquire CompuServe through the merger of Acquisition Subsidiary
with and into CompuServe. If the CompuServe Merger Agreement is approved and
adopted by the stockholders of CompuServe, and if the other conditions to the
CompuServe Merger are satisfied or waived, the CompuServe Merger will become
effective upon the filing by the Surviving Corporation with the Secretary of
State of the State of Delaware of a duly executed Certificate of Merger or at
such later time as may be specified in the Certificate of Merger. It is
anticipated that the CompuServe Merger will be consummated on January 30, 1998,
after the Special Meeting, provided that the conditions to the CompuServe Merger
are then fulfilled or waived.
The consummation of the CompuServe Merger will result in, among other
things, CompuServe becoming a wholly owned subsidiary of WorldCom. As a result
of the CompuServe Merger, each share of CompuServe Common Stock will be
converted into the right to receive a fraction of a share of WorldCom Common
Stock equal to the CompuServe Exchange Ratio. The "CompuServe Exchange Ratio"
will be determined as follows: (i) if the Average Trading Price (as defined in
the next sentence) of a share of WorldCom Common Stock is greater than or equal
to $29.54, the CompuServe Exchange Ratio will equal 0.40625; (ii) if the Average
Trading Price of a share of WorldCom Common Stock is greater than or equal to
$24.00 but less than $29.54, the CompuServe Exchange Ratio will equal a fraction
(rounded to the nearest hundred-thousandth) determined by dividing $12.00 by the
Average Trading Price of a share of WorldCom Common Stock; and (iii) if the
Average Trading Price of a share of WorldCom Common Stock is less than $24.00,
the CompuServe Exchange Ratio will equal 0.5, provided that CompuServe has the
right to terminate the CompuServe Merger Agreement if the Average Trading Price
of a share of WorldCom Common Stock is less than $24.00. The "Average Trading
Price" of a share of WorldCom Common Stock will be the average of the daily
closing prices of a share of WorldCom Common Stock, as quoted by The Nasdaq
National Market and reported in The Wall Street Journal, Eastern Edition, or if
not reported thereby, The New York Times, for the twenty consecutive full Nasdaq
National Market trading days ending on the date immediately prior to the third
full Nasdaq National Market trading day immediately preceding the date on which
the CompuServe Merger is consummated.
It is anticipated that the CompuServe Merger will be consummated on January
30, 1998, after the Special Meeting, provided that the conditions to the
CompuServe Merger are then fulfilled or waived. If the Average Trading Price of
WorldCom Common Stock calculated as of the proposed date of consummation of
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<PAGE> 43
the CompuServe Merger, were to be less than $24.00, the Board of Directors of
CompuServe would determine at such time whether or not to exercise its right to
terminate the CompuServe Merger Agreement. The Board's determination would be
made in accordance with its fiduciary duties under Delaware law to all of the
stockholders of CompuServe, including H&R Block and Block Group as the holders
of approximately 80.1% of the outstanding CompuServe Common Stock, and the
Board's business judgment, based on the facts and circumstances existing at such
time, regarding the best interests of CompuServe and its stockholders.
Holders of CompuServe Common Stock may call toll free to 1-800-780-6378
from January 5, 1998 until the date that the CompuServe Merger is consummated to
hear a tape recorded message stating what the Average Trading Price and the
CompuServe Exchange Ratio would be if the CompuServe Merger were to be
consummated on that day. Holders of CompuServe Common Stock may call the same
toll free number from the date the CompuServe Merger is consummated until ten
business days thereafter to hear a tape recorded message stating the actual
Average Trading Price and CompuServe Exchange Ratio.
The CompuServe Merger Consideration will be paid in shares of WorldCom
Common Stock, except that (i) WorldCom will pay cash in lieu of fractional
shares (see "-- Fractional Shares"), and (ii) in order for the CompuServe Merger
to qualify for certain desired tax treatment, WorldCom will pay Block Group,
which, as of the date of this Proxy Statement/Prospectus, owns approximately
80.1% of the shares of outstanding CompuServe Common Stock, the $1 million Cash
Payment in lieu of issuing shares of WorldCom Common Stock valued at $1.1
million, based on the Average Trading Price.
Prior to the Effective Time, the CompuServe Board of Directors (or a
committee of that Board) will cause all outstanding and unexercised CompuServe
Stock Options to be cancelled in exchange for cash payments. See "-- Treatment
of Stock Options" and "-- Interests of Certain Persons in the CompuServe
Merger."
The following table illustrates the number of shares of WorldCom Common
Stock (assuming 94,261,911 shares of CompuServe Common Stock outstanding,
including shares issuable upon exercise of CompuServe Stock Options) and the
corresponding per share value of the CompuServe Merger Consideration issuable in
the CompuServe Merger, at various assumed Average Trading Prices:
<TABLE>
<CAPTION>
AGGREGATE
WORLDCOM VALUE PER SHARE OF
AVERAGE TRADING COMPUSERVE COMMON STOCK COMPUSERVE
PRICE EXCHANGE RATIO ISSUABLE COMMON STOCK
--------------- -------------- ------------ ------------------
<S> <C> <C> <C>
$34.00................................ 0.40625 38,293,901 $13.81
$33.00................................ 0.40625 38,293,901 $13.41
$32.00................................ 0.40625 38,293,901 $13.00
$31.00................................ 0.40625 38,293,901 $12.59
$30.00................................ 0.40625 38,293,901 $12.19
$29.54................................ 0.40625 38,293,901 $12.00
- ----------------------------------------------------------------------------------------------
$29.00................................ 0.41379 39,004,636 $12.00
$28.00................................ 0.42857 40,397,827 $12.00
$27.00................................ 0.44444 41,893,764 $12.00
$26.00................................ 0.46153 43,504,700 $12.00
$25.00................................ 0.48000 45,245,717 $12.00
- ----------------------------------------------------------------------------------------------
$24.00................................ 0.50000 47,130,956 $12.00
$23.00................................ 0.50000 47,130,956 $11.50
$22.00................................ 0.50000 47,130,956 $11.00
$21.00................................ 0.50000 47,130,956 $10.50
$20.00................................ 0.50000 47,130,956 $10.00
</TABLE>
Based on the number of outstanding shares of CompuServe Common Stock (as of
December 15, 1997), BFP Common Stock (as of December 22, 1997) and MCI Common
Stock (as of October 31, 1997) (without adjustment for stock options, warrants,
rights or convertible securities) and assuming completion by WorldCom of the BFP
Merger, the CompuServe Merger and the MCI/WorldCom Merger (see "Information
Regarding WorldCom -- Recent Developments"), the number of outstanding shares of
WorldCom Common
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<PAGE> 44
Stock would increase from 909,044,560 shares outstanding on December 15, 1997 to
between 1,715,059,496 shares and 2,022,680,634 shares, respectively, and the
number of shares of WorldCom Common Stock issuable upon exercise of WorldCom
options, rights and warrants would increase from 80,849,248 shares to between
185,934,659 shares and 228,006,125 shares, respectively. A total of 94,992
shares of WorldCom Series A Preferred Stock and 12,427,866 shares of WorldCom
Series B Preferred Stock were also outstanding as of December 15, 1997, which
were convertible into 32,703,276 and 1,210,364 shares, respectively, of WorldCom
Common Stock. Based on the number of shares of outstanding CompuServe Common
Stock (as of December 15, 1997), BFP Common Stock (as of December 22, 1997), MCI
Common Stock (as of October 31, 1997) and WorldCom Common Stock (as of December
15, 1997) (without adjustment for stock options, rights or warrants) and
assuming a CompuServe Exchange Ratio of 0.5, a BFP Exchange Ratio of 1.85 and an
MCI Exchange Ratio of 1.7586, CompuServe stockholders would hold approximately
(a) 4.8% (b) 4.4% and (c) 2.3% of the outstanding WorldCom Common Stock after
completion of (a) the CompuServe Merger, (b) the CompuServe Merger and the BFP
Merger, and (c) the CompuServe Merger, the BFP Merger and the MCI/WorldCom
Merger, respectively, assuming no exercise of WorldCom options, rights or
warrants, but assuming the conversion of WorldCom convertible securities. Actual
exchange ratios may vary as described herein.
Following the Effective Time, each stockholder of CompuServe will be
required to surrender the certificates which theretofore represented shares of
CompuServe Common Stock to The Bank of New York, or such other entity as may be
serving as WorldCom's transfer agent (the "Exchange Agent"), together with a
duly completed and executed transmittal letter provided by the Exchange Agent.
See "-- Surrender of Stock Certificates and Receipt of CompuServe Merger
Consideration." The shares of WorldCom Common Stock to be issued pursuant to the
CompuServe Merger will be freely transferable except by certain stockholders of
CompuServe who are deemed to be affiliates of CompuServe. The transferability of
shares of WorldCom Common Stock issued to such affiliates will be restricted in
accordance with rules and regulations promulgated by the Commission. See
"-- Status Under Federal Securities Laws." Until so surrendered and exchanged,
each outstanding certificate representing CompuServe Common Stock after the
Effective Time will be deemed for all purposes to evidence the right to receive
that number of whole shares of WorldCom Common Stock (and cash, in the case of
Block Group) into which the shares of CompuServe Common Stock have been
converted pursuant to the CompuServe Merger Agreement, plus cash in lieu of any
fractional shares of WorldCom Common Stock.
On the Closing Date, WorldCom will instruct the Exchange Agent to mail to
each holder of record of CompuServe Common Stock within five business days of
receiving from CompuServe a list of such holders of record a letter of
transmittal and instructions as to the procedure for the surrender of the stock
certificates representing the CompuServe Common Stock. Each holder of CompuServe
Common Stock, upon surrender of a stock certificate or certificates representing
such stock, together with the transmittal letter provided by the Exchange Agent
duly completed and executed by such holder, will be entitled to receive a stock
certificate or certificates representing the number of the whole shares of
WorldCom Common Stock (together with cash in lieu of fractional shares of
WorldCom Common Stock and in payment to Block Group of the Cash Payment) to
which such holder is entitled. Holders of any unsurrendered certificates
representing CompuServe Common Stock will 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 the CompuServe Merger
Agreement. The CompuServe Merger Agreement provides that neither CompuServe nor
WorldCom nor the Exchange Agent will be liable to any holder of CompuServe
Common Stock for any 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.
COMPUSERVE STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE A TRANSMITTAL LETTER FROM THE EXCHANGE AGENT.
BACKGROUND OF THE COMPUSERVE MERGER
Until April 19, 1996, CompuServe was a wholly-owned subsidiary of H&R
Block. On February 20, 1996, the Board of Directors of H&R Block announced its
intention to divest itself of CompuServe through an initial
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<PAGE> 45
public offering of less than 20% of the CompuServe Common Stock and a subsequent
distribution by H&R Block to its shareholders of the remaining CompuServe shares
held by H&R Block. The decision by H&R Block's Board of Directors to divest
CompuServe was based on its belief that H&R Block's core tax services businesses
and CompuServe's technology services, particularly online services, businesses,
presented fundamentally different valuation, risk and volatility profiles and
that the financial market would continue to have difficulty valuing H&R Block's
common stock so long as H&R Block continued to own CompuServe.
On April 19, 1996, CompuServe effected an initial public offering of
18,400,000 newly issued shares of its common stock at $30.00 per share (the
"IPO"), which reduced H&R Block's ownership in CompuServe to slightly more than
80%. The net proceeds of the IPO received by CompuServe were $518,819,000.
Following the IPO, CompuServe began to experience deteriorating operating
results due to increased competition in the online services business from, among
others, Microsoft, AT&T, AOL, Prodigy and various Internet access providers and
search engines, increased marketing and development costs, and a move in the
online industry, initiated by AT&T, to pricing based on a flat-rate per month
regardless of usage. This deterioration in operating results resulted in a
significant decline in the trading price of CompuServe Common Stock. On July 15,
1996, CompuServe Common Stock closed at $15.50 per share.
On July 16, 1996, H&R Block announced its intent to complete its
disposition of CompuServe by means of a pro rata distribution of the remaining
74,200,000 shares of CompuServe stock to shareholders of H&R Block on or about
November 1, 1996, subject to certain conditions, including shareholder approval
of the distribution at the 1996 annual meeting of shareholders of H&R Block and
the receipt of a favorable ruling from the Internal Revenue Service as to the
tax-free nature of the transaction.
On August 28, 1996, H&R Block's Board of Directors announced its decision
not to proceed with the proposed pro rata distribution of the remaining
CompuServe shares at that time. The decision was based, in part, on CompuServe's
first quarter and projected second quarter losses for fiscal year 1997,
uncertainties related to the online industry, and the planned September
introduction of new interfaces for CompuServe's online services. The August 28
announcement reiterated the Board of Directors' belief that a disposition of
CompuServe by H&R Block was in the best interests of H&R Block's shareholders
and stated that the Board would continue to consider the matter.
As a result of this announcement, in September 1996, Stephen M. Case,
Chairman of the Board, Chief Executive Officer and President of AOL, contacted
H&R Block to discuss AOL's possible interest in an acquisition of CompuServe.
However, substantive discussions between H&R Block and AOL did not materialize
at that time.
On September 11, 1996, at the request of the H&R Block Board of Directors,
Salomon Brothers Inc ("Salomon Brothers") made a presentation to the H&R Block
Board regarding the possible sale of CompuServe, and on September 13, 1996, the
H&R Block Board of Directors formally engaged Salomon Brothers to assess such a
possible sale. In early November 1996, H&R Block directed Salomon Brothers to
begin soliciting third parties that might be interested in acquiring CompuServe,
and CompuServe formed a management team to participate in the sale process.
On November 21, 1996, CompuServe confirmed its previously forecasted second
quarter loss for fiscal year 1997, announced an accelerated amortization of
previously capitalized subscriber acquisition costs, and disclosed a shift in
its marketing strategy to reduce costs and to focus on business and professional
subscribers to its online service, as well as the profitable segments of the
consumer market. As a part of the shift in strategy, CompuServe announced the
withdrawal of the family-oriented WOW! online service from the marketplace
effective January 31, 1997. WOW!'s low, flatrate pricing for unlimited use had
proved unprofitable, and in the midst of intensified competition, WOW! failed to
attract the targeted critical mass of subscribers.
Between December 1996 and March 1997, Salomon Brothers contacted 21
potential acquirors, 11 of which (including WorldCom and AOL) expressed initial
interest in considering a possible transaction and agreed to meet with Salomon
Brothers and/or CompuServe management to explore the possible basis for a
transaction. WorldCom conducted due diligence at CompuServe on December 20, 1996
and January 29, 1997. Between December 1996 and March 1997, WorldCom evaluated
its interest in acquiring CompuServe and
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<PAGE> 46
concluded that its interest was in only the network services business. WorldCom
met with various third parties with a possible interest in the online services
business during that time in an attempt to structure a three-party transaction.
None materialized at that time. Some of the other parties contacted by Salomon
Brothers also conducted due diligence with respect to CompuServe during this
time period. These contacts and due diligence meetings did not result in any
offers to acquire CompuServe during this time period other than from AOL (as
discussed below).
On February 20, 1997, a representative of AOL contacted Salomon Brothers to
express AOL's interest in pursuing a transaction to acquire CompuServe.
Representatives of AOL then met with CompuServe management on February 25 and
26, 1997 to conduct a due diligence review of CompuServe. On March 7, 1997,
AOL's financial advisor delivered a letter to Salomon Brothers in which it
proposed to acquire all of the outstanding shares of CompuServe Common Stock in
exchange for AOL common stock. AOL's proposal contemplated an exchange ratio
designed to provide $11.00 in AOL common stock in exchange for each share of
CompuServe Common Stock, subject to increase or decrease in accordance with
certain collar mechanisms. The proposal also contemplated that AOL would acquire
CompuServe pursuant to a non-taxable "Morris-Trust" transaction structure.
On March 19, 1997 representatives of H&R Block and CompuServe met with
representatives of AOL for the purpose of conducting a due diligence review of
AOL.
Between March 21 and April 17, 1997, representatives of H&R Block,
CompuServe and AOL and their respective advisors met on numerous occasions in
person and telephonically to negotiate the terms of a transaction and to prepare
definitive documentation. In addition, throughout this period the parties
continued their respective due diligence reviews of one another.
AOL's Board of Directors met on April 17, 1997 to discuss and consider
approving the proposed acquisition of CompuServe. During the meeting, the AOL
Board of Directors heard and discussed concerns regarding infrastructure issues
and the timing of the proposed transaction. The AOL Board had not arrived at a
resolution of these issues when, during the meeting, the AOL Board was informed
that federal legislation had been introduced that day that, if enacted, would
make unavailable the tax treatment that had been contemplated for the
transaction. This new legislation was deemed to be significantly adverse and
necessitated further discussions regarding a possible new structure even if the
other issues with respect to the proposed transaction could be resolved.
Preliminary conversations between advisors of AOL and CompuServe then occurred
but no new structure was at that time developed and agreed upon. On or about
April 21, 1997, AOL informed H&R Block and CompuServe that it would not continue
to pursue the possible acquisition of CompuServe by AOL at that time.
Following termination of discussions among AOL, H&R Block and CompuServe,
H&R Block directed Salomon Brothers to recontact those parties that had been
contacted in early 1997 and that had previously expressed some interest in a
possible acquisition of CompuServe and to contact several new parties as well.
Among the companies recontacted was a private equity firm that had been
contacted and performed due diligence on CompuServe in early 1997, but which had
expressed a preliminary valuation for CompuServe that was not acceptable to H&R
Block and CompuServe. The private equity firm informed Salomon Brothers that it
remained interested in possibly acquiring CompuServe and that it would attempt
to develop a proposed acquisition value higher than its preliminary valuation.
Salomon Brothers also again contacted WorldCom, with whom Salomon Brothers
had a relationship, including having acted as financial advisor to WorldCom in
connection with the MFS Merger. WorldCom stated that it remained interested in
acquiring only CompuServe's network services businesses and was not interested
in acquiring CompuServe's online services businesses.
During the months of May, June and July 1997, AOL and certain other
affiliated parties had conversations with H&R Block and Salomon Brothers
regarding their interest in potentially acquiring CompuServe through a joint
bid. On July 1, 1997, AOL's financial advisor submitted a written proposal to
acquire all of the outstanding shares of CompuServe Common Stock in exchange for
AOL common stock and, at AOL's election, cash. AOL's proposal contemplated an
exchange ratio which implied a purchase price equal to $10.5845 per share of
CompuServe Common Stock, subject to increase or decrease in accordance
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with certain pricing collar mechanisms. The proposal also contemplated that AOL
would acquire CompuServe pursuant to a taxable transaction and that H&R Block
and AOL would make an election under Section 338(h)(10) of the Code with respect
to the transaction. Salomon Brothers was directed by H&R Block and CompuServe to
inform AOL and its potential bidding partners that their proposed valuation was
inadequate. H&R Block and CompuServe also directed Salomon Brothers to continue
discussions with the private equity firm and certain other third parties with
whom Salomon Brothers was then actively discussing possible acquisition
proposals.
As a result of the conversations between Salomon Brothers and AOL and its
potential bidding partners, Salomon Brothers concluded that AOL was primarily
interested in acquiring CompuServe's online services businesses. Recognizing
that it was unlikely that a sale transaction could be consummated with a single
party at a reasonable valuation, Salomon Brothers recommended to H&R Block that
it attempt to maximize the value of CompuServe by bringing together two
potential acquirors, one of whom was interested in acquiring CompuServe's online
business and the other interested in acquiring CompuServe's network services
business. Following such recommendation, Salomon Brothers suggested to WorldCom
that it consider contacting AOL and/or other potential bidding partners
directly.
In May, June and July 1997, representatives of WorldCom had various
meetings with representatives of AOL and certain other parties regarding
possible structures of a three-party transaction. WorldCom conducted another due
diligence review of CompuServe on June 18, 1997. On July 7 and 30, 1997,
representatives of WorldCom and AOL met to continue discussions. No conclusions
were reached, but WorldCom and AOL agreed to continue considering a three-party
transaction.
In early August, WorldCom contacted Salomon Brothers to indicate its
interest in exploring a possible acquisition of CompuServe in a stock-for-stock
transaction designed to deliver $12.00 in WorldCom Common Stock for each share
of CompuServe Common Stock. WorldCom stated that this proposal would involve a
related transaction between WorldCom and AOL in which WorldCom transferred cash
and CompuServe's online services businesses to AOL in exchange for certain of
AOL's network assets.
On August 12 and 13, 1997, WorldCom initiated due diligence of ANS at ANS.
Also during August 1997, WorldCom and AOL worked on proposed terms of a
three-party transaction. On August 14, 1997, WorldCom, CompuServe and AOL
entered into a confidentiality agreement. On August 22 and 23, 1997, WorldCom
conducted additional due diligence at CompuServe.
During the middle of August, H&R Block and CompuServe, in consultation with
Salomon Brothers, determined that the private equity firm with which H&R Block
and CompuServe had had continuing discussions since May, represented the most
likely potential acquiror at a value that might be acceptable to H&R Block and
CompuServe. H&R Block and CompuServe also determined that the proposal from
WorldCom was in the range of acceptable values, but believed that there was a
significant probability that the related transaction between WorldCom and AOL
would not materialize. Nevertheless, H&R Block and CompuServe decided to seek to
obtain fully negotiated acquisition proposals from each of the private equity
firm and WorldCom, while WorldCom simultaneously attempted to negotiate a
transaction with AOL. During the last two weeks of August and the first week of
September, H&R Block and CompuServe and their advisors conducted intensive
separate negotiations with representatives of each of the two potential
acquirors concerning the terms of and definitive documentation for an
acquisition transaction.
On September 4, 1997, the Board of Directors of H&R Block met in Kansas
City, Missouri. Representatives of H&R Block's financial advisor, Salomon
Brothers, CompuServe's financial advisor, Goldman Sachs, H&R Block's and
CompuServe's outside counsel, and Edward E. Lucente, the only member of
CompuServe's Board of Directors that was not also a member of H&R Block's Board
of Directors, also attended the H&R Block Board of Directors meeting. Frank L.
Salizzoni, H&R Block's President and Chief Executive Officer and CompuServe's
Chairman of the Board and Acting Chief Executive Officer, reviewed the history
of negotiations between H&R Block and CompuServe and each of the private equity
firm and WorldCom. Salomon Brothers and outside counsel then each made
presentations concerning various financial, contractual and regulatory aspects
of the two proposals.
Representatives of the two potential acquirors were then asked to make
separate presentations concerning their respective proposals and organizations.
Following completion of these presentations, the Boards of
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Directors of H&R Block and CompuServe met separately with their respective
financial advisors and legal counsel. At the CompuServe Board of Directors
meeting, Goldman Sachs made a presentation concerning the financial aspects of
the proposal from the private equity firm.
The H&R Block and CompuServe Boards of Directors each determined that the
WorldCom proposal represented the superior value for CompuServe's stockholders,
including Block Group. In reaching this determination, the Boards of Directors
were influenced, in part, by the private equity firm's repeated statements that
it was unwilling to increase its proposed consideration of $11.00 in cash per
share of CompuServe Common Stock (which proposed consideration was lower than
the $12.00 per share of CompuServe Common Stock proposed by WorldCom and lower
than the $12.63 closing price of CompuServe Common Stock on September 3, 1997).
In addition, the private equity firm proposed to acquire only approximately 81%
of the outstanding shares of CompuServe Common Stock in order that the
transaction could be accounted for as a recapitalization rather than a purchase.
This structure required H&R Block and/or public stockholders to retain
approximately 19% of the CompuServe Common Stock. Salomon Brothers and Goldman
Sachs expressed the view that these retained shares would likely have an initial
market value significantly below the per share consideration proposed for the
81% of the CompuServe shares to be purchased.
The Boards of Directors of H&R Block and CompuServe instructed Salomon
Brothers and outside counsel to attempt to negotiate a definitive agreement
regarding the transaction proposed by WorldCom. In particular, the Boards of
Directors directed their advisors to focus on attempting to improve the WorldCom
proposal in two respects. First, WorldCom had proposed that the exchange ratio
be fixed, based on the market price of WorldCom Common Stock on the date
definitive agreements were executed, to deliver $12.00 in WorldCom Common Stock
for each share of CompuServe Common Stock. The Boards of Directors of H&R Block
and CompuServe desired an increase in the value of the WorldCom Common Stock to
be exchanged for each share of CompuServe Common Stock and also a collar
mechanism which would prevent the value to be received by CompuServe
stockholders from dropping significantly in the event that the market price of
WorldCom Common Stock declined between the execution of the definitive
CompuServe Merger Agreement and the closing of the CompuServe Merger.
Second, the Boards of H&R Block and CompuServe instructed their advisors to
eliminate or minimize the scope of certain closing conditions contained in
WorldCom's proposal in order to provide greater certainty that the acquisition
of CompuServe by WorldCom would be consummated.
Following the conclusion of the meetings of the Boards of Directors of H&R
Block and CompuServe, representatives of Salomon Brothers met with
representatives of WorldCom, who agreed to an exchange ratio of .40625 of a
share of WorldCom Common Stock for each share of CompuServe Common Stock. Based
on the closing price of $31.50 of WorldCom Common Stock on September 5, 1997,
this represented a value of $12.80 per share of CompuServe Common Stock.
WorldCom also agreed that (i) the exchange ratio would be adjusted if the
Average Trading Price of WorldCom's Common Stock fell below $29.54 but equal to
or above $24.00 so that in such event CompuServe stockholders would receive
$12.00 in value for each share of CompuServe Common Stock and (ii) the exchange
ratio would be fixed at 0.5 if the Average Trading Price of WorldCom's Common
Stock fell below $24.00 per share, provided that in such circumstances
CompuServe would not be obligated to consummate the CompuServe Merger. WorldCom
also agreed to certain changes to its proposal related to the closing conditions
that had concerned the H&R Block and CompuServe Boards of Directors.
Representatives of H&R Block and CompuServe and their financial and legal
advisors met in person and telephonically with representatives of WorldCom and
its advisors throughout September 5-7 to finalize definitive documentation.
Representatives of WorldCom and their advisors also met in person and
telephonically with representatives of AOL and its advisors to finalize
documentation with respect to the AOL Transaction.
On the morning of September 7, 1997, the Boards of Directors of H&R Block
and CompuServe held a joint telephonic board meeting. Representatives of Salomon
Brothers, Goldman Sachs and H&R Block's and CompuServe's outside legal counsel
reported on further developments in negotiations with WorldCom,
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including the increase in the proposed exchange ratio and the related collar
mechanism as well as the changes related to the closing conditions, and
indicated that definitive documentation would be finalized that day. Goldman
Sachs delivered its oral opinion to the Board of Directors of CompuServe, which
it subsequently confirmed in writing as of such date, to the effect that the
proposed exchange ratio was fair to the holders of CompuServe Common Stock
(other than Block Group) from a financial point of view.
After further discussion, the Board of Directors of each of H&R Block and
CompuServe unanimously approved and adopted the proposed CompuServe Merger
Agreement and each of the related agreements in substantially the forms
presented during the meeting and authorized appropriate officers of H&R Block
and CompuServe, respectively, to execute such agreements.
H&R Block, CompuServe and WorldCom and their counsel continued meeting
throughout September 7 to finalize the definitive documentation with respect to
the CompuServe Merger. WorldCom and AOL and their counsel also continued working
on the AOL Agreement and related documents. The parties executed the CompuServe
Merger Agreement and related agreements and the AOL Agreement and related
documents later that evening. The CompuServe Merger and the AOL Transaction were
announced on the morning of Monday, September 8.
COMPUSERVE'S REASONS FOR THE COMPUSERVE MERGER
In reaching its decision to approve the CompuServe Merger Agreement, the
Board of Directors of CompuServe was influenced by a number of reasons and
factors, including, without limitation, the following:
Disposition of CompuServe. The CompuServe Board of Directors believed
that it was in the best interests of CompuServe's stockholders to complete
the disposition of CompuServe that had been initiated with the IPO of
CompuServe in April of 1996. The IPO had been intended as only the initial
step in the complete disposition of CompuServe and was anticipated to be
followed by the spin-off by H&R Block to its shareholders of H&R Block's
remaining shares of CompuServe Common Stock. The deteriorating financial
performance of CompuServe following the IPO and uncertainties in the online
industry resulted in the decision in August 1996 by the H&R Block Board of
Directors to indefinitely delay the planned spin-off and the subsequent
decision to consider the possible sale of CompuServe in its entirety to a
third party as an alternative to a spin-off. The CompuServe Board of
Directors believed that the disposition of CompuServe continued to be
desirable because each of H&R Block and CompuServe has its own financial
and operating characteristics, and the disposition would permit the
management of each business to concentrate attention and financial
resources on its own lines of business.
Consideration. Based on the closing sale price of WorldCom Common
Stock on September 5, 1997, the last trading day prior to the date on which
WorldCom, H&R Block and CompuServe executed the CompuServe Merger
Agreement, the consideration to be received by the CompuServe stockholders
in the CompuServe Merger was $12.80 per share of CompuServe Common Stock.
This consideration represented a discount to market of approximately 5%
over the closing sale price of CompuServe Common Stock on September 5,
1997. Inasmuch as the financial markets had been aware for some time that
H&R Block and CompuServe were involved in discussions with third parties
regarding a possible business combination involving CompuServe, it was the
belief of the Board of Directors of CompuServe and its advisors that the
closing sale price of CompuServe on September 5, 1997, already reflected
the financial markets' expectation that a premium would be paid to acquire
CompuServe. The CompuServe Board of Directors was significantly influenced
by the agreed upon collar mechanism, which provided reasonable value
protection for CompuServe stockholders in the event that the market value
of WorldCom Common Stock declined between execution of the CompuServe
Merger Agreement and consummation of the CompuServe Merger, while
permitting CompuServe stockholders to share in any increase in the market
value of WorldCom Common Stock during such time period. The CompuServe
Board of Directors was influenced to a lesser degree by the financial
condition, business and prospects of WorldCom, the common stock of which
would be received by CompuServe stockholders in exchange for their
CompuServe Common Stock in the CompuServe Merger. The Board of Directors
was advised that the trading price of WorldCom Common Stock had appreciated
at an average rate of 34% per annum
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since 1993 and that investment analysts at numerous investment banking
firms, including Salomon Brothers and Goldman Sachs, continued to recommend
highly WorldCom Common Stock to their clients. In considering the
historical performance of WorldCom Common Stock and the views of investment
analysts regarding WorldCom Common Stock, the members of the Board of
Directors of CompuServe primarily was attempting to evaluate the likelihood
that WorldCom Common Stock would retain or improve its market value between
execution of the CompuServe Merger Agreement and consummation of the
CompuServe Merger. The Board of Directors was not attempting to determine
whether WorldCom Common Stock represented an attractive long-term
investment and gave only limited weight to the possible long-term
appreciation of WorldCom Common Stock in agreeing upon the CompuServe
Exchange Ratio and in comparing WorldCom's proposal against the proposal of
the private equity firm and CompuServe's other strategic options. Holders
of CompuServe Common Stock other than H&R Block and other affiliates who
receive shares of WorldCom Common Stock in the CompuServe Merger will be
free to resell such shares immediately and should make their own investment
decision regarding whether or not to continue their investment in WorldCom
Common Stock. Based on the closing sale price of WorldCom Common Stock on
December 23, 1997, the most recent practicable trading day prior to the
date of this Proxy Statement/Prospectus, the consideration to be received
by CompuServe stockholders in the CompuServe Merger had a value of $12.42
per share of CompuServe Common Stock.
Discussions with Other Potential Acquirors. The CompuServe Board of
Directors was influenced by the nearly one-year period during which
CompuServe, H&R Block and their advisors had solicited the interest of
numerous third parties in acquiring CompuServe. H&R Block and CompuServe's
management and their advisors contacted more than 20 potential acquirors
and due diligence presentations were made to several of these potential
acquirors. In the judgment of the CompuServe Board of Directors, the value
offered by WorldCom was clearly superior to that proposed by, or reasonably
likely to be proposed by, any other potential acquiror.
The CompuServe Board of Directors evaluated these reasons for the
CompuServe Merger in light of certain risks and other considerations associated
with the CompuServe Merger, including, without limitation, the following:
(1) WorldCom's proposal to retain CompuServe's network services
businesses while transferring CompuServe's online services businesses to
AOL.
(2) Employee retention, morale, compensation and benefits issues
associated with the proposed CompuServe Merger.
(3) Projections by CompuServe's management regarding the future
capital requirements and financial performance of CompuServe as a
stand-alone entity, and the likelihood that CompuServe's actual future
performance would be consistent with such projections. These projections
were provided to CompuServe's financial advisor, Goldman Sachs, and were
utilized by Goldman Sachs in connection with formulating and rendering its
opinion regarding the fairness of the CompuServe Merger.
(4) Strategic alternatives other than the CompuServe Merger, including
possible acquisitions by other potential acquirors and joint ventures or
strategic alliances with other entities. The CompuServe Board of Directors
concluded that it was highly unlikely that any such strategic alternative
would offer as much value to CompuServe's stockholders as the proposed
CompuServe Merger.
(5) The likelihood and possible terms and conditions of obtaining the
required regulatory approvals and of satisfying the other conditions to the
parties' obligations to consummate the CompuServe Merger. The CompuServe
Board of Directors weighed such likelihood, together with the time period
expected to be necessary to obtain such approvals and to satisfy such
conditions, against the anticipated benefits to be received by the
CompuServe stockholders in the proposed CompuServe Merger.
(6) Current industry, economic and market conditions and trends in the
network services and online services industries and the importance of
market position and financial, technical and management
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resources to CompuServe's ability to compete effectively in these highly
competitive and rapidly changing industries.
(7) The terms of the CompuServe Merger Agreement and the Stockholders
Agreement.
(8) The unanimous approval of the CompuServe Merger Agreement by the
Board of Directors of H&R Block and the fact that H&R Block, as the holder
of 80.13% of the CompuServe Common Stock, would receive the same
consideration in the CompuServe Merger per share of CompuServe Common Stock
as each other CompuServe stockholder.
(9) The obligations, limitations and potential liabilities, including
tax liabilities and indemnity obligations, which H&R Block agreed to assume
in connection with the CompuServe Merger under the terms of the CompuServe
Merger Agreement, Stockholders Agreement, Standstill Agreement and
NonCompete/NonSolicitation Agreement.
(10) The oral opinion of its financial advisor, Goldman Sachs, that
the CompuServe Merger was fair to the holders of CompuServe Common Stock
(other than Block Group) from a financial point of view. See "-- Opinion of
CompuServe's Financial Advisor." A copy of Goldman Sachs' written opinion,
dated September 7, 1997, is attached as Annex IV to this Proxy
Statement/Prospectus.
In reaching its decision, the CompuServe Board of Directors did not assign
any relative weight to the various factors considered, and individual directors
may have given differing weights to different factors. See "Cautionary Statement
Regarding Forward-Looking Statements" and "Risk Factors."
WORLDCOM'S REASONS FOR THE COMPUSERVE MERGER
The WorldCom Board of Directors approved and ratified the CompuServe Merger
Agreement by a unanimous vote at a meeting held in September 1997. In reaching
its decision to approve the CompuServe Merger Agreement, the Board of Directors
of WorldCom consulted with its management team and advisors and independently
considered a variety of factors and the business and operations of CompuServe.
The Board of Directors of WorldCom concluded that the CompuServe Merger, in
combination with the AOL Transaction, was in the best interests of WorldCom and
its shareholders because the CompuServe Merger, in combination with the AOL
Transaction, would (i) add significant new customer revenues from the customers
of CompuServe's network services business, and from the dial-up services to be
provided to AOL by ANS and CompuServe, (ii) add a significant number of
CompuServe employees with skills in advanced data communications and value added
network services, (iii) offer in the long term cost savings and increased
economies of scale, and (iv) increase revenue and product line expansion as a
result of the ability to offer WorldCom services to CompuServe customers, and
CompuServe services to WorldCom customers.
There can be no assurance that any of the potential synergies or
opportunities considered by the WorldCom Board of Directors will be achieved
through consummation of the CompuServe Merger and the AOL Transaction. See
"Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors."
RECOMMENDATION OF THE COMPUSERVE BOARD OF DIRECTORS
The CompuServe Board of Directors believes that the terms of the CompuServe
Merger Agreement and the transactions contemplated thereby are fair to and in
the best interests of CompuServe and its stockholders and has unanimously
approved the CompuServe Merger Agreement and the transactions contemplated
thereby. THE COMPUSERVE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF COMPUSERVE APPROVE AND ADOPT THE COMPUSERVE MERGER AGREEMENT.
The recommendation of the CompuServe Board is based on a number of factors as
described in "-- CompuServe's Reasons for the CompuServe Merger." In considering
the recommendation of the CompuServe Board of Directors, holders of CompuServe
Common Stock should be aware that certain non-director members of CompuServe's
management have certain interests in the CompuServe Merger in addition to the
interests of stockholders of CompuServe generally. The CompuServe Board of
Directors was aware of these other interests and considered them, among other
matters, in approving the CompuServe
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Merger Agreement and the transactions contemplated thereby, including the
CompuServe Merger. See "-- Interests of Certain Persons in the CompuServe
Merger."
OPINION OF COMPUSERVE'S FINANCIAL ADVISOR
On September 7, 1997, Goldman Sachs delivered its oral opinion to the
CompuServe Board of Directors, which it subsequently confirmed in writing as of
such date, that the CompuServe Exchange Ratio pursuant to the CompuServe Merger
Agreement was fair, from a financial point of view, to the holders (excluding
Block Group) of shares of CompuServe Common Stock.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED AS OF SEPTEMBER
7, 1997, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED
HERETO AS APPENDIX IV AND IS INCORPORATED HEREIN BY REFERENCE. GOLDMAN SACHS'
OPINION IS ADDRESSED TO THE COMPUSERVE BOARD OF DIRECTORS AND ADDRESSES ONLY THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE COMPUSERVE EXCHANGE RATIO TO
THE HOLDERS (EXCLUDING BLOCK GROUP) OF COMPUSERVE COMMON STOCK AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF COMPUSERVE COMMON STOCK AS TO HOW
SUCH HOLDER SHOULD VOTE WITH RESPECT TO THE COMPUSERVE MERGER AGREEMENT. HOLDERS
OF COMPUSERVE COMMON STOCK ARE URGED TO AND SHOULD READ SUCH OPINION IN ITS
ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things:
(i) the CompuServe Merger Agreement; (ii) the Prospectus dated as of April 18,
1996, which is included in CompuServe's Registration Statement on Form S-1 (File
No. 333-1498), the Annual Report to Stockholders and Annual Report on Form 10-K
of CompuServe for the fiscal year ended April 30, 1997 (as amended by
CompuServe's Annual Report on Form 10-K/A for the fiscal year ended April 30,
1997 filed August 18, 1997), and the Annual Reports to Stockholders and Annual
Reports on Form 10-K of WorldCom for the five years ended December 31, 1996;
(iii) certain interim reports to stockholders and Quarterly Reports on Form 10-Q
of CompuServe and WorldCom; (iv) certain other communications from CompuServe
and WorldCom to their respective stockholders; and (v) certain internal
financial analyses and forecasts for CompuServe prepared by its management.
Goldman Sachs also held discussions with members of the senior management of
CompuServe and WorldCom regarding the past and current business operations,
financial condition and future prospects of their respective companies. In
addition, Goldman Sachs reviewed the reported price and trading activity for the
CompuServe Common Stock and the WorldCom Common Stock; compared certain
financial and stock market information for CompuServe and WorldCom with similar
information for certain other companies the securities of which are publicly
traded; reviewed the financial terms of certain recent business combinations in
the Internet, online and network industries specifically and in other industries
generally; and performed such other studies and analyses as Goldman Sachs
considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and has assumed such accuracy and
completeness for purposes of rendering its opinion. With respect to the
financial projections for CompuServe prepared by its management, the CompuServe
Board of Directors informed Goldman Sachs of its view regarding the risks and
uncertainties inherent in achieving such projections. WorldCom did not make
available to Goldman Sachs its projections of expected future performance.
Goldman Sachs did, however, discuss research analyst estimates for WorldCom for
1997, 1998 and 1999 with the management of WorldCom. Goldman Sachs did not make
an independent evaluation or appraisal of the assets and liabilities of
CompuServe or WorldCom or any of their respective subsidiaries, and has not been
furnished with any such evaluation or appraisal. Goldman Sachs' advisory
services and the opinion expressed were provided for the information and
assistance of the Board of Directors of CompuServe in connection with its
consideration of the transaction contemplated by the CompuServe Merger Agreement
and does not constitute a recommendation as to how any holder of shares of
CompuServe Common Stock should vote with respect to the CompuServe Merger
Agreement.
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Certain forecasts and projections resulting from the CompuServe Merger and
furnished to Goldman Sachs were prepared by the management of CompuServe and
constitute forward-looking statements within the meaning of the PSLRA. In
addition, certain estimates of synergies resulting from the CompuServe Merger
and furnished to Goldman Sachs were prepared by the management of WorldCom and
constitute forward-looking statements within the meaning of the PSLRA. As a
matter of policy, neither WorldCom nor CompuServe publicly discloses internal
management forecasts or projections or, in the case of WorldCom, estimates of
the type CompuServe or WorldCom furnished to Goldman Sachs in connection with
its analysis of the CompuServe Merger, and such forecasts, projections and
estimates were not prepared with a view towards public disclosure. These
forecasts, projections and estimates were based on numerous variables and
assumptions which are inherently uncertain and which may not be within the
control of management, including, without limitation, factors related to the
integration of WorldCom and CompuServe, the effects of the AOL Transaction and
general economic, regulatory and competitive conditions. Accordingly, actual
results could vary materially from those set forth in such forecasts,
projections and estimates. See "Cautionary Statement Regarding Forward-Looking
Statements" and "Risk Factors."
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth below, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. The analyses were
prepared solely for purposes of Goldman Sachs' providing its opinion to the
CompuServe Board of Directors as to the fairness, from a financial point of
view, of the CompuServe Exchange Ratio pursuant to the CompuServe Merger
Agreement to the holders (excluding Block Group) of shares of CompuServe Common
Stock and do not purport to be appraisals or necessarily reflect the prices at
which businesses or securities actually may be sold. Analyses based upon
forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties or
their respective advisors, Goldman Sachs assumes no responsibility if future
results are materially different from those forecasted.
As described above, Goldman Sachs' opinion to the CompuServe Board of
Directors was one of many factors taken into consideration by the CompuServe
Board of Directors in making its determination to approve the CompuServe Merger
Agreement. The description of the opinion set forth herein is qualified in its
entirety by reference to the full text of the opinion, which is attached hereto
as Appendix IV.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with CompuServe, having provided certain investment banking services to
CompuServe from time to time, including having acted as lead managing
underwriter of the initial public offering of 18,400,000 shares of CompuServe
Common Stock on April 19, 1996, and having acted as its financial advisor in
connection with the CompuServe Merger Agreement. Goldman Sachs has received
approximately $8.2 million in fees for financial advisory services from
CompuServe during the past two years. CompuServe, H&R Block, Block Group and the
underwriters for such initial public offering, including Goldman Sachs, have
been named as defendants in certain actions relating to such public offering,
and such underwriters, including Goldman Sachs, have received customary
indemnifications from, and are being indemnified by, CompuServe, H&R Block and
Block Group in connection with such offering. Goldman Sachs has also provided
certain investment banking services to H&R Block from time to time, including
having acted as the sole dealer of its U.S. commercial paper program since 1993,
and during March and April of 1993, entering into certain financial contracts as
a principal in connection with its share repurchase program, and Goldman Sachs
may provide investment banking services to H&R Block in the future. In the past,
Goldman Sachs has provided certain investment banking services to WorldCom and
its subsidiaries, including those services listed in Appendix IV. In the course
of the trading activities of Goldman Sachs and its affiliates, Goldman Sachs may
from time to time effect transactions for its own account or the account of
customers, and hold positions in securities or options on securities of
CompuServe, H&R Block, and WorldCom.
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The terms of CompuServe's engagement of Goldman Sachs are set forth in a
letter agreement, dated October 15, 1996, between Goldman Sachs and CompuServe
(the "Engagement Letter"). Pursuant to the Engagement Letter, CompuServe will
pay Goldman Sachs upon the consummation of the CompuServe Merger a transaction
fee based on the aggregate consideration (which amount includes, without
limitation, amounts paid to holders of warrants, stock purchase rights or
convertible securities, if any, of CompuServe, whether or not vested) (the
"Aggregate Consideration"). The transaction fee will be 0.20% on the first $1.2
billion of Aggregate Consideration, 0.40% on the incremental amount in excess of
$1.2 billion up to $1.6 billion, and 0.60% on the incremental amount in excess
of $1.6 billion, provided such Aggregate Consideration does not exceed $2.0
billion, at which point a higher incremental fee percentage applies. In
addition, CompuServe has agreed to reimburse Goldman Sachs for reasonable
out-of-pocket expenses, including the fees and disbursements of its counsel,
plus any sales, use or similar taxes (including additions to such taxes, if any)
arising in connection with its engagement and to indemnify Goldman Sachs against
certain liabilities relating to or arising out of its engagement, including
liabilities under the federal securities laws.
The following is a summary of certain of the financial and comparative
analyses which Goldman Sachs presented to the CompuServe Board of Directors on
September 7, 1997 and which provided the basis for Goldman Sachs' written
opinion, dated as of September 7, 1997. Goldman Sachs expresses no opinion or
view as to the relative merits of the CompuServe Merger as compared to
alternative business transactions.
Buyers Contacted
Goldman Sachs reviewed the results of efforts by H&R Block and its advisors
to solicit indications of interest and proposals from third parties with respect
to a purchase of CompuServe. From this process, H&R Block and its advisors
ultimately contacted twenty-three parties. Of these, fifteen parties conducted
extensive reviews of CompuServe. CompuServe eventually evaluated bids from two
of the fifteen parties, one of which was from WorldCom, before deciding to enter
into the CompuServe Merger Agreement with WorldCom. See "-- Reasons for and
Background of the CompuServe Merger -- Background of the CompuServe Merger."
Historical Trading Analysis
Goldman Sachs reviewed the historical stock prices and trading volumes
history for CompuServe Common Stock. This analysis showed an initial public
offering price of $30.00 per share and a price of $12.44 per share on August 28,
1997. Goldman Sachs also reviewed the historical stock prices and trading volume
history of WorldCom Common Stock. This analysis showed that the WorldCom Common
Stock price had increased during the period from September 4, 1996 to September
5, 1997 from $20.13 per share to $31.50 per share.
Selected Companies Analysis
Goldman Sachs reviewed and compared certain financial information relating
to CompuServe and WorldCom to corresponding financial information, ratios, and
public market multiples for certain groups of publicly traded corporations.
Goldman Sachs compared CompuServe to companies representative of the
companies comprising three industries (Internet Search Engine/Content Companies,
Internet Access Providers and Internet Software Companies) and to AOL. Goldman
Sachs calculated and compared various financial multiples and ratios and
compared the CompuServe Common Stock price history for the last twelve months to
certain indices. The multiples and ratios for CompuServe were calculated using a
price of $12.44 per share, the CompuServe Common Stock closing price on August
28, 1997 on The Nasdaq National Market. The multiples and ratios for each of the
Internet Search Engine/Content Companies, the Internet Access Providers, the
Internet Software Companies and AOL were also based on each company's common
stock closing price on August 28, 1997. Goldman Sachs then compared CompuServe's
ratios and multiples to those calculated for the Internet Search Engine/Content
Companies, the Internet Access Providers, the Internet Software Companies and
AOL. From this analysis, Goldman Sachs noted the difficulty of drawing
conclusions from the data in that none of the selected companies should be
viewed as directly comparable to CompuServe. Goldman Sachs also compared the
CompuServe Common Stock daily price history for the period from April 19, 1996
to
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September 5, 1997 to AOL and to indices representing the Internet Search
Engine/Content Companies, the Internet Software Companies, the Internet Software
Providers and the S&P 400 Industrials. From this analysis, Goldman noted that,
for the period from April 19, 1996 to September 5, 1997, CompuServe did not
perform as well as the indices or AOL.
Goldman Sachs compared WorldCom to companies representative of the
companies comprising three industries (Regional Holding Companies, Large Cap
Long Distance Companies and Other Long Distance Companies). The multiples and
ratios for WorldCom were calculated using a price of $31.61 per share, the
WorldCom Common Stock closing price on September 4, 1997 on The Nasdaq National
Market. The multiples and ratios for each of the Regional Holding Companies, the
Large Cap Long Distance Companies, and the Other Long Distance Companies were
based on each company's common stock closing price on September 4, 1997. Goldman
Sachs then compared WorldCom's ratios and multiples to those calculated for each
of the companies and to the mean and median for the Regional Holding Companies,
the Large Cap Long Distance Companies, and the Other Long Distance Companies.
Goldman Sachs also compared the WorldCom Common Stock daily price history for
the period from September 5, 1996 to September 5, 1997 to indices representing
the Regional Holding Companies, the Large Cap Long Distance Companies and the
Other Long Distance Companies. From this analysis, Goldman noted, that, for the
period from September 5, 1996 to September 5, 1997, WorldCom performed better
than the indices.
Analyst Estimates
Goldman Sachs compared CompuServe management's earnings estimates (the
"Management Case") for CompuServe for the fiscal year ending 1998 and the fiscal
year ending 1999, to those prepared by various research analysts. Goldman Sachs
noted the research analyst estimates for the fiscal year ending 1998 ranged from
a high of $(0.05) per share on a fully diluted basis to a low of $(0.18) per
share, as compared with CompuServe management's estimate of $(0.25) per share,
while the estimates for the fiscal year ending 1999 ranged from a high of $0.50
per share to a low of $0.03 per share, as compared with CompuServe management's
estimate of $(0.05) per share. The Management Case assumed the growth in total
revenues from the fiscal year ending 1997 to the fiscal year ending 1998 would
not be significant; for periods thereafter, management estimated total revenues
would grow at rates ranging from 13% to 15% per annum. Such percentage changes
principally assumed minimal growth in subscribers in the online/interactive
services business and a continuation of recent historical growth rates in the
network services business. In addition, CompuServe management assumed the growth
in operating expenses from the fiscal year ending 1997 to the fiscal year ending
1998 would not be significant; for periods thereafter, management estimated
total operating expenses would grow at rates ranging from 10% to 12% per annum.
Management further assumed an increase from 1998 to 2002 in per-member
acquisition costs as a result of greater competition for members and a decrease
in operating expenses as a percentage of sales over the same period as a result
of more focused marketing expenditures and further leveraging of the network and
organizational infrastructure. Goldman Sachs noted CompuServe has consistently
underperformed projections leading to an ongoing reduction of Wall Street
estimates. The research analyst estimates were obtained from research analyst
reports prepared between February 1997 and August 1997 and such reports, in
general, did not state the assumptions upon which such estimates were based.
Actual results may vary from the Management Case and the analysts' estimates and
the variations may be material. See "Cautionary Statement Regarding
Forward-Looking Statements" and "Risk Factors."
Goldman Sachs reviewed earnings estimates for WorldCom for the fiscal years
ending 1997, 1998 and 1999, prepared by various research analysts. Goldman Sachs
noted the research analyst estimates for the fiscal year ending 1997 ranged from
a high of $.45 per share, on a fully diluted basis, to a low of $.20 per share,
the estimates for the fiscal year ending 1998 ranged from a high of $1.00 per
share, on a fully diluted basis, to a low of $.46 per share, and the estimates
(prepared by certain of the analysts) for the fiscal year ending 1999 ranged
from a high of $1.60 per share, on a fully diluted basis, to a low of $1.50 per
share. Actual results may vary from the analysts' estimates and the variations
may be material. See "Cautionary Statement Regarding Forward-Looking Statements"
and "Risk Factors."
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Selected Transactions Analysis
As part of its analysis, Goldman Sachs reviewed and analyzed certain recent
transactions in the online services industry. Goldman Sachs noted the difficulty
of drawing conclusions from these transactions and stated that none of these
transactions should be viewed as directly comparable to the CompuServe Merger
primarily because (i) there are few large transactions, (ii) most acquired
companies have been early stage, high growth companies, and (iii) the turnaround
nature of CompuServe and its management situation make it unique.
Leveraged Buyout Analysis
Goldman Sachs performed a leveraged buyout ("LBO") analysis of CompuServe,
utilizing the Management Case described above under the caption "-- Analyst
Estimates," and assuming a capital structure consistent with the LBO financing
environment on September 7, 1997 (i.e., $494 million in equity, $275 million in
term debt, and $140 million in subordinated debt). This analysis resulted in an
earnings before interest, taxes, depreciation and amortization ("EBITDA") to
interest expense coverage multiple of 1.80 times and a total indebtedness to
EBITDA multiple of 5.42 times, in each case for fiscal 1998. Under the assumed
LBO structure, LBO equity holders would receive returns at the end of year five,
assuming 5% management participation, ranging from 23.3% to 30.5% based upon
trailing EBITDA multiples ranging from 7.0 times to 10.0 times, respectively.
Based on the foregoing assumptions, the consideration paid to the holders of
CompuServe Common Stock would be $11.00 per share. Actual results may vary from
the Management Case and the variations may be material. See "Cautionary
Statement Regarding Forward-Looking Statements" and "Risk Factors."
Discounted Cash Flow Analysis
Goldman Sachs performed a discounted cash flow analysis of CompuServe.
Using the Management Case based upon the assumptions described above under the
caption "-- Analyst Estimates," Goldman Sachs calculated free cash flows for the
years 1998 to 2002. Terminal values in the year 2002 were calculated using
trailing EBITDA multiples ranging from 7.0 times to 10.0 times. The cash flow
streams and terminal values were then discounted to the present using discount
rates ranging from 15% to 20%. The equity per share values of CompuServe Common
Stock ranged from $9.37 to $15.29 per share based on such assumed discount rates
and terminal values. Goldman Sachs also applied a sensitivity analysis to the
sales growth and operating margin assumptions contained in the Management Case
in order to determine the effect of variations in such assumptions on the equity
per share values. Actual results may vary from the Management Case and the
equity share values calculated by Goldman Sachs and the variations may be
material. See "Cautionary Statement Regarding Forward-Looking Statements" and
"Risk Factors."
Goldman Sachs also performed a discounted cash flow analysis of WorldCom.
Using research analyst estimates (the "Analyst Estimates"), Goldman Sachs
calculated free cash flows for the years 1998 to 2001. Terminal values in the
year 2001 were calculated using trailing EBITDA multiples ranging from 7.0 times
to 10.0 times. The cash flow streams and terminal values were then discounted
using discount rates ranging from 12% to 17%. The equity per share values of
WorldCom Common Stock ranged from $22.28 to $42.14 per share using the Analyst
Estimates based on such assumed discount rates and terminal values. Goldman
Sachs also applied a sensitivity analysis to the sales growth and operating
margin assumptions contained in the Analyst Estimates in order to determine the
effect of variations in such assumptions on the equity per share values. Actual
results may vary from the Analyst Estimates and the equity share values
calculated by Goldman Sachs and the variations may be material. See "Cautionary
Statement Regarding Forward-Looking Statements" and "Risk Factors."
Daily Exchange Ratio History
Goldman Sachs divided the daily CompuServe Common Stock price by the daily
WorldCom Common Stock price (the "Daily Exchange Ratio") for each day during the
period from September 4, 1996 to September 4, 1997 and reviewed the Daily
Exchange Ratio for such period. Goldman Sachs noted that, for the Daily Exchange
Ratio, the one year average was 0.4365, the previous six month average was
0.3941, the
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previous three month average was 0.3607, the previous one month average was
0.3760, the previous seven day average was 0.4146, and that on September 5, 1997
the Daily Exchange Ratio was 0.4286.
Contribution Analysis
Goldman Sachs reviewed certain historical and estimated future operating
and financial information (including revenues, EBITDA, earnings before interest
and taxes ("EBIT") and net income) for CompuServe, WorldCom and the pro forma
combined entity resulting from the CompuServe Merger based on the Management
Case calendarized to WorldCom's fiscal year end of December 31, for CompuServe
and based on Research Analyst estimates for WorldCom. Goldman Sachs analyzed the
relative contribution of CompuServe and WorldCom to the combined company on a
pro forma basis before taking into account any of the possible benefits that may
be realized following the CompuServe Merger. This analysis indicated, among
other things, that CompuServe would contribute for each of 1996, 1997, 1998,
1999 and 2000, 2.1%, 2.2%, 2.6%, 2.9% and 2.9%, respectively, of EBITDA,
excluding all nonrecurring charges, for the combined company, which amounts
resulted in implied exchange ratios for each such year of 0.20, 0.22, 0.26, 0.29
and 0.29, respectively. Actual results may vary from the Management Case, the
Research Analyst estimates and the contribution calculations and the variations
may be material. See "Cautionary Statement Regarding Forward-Looking Statements"
and "Risk Factors."
Pro Forma Merger Analysis
Goldman Sachs prepared pro forma analyses of the financial impact of the
CompuServe Merger under two scenarios. The first scenario assumed the
acquisition of CompuServe by WorldCom and the consummation of concurrent
transactions between WorldCom and AOL ("Scenario One"). The second scenario
assumed the acquisition of CompuServe by WorldCom, but not the consummation of
concurrent transactions between WorldCom and AOL ("Scenario Two").
Goldman Sachs stated that WorldCom management anticipates that Scenario One
will result in accretion to earnings per share in 1998 and greater accretion
thereafter based on the following five factors: (i) the tax deductibility of
transaction goodwill and the amortization of such goodwill over a ten year
period; (ii) increases in net interest expense, if any, as a result of the cash
payment from WorldCom to AOL exceeding the cash balances acquired from
CompuServe; (iii) the earnings attributable to the newly acquired ANS business;
(iv) the earnings stream attributable to the CompuServe Network Services
Business; and (v) cost synergies (generally representing certain sales, general
and administrative efficiencies and network cost savings expected to result from
combining the organizations), which were estimated by WorldCom to be $75 million
in 1998, $148 million in 1999 and $261 million in 2000. WorldCom management did
not detail its assumptions regarding (ii), (iii) or (iv) to Goldman Sachs; as a
result Goldman Sachs concluded that in the aggregate these items together with
additional synergies must total at least $83 million (pre-tax) in 1998 and $55
million (pre-tax) in 1999 in order for the transaction to be non-dilutive in all
years. If 25% of goodwill is assumed to be written off against in-process
research and development, Goldman Sachs concluded that in the aggregate these
items must total at least $58 million (pre-tax) in 1998 and $30 million
(pre-tax) in 1999 in order for the transaction to be non-dilutive in all years.
WorldCom management did not provide Goldman Sachs with a break-down of the
expected sources of the cost synergies described in clause (v) or the
assumptions underlying such synergies.
Goldman Sachs stated that WorldCom management anticipates that Scenario Two
will result in accretion to earnings per share in 1998 and thereafter based on
the following three factors: (i) the tax deductibility of transaction goodwill
and the amortization of such goodwill over a ten year period; (ii) the earnings
stream attributable to CompuServe; and (iii) cost synergies which were estimated
by WorldCom as described above. WorldCom management did not detail its
assumptions regarding (ii) to Goldman Sachs; as a result Goldman Sachs concluded
that in the aggregate these items together with additional synergies must total
at least $54 million (pre-tax) in 1998 in order for the transaction to be
non-dilutive in all years. If 25% of goodwill is assumed to be written off
against in-process research and development, Goldman Sachs concluded that in the
aggregate these items must total at least $40 million (pre-tax) in 1998 in order
for the transaction to be non-dilutive in all years.
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The actual results achieved by the combined company may vary from the
anticipated results described in the preceding paragraphs and the variations may
be material. See "Cautionary Statement Regarding Forward-Looking Statements" and
"Risk Factors."
MANAGEMENT AND OPERATIONS AFTER THE COMPUSERVE MERGER
After the CompuServe Merger and the AOL Transaction, CompuServe is expected
to continue to operate CompuServe's network services business and ANS is
expected to operate its Internet services business, each as a subsidiary of
WorldCom. The AOL Agreement provides that, if so requested at least five
business days before the closing of the AOL Transaction, WorldCom will cause
Stephen M. Case, Chairman of the Board, Chief Executive Officer and President of
AOL, to be appointed to the Board of Directors of WorldCom. See "Certain Related
Transactions -- AOL Transaction" and "Information Regarding
WorldCom -- Management and Principal Shareholders."
TERMS AND CONDITIONS OF THE PROPOSED COMPUSERVE MERGER
Set forth below is a description of the material terms and conditions of
the CompuServe Merger Agreement, which description does not purport to be
complete and is qualified in its entirety by reference to the CompuServe Merger
Agreement, a copy of which is attached hereto as Appendix I and incorporated
herein by reference. Unless otherwise indicated, references under this caption
to articles or sections are references to the CompuServe Merger Agreement.
Capitalized terms appearing below that are not otherwise defined herein have the
same meanings as are given to such terms in the CompuServe Merger Agreement.
Whenever particular articles, sections or defined terms are referred to, it is
intended that such articles, sections or defined terms shall be incorporated
herein by reference.
Mutual Conditions. The respective obligations of WorldCom, CompuServe and
Acquisition Subsidiary to effect the CompuServe Merger are subject to the
satisfaction, at or prior to the Closing, of the following conditions: (i) the
holders of the requisite number of shares of CompuServe Common Stock must have
duly and validly approved and adopted the CompuServe Merger Agreement; (ii) any
mandatory waiting period (and any extension thereof) applicable to the
consummation of the CompuServe Merger under the Hart-Scott-Rodino Act, any
foreign competition law or similar law must have expired or been terminated
(which condition has been satisfied); (iii) no Governmental Entity shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order, whether temporary, preliminary or permanent, which is
in effect and which has or would have the effect of making the transactions
contemplated by the CompuServe Merger Agreement illegal or restraining or
prohibiting consummation of such transactions; (iv) the Registration Statement
of which this Proxy Statement/Prospectus is a part must have been declared
effective, no stop order with respect to such Registration Statement shall be in
effect, and no proceeding for that purpose shall have been instituted or
threatened by the Commission; (v) the WorldCom Common Stock to be issued in
connection with the CompuServe Merger must have been approved for quotation on
The Nasdaq National Market, subject to official notice of issuance; and (vi)
there must not have occurred and be continuing any general banking moratorium in
the United States or any general suspension of trading of securities on any
national stock exchange or in the over-the-counter market. (Section 10.1 of the
CompuServe Merger Agreement).
WorldCom's Conditions. The obligations of WorldCom (and Acquisition
Subsidiary) to effect the CompuServe Merger are subject to the satisfaction, at
or prior to the Closing, of the following conditions (any of which may be waived
prior to Closing by WorldCom): (i) certain representations and warranties of H&R
Block, Block Group and CompuServe set forth in the CompuServe Merger Agreement
are required to be true and correct and certain other representations and
warranties of H&R Block, Block Group and CompuServe set forth in the CompuServe
Merger Agreement are required to be true and correct except for failures to be
true and correct as would not have a material adverse effect on the business,
operations, properties, assets, liabilities or condition (financial or
otherwise) (a "Material Adverse Effect") of CompuServe and certain entities
affiliated with CompuServe (the "CompuServe Entities"), taken as a whole, as of
the date of the CompuServe Merger Agreement and as of the Closing as though made
at and as of the Closing, except to the extent that such representations and
warranties expressly relate to a specific earlier date; and none of certain
representations or warranties regarding CompuServe or any of the CompuServe
Entities, disregarding any qualifications regarding materiality, shall be untrue
or incorrect, except for such untrue or
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incorrect representations or warranties that, when taken together as a whole, do
not constitute a Material Adverse Effect; (ii) CompuServe and the CompuServe
Entities, taken as a whole, shall not have suffered a materially adverse change
in their business, operations, properties, assets, liabilities or condition
(financial or otherwise) (a "Material Adverse Change") from April 30, 1997 to
the Closing Date; (iii) each of the covenants and agreements of H&R Block,
CompuServe and Block Group to be performed or observed at or prior to the
Closing Date pursuant to the terms of the CompuServe Merger Agreement is
required to have been duly performed or observed, except where such failure
would not have a Material Adverse Effect on CompuServe and the CompuServe
Entities taken as a whole or would not materially impair the ability of H&R
Block, Block Group or CompuServe to consummate the CompuServe Merger and the
other transactions contemplated by the CompuServe Merger Agreement; (iv)
WorldCom is required to have been furnished with certificates, executed by duly
authorized officers of H&R Block, CompuServe and Block Group, dated the Closing
Date, certifying as to the fulfillment of the conditions described in the
foregoing clauses (i) and (iii) and clause (i) under the caption Mutual
Conditions, which certificates will constitute a restatement of certain
representations and warranties as of the Closing Date, except to the extent a
representation or warranty is specifically limited to a particular date; (v)
WorldCom is required to have received certain specified opinions of counsel to
H&R Block, Block Group and CompuServe, dated as of the Closing Date, in form and
substance reasonably satisfactory to WorldCom; (vi) no Governmental Entity shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order, whether temporary, preliminary or
permanent, which is in effect which would impose material restrictions on the
conduct of WorldCom's business or CompuServe's business following consummation
of the CompuServe Merger; (vii) WorldCom is required to have received an opinion
of counsel to WorldCom, dated as of the Closing Date, in form and substance
reasonably satisfactory to WorldCom, covering certain tax matters; (viii) each
of H&R Block and Block Group is required to have executed and delivered to
WorldCom certain letters executed by an authorized officer of each of H&R Block
and Block Group acknowledging the restrictions under the Securities Act imposed
on such persons as affiliates of CompuServe, as described below under "-- Status
Under Federal Securities Laws"; (ix) the Noncompete/Nonsolicitation Agreement
described below under "-- Other Covenants" is required to have been duly and
validly executed and delivered by each of H&R Block and Block Group to WorldCom;
and (x) the AOL Hart-Scott-Rodino Condition described under "-- Expenses;
Termination Fees" is required to have been satisfied or waived by the applicable
party (which condition has been satisfied). (Section 10.2 of the CompuServe
Merger Agreement).
CompuServe's and H&R Block's Conditions. The obligations of CompuServe and
H&R Block to effect the CompuServe Merger are subject to satisfaction, at or
prior to Closing, of the following conditions (any of which may be waived prior
to closing by H&R Block, Block Group or CompuServe): (i) certain representations
and warranties of WorldCom and Acquisition Subsidiary set forth in the
CompuServe Merger Agreement are required to be true and correct and certain
other representations and warranties of WorldCom and Acquisition Subsidiary set
forth in the CompuServe Merger Agreement are required to be true and correct
except for failures to be true and correct as would not have a Material Adverse
Effect on WorldCom and certain entities affiliated with WorldCom (the "WorldCom
Entities") taken as a whole, as of the date of the CompuServe Merger Agreement
and as of the Closing as though made at and as of the Closing, except to the
extent that such representations and warranties expressly relate to a specific
earlier date; (ii) each of the covenants and agreements of WorldCom and
Acquisition Subsidiary to be performed or observed at or prior to the Closing
Date pursuant to the terms of the CompuServe Merger Agreement is required to
have been duly performed or observed except where such failure would not have a
Material Adverse Effect on WorldCom and the WorldCom Entities taken as a whole
or would not materially impair the ability of WorldCom or Acquisition Subsidiary
to consummate the CompuServe Merger and the other transactions contemplated by
the terms of the CompuServe Merger Agreement; (iii) each of CompuServe, Block
Group and H&R Block is required to have been furnished with a certificate,
executed by a duly authorized officer of WorldCom, dated the Closing Date,
certifying as to the fulfillment of the conditions described in the foregoing
clauses (i) and (ii), which certificate will constitute a restatement of certain
representations and warranties as of the Closing Date, except to the extent a
representation or warranty is specifically limited to a particular date; (iv)
each of CompuServe, Block Group and H&R Block is required to have received
certain specified opinions of counsel to WorldCom, dated as of the Closing Date,
in form and substance reasonably satisfactory to H&R Block,
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Block Group and CompuServe; (v) each of Block Group and H&R Block is required to
have received an opinion of counsel of Block Group and H&R Block, dated as of
the Closing Date, covering certain tax matters; and (vi) the registration rights
letter described below under "-- Status Under Federal Securities Laws" is
required to have been duly and validly executed and delivered by WorldCom to
Block Group. (Section 10.3 of the CompuServe Merger Agreement)
Conduct of CompuServe Business Prior to the CompuServe Merger. Each of H&R
Block and Block Group has agreed to use all reasonable efforts to ensure, and
H&R Block, Block Group and CompuServe have jointly and severally agreed, that,
except as contemplated by the CompuServe Merger Agreement or with the prior
written consent of WorldCom, which will not be unreasonably withheld, until the
earlier of the termination of the CompuServe Merger Agreement or the Closing
Date: (i) the business of each of CompuServe and the CompuServe Entities will be
conducted only in the ordinary course of business consistent with past practice,
and CompuServe and the CompuServe Entities will use all reasonable efforts to
preserve their business organizations and maintain their existing relations;
(ii) neither CompuServe nor any CompuServe Entity will, directly or indirectly,
split, combine or reclassify the outstanding shares of capital stock of
CompuServe or any outstanding capital stock, interest in or security of any
CompuServe Entity; (iii) neither CompuServe nor any CompuServe Entity will: (a)
amend its Articles of Incorporation or Certificate of Incorporation or Bylaws or
similar organizational documents; (b) declare, set aside or pay any dividend or
other distribution with respect to capital stock other than dividends paid by
CompuServe's wholly-owned, direct or indirect, subsidiaries to CompuServe or one
of CompuServe's wholly-owned, direct or indirect, subsidiaries; (c) issue, sell,
transfer, grant, award, pledge, dispose of or encumber any shares of, or
securities convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital stock of any
class of CompuServe (except for CompuServe Common Stock issued pursuant to the
terms of CompuServe stock options outstanding as of the date of the CompuServe
Merger Agreement or pursuant to the terms of CompuServe's Crystal Club Plan in
the ordinary course of business consistent with past practice) or interest in or
securities of any CompuServe Entity; (d) transfer, lease, license, sell,
mortgage, pledge, dispose of, or encumber any of its assets, in an amount in any
instance or series of related instances exceeding $1 million in the aggregate
(measured in terms of net book value), except pursuant to the existing terms of
certain specified contracts entered into prior to the date of the CompuServe
Merger Agreement; or (e) redeem, purchase or otherwise acquire any of the
capital stock of CompuServe or any interest in or securities of any CompuServe
Entity (except for CompuServe Common Stock acquired pursuant to the terms of
CompuServe's Employee Stock Purchase Plan and CompuServe's Crystal Club Plan in
the ordinary course of business consistent with past practice); (iv) CompuServe
and the CompuServe Entities will not: (a) hire employees and consultants such
that the total number of employees and consultants of CompuServe and the
CompuServe Entities would exceed 3,080 or (b) terminate employees and
consultants such that the net decrease in the number of employees and
consultants of CompuServe and the CompuServe Entities resulting therefrom would
exceed 200 (which net decrease calculation shall be based on a starting point of
2,880 employees and consultants and shall not include employees and consultants
who voluntarily terminate their employment or services); (c) grant any increase
in the compensation or bonus payable or to become payable by CompuServe or any
of the CompuServe Entities to any director, officer or employee of CompuServe or
any of the CompuServe Entities, except (1) to the extent that each such grant or
increase is in the ordinary course of business and consistent with past practice
and the aggregate of all such grants or increases does not exceed $6 million on
an annualized basis, and (2) bonuses in an aggregate amount not in excess of $15
million (half of which shall be paid by H&R Block) to key employees (equitably
distributed as between CompuServe's online services business and the other
businesses of CompuServe and the CompuServe Entities) as CompuServe deems
necessary in order to encourage such employees to continue their employment from
the date hereof until the Effective Time, payable only if such employment so
continues; (d) adopt any new, or amend or otherwise increase, or accelerate the
payment or vesting of the amounts payable or to become payable under any
existing CompuServe Benefit Plan, except as contemplated with respect to
CompuServe Stock Options, as described below under "-- Treatment of Stock
Options"; (e) enter into any, or amend any existing, employment, consulting or
severance agreement with, or grant any severance or termination pay to, any
officer, director or employee of CompuServe or any of the CompuServe Entities;
(f) make any additional contributions to any grantor trust created by CompuServe
or any of the
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CompuServe Entities to provide funding for non-tax-qualified employee benefits
or compensation except as required by the terms of any grantor trust of
CompuServe existing on the date hereof; or (g) provide any new severance program
to or increase the benefits under any existing severance program of CompuServe
or any of the CompuServe Entities; (v) except in the ordinary course of business
and consistent with past practice, neither CompuServe nor any CompuServe Entity
will in any respect modify, amend or terminate any of its contracts,
intellectual property licenses, leases or other agreements and arrangements, or
waive, release or assign any rights or claims thereto or thereunder; (vi) except
as would not be material, neither CompuServe nor any CompuServe Entity will
permit any insurance policy naming CompuServe or any of the CompuServe Entities
as a beneficiary or a loss payable payee to be canceled or terminated; (vii)
neither CompuServe nor any CompuServe Entity will: (a) incur or assume any debt
except for borrowings under existing credit facilities which are identified in
CompuServe's filings with the Commission or in the ordinary course of business
consistent with past practice in an amount not exceeding $1 million in the
aggregate; (b) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other person in an amount exceeding $1 million in the aggregate, whether or
not in the ordinary course of business or consistent with past practice, except
for customary indemnification obligations pursuant to agreements entered into in
the ordinary course of business, consistent with past practice; (c) make any
loans, advances or capital contributions to, or investments in, any other person
(other than a wholly-owned CompuServe Entity) in an amount exceeding $1 million
in the aggregate, or modify any credit policies or practices granted to
customers or make any concessions or offer any inducements to accelerate
payments; (d) other than as contemplated by CompuServe's May 23, 1997 business
plan for fiscal 1998 as furnished to WorldCom, enter into any financial
commitments (including any capital expenditure or asset purchase), whether or
not in the ordinary course of business or consistent with past practice, in an
amount exceeding $1 million in the aggregate; (e) other than in the ordinary
course of business consistent with past practice, enter into any contract
granting any third-party geographic or market or programming or content
exclusivity; or (f) other than contracts entered into for capital expenditures
in accordance with CompuServe's May 23, 1997 business plan for fiscal 1998, as
furnished to WorldCom, enter into any contract that is not terminable without
penalty on or prior to December 31, 2000 involving payments by CompuServe or any
of the CompuServe Entities in excess of $1 million individually or $10 million
in the aggregate; (viii) except as would not be material, neither CompuServe nor
any CompuServe Entity will change any of the accounting principles or practices
used by it unless required by statutory accounting principles or GAAP and notice
thereof is given to WorldCom promptly following such change; (ix) neither
CompuServe nor any CompuServe Entity will pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction of
any such claims, liabilities or obligations (a) reflected or reserved against
in, or contemplated by, the CompuServe April 30, 1997 balance sheet (the
"CompuServe Balance Sheet") in an amount not in excess of that in the CompuServe
Balance Sheet; (b) incurred in the ordinary course of business consistent with
past practice and in accordance with the other restrictions contained in the
CompuServe Merger Agreement, and which by their terms have become due and
payable since the date of the CompuServe Balance Sheet; (c) which are legally
required to be paid, discharged or satisfied and are paid in accordance with the
terms of such claims, liabilities or obligations in existence as of the date of
the CompuServe Merger Agreement; or (d) out of insurance proceeds not in excess
of $1 million in the aggregate; (x) neither CompuServe nor any CompuServe Entity
will adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, share exchange, restructuring, recapitalization or other
reorganization of CompuServe or any of the CompuServe Entities; (xi) other than
in the ordinary course of business consistent with past practice, and except as
contemplated by the CompuServe Merger Agreement, neither CompuServe nor any
CompuServe Entity will engage in any transaction, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any Related Party
except on terms no less favorable than would be available in competitive
arm's-length transactions; (xii) except as would not be material or as
contemplated by the CompuServe Merger Agreement, neither CompuServe nor any
CompuServe Entity will make any tax election or increase or establish any
reserve for taxes or any other liability on its books or otherwise provided
therefor, except as required by applicable law or GAAP and as to which
CompuServe has provided prompt notice after any such election, or increase or
establishment of reserve to WorldCom; (xii) neither CompuServe nor any
CompuServe Entity will settle any litigation, other proceeding or arbitration
requiring a payment in an amount equal
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to or greater than $250,000 individually or $1 million in the aggregate or
involving any material limitation on its future actions or the surrender or
compromise of any of its material rights; (xiii) neither CompuServe nor any
CompuServe Entity will enter into an agreement, contract, commitment or
arrangement to do any of the foregoing, or to authorize, recommend, propose or
announce an intention to do any of the foregoing; and (xiv) neither CompuServe
nor any CompuServe Entity will act, or fail or omit to act, so as to cause any
Material Adverse Change in CompuServe and the CompuServe Entities taken as a
whole. (Section 8.1 of the CompuServe Merger Agreement).
Conduct of WorldCom Business Prior to the CompuServe Merger. WorldCom has
agreed that, except as contemplated in the CompuServe Merger Agreement or with
the prior written consent of H&R Block, which consent will not be unreasonably
withheld, until the earlier of the termination of the CompuServe Merger
Agreement and the Closing Date: (i) WorldCom will not declare, set aside or pay
any dividend or other distribution payable in cash, stock, securities or
property other than cash or stock dividends on preferred stock or stock
dividends; (ii) WorldCom will not adopt a plan of complete or partial
liquidation, dissolution or recapitalization of WorldCom; and (iii) neither
WorldCom nor any of the WorldCom Entities will enter into an agreement,
contract, commitment or arrangement to do any of the foregoing, or authorize,
recommend, propose or announce an intention to do any of the foregoing. (Section
8.25 of the CompuServe Merger Agreement).
Agreement Not to Solicit Other Offers. CompuServe has agreed that,
commencing on the date of the CompuServe Merger Agreement, it will, and will use
reasonable efforts to cause its officers, directors, employees, representatives
and agents to, immediately cease any discussions or negotiations with any
parties that may be ongoing with respect to a Competitive Proposal. CompuServe
has agreed it will not, nor shall it permit any of the CompuServe Entities to,
nor shall it authorize or permit any of its officers, directors or employees or
any investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of the CompuServe Entities to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed or reasonably likely to
facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Competitive Proposal or (ii)
participate in any discussions or negotiations regarding any Competitive
Proposal. Except to the extent the Board of Directors of CompuServe determines
it is required to do otherwise in accordance with its fiduciary duties, neither
the Board of Directors of CompuServe nor any committee thereof shall withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to
WorldCom, the approval or recommendation by such Board of Directors or such
committee of the CompuServe Merger Proposal. Neither the Board of Directors nor
any committee thereof shall approve or recommend, or propose publicly to approve
or recommend, any Competitive Proposal or cause CompuServe to enter into any
letter of intent, agreement in principle, acquisition agreement or other similar
agreement related to a Competitive Proposal. Any such withdrawal or modification
of the recommendation of the CompuServe Merger Proposal shall not change the
approval of the Board of Directors of CompuServe for purposes of causing Section
203 of the DGCL to be inapplicable to the CompuServe Merger Proposal or the
status of WorldCom and Acquisition Subsidiary as other than an Acquiring Person
under the CompuServe Rights Agreement and shall not directly or indirectly cause
a Shares Acquisition Date or a Distribution Date (as such terms are defined in
the CompuServe Rights Agreement) to occur.
Additionally, H&R Block has agreed that it will, and will direct and use
reasonable efforts to cause its officers, directors, employees, representatives
and agents to, immediately cease any discussions or negotiations with any
parties that may be ongoing with respect to a Competitive Proposal. H&R Block
has agreed it will not, nor shall it permit any of the H&R Block Entities to,
nor shall it authorize or permit any of its officers, directors or employees or
any investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of the H&R Block Entities to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed or reasonably likely to
facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Competitive Proposal or (ii)
participate in any discussions or negotiations regarding any Competitive
Proposal. H&R Block and CompuServe have each agreed to immediately advise
WorldCom orally and in writing of any request for information or of any
Competitive Proposal and the material terms and conditions thereof and to keep
WorldCom fully informed of the status and details (including amendments or
proposed
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amendments) of any such request or Competitive Proposal. (Section 8.14 of the
CompuServe Merger Agreement).
Nothing contained in the provisions described above will prohibit
CompuServe from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making
any disclosure to its stockholders if, in the good faith judgment of the Board
of Directors of CompuServe, after consultation with outside counsel, failure so
to disclose would be inconsistent with its fiduciary duties to CompuServe's
stockholders, under applicable law; provided, however, neither CompuServe nor
its Board of Directors nor any committee thereof shall, except as permitted by
such provisions, as applicable, withdraw or modify, or propose publicly to
withdraw or modify, its position with respect to the CompuServe Merger Proposal
or approve or recommend, or propose publicly to approve or recommend, a
Competitive Proposal. (Section 8.14 of the CompuServe Merger Agreement).
Voting of CompuServe Shares; No Transfers of CompuServe Common Stock. H&R
Block and Block Group have agreed that at any meeting of stockholders of
CompuServe, however called, Block Group will vote, and H&R Block will cause
Block Group to vote, all of Block Group's shares of CompuServe Common Stock (i)
in favor of the approval and adoption of the CompuServe Merger Agreement (as
amended from time to time) and the transactions contemplated by the CompuServe
Merger Agreement by the stockholders of CompuServe, (ii) against any proposal
for any recapitalization, merger (other than the merger contemplated by the
CompuServe Merger Agreement), share exchange, exchange offer, tender offer, sale
of assets, sale of stock or other business combination between or among
CompuServe or any CompuServe Entity, on the one hand, and any other person other
than WorldCom or a WorldCom Entity, on the other hand, or any liquidation,
dissolution or other action or agreement, that would result in a breach of any
representation, warranty, covenant or other obligation or agreement of H&R
Block, Block Group or CompuServe under the CompuServe Merger Agreement or that
would result in any of the conditions to the obligations of any party under the
CompuServe Merger Agreement not being fulfilled, and (iii) in favor of any other
matter necessary for the consummation of the transactions contemplated by the
CompuServe Merger Agreement with respect to which Block Group may be entitled to
vote. In addition, each of H&R Block, Block Group and CompuServe has agreed that
it will not, and H&R Block will not cause or permit Block Group to, sell,
transfer, tender, assign, hypothecate or otherwise dispose of, or create or
permit to exist any Liens or Other Encumbrances on, whether directly or
indirectly, any of Block Group's shares of CompuServe Common Stock or securities
or interests in a CompuServe Entity, respectively, or any of the assets required
to be transferred to CompuServe pursuant to the CompuServe Merger Agreement, as
described under "-- Certain Other Covenants." (Sections 8.2 and 8.3 of the
CompuServe Merger Agreement).
CompuServe and CompuServe Entity Employees. The parties have agreed that
all current employees of CompuServe or a CompuServe Entity ("CompuServe
Employees") as of the Closing shall be employed, immediately after the Closing,
by CompuServe or a CompuServe Entity. On and after the Closing, WorldCom is
required to honor, and cause CompuServe to honor, all provisions of certain
employment or severance agreements or plans in effect for CompuServe Employees
(or any former employee of CompuServe or any CompuServe Entity) as of the
Closing. Notwithstanding the foregoing, at any time after the Closing, the
employment of any CompuServe Employee may be terminated and any such agreement
may be amended or terminated in accordance with its terms, provided that
WorldCom has agreed that it will not provide notice of a materially adverse
amendment or termination of the CompuServe Layoff or Involuntary Personnel
Reduction Policy, the Severance Plan described below under "-- Interests of
Certain Persons in the CompuServe Merger," or the Change in Control Agreements
described below under "-- Interests of Certain Persons in the CompuServe Merger"
for a period of twelve months following the Closing Date. WorldCom, following
the Closing Date is required to permit such CompuServe Employees who are
retained as CompuServe or CompuServe Entity employees or become WorldCom
employees thereafter, and who were participating in certain CompuServe benefit
plans immediately prior to the Closing Date, to participate in corresponding
employee compensation and benefit plans, programs, policies and fringe benefits
(including severance and post-employment benefits, if any) of WorldCom which
must, in the aggregate, provide the CompuServe Employees with benefits that are
comparable to those provided under the CompuServe benefit plans as of the
Closing Date and substantially in accordance with the generally applicable
eligibility criteria
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thereof, it being understood that such plans, programs, policies and fringe
benefits after the Closing will be those of WorldCom immediately before the
Closing and it being further understood that such plans, programs, policies or
fringe benefits will not be materially and adversely amended, terminated or
discontinued for a period of six months following the Closing Date unless
otherwise required by applicable law. Notwithstanding the foregoing, (i)
WorldCom may continue (or cause CompuServe to continue after the Closing) one or
more of the CompuServe benefit plans, and WorldCom will be deemed to have
satisfied its obligations under such section of the CompuServe Merger Agreement)
with respect to the type of benefits provided under such CompuServe benefit
plan(s) and (ii) WorldCom agrees that it will not, either directly or indirectly
through its control of CompuServe, amend in any material respect or terminate
the CompuServe Deferred Compensation Plan for a period of six months following
the Closing Date. WorldCom has agreed to credit prior service of CompuServe
Employees with CompuServe or any CompuServe Entity, as applicable, for purposes
of determining the vesting, eligibility, waiting periods or qualification of or
participation of such employees under WorldCom's benefit programs and any
successor benefit programs to the extent that such prior service was recognized
under such CompuServe benefit plans (which will include severance, if any, and
vacation pay plans but will not include stock option or award plans and will not
result in duplication of benefits); such prior service credited under a WorldCom
benefit program will include service with other entities to the extent that such
service is credited by CompuServe or any CompuServe Entity for purposes of any
CompuServe benefit plan similar to such WorldCom benefit plan. Any WorldCom
benefit plan which is a group health plan within the meaning of Section 5000(b)
of the Code is required to waive all pre-existing condition limitations with
respect to the CompuServe Employees.
Notwithstanding the foregoing or any other provision of the CompuServe
Merger Agreement, upon consummation of the AOL Transaction, WorldCom will have
no obligation under the CompuServe Merger Agreement to provide any employment,
compensation or benefits to any former employee of the Online Services Business,
but WorldCom is required to provide in the documents relating to WorldCom's
and/or CompuServe's assignment or transfer of the Online Service Business to AOL
or its affiliate or assignee that AOL (or such affiliate or assignee) shall
provide benefits to employees of the Online Services Business which are
substantially equivalent in value to the benefits otherwise called for above.
See "Certain Related Transactions -- AOL Transaction."
The parties have acknowledged and agreed that (i) the consummation of the
transactions contemplated by the CompuServe Merger Agreement will constitute a
"change in control of" CompuServe for purposes of the CompuServe benefit plans
and (ii) the resignation of any officer or director of CompuServe in his or her
position as such pursuant to the CompuServe Merger Agreement will not be treated
as a voluntary termination of employment of such officer or director under
certain specified employment and severance agreements and will not otherwise
adversely affect the material rights of such officers or directors under such
agreements. (Section 8.17 of the CompuServe Merger Agreement). See "Plan of
Merger -- Interests of Certain Persons in the CompuServe Merger."
Treatment of Stock Options. WorldCom and CompuServe have agreed that all
CompuServe Stock Options, including all rights, options or similar rights to
acquire CompuServe Common Stock, will be canceled as of the Effective Time
without any further liability or obligation of CompuServe thereunder. On or as
soon as practicable following the date of the CompuServe Merger Agreement and
prior to the Effective Time, the Board of Directors of CompuServe (or, if
appropriate, any committee administering the CompuServe Stock Option Plans), is
required to adopt such resolutions or take such other actions as may be required
to cause all CompuServe Stock Options not previously exercised in accordance
with their terms to be canceled effective immediately prior to the Effective
Time (or earlier if permitted under the terms thereof), and only entitle the
holders thereof, upon surrender thereof, to receive a specified amount in cash.
(Section 8.26 of the CompuServe Merger Agreement). See "Plan of
Merger -- Interests of Certain Persons in the CompuServe Merger."
Facilities Agreements. H&R Block has agreed that, for a period of two years
following the Closing, it will not terminate any of the sublease agreements in
effect on the date of the CompuServe Merger Agreement between H&R Block or an
H&R Block Entity, as sublessor, and CompuServe or a CompuServe Entity, as
sublessee, governing the use by CompuServe or such CompuServe Entity of office
space for the operation of
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communications processors and attendant equipment, provided, however, that H&R
Block or such H&R Block Entity may terminate any such agreement in accordance
with its terms if (i) H&R Block's or such H&R Block Entity's tenancy under the
applicable master lease agreement is terminated at any time or (ii) CompuServe
or such CompuServe Entity defaults in payment of rent reserved under such
sublease or materially breaches or violates any other term, covenant or
condition of such sublease or of the applicable master lease agreement. (Section
8.21 of the CompuServe Merger Agreement).
Certain Other Covenants. The CompuServe Merger Agreement also contains,
among others, the following additional covenants: (i) CompuServe will call, set
a record date, give notice of, convene and hold the Special Meeting and, subject
to the provision described under "-- Agreement Not to Solicit Other Offers," the
Board of Directors of CompuServe is required to take all steps necessary to
present and recommend to its stockholders the approval and adoption of the
CompuServe Merger Agreement and to use all reasonable efforts to obtain the
approval and adoption by the CompuServe stockholders of the CompuServe Merger
Agreement and any of the transactions contemplated thereby requiring such
stockholder approval; (ii) WorldCom and CompuServe will prepare and file with
the Commission the Registration Statement of which this Proxy
Statement/Prospectus is a part and will use all reasonable efforts to have the
Registration Statement declared effective as promptly as practicable thereafter;
(iii) WorldCom will apply to have the WorldCom Common Stock to be issued in
connection with the CompuServe Merger approved for quotation on The Nasdaq
National Market, subject to official notice of issuance; (iv) WorldCom will not
waive or request a waiver of certain provisions under the AOL Agreement relating
to compliance with the Hart-Scott-Rodino Act and other governmental filings
without the prior written consent of CompuServe; (v) subject to the provisions
of existing confidentiality arrangements and certain other conditions, each of
H&R Block, Block Group, CompuServe and WorldCom and their respective affiliated
entities will give to each such other party reasonable access to information
regarding the business and operations of such party as the other party may from
time to time reasonably request; (vi) H&R Block and WorldCom will promptly make
their respective filings, and will thereafter use their best efforts to promptly
make any required submissions, under the Hart-Scott-Rodino Act with respect to
the transactions contemplated thereby, and H&R Block, Block Group, CompuServe
and WorldCom will use their respective reasonable efforts to promptly make all
other required filings and submissions with respect to all other permits,
authorizations, consents and approvals from third parties and Governmental
Entities necessary to consummate the transactions contemplated by the CompuServe
Merger Agreement and the Stockholders Agreement; (vii) each of H&R Block and
Block Group has acknowledged that the name CompuServe, whether alone or in
combination with one or more other words, and including any abbreviations or
derivations of such name, is an asset of CompuServe and will be an asset solely
of CompuServe immediately following the Closing; (viii) each of H&R Block and
Block Group will execute and deliver to WorldCom at the Closing, without further
consideration, a Noncompete/Nonsolicitation Agreement in which H&R Block
(defined to include the H&R Block Entities) will agree to certain
confidentiality, noncompetition and nonsolicitation restrictions; (ix) each of
H&R Block, Block Group, CompuServe, WorldCom and Acquisition Subsidiary will use
its best efforts (a) to cooperate with each other in determining whether any
filings are required to be made or consents are required to be obtained in any
jurisdiction prior to the closing of the CompuServe Merger (and any closing
under the Stockholders Agreement), in connection with the consummation of the
transactions contemplated by the CompuServe Merger Agreement or the Stockholders
Agreement and cooperate in making any such filings promptly and in seeking to
obtain any such consents in a timely manner, or (b) to take, or cause to be
taken, all actions necessary to comply promptly with all legal requirements
which may be imposed by agency or court order on such party (or any subsidiaries
or other affiliates of such party) with respect to the CompuServe Merger
Agreement and the Stockholders Agreement, and (c) to take, or cause to be taken,
all actions necessary to obtain (and to cooperate with the other party to
obtain) any consent, authorization, order or approval of, or any exemption by,
any governmental entity and/or any other public entity which is required to be
obtained or made by such party or any of its subsidiaries or other affiliates in
connection with the CompuServe Merger Agreement and the Stockholders Agreement
and the transactions contemplated hereby and thereby; (x) H&R Block and
CompuServe will reasonably cooperate with WorldCom in furnishing financial
information relating to the Online Services Business, the network services
business and any other business of CompuServe for periods prior to the closing
of the CompuServe Merger to the extent such information may
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be required to prepare financial information required to be filed under the
Securities Act, the Exchange Act or the rules and regulations promulgated by the
Commission thereunder; (xi) CompuServe, H&R Block and the members of their
respective Boards of Directors will grant such approvals, and take such actions
as are necessary so that the transactions contemplated by the CompuServe Merger
Agreement and the Stockholders Agreement may be consummated as promptly as
practicable on the terms contemplated thereby and otherwise act to eliminate or
minimize the effects of any takeover statute on any of the transactions
contemplated hereby; (xii) H&R Block, Block Group and CompuServe have agreed
that any interests, assets or rights of CompuServe owned, leased or held by H&R
Block or any H&R Block Entity will be transferred to CompuServe prior to the
Closing; (xiii) H&R Block and each H&R Block Entity (excluding CompuServe) will
pay to CompuServe and each CompuServe Entity all amounts owed to them, less any
amounts owing from such entities to H&R Block and/or an H&R Block Entity; (xiv)
effective as of the Effective Time, H&R Block and each of its affiliated
entities release all claims it may have against CompuServe; and (xv) WorldCom
and the Surviving Corporation will provide certain indemnification to the
officers and directors of CompuServe as described under "-- Interests of Certain
Persons in the CompuServe Merger -- Indemnification." (Article II and Sections
8.6, 8.7, 8.8, 8.10, 8.15, 8.16, 8.18, 8.20 and 12.10 of the CompuServe Merger
Agreement).
Unless such action or omission is required by applicable law or otherwise
contemplated or permitted by the CompuServe Merger Agreement (including the
assignment of the Online Services Business pursuant to the AOL Agreement), each
of H&R Block, Block Group, CompuServe, WorldCom and Acquisition Subsidiary has
agreed not to knowingly or intentionally take any action or omit to take any
action, if such action or omission would, or reasonably might be expected to,
result in any of the representations and warranties set forth in the CompuServe
Merger Agreement being or becoming untrue or inaccurate or any of the conditions
to the CompuServe Merger set forth in the CompuServe Merger Agreement or to the
transactions contemplated by the Stockholders Agreement not being satisfied, or
would adversely affect the ability of CompuServe, Block Group, H&R Block,
WorldCom or Acquisition Subsidiary to obtain any consents or approvals required
of it for the consummation of the transactions contemplated by the CompuServe
Merger Agreement and the Stockholders Agreement, without imposition of a
condition or restriction which would have a Material Adverse Effect, or would,
or might reasonably be expected to, materially delay or prevent the holding of
the Special Meeting or the taking of a vote thereat, the filing and clearance of
this Proxy Statement/Prospectus or the filing and effectiveness of the
Registration Statement or would, or might reasonably be expected to, otherwise
materially impair the ability of H&R Block, Block Group, CompuServe, WorldCom or
Acquisition Subsidiary to consummate the transactions contemplated by the
CompuServe Merger Agreement and the Stockholders Agreement, in accordance with
the terms thereof or materially delay any such consummation. (Section 8.15 of
the CompuServe Merger Agreement).
Tax Matters. The CompuServe Merger Agreement provides that the acquisition
of CompuServe by WorldCom will be treated as a deemed asset acquisition for
federal income tax purposes under Section 338(h)(10) of the Code. See
"-- Certain United States Federal Income Tax Consequences." Similar treatment,
to the extent permissible, will occur under applicable state, local and foreign
tax law. As such, CompuServe will be treated as a new company for tax purposes
with a tax basis in its assets based on the fair market value of the assets at
the time of Closing. Any tax liability resulting from the deemed asset sale
under Section 338(h)(10) (or under applicable state, local or foreign tax law)
will be the responsibility of H&R Block. The CompuServe Merger Agreement also
provides that H&R Block will indemnify WorldCom and CompuServe with respect to
all tax liabilities of CompuServe arising with respect to taxable periods up to
and including the Closing. WorldCom will indemnify H&R Block for any tax
liabilities of CompuServe arising with respect to post closing taxable periods.
There also exists a tax sharing agreement between CompuServe and H&R Block which
will continue to apply with respect to pre-closing taxable periods, it being the
intent of the parties that CompuServe will be entitled to all the benefits
payable thereunder (subject to the liabilities thereunder) on account of the
utilization of CompuServe's net operating losses (and other tax attributes) by
the Block Group. All transfer taxes, if any, incurred in connection with the
CompuServe Merger, will be shared equally between H&R Block and WorldCom.
(Article IX of the CompuServe Merger Agreement).
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Representations and Warranties. The CompuServe Merger Agreement contains
various representations and warranties made by each of H&R Block, Block Group,
CompuServe, WorldCom, and Acquisition Subsidiary. The representations and
warranties given in the CompuServe Merger Agreement or in any instrument
delivered pursuant thereto will survive the Closing and are the subject of
indemnification as described below under "-- Indemnification."
Representations and Warranties Regarding CompuServe. H&R Block, Block Group
and CompuServe, jointly and severally, made representations and warranties in
the CompuServe Merger Agreement to WorldCom and Acquisition Subsidiary relating
to the following matters regarding CompuServe and, in some instances, the
CompuServe Entities: (i) organization, existence and good standing; (ii) capital
stock and capitalization; (iii) ownership of the CompuServe Entities' capital
stock and investments; (iv) power and authority to perform obligations under the
CompuServe Merger Agreement and related agreements; (v) the filings, consents or
approvals necessary to execute, deliver and perform the CompuServe Merger
Agreement; (vi) no conflicts or violations of its Certificate of Incorporation,
Bylaws or other agreements or liens; (vii) financial statements and the filing
with the Commission of all reports, proxy statements, forms and other documents
required to be filed; (viii) the absence of certain events, changes or effects;
(ix) the absence of litigation which would have a Material Adverse Effect; (x)
existence and validity of contracts; (xi) accounts receivable; (xii) taxes;
(xiii) employee benefit plans and employment matters; (xiv) compliance with laws
and permits; (xv) intellectual property matters; (xvi) labor matters; (xvii)
insurance matters; (xviii) the CompuServe Rights Agreement; (xviv) commissions
and fees relating to the transactions contemplated by the CompuServe Merger
Agreement; (xx) the vote required to approve and adopt the CompuServe Merger
Agreement; (xxi) receipt of the opinion of CompuServe's financial advisor; and
(xxii) compliance with takeover statutes. (Article III of the CompuServe Merger
Agreement).
Representations and Warranties Regarding H&R Block. H&R Block made
representations and warranties in the CompuServe Merger Agreement to WorldCom
and Acquisition Subsidiary relating to the following matters regarding itself
and, in some instances, certain entities affiliated with H&R Block: (i)
organization, existence and good standing; (ii) ownership of the capital stock
of the Block Group; (iii) power and authority to enter into the CompuServe
Merger Agreement and related agreements; (iv) non-contravention of H&R Block's
Articles of Incorporation or Bylaws or other agreements; (v) the filings,
consents or approvals necessary to execute, deliver and perform the CompuServe
Merger Agreement; (vi) taxes; (vii) the assets and employees used in
CompuServe's business; (viii) legal proceedings; (ix) the H&R Block Rights
Agreement; (x) the commissions and fees paid relating to the transactions
contemplated by the CompuServe Merger Agreement; and (xi) receipt of the opinion
of H&R Block's financial advisor. (Article IV of the CompuServe Merger
Agreement).
Representations and Warranties Regarding Block Group. Block Group made
representations and warranties in the CompuServe Merger Agreement to WorldCom
and Acquisition Subsidiary relating to the following matters regarding itself:
(i) organization, existence and good standing; (ii) ownership of CompuServe
Common Stock; (iii) power and authority to enter into the transactions
contemplated by the CompuServe Merger Agreement; (iv) non-contravention of Block
Group's Certificate of Incorporation or Bylaws or other agreements; (v) the
filings, consents and approvals necessary to execute, deliver and perform the
CompuServe Merger Agreement; and (vi) legal proceedings. (Article V of the
CompuServe Merger Agreement).
Representations and Warranties Regarding WorldCom. WorldCom made
representations and warranties in the CompuServe Merger Agreement to H&R Block,
Block Group and CompuServe relating to the following matters regarding itself
and, in some instances, the WorldCom Entities: (i) organization, existence and
good standing; (ii) the WorldCom Common Stock and capitalization; (iii) power
and authority to enter into the transactions contemplated by the CompuServe
Merger Agreement; (iv) noncontravention of WorldCom's Certificate of
Incorporation or Bylaws or other agreements; (v) the filings, consents and
approvals necessary to execute, deliver and perform the CompuServe Merger
Agreement; (vi) financial statements and the filing with the Commission of all
reports, proxy statements, forms and other documents required to be filed; (vii)
subsequent material adverse changes; (viii) legal proceedings; (ix) taxes;
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(x) compliance with laws; (xi) required vote; and (xii) commissions and fees
relating to the transactions contemplated by the CompuServe Merger Agreement.
(Article VI of the CompuServe Merger Agreement).
Representations and Warranties Regarding Acquisition Subsidiary. WorldCom
and Acquisition Subsidiary, jointly and severally, made representations and
warranties in the CompuServe Merger Agreement to H&R Block, Block Group and
CompuServe relating to the following matters regarding Acquisition Subsidiary:
(i) organization, existence, good standing and ownership interests; (ii) power
and authority to enter into the transactions contemplated by the CompuServe
Merger Agreement; (iii) non-contravention of laws and regulations; (iv) the
filings, consents and approvals necessary to execute, deliver and perform the
CompuServe Merger Agreement; (v) legal proceedings; (vi) no contracts or
liabilities; and (vii) commissions and fees relating to the transactions
contemplated by the CompuServe Merger Agreement. (Article VII of the CompuServe
Merger Agreement).
Indemnification
Indemnification by H&R Block and Block Group. H&R Block and Block Group,
jointly and severally, have agreed to indemnify, subject to certain limitations,
WorldCom and Acquisition Subsidiary and, after the Closing Date, CompuServe and
the CompuServe Entities and certain other related parties (the "H&R Block
Indemnified Parties"), from and against any and all Losses and Expenses which
relate to (i) the conduct of the business or affairs of H&R Block, Block Group
or any of certain entities related to H&R Block on or prior to the closing of
the CompuServe Merger; (ii) any action, suit, claim, demand, proceeding or
investigation brought by or on behalf of persons who were, at or prior to the
Effective Time, holders of the capital stock of H&R Block, Block Group or
CompuServe, which suit, claim, demand, action, proceeding or investigation
alleges that any action or failure to act of the issuer of such capital stock,
any affiliate of such issuer or any director, officer, employee or agent of such
issuer or any affiliate of such issuer in connection with the CompuServe Merger
Agreement or related agreements, or any of the transactions contemplated thereby
was a breach of fiduciary duty, or a violation of law or unauthorized, ultra
vires or otherwise wrongful or illegal; (iii) any breach of certain
representations, warranties, covenants or agreements of H&R Block, Block Group
or CompuServe specified in Section 8.4(a) of the CompuServe Merger Agreement or
pursuant to certain certificates; (iv) any action, suit, claim, demand or
proceeding or investigation brought in connection with the enforcement of any or
all of the foregoing clauses (i), (ii) or (iii); or (v) certain tax matters.
(Section 8.4(a) of the CompuServe Merger Agreement).
H&R Block and Block Group, jointly and severally, have agreed to indemnify
the H&R Block Indemnified Parties from and against 80.13% of any Losses and
Expenses which relate to, (i) certain legal proceedings relating to CompuServe's
initial public offering, (ii) any breach of the representations, warranties,
covenants or agreements specified in Section 8.4(b)(ii) of the CompuServe Merger
Agreement or pursuant to certain certificates, (iii) any breach of any
representations, warranties, covenants or agreements of H&R Block, Block Group
or CompuServe contained in the CompuServe Merger Agreement or in certain
certificates, other than those described in the foregoing clause (ii) and
without regard to any qualification as to materiality stated therein (including
any reference to Material, Material Adverse Change or Material Adverse Effect),
with regard to any claim for indemnification relating to any matter for which
indemnification is provided by WorldCom pursuant to or arising out of any
agreement providing for or relating to the divestiture by WorldCom of any or all
of the Online Services Business, if and to the extent that the aggregate of all
Losses and Expenses based on, arising out of or related to all breaches (other
than with respect to a knowing or intentional breach of any such representation,
warranty, covenant or agreement, as to which no dollar threshold shall apply)
described in this clause (iii) exceeds $10 million; (iv) any breach of any
representations, warranties, covenants or agreements, other than those described
in the foregoing clause (ii) and without regard to any qualification as to
materiality stated therein (including any reference to Material, Material
Adverse Change or Material Adverse Effect), with regard to any claim for
indemnification regarding any matter other than matters covered in the foregoing
clause (iii), if and to the extent that the aggregate of all Losses and Expenses
based on, arising out of or related to all breaches (other than with respect to
a knowing or intentional breach of any such representation, warranty, covenant
or agreement, as to which no dollar threshold shall apply) described in this
clause (iv) exceeds $10 million; or (v) any action, suit, claim, demand or
proceeding brought in connection with the enforcement of the foregoing clauses
(i), (ii), (iii) and (iv).
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Any matter covered by both of the foregoing clauses (iii) and (iv) will be
apportioned equally to both thresholds. (Section 8.4(b) of the CompuServe Merger
Agreement).
The H&R Block Indemnified Parties will not be entitled to indemnification
under clause (ii) of the preceding paragraph unless, prior to March 15, 1999, an
H&R Block Indemnified Party has notified H&R Block and Block Group in writing of
the existence of any Losses and Expenses that may reasonably be expected to give
rise to any such indemnification obligation. Notwithstanding any provision
therein to the contrary, (i) any claim for indemnification related to or arising
out of any tax matter may be brought at any time prior to 60 business days after
the expiration of the applicable tax statute of limitations with respect to the
relevant taxable period (including all extensions obtained, whether automatic or
permissive) and (ii) any claim for indemnification based on, related to or
arising out of any tax matter set forth in Section 9.2(a) and Section 9.2(b) of
the CompuServe Merger Agreement (see "-- Tax Matters") shall be governed solely
by Section 9.2 of the CompuServe Merger Agreement. (Section 8.4(d) of the
CompuServe Merger Agreement).
Each of H&R Block and Block Group has waived and acknowledged and agreed
that it and they will not have and will not exercise or assert (or attempt to
exercise or assert), any right of contribution, right of subrogation, right of
indemnity or other similar right or remedy against CompuServe or any of the
CompuServe Entities with respect to claims arising out of the CompuServe Merger
Agreement and the transactions contemplated thereby, or any Losses or Expenses
referred to in the CompuServe Merger Agreement at or after the Effective Time
for any other claim accrued as of the Effective Time. (Section 8.5 of the
CompuServe Merger Agreement).
Indemnification by WorldCom and Acquisition Subsidiary. Each of WorldCom
and Acquisition Subsidiary and, after the Closing, CompuServe, has agreed to
indemnify H&R Block, Block Group, and certain other related parties from and
against any Losses and Expenses which relate to (i) the conduct of the business
of CompuServe after the Closing as long as and to the extent that CompuServe
constitutes a WorldCom Entity; (ii) any action, claim or proceeding brought in
connection with the enforcement of such indemnification; or (iii) certain tax
matters. (Section 8.4(c) of the CompuServe Merger Agreement).
An indemnity payment otherwise due and payable under the CompuServe Merger
Agreement (i) will be decreased (but not below zero) to the extent of any net
actual reduction in federal income tax liability that is actually realized by
the Indemnified Party at the time of its payment of an indemnifiable loss and
(ii) will be increased to indemnify the Indemnified Party for any additional
federal income taxes payable by the Indemnified Party by reason of the receipt
or accrual of such indemnity payment. (Section 8.4(f) of the CompuServe Merger
Agreement).
Termination. The CompuServe Merger Agreement may be terminated at any time
prior to the Closing, whether before or after adoption and approval of the
CompuServe Merger Proposal by the holders of CompuServe Common Stock, in the
following circumstances: (i) by mutual written consent of WorldCom, H&R Block,
Block Group and CompuServe; (ii) by any of WorldCom, H&R Block, Block Group or
CompuServe if the Closing shall not have occurred on or before March 1, 1998,
unless the failure to do so is the result of a breach of the CompuServe Merger
Agreement by the party seeking to terminate the CompuServe Merger Agreement (for
which purposes CompuServe shall be deemed to include H&R Block and Block Group,
if CompuServe is seeking to terminate the CompuServe Merger Agreement, and each
of H&R Block and Block Group shall be deemed to include CompuServe and each
other, if either H&R Block or Block Group is seeking to terminate the CompuServe
Merger Agreement); (iii) by WorldCom, if there occurs a breach by H&R Block,
Block Group or CompuServe of the agreements described above under "-- Agreement
Not to Solicit Other Offers;" (iv) by WorldCom, in the event of a breach by H&R
Block, Block Group or CompuServe of any representation, warranty, covenant or
other agreement contained in the CompuServe Merger Agreement which (a) would
result in the failure of a condition to WorldCom's obligations under the
CompuServe Merger Agreement and (b) cannot be or has not been cured by March 1,
1998 (an "H&R Block Material Breach" or a "CompuServe Material Breach," as the
case may be), provided that there is not then a WorldCom Material Breach (as
defined in the next clause); (v) by H&R Block, Block Group or CompuServe, in the
event of a breach by WorldCom of any representation, warranty, covenant or other
agreement contained in the CompuServe Merger Agreement which (a) would result in
the failure of a
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condition to H&R Block's, Block Group's and CompuServe's obligations under the
CompuServe Merger Agreement and (b) cannot be or has not been cured by March 1,
1998 (a "WorldCom Material Breach"), provided that there is not then a
CompuServe Material Breach or an H&R Block Material Breach; (vi) by WorldCom if
(a) the Board of Directors of CompuServe or any committee thereof shall have
withdrawn or modified in a manner adverse to WorldCom its approval or
recommendation of the CompuServe Merger Proposal, or failed to reconfirm its
recommendation within fifteen business days after a written request to do so, or
approved or recommended any Competitive Proposal or (b) the Board of Directors
of CompuServe or any committee thereof shall have resolved to take any of the
foregoing actions; or (vii) by CompuServe, if the Average Trading Price of a
share of WorldCom Common Stock is less than $24.00. (Section 11.1 of the
CompuServe Merger Agreement.)
Expenses; Termination Fees. The parties have agreed that all costs and
expenses incurred in connection with the CompuServe Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such costs
and expenses, except that at the Closing, H&R Block will pay or reimburse all
costs and expenses in excess of $2.2 million in the aggregate incurred by it and
by CompuServe and any CompuServe Entity (including the fees, commissions and
expenses of all investment bankers, financial advisors, legal advisors,
consultants and accountants) in connection with the CompuServe Merger Agreement
and the transactions contemplated thereby and in connection with any and all
discussions, negotiations and other activities concerning any previously
contemplated possible transaction with any other person. Notwithstanding the
foregoing, if the CompuServe Merger Agreement is terminated (A) by WorldCom, H&R
Block, Block Group or CompuServe pursuant to the provision described in clause
(ii) of the preceding paragraph after the failure of the holders of CompuServe
Common Stock to approve and adopt the CompuServe Merger Proposal at the Special
Meeting, (B) by WorldCom pursuant to the provision described in clause (iii) of
the preceding paragraph or, as a result of a willful or knowing breach, pursuant
to the provision described in clause (iv) of the preceding paragraph, (C) by
WorldCom pursuant to the provision described in clause (vi) of the preceding
paragraph, or (D) by H&R Block, Block Group or CompuServe pursuant to the
provision described in clause (v) of the preceding paragraph as a result of a
willful or knowing breach, then in the case of clause (A), (B) or (C), H&R
Block, Block Group and CompuServe will be obligated, jointly and severally, to
pay WorldCom the amount of $15 million, or in the case of clause (D), WorldCom
will be obligated to pay H&R Block, Block Group and CompuServe the aggregate
amount of $15 million, in each case in immediately available funds. Further, if
the CompuServe Merger Agreement is terminated pursuant to the provision
described in clause (ii) of the preceding paragraph (A) by WorldCom and the AOL
Hart-Scott-Rodino Condition has not been satisfied or waived prior to the date
of termination and no other conditions to the parties' obligations to consummate
the CompuServe Merger, other than conditions within the control of WorldCom,
remain unsatisfied, or (B) by H&R Block, Block Group or CompuServe on or after
June 1, 1998, and prior thereto the AOL Hart-Scott-Rodino Condition has not been
satisfied or waived, WorldCom will be obligated to pay CompuServe the aggregate
amount of $45 million in immediately available funds. (As a result of the
expiration of the Hart-Scott-Rodino waiting period with respect to the AOL
Transaction, the AOL Hart-Scott-Rodino Condition has been satisfied). The
parties acknowledge and agree in the CompuServe Merger Agreement that payment of
the foregoing fees are not necessarily to be exclusive of any other rights any
party may have under the CompuServe Merger Agreement or at law or in equity for
any willful or knowing material breach that occurred prior to the termination of
the CompuServe Merger Agreement, provided that any damages to which a party
receiving such a payment is entitled will be offset by such payment. (Section
11.5(a) of the CompuServe Merger Agreement).
If an expense reimbursement or fee becomes due and payable by either party,
and such party fails to pay such expense or fee when due pursuant to the
preceding paragraph and, in order to obtain such payment, suit is commenced
which results in a judgment against such party therefor, such party will be
required to pay the other party's reasonable costs, fees and expenses (including
reasonable attorneys' fees) in connection with such suit, together with interest
computed on any such amounts determined to be due and such costs at the prime or
base rate of interest publicly announced from time to time by NationsBank of
Texas, N.A. for its most favored borrowers. (Section 11.5(b) of the CompuServe
Merger Agreement).
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Amendment and Waiver. The CompuServe Merger Agreement may be amended by the
parties before the CompuServe Merger Agreement is approved by the holders of the
CompuServe Common Stock, subject to the provisions of applicable law. The
parties may waive any provision of the CompuServe Merger Agreement, subject to
the provisions of applicable law; provided, that no failure or delay of a party
in exercising a right will be deemed a waiver of such or any right. (Sections
11.3 and 11.4 of the CompuServe Merger Agreement).
STOCKHOLDERS AGREEMENT
In connection with the execution of the CompuServe Merger Agreement, H&R
Block, Block Group and WorldCom entered into the Stockholders Agreement on
September 7, 1997. A copy of the Stockholders Agreement is attached as Appendix
II and incorporated herein by reference. Set forth below is a description of the
material terms and conditions of the Stockholders Agreement. The following
description does not purport to be complete and is qualified in its entirety by
reference to the Stockholders Agreement. Unless otherwise indicated, references
under this caption to articles or sections are references to the Stockholders
Agreement. Capitalized terms appearing below that are not otherwise defined
herein have the same meanings as are given to such terms in the Stockholders
Agreement. Whenever particular articles, sections or defined terms are referred
to, it is intended that such sections or defined terms shall be incorporated
herein by reference.
Voting Agreement and Proxy. H&R Block and Block Group have agreed in the
Stockholders Agreement that at any meeting of the stockholders of CompuServe,
however called, Block Group will vote, and H&R Block will cause Block Group to
vote, all of the shares of CompuServe Common Stock owned by Block Group (the
"Block Shares"), (i) in favor of the approval and adoption of the Merger
Agreement and the transactions contemplated by the CompuServe Merger Agreement,
(ii) against any proposal for any recapitalization, merger (other than the
CompuServe Merger), share exchange, exchange offer, tender offer, sale of assets
or other business combination between CompuServe or any CompuServe Entity with
any party other than WorldCom, and (iii) in favor of any other matter necessary
for the consummation of the transactions contemplated by the CompuServe Merger
Agreement with respect to which the Block Group may be entitled to vote.
(Section 1.1 of the Stockholders Agreement). In addition, pursuant to the
Stockholders Agreement, H&R Block and Block Group have irrevocably appointed
WorldCom, or any nominee of WorldCom, as agent and proxy (the "Proxy") to vote
the Block Shares at any stockholder meeting or otherwise as described above. In
the event WorldCom exercises the Option described below, the scope of the Proxy
is automatically expanded to permit WorldCom to vote the Block Shares in any
manner it chooses. (Section 1.3 of the Stockholders Agreement). AS A RESULT OF
THESE AGREEMENTS, THE COMPUSERVE MERGER AGREEMENT WILL BE APPROVED AND ADOPTED
REGARDLESS OF HOW OR WHETHER STOCKHOLDERS OF COMPUSERVE OTHER THAN BLOCK GROUP
VOTE THEIR SHARES.
No Disposition or Encumbrance of Shares. H&R Block and Block Group, jointly
and severally, have agreed that, until the termination of the Stockholders
Agreement, they will not, and will not offer or agree to, directly or
indirectly, sell, transfer, tender, assign, hypothecate or otherwise dispose of,
or create or permit to exist any Encumbrance (as defined therein) on, the Block
Shares, or any interest in the Block Shares, at any time prior to the expiration
of the term of the Stockholders Agreement. (Section 1.2 of the Stockholders
Agreement.)
Grant of Option. In the Stockholders Agreement, H&R Block and Block Group
have granted WorldCom an irrevocable option (the "Option") to purchase (the
"Purchase") all (but not less than all) of the H&R Block Shares in consideration
of the payment of the purchase price in shares of WorldCom Common Stock
described below. The Option will become exercisable upon the occurrence of any
of the Triggering Events described below. WorldCom is not under any obligation
to exercise the Option and may allow the Stockholders Agreement to terminate
without effecting the purchase of the Block Shares under the Stockholders
Agreement. The purchase price for each Block Share will equal a fraction of a
share of WorldCom Common Stock calculated in the same manner as the CompuServe
Exchange Ratio for the CompuServe Merger, except that (i) the Average Trading
Price of a share of WorldCom Common Stock will be determined based on the twenty
consecutive full trading days immediately preceding the day on which the
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Purchase closes, and (ii) H&R Block and Block Group have no right to terminate
the closing of the Purchase if the Average Trading Price is less than $24.00. In
order to allow the transaction that would result from the exercise of the Option
to qualify for certain desired tax treatment, WorldCom will pay Block Group,
which, as of the date of this Proxy Statement/Prospectus, holds approximately
80.1% of the outstanding CompuServe Common Stock, $1 million in cash in lieu of
issuing shares of WorldCom Common Stock valued at $1.1 million, based on the
Average Trading Price. (Section 2.1 of the Stockholders Agreement). See
"-- Certain United States Federal Income Tax Consequences."
Upon the occurrence of one or more of the events set forth below (the
"Triggering Events"), WorldCom may exercise the Option: (i) the Board of
Directors of CompuServe or any committee thereof shall have withdrawn or
modified in a manner adverse to WorldCom its approval or recommendation of the
CompuServe Merger Proposal, or failed to reconfirm its recommendation within
fifteen business days after a written request to do so, or the Board of
Directors of CompuServe or any committee thereof shall have resolved to take any
of the foregoing actions; (ii) CompuServe shall fail to call, give notice of,
convene and hold the Special Meeting as required by the CompuServe Merger
Agreement; or (iii) any party to the CompuServe Merger Agreement shall have
terminated such agreement pursuant to the provision described in clause (ii) of
"-- Terms and Conditions of the Proposed CompuServe Merger -- Termination" or
WorldCom shall have terminated the CompuServe Merger Agreement pursuant to any
of the provisions described in clauses (iii), (iv) or (vi) of "-- Terms and
Conditions of the Proposed CompuServe Merger -- Termination" and, in any such
case, H&R Block, Block Group or CompuServe shall have breached one of its
covenants or agreements under the CompuServe Merger Agreement or a condition to
WorldCom's obligations under the CompuServe Merger Agreement that is within the
control of H&R Block, Block Group or CompuServe shall not have been satisfied at
the time of such termination, including, without limitation, the failure of the
CompuServe stockholders to approve the CompuServe Merger Proposal. (Section 2.2
of the Stockholders Agreement).
Conditions to Closing. Both parties' obligations to close the Purchase are
subject to the following conditions being fulfilled on the date of Closing: (i)
no Governmental Entity shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, injunction or other order, whether
temporary, preliminary or permanent, which is in effect and which has or would
have the effect of making the transactions contemplated by the Stockholders
Agreement illegal or restraining or prohibiting consummation of such
transactions and (ii) any mandatory waiting period (and any extension thereof)
applicable to the consummation of the Purchase under the Hart-Scott-Rodino Act,
any foreign competition law or similar law must have expired or been terminated.
WorldCom's obligation to close the Purchase is subject to the satisfaction or
waiver of the conditions described in clauses (i), (ii) and (iii) under the
caption "-- Terms and Conditions of the Proposed CompuServe Merger -- WorldCom's
Conditions." Block Group's obligation to close the Purchase is subject to the
satisfaction or waiver of the conditions described in clauses (i) and (ii) under
the caption "-- Terms and Conditions of the Proposed CompuServe
Merger -- CompuServe's and H&R Block's Conditions." (Sections 2.3(a), (b) and
(c) of the Stockholders Agreement).
Closing. The closing of the purchase of the Block Shares will occur on the
date designated by WorldCom in its written notice to Block Group of its desire
to purchase the Block Shares, subject to the fulfillment or waiver of the
conditions to the parties' obligations thereunder, provided that the Closing
will take place no earlier than two business days after and no later than five
business days after the satisfaction or waiver of such conditions. H&R Block and
Block Group, on the one hand, and WorldCom, on the other hand, will use
reasonable efforts to deliver or cause to be delivered to the other at or prior
to the Closing hereunder the certificates, opinions and other documents
contemplated by Article X of the CompuServe Merger Agreement, subject to certain
specified modifications. (Section 2.4 of the Stockholders Agreement).
Upon the giving by WorldCom to Block Group of the written notice of
exercise of the Option provided for under the Stockholders Agreement and the
tender of the applicable Purchase Price, WorldCom will be deemed to be the
holder of record of the Shares issuable upon such exercise, notwithstanding that
the stock transfer books of CompuServe shall then be closed or that certificates
representing such Shares shall not then have actually been delivered to
WorldCom. H&R Block is required to pay all expenses, and any and all United
States federal, state, and local taxes and other charges that may be payable in
connection with the preparation,
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issuance and delivery of stock certificates to WorldCom or its assignee,
transferee, or designee. (Section 2.3(e) of the Stockholders Agreement).
Representations, Warranties and Covenants. H&R Block and Block Group, on
the one hand, and WorldCom, on the other hand, made the representations and
warranties contained in the CompuServe Merger Agreement to the other party,
subject to certain modifications. (Articles III and V of the Stockholders
Agreement). Each party agreed to certain of their respective covenants contained
in the CompuServe Merger Agreement, subject to certain modifications. (Article
VI of the Stockholders Agreement). The representations, warranties, covenants
and agreements contained in the Stockholders Agreement will survive the
termination of the CompuServe Merger Agreement and the Option and the Closing
thereunder. (Section 8.1 of the Stockholders Agreement).
Term. The Stockholders Agreement will remain in effect until the earlier to
occur of (i) the closing of the Purchase under the Stockholders Agreement, (ii)
the Closing under the CompuServe Merger Agreement, and (iii) thirty business
days after termination of the CompuServe Merger Agreement, provided that if the
CompuServe Merger Agreement is terminated after the Option is exercised but
before the Purchase is consummated, the Stockholders Agreement will not
terminate until one year after the termination of the CompuServe Merger
Agreement. (Section 7.2 of the Stockholders Agreement).
STANDSTILL AGREEMENT
H&R Block, Block Group, and WorldCom entered into the Standstill Agreement
on September 7, 1997. A copy of the Standstill Agreement is attached as Appendix
III and incorporated herein by reference. Set forth below is a description of
the material terms and conditions of the Standstill Agreement. The following
description does not purport to be complete and is qualified in its entirety by
reference to the Standstill Agreement. Unless otherwise indicated, references
under this caption to articles or sections are references to the Standstill
Agreement. Capitalized terms appearing below that are not otherwise defined
herein have the same meanings as are given to such terms in the Standstill
Agreement. Whenever particular articles, sections or defined terms are referred
to, it is intended that such sections or defined terms shall be incorporated
herein by reference.
In the Standstill Agreement, each of H&R Block and Block Group agreed on
their own behalf and on behalf of their affiliates, for the Standstill Period
described below, not to agree, or advise, assist, encourage, provide information
or provide financing to others, to, individually or collectively, directly or
indirectly: (i) acquire or offer to acquire or agree to acquire from any person
or entity beneficial ownership (or options or rights to acquire beneficial
ownership) of any equity securities of WorldCom; (ii) make, or in any way
participate in any solicitation of proxies to vote, become a participant in any
election contest or initiate, propose or otherwise solicit stockholders of
WorldCom for the approval of any stockholder proposals; (iii) form, join, in any
way participate in, or encourage the formation of a group with respect to any
voting securities of WorldCom; (iv) deposit any securities of WorldCom into a
voting trust, or subject any securities of WorldCom to any agreement or
arrangement with respect to the voting of such securities or any other agreement
or arrangement having similar effect; (v) alone or in concert with others, seek,
or encourage or support any effort, to influence or control the management,
Board of Directors, business, policies, affairs or actions of WorldCom; or (vi)
request WorldCom (or any directors, officers, employees or agents of WorldCom),
directly or indirectly, to amend, waive or modify the foregoing provisions of
the Standstill Agreement. The Standstill Period will begin upon the consummation
of the CompuServe Merger and will last for one year thereafter.
SURRENDER OF STOCK CERTIFICATES AND RECEIPT OF COMPUSERVE MERGER CONSIDERATION
On the Closing Date, WorldCom will instruct the Exchange Agent to mail to
each holder of CompuServe Common Stock within five business days of receiving
from CompuServe a list of such holders of record (i) a letter of transmittal
(which will specify that delivery will be effected, and risk of loss and title
will pass, only upon delivery of the certificates to the Exchange Agent and will
be in such form and have such other provisions as WorldCom may reasonably
specify), and (ii) instructions as to the procedure for the surrender
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of the stock certificates in exchange for certificates representing the
CompuServe Merger Consideration. Each holder of CompuServe Common Stock, upon
surrender of a stock certificate or certificates representing such stock,
together with the transmittal letter provided by the Exchange Agent duly
completed and executed by such holder, will be entitled to receive a stock
certificate or certificates representing the number of the whole shares of
WorldCom Common Stock (together with cash in lieu of fractional shares of
WorldCom Common Stock and in payment to Block Group of the Cash Payment) to
which such holder is entitled. (Section 1.5 of the CompuServe Merger Agreement).
For additional information regarding the WorldCom Common Stock issuable in the
CompuServe Merger, see "Description of WorldCom Capital Stock."
COMPUSERVE STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE A TRANSMITTAL LETTER FROM THE EXCHANGE AGENT.
At the Effective Time, the stock transfer books of CompuServe will be
closed, and no transfer of CompuServe Common Stock will be made thereafter. In
the event that, after the Effective Time, certificates evidencing CompuServe
Common Stock are presented to the Surviving Corporation, they will be cancelled
and exchanged for shares of WorldCom Common Stock and cash in lieu of fractional
shares. (Section 1.5(d) of the CompuServe Merger Agreement).
No dividends or other distributions, if any, in respect of the shares of
WorldCom Common Stock, declared after the Effective Time and payable to holders
of record after the Effective Time, will be paid to the holders of any
unsurrendered certificates representing CompuServe Common Stock until such
certificates representing CompuServe Common Stock and transmittal letters are
surrendered and delivered as provided in the CompuServe Merger Agreement.
Subject to applicable law, after the surrender and exchange of the certificates
representing CompuServe Common Stock, the record holders thereof will be
entitled to receive any such dividends or other distributions without interest
thereon, which theretofore have become payable with respect to the number of
shares of WorldCom Common Stock for which such certificates representing
CompuServe Common Stock were exchangeable. Holders of any unsurrendered
certificates representing CompuServe Common Stock will not be entitled to vote
the WorldCom Common Stock to which they are entitled until such certificates are
exchanged for certificates representing WorldCom Common Stock. (Section 1.5(c)
of the CompuServe Merger Agreement).
FRACTIONAL SHARES
No fractional shares of WorldCom Common Stock will be issued in connection
with the CompuServe Merger. Where the CompuServe Merger Consideration would
otherwise require the issuance of a fractional share, cash equal to the value of
such fractional interest will be paid to the holder of such interest in lieu of
such fractional share. The value of such fractional interest will be the product
of such fraction multiplied by the Average Trading Price, subject to appropriate
adjustment in the event of a stock split, stock dividend or recapitalization
after the date of the CompuServe Merger Agreement applicable to shares of
WorldCom Common Stock. (Section 1.3(d) of the CompuServe Merger Agreement).
INTERESTS OF CERTAIN PERSONS IN THE COMPUSERVE MERGER
In considering the recommendations of the CompuServe Board of Directors,
stockholders should be aware that certain non-director members of CompuServe's
management have certain interests in the CompuServe Merger that are in addition
to the interests of stockholders of CompuServe generally. The CompuServe Board
of Directors was aware of these other interests and considered them, among other
matters, in approving the CompuServe Merger Agreement and the transactions
contemplated thereby, including the CompuServe Merger.
Change in Control Agreements
CompuServe maintains Change in Control Agreements with its four executive
officers: Mr. Gyenes, Executive Vice President and Chief Financial Officer, Mr.
Kahn, Executive Vice President, Corporate Operations, Mr. Matteucci, President,
Online Services, and Mr. Van Camp, President, Network Services. The CompuServe
Merger will result in a change in control of CompuServe for purposes of such
agreements. Upon
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a termination of the executive's employment with CompuServe without cause, as
defined in the Change in Control Agreements, or a termination by the executive
for good reason, as defined in the Change in Control Agreements, within the
two-year period following the change in control, the executive would receive (i)
an amount equal to 24 months' salary plus (ii) an amount equal to two times the
executive's full annual bonus potential for the performance period in which the
termination occurs (where performance goals are involved, 100% achievement of
goals is assumed). As of December 1, 1997, these amounts would be equal to
approximately $840,000 for Mr. Gyenes, $674,000 for Mr. Kahn, $1,000,000 for Mr.
Matteucci and $790,000 for Mr. Van Camp. These amounts would be in addition to
payments in respect of any unused vacation days and the pro rata portion of the
executive's annual bonus accrued as of the termination date. Severance benefits
paid under the Change in Control Agreements would be in lieu of any benefits
payable to the executive under any other severance arrangement of CompuServe
(including the Severance Plan described below). The Change in Control Agreements
may be amended or terminated by the CompuServe Board of Directors; however, no
such amendment or termination shall be effective earlier than 180 days following
the date that written notice is provided to the executive. In addition, the
CompuServe Merger Agreement provides that WorldCom will not, and will not cause
CompuServe to, provide notice of the amendment or termination of the Change in
Control Agreements prior to 12 months following the Effective Time.
Severance Plan
CompuServe has adopted the Severance Plan, which becomes effective as a
result of a change in control of CompuServe. The CompuServe Merger will result
in a change in control of CompuServe for purposes of the Severance Plan. The
following are the material terms of such plan. In the event of the termination
of an employee within the two-year period following a change in control of
CompuServe, such employee would be entitled to either (i) two times annual base
salary and target bonus for executive vice presidents and above, (ii) one times
annual base salary and target bonus for vice presidents and director level
employees and (iii) two weeks base salary for each year of service (with a
minimum of three months and a maximum of the greater of (A) six months base
salary and (B) the amount of severance that would be payable to the employee
under CompuServe's Layoff or Involuntary Personnel Reduction Policy) for all
other employees. Such severance will be paid to an employee terminated without
cause within two years of a change in control or, for employees who are director
level and above, who resigns with good reason within such two-year period. In
addition, following a change in control, any associates who are terminated for
declining a request to work at a new location which is greater than 50 miles
from their then current place of employment may elect to receive benefits under
the Severance Plan or under the Layoff or Involuntary Personnel Reduction
Policy. The CompuServe Board may revoke or materially modify these severance
benefits on 180 days' notice; however, the CompuServe Merger Agreement provides
that WorldCom will not, and will not cause CompuServe to, provide notice of
revocation or material amendment of the Severance Plan prior to 12 months
following the Effective Time. See " -- Terms and Conditions of the Proposed
CompuServe Merger -- CompuServe and CompuServe Entity Employees." For purposes
of the Severance Plan, "cause" means (i) the willful failure to substantially
perform employment duties after receipt of a written warning, (ii) willful
engagement in conduct that is demonstrably and materially injurious to
CompuServe and (iii) egregious conduct involving serious moral turpitude. For
purposes of the Severance Plan, the term "good reason" means (i) for director
level employees and above only: a reduction in such employee's salary, bonus
potential, or failure to pay the employee's compensation when due or a material
adverse change in title, (ii) for employees who are vice presidents of
CompuServe or above only: the events described under (i) above, a relocation of
the employee's base office of more than 50 miles, or a material increase in the
employee's travel or assignment of duties to the employee that are substantially
inconsistent with the employee's position, authority or responsibility in the 90
days prior to the change in control and (iii) for employees who are executive
vice presidents of CompuServe or above only: the events described under (i) or
(ii) above, a change in reporting responsibilities or reasonable determination
by the employee that he is unable, due solely to the change in control, to
effectively perform the duties performed by him prior to the change in control.
As of December 1, 1997, the aggregate amount of severance that would be
payable under the Severance Plan to all director level employees, vice
presidents, executive vice presidents and above is equal to approximately
$4,449,370.
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Stock Options and Other Awards
The terms of the CompuServe Merger Agreement will result in all outstanding
CompuServe Stock Options under the CompuServe 1996 Long-Term Incentive Plan held
by employees of CompuServe, including officers, being terminated as of the
Effective Time in exchange for cash payments, aggregating $1,569,318, in the
following amounts, depending upon the exercise price of each CompuServe Stock
Option:
<TABLE>
<CAPTION>
CASH PAYMENT
EXERCISE PRICE SHARES OUTSTANDING PER SHARE
- -------------- ------------------ ------------
<S> <C> <C>
$ 9.00................................................. 5,000 $ 5.50
$ 9.50................................................. 47,000 $ 5.00
$10.06................................................. 5,000 $ 4.50
$12.88................................................. 236,709 $ 2.00
$14.75................................................. 155,000 $ 1.50
$30.00................................................. 1,156,802 $ 0.50
---------
Total........................................ 1,605,511
</TABLE>
Messrs. Gyenes, Kahn, Matteucci and Van Camp will receive cash payments of
$80,000, $124,250, $80,000 and $97,667, respectively, in respect of their
CompuServe Stock Options. The five directors of CompuServe collectively have
been awarded a total of 56,400 CompuServe Stock Options pursuant to the
CompuServe 1996 Outside Directors Plan with exercise prices ranging from $8.81
to $30.00. These options will be terminated at the Effective Time in exchange
for cash payments in the aggregate equal to approximately $155,000.
The CompuServe Annual Incentive Compensation Plan (the "KEIP") provides for
the payment of a prorated target bonus, based on the achievement of performance
targets for all KEIP participants at termination of employment due to a change
in control. The CompuServe Merger will result in a change in control of
CompuServe for purposes of the KEIP. Bonuses will be calculated based on the
level of attainment of performance targets as of the end of the month prior to
the Effective Time. The current target bonus amounts for fiscal year 1998 under
the KEIP for each of Mr. Gyenes, Mr. Kahn, Mr. Matteucci and Mr. Van Camp are
$150,000, $125,000, $200,000 and $145,000, respectively.
At the current time, CompuServe cannot predict what the amounts of the
payments, if any, would be for Messrs. Gyenes, Kahn, Matteucci and Van Camp as
of the Effective Time.
Completion Bonuses
Each of Mr. Gyenes, Mr. Kahn, Mr. Matteucci and Mr. Van Camp will be
entitled to receive a completion bonus as of the Effective Time in an amount
equal to 50% of their then current base salary. Such payments would not be made
if the CompuServe Merger is not consummated for any reason. Assuming completion
of the CompuServe Merger, Mr. Gyenes will receive a payment of $135,000, Mr.
Kahn will receive a payment of $106,000, Mr. Matteucci will receive a payment of
$150,000 and Mr. Van Camp will receive a payment of $125,000 as of the Effective
Time. Certain other officers of CompuServe also are eligible to receive
completion bonuses. The aggregate amount of such bonuses payable to all officers
of CompuServe, including those payable to Messrs. Gyenes, Kahn, Matteucci and
Van Camp, is equal to approximately $957,500.
Employee Benefits
All participants in the CompuServe 401(k) Savings Plan will become 100%
vested in their Company matching account balances as a result of the CompuServe
Merger. As of December 1, 1997, the total vested and unvested account balances
of each of Messrs. Gyenes, Kahn, Matteucci and Van Camp were approximately
$32,434.93, $120,093.28, $13,749.03 and $33,209.05, respectively. As of December
1, 1997, the aggregate total vested and unvested account balances under the
401(k) Savings Plan for all officers and employees of CompuServe, including
Messrs. Gyenes, Kahn, Matteucci and Van Camp, was equal to
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approximately $44,735,411.04. See "-- Terms and Conditions of the Proposed
CompuServe Merger -- CompuServe and CompuServe Entity Employees" for other
possible interests of management in the CompuServe Merger.
Deferred Compensation Plans
CompuServe maintains the CompuServe Corporation Deferred Compensation Plan
(the "CompuServe DCP") for the benefit of certain of its highly compensated
employees. Under the CompuServe DCP, CompuServe matches each participant's
deferral of $1.00 with $.25. Matching contributions vest ratably over a five
year period; however, all matching contributions will become 100% vested as a
result of the CompuServe Merger. As of September 30, 1997, the total vested and
unvested account balances under the CompuServe DCP for each of Mr. Gyenes, Mr.
Kahn, Mr. Matteucci and Mr. Van Camp equalled approximately $15,021, $54,741,
$160,915 and $10,521, respectively. As of September 30, 1997, the aggregate
total vested and unvested account balances under the CompuServe DCP for all
officers and employees of CompuServe, including Messrs. Gyenes, Kahn, Matteucci
and Van Camp, equalled approximately $1,039,434.
Certain of CompuServe's highly compensated employees also participated in
the past in the H&R Block Deferred Compensation Plan for Executives (the "Block
DCP") and continue to maintain account balances thereunder. Under the Block DCP,
H&R Block matches each participant's deferral of $1.00 with $.50. Matching
contributions vest ratably over a ten year period; however all matching
contributions will become 100% vested as a result of the CompuServe Merger. In
addition, all account balances under the Block DCP will be paid out to
participants in lump sum payments within 45 days following consummation of the
CompuServe Merger. As of September 30, 1997, the total vested and unvested
account balances under the Block DCP for each of Mr. Kahn and Mr. Van Camp
equalled approximately $411,365 and $778,754, respectively. As of September 30,
1997, the aggregate total vested and unvested account balances under the Block
DCP for all officers and employees of CompuServe, including Messrs. Gyenes,
Kahn, Matteucci and Van Camp, equalled approximately $6,716,762.
Indemnification
From and after the Effective Time, WorldCom and the Surviving Corporation
have agreed, jointly and severally, to indemnify, defend and hold harmless the
directors and officers of CompuServe as and to the extent provided in the
CompuServe Certificate, Bylaws or indemnification agreements, as in effect as of
the date of the CompuServe Merger Agreement, with respect to matters occurring
through the Closing Date, provided that this obligation will not relieve H&R
Block or Block Group of their indemnification obligations under Section 8.4 of
the CompuServe Merger Agreement. See "-- Terms and Conditions of the Proposed
CompuServe Merger -- Indemnification." To the extent reasonably available,
WorldCom has agreed to cause the Surviving Corporation to maintain in effect for
not less than three years after the Closing Date policies of directors' and
officers' liability insurance comparable to those maintained by CompuServe with
carriers comparable to CompuServe's existing carriers; provided, however, that
the Surviving Corporation will not be required to pay an annual premium for such
insurance in excess of 150% of the last annual premium paid prior to the date
hereof, but in such case is required to purchase as much coverage as possible
for such amount. (Section 12.10 of the CompuServe Merger Agreement).
Registration Rights
The CompuServe Merger Agreement requires WorldCom and Block Group to
execute a registration rights letter at the closing of the CompuServe Merger
pursuant to which WorldCom will agree to register under the Securities Act for
resale by Block Group the shares of WorldCom Common Stock received by Block
Group in the CompuServe Merger. Pursuant to this registration rights letter and
a letter agreement executed in connection with the execution of the CompuServe
Merger Agreement, WorldCom has agreed to accomplish this registration by filing
a post-effective amendment to the Registration Statement of which this Proxy
Statement/Prospectus is a part. Absent such registration, the sale of such
shares by Block Group, as an "affiliate" of CompuServe on the date of the
Special Meeting, would be restricted. See "-- Status Under Federal Securities
Laws."
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REGULATORY FILINGS AND APPROVALS
Under the Hart-Scott-Rodino Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the CompuServe Merger may not be
consummated until notifications have been given and certain information has been
furnished to the FTC and the Antitrust Division (the "Antitrust Division") of
the DOJ and specified waiting period requirements have been satisfied. WorldCom
and H&R Block (the ultimate parent entity of CompuServe) filed notification and
report forms under the Hart-Scott-Rodino Act with the FTC and the Antitrust
Division in October 1997. The required waiting periods for the filings by
WorldCom and H&R Block under the Hart-Scott-Rodino Act have expired. If the
CompuServe Merger is not consummated within 12 months after the expiration or
earlier termination of the initial Hart-Scott-Rodino Act waiting period,
WorldCom and H&R Block would be required to submit new information to the
Antitrust Division and the FTC, and a new Hart-Scott-Rodino Act waiting period
would have to expire or be earlier terminated before the CompuServe Merger could
be consummated. Although WorldCom and CompuServe believe the CompuServe Merger
complies with the antitrust laws, at any time before or after the Effective Time
the FTC, the Antitrust Division or any state could take action under the
antitrust laws with respect to the CompuServe Merger, including seeking to
enjoin the consummation of the CompuServe Merger, to rescind the CompuServe
Merger or to require divestiture of substantial assets of WorldCom or
CompuServe. There can be no assurance that a challenge to the CompuServe Merger
on antitrust grounds will not be made or, if such a challenge is made, that it
would not be successful.
WorldCom's obligation to consummate the CompuServe Merger is contingent
upon the fulfillment of the AOL Hart-Scott-Rodino Condition, which was satisfied
upon expiration of the Hart-Scott-Rodino Act waiting period with respect to the
AOL Transaction. See "-- Terms and Conditions of the Proposed CompuServe
Merger -- WorldCom's Conditions" and "Certain Related Transactions -- AOL
Transaction."
WorldCom and CompuServe conduct operations in a number of foreign
countries. As of the date of this Proxy Statement/Prospectus, the parties have
made all pre-merger notification filings which they consider to be necessary.
All foreign governmental approvals required to be obtained before the CompuServe
Merger may be consummated have been obtained. In the United Kingdom, the parties
filed a voluntary notification on October 31, 1997. The U.K. notification is
subject to the standard review process, and the parties anticipate a decision by
December 31, 1997. Prior approval from the U.K. competition authority is not
necessary under the laws of the U.K., or under the terms of the CompuServe
Merger Agreement, for the CompuServe Merger to be consummated.
Consummation of the CompuServe Merger may require the consent of, or
waivers from, other parties to certain debt instruments and other agreements to
which CompuServe is a party. Failure to obtain such consents may constitute a
default resulting in termination, cancellation or acceleration thereunder. It is
not a condition to either party's obligation to consummate the CompuServe
Merger, however, that such third-party consents have been obtained.
ACCOUNTING TREATMENT
The CompuServe Merger will be accounted for as a purchase for financial
accounting purposes in accordance with generally accepted accounting principles.
For purposes of preparing WorldCom's consolidated financial statements, WorldCom
will establish a new accounting basis for CompuServe's assets and liabilities
based upon the fair values thereof, the CompuServe Merger Consideration and the
costs of the CompuServe Merger. WorldCom's management believes that any excess
of cost over the fair value of the net tangible assets of CompuServe will be
recorded as in-process research and development, goodwill and other intangible
assets. In-process research and development projects may include projects for
which technological feasibility has not been established and the technology has
no future alternative use. To the extent that a portion of the purchase price is
allocated to such in-process research and development projects, a charge, which
may be material to WorldCom's results of operations, would be recognized in the
period in which the CompuServe Merger occurs. WorldCom expects that goodwill and
other intangibles will be amortized over periods not to exceed 10 years. A final
determination of intangible asset lives and required purchase accounting
adjustments, including the allocation of the purchase price to the assets
acquired and liabilities
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assumed based on their respective fair values, has not yet been made. WorldCom
has undertaken a study to determine the fair value of certain of CompuServe's
assets and liabilities and will make appropriate purchase accounting adjustments
upon completion of that study. For financial reporting purposes, the results of
operations of CompuServe will be included in the WorldCom consolidated statement
of income following the Effective Time. The WorldCom financial statements for
prior periods will not be restated as a result of the CompuServe Merger.
PUBLIC TRADING MARKET
WorldCom and CompuServe anticipate that the shares of WorldCom Common Stock
to be issued in connection with the CompuServe Merger will be approved for
quotation on The Nasdaq National Market, and such approval is a condition
precedent to the effectiveness of the CompuServe Merger.
STATUS UNDER FEDERAL SECURITIES LAWS
The shares of WorldCom Common Stock to be issued to stockholders of
CompuServe pursuant to the CompuServe Merger Agreement have been registered
under the Securities Act, thereby allowing such shares to be freely traded
without restriction by persons who will not be affiliates of WorldCom after the
CompuServe Merger or who were not affiliates of CompuServe on the date of the
Special Meeting. All directors and certain officers of CompuServe and Block
Group may be deemed to have been affiliates of CompuServe within the meaning of
such rules. Any such person may resell the WorldCom Capital Stock received by
him or her in the CompuServe Merger only if such shares are registered under the
Securities Act or an exemption from registration under the Securities Act is
available. Such persons may be able to effect resales under the safe harbor
provisions of Rule 145 under the Securities Act (or Rule 144 in the case of such
persons who become affiliates of WorldCom) or as otherwise permitted under the
Securities Act. Persons who may be deemed affiliates of CompuServe or WorldCom
generally include individuals or entities that control, are controlled by, or
are under common control with, such party, and may include certain officers and
directors of such party as well as principal stockholders of such party. It is
recommended that any such person obtain advice of securities counsel prior to
effecting any resales.
The CompuServe Merger Agreement requires, as a condition to Closing, that
each of H&R Block and Block Group execute a written agreement, and requires
CompuServe to use all reasonable efforts to cause its other affiliates to
execute written agreements, in each case to the effect that such person will not
offer or sell or otherwise dispose of any of the WorldCom Common Stock received
in the CompuServe Merger in violation of the Securities Act or the rules and
regulations thereunder. The CompuServe Merger Agreement also requires WorldCom
and Block Group to execute a registration rights letter at the closing of the
CompuServe Merger pursuant to which WorldCom will agree to register the shares
of WorldCom Common Stock received by Block Group, which will be an affiliate of
CompuServe on the date of the Special Meeting, under the Securities Act, thus
permitting Block Group to sell those shares without restriction. See "Plan of
Merger -- Terms and Conditions of the Proposed CompuServe Merger -- CompuServe's
and H&R Block's Conditions."
This Proxy Statement/Prospectus does not currently cover resales of
WorldCom Common Stock received by any person who may be deemed to be an
affiliate of WorldCom or CompuServe. However, pursuant to the registration
rights of Block Group, Block Group has notified WorldCom of its election that
WorldCom file a post-effective amendment to the Registration Statement of which
this Proxy Statement/ Prospectus is a part prior to the Effective Time in order
for this Proxy Statement/Prospectus to cover the resale of WorldCom Common Stock
received in the CompuServe Merger by Block Group. See "Plan of
Merger -- Interests of Certain Persons in the CompuServe Merger -- Registration
Rights."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary of material United States federal income tax
consequences of the exchange of shares of CompuServe Common Stock for shares of
WorldCom Common Stock is based on the opinion of Sullivan & Cromwell. This
summary only addresses a holder of shares of CompuServe Common Stock that is (i)
a citizen or resident of the United States, (ii) a corporation organized under
the laws of the United States
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or any State, (iii) an estate the income of which is subject to United States
federal income tax without regard to its source or (iv) a trust if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust (a "United States
Holder"). This summary does not discuss or take into account the specific
circumstances of any particular investors (such as tax-exempt entities, certain
insurance companies, broker-dealers, traders in securities that elect to
mark-to-market, investors liable for alternative minimum tax, investors that
hold shares of CompuServe Common Stock as part of a straddle or a hedging or
conversion transaction or investors whose functional currency is not the United
States dollar), some of which may be subject to special rules. This summary is
based on the tax laws of the United States (including the Internal Revenue Code
of 1986, as amended, its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions) all of which are subject to
change (or changes in interpretation), possibly with retroactive effect. United
States Holders are urged to consult their tax advisors regarding the federal,
state, local and foreign tax consequences of the exchange of shares of
CompuServe Common Stock for shares of WorldCom Common Stock.
The exchange of shares of CompuServe Common Stock for shares of WorldCom
Common Stock will be a taxable disposition for United States federal income tax
purposes. As a result, a United States Holder will recognize gain or loss for
United States federal income tax purposes in an amount equal to the difference
between the sum of the fair market value of the shares of WorldCom Common Stock
received (with such fair market value equal to the mean of the high and low
trading prices of shares of WorldCom Common Stock as of the Closing Date) and
the cash received in lieu of fractional shares of WorldCom Common Stock and the
United States Holder's tax basis in the shares of CompuServe Common Stock
exchanged therefor. Generally, such gain or loss will be capital gain or loss if
the United States Holder is treated as holding the shares of CompuServe Common
Stock as a capital asset and will be long-term capital gain or loss if the
shares have been held for more than one year. Long-term capital gain generally
will be taxed at a maximum rate of 28% for CompuServe Common Stock held more
than one year or at a maximum rate of 20% for CompuServe Common Stock held for
more than 18 months. The United States Holder's basis in the shares of WorldCom
Common Stock received will equal the fair market value of the shares of WorldCom
Common Stock on the Closing Date (with such fair market value determined in the
manner described above), and the United States Holder's holding period for such
shares of WorldCom Common Stock will begin on the day after the Closing Date.
H&R Block and WorldCom intend to make an election under Section 338(h)(10)
of the Internal Revenue Code (the "Election") with respect to the CompuServe
Merger. The effect of the Election is that the CompuServe Merger will be treated
for federal income tax purposes as a taxable sale of assets by CompuServe to
WorldCom (with the entire amount of the tax borne by H&R Block) followed by a
tax-free deemed liquidation of CompuServe. The above discussed tax liability or
treatment of CompuServe's public shareholders will result regardless of whether
or not H&R Block and WorldCom make the Election.
CERTAIN RELATED TRANSACTIONS
AMENDMENT OF COMPUSERVE RIGHTS AGREEMENT
In connection with the execution of the CompuServe Merger Agreement, on
September 7, 1997, the CompuServe Board of Directors amended the CompuServe
Rights Agreement to provide, in part, that WorldCom would not be deemed to be an
Acquiring Person and a Distribution Date (each as defined in the CompuServe
Rights Agreement) would not be deemed to have occurred as a result of the
acquisition by WorldCom of CompuServe Common Stock pursuant to the CompuServe
Merger, the execution of the CompuServe Merger Agreement, the acquisition by
WorldCom of the Option (or any part thereof) to acquire shares of CompuServe
Common Stock pursuant to the Stockholders Agreement or the acquisition by
WorldCom of shares of CompuServe Common Stock pursuant to the exercise of the
Option. The effect of this amendment was to render the anti-takeover effects of
the CompuServe Rights Agreement inapplicable to such transactions. See
"Comparative Rights of Shareholders -- Preferred Stock Purchase Rights."
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AOL TRANSACTION
On September 7, 1997, WorldCom entered into the AOL Agreement, under which
WorldCom agreed to (a) transfer to AOL the online services business (the "COLS")
of CompuServe and Spry, Inc., a CompuServe subsidiary, which WorldCom will
acquire as a result of the CompuServe Merger, and (b) acquire all outstanding
shares of ANS, a wholly-owned subsidiary of AOL which provides Internet and
other networking services to AOL and other customers. In addition to the
transfer of the COLS, WorldCom will pay AOL $175 million in cash, subject to
certain adjustments specified in the AOL Agreement. If there should occur a
material adverse change relating to the COLS between the date of the AOL
Agreement and the date of closing thereunder, WorldCom would be required to
compensate AOL in respect thereof, but such event would not affect AOL's
obligation to proceed with the closing. The closing of the AOL Transaction is
conditioned on, and is expected to occur immediately after, the closing of the
CompuServe Merger. The closing of the AOL Transaction, which will be accounted
for as a purchase, is also subject to certain other conditions. The applicable
waiting period under the Hart-Scott-Rodino Act with respect to the AOL
Transaction has expired. See "Plan of Merger -- Terms and Conditions of the
Proposed CompuServe Merger -- WorldCom's Conditions," and "Plan of
Merger -- Termination and Plan of Merger -- Expenses; Termination Fees."
Following the closing under the AOL Agreement, AOL will have rights to use
the CompuServe name in the online services business, and WorldCom will have
rights to use the name in the network services business.
Pursuant to the AOL Agreement, WorldCom, AOL and ANS have agreed to enter
into a Master Agreement for Data Communications upon the closing of the AOL
Transaction, which will have an initial term expiring December 31, 2002, subject
to extension by AOL in certain circumstances. The agreement provides that ANS
will (i) continue to maintain and operate portions of AOL's dial-up member
access network; (ii) install, activate, maintain and operate additional modems
for AOL's dial-up network in the United States and Canada; and (iii) provide AOL
with Internet access. AOL will commit to purchase from ANS specified percentages
of its incremental modem requirements each year, subject to ANS fulfilling
certain obligations. The fees for the foregoing services will be based on
several factors, including certain fixed base prices, the prices offered by ANS
to its non-affiliated customers, prices paid by AOL to, or offered to AOL by,
other significant suppliers of modems and modem services, and, if AOL provides
such services to itself, AOL's cost. The fees are subject to adjustment twice
per year and include certain agreed-upon discounts.
The AOL Agreement also provides that AOL, UUNET and the Surviving
Corporation (i.e., the corporation surviving the merger of Acquisition
Subsidiary into CompuServe) will enter into a Network Services Agreement upon
the closing of the AOL Transaction, which will have an initial term expiring
December 31, 2002, subject to extension by AOL in certain circumstances. Under
this agreement, the Surviving Corporation will provide AOL with capacity on the
CompuServe network and AOL will commit to use the network for specified portions
of its requirements. The fees to be paid by AOL will be based on several
factors, including certain fixed base prices, the prices offered to AOL by other
significant suppliers of network capacity, and the Surviving Corporation's
actual cost to provide the network capacity.
The AOL Agreement provides that, if so requested at least five business
days before the closing of the AOL Transaction, WorldCom will cause Stephen M.
Case, Chairman of the Board, Chief Executive Officer and President of AOL, to be
appointed to the Board of Directors of WorldCom. See "Information Regarding
WorldCom -- Management and Principal Shareholders."
The AOL Agreement includes customary representations and warranties, and
provisions for each of AOL and WorldCom to indemnify the other for certain
losses and expenses, subject to specified time limits and minimum amounts.
Representations and warranties by WorldCom include certain representations and
warranties relating to the COLS, a number of which are incorporated by reference
from the CompuServe Merger Agreement. WorldCom anticipates that, if AOL were to
successfully assert a claim for indemnification based on any provision
incorporated by reference from the CompuServe Merger Agreement, WorldCom would
be entitled to assert a corresponding claim against H&R Block or Block Group
under the CompuServe Merger Agreement. However, since the AOL Agreement and the
CompuServe Merger Agreement are
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<PAGE> 82
separate, and since any liability of WorldCom under the AOL Agreement is not
conditioned on its ability to recover in respect of claims which may be asserted
under the CompuServe Merger Agreement, there can be no assurance that amounts
recovered by WorldCom in respect of any claim related to COLS would equal any
amounts which WorldCom might be required to pay to AOL in respect of the same
claim.
At the closing under the AOL Agreement, WorldCom, AOL and ANS will enter
into a Noncompetition and Nonsolicitation Agreement under which (i) AOL will
agree to certain limitations on its business activities in the network services
business, (ii) WorldCom will agree that CompuServe will be subject to certain
limitations in the online services business, and (iii) each of the parties will
agree to certain restrictions on its right to solicit or otherwise deal with
customers, suppliers, employees, independent contractors, agents or
representatives of the other.
Under the Stockholders Agreement, WorldCom has been granted the Option to
acquire the H&R Block Shares under certain circumstances. See "Plan of
Merger -- Stockholders Agreement." The AOL Agreement provides that if WorldCom
becomes entitled to exercise the Option, WorldCom and AOL will negotiate with
each other in good faith, for so long as the Option remains exercisable and, if
the Option is exercised by WorldCom, for 180 days following such exercise, with
the goal of entering into agreements and arrangements and engaging in
transactions which would, as closely as would be commercially reasonable at that
time and in accordance with applicable law (and taking into account the changed
facts and circumstances as they exist at that time), effectuate the intent and
purposes of the AOL Agreement and the transactions contemplated thereby
The AOL Agreement may be terminated by either WorldCom or AOL under certain
circumstances, including certain defaults by the other party. Depending on the
reason for termination, either WorldCom or AOL may be required to pay $15
million to the other as a reimbursement of expenses. In addition, in the event
H&R Block, Block Group or CompuServe pays WorldCom the $15 million termination
fee required by Section 11.5(a) of the CompuServe Merger Agreement, WorldCom is
obligated under the AOL Agreement to pay AOL one-half of such fee.
ANS provides Internet access to AOL and to AOL's subscribers in the United
States and Canada and also designs, develops and operates high performance
wide-area networks for business, research, education and governmental
organizations.
A copy of the AOL Agreement is attached as Exhibit 2.4 to WorldCom's Form
8-K dated September 7, 1997 (filed September 17, 1997) and incorporated herein
by reference. The foregoing description does not purport to be complete and is
qualified in its entirety by reference to the AOL Agreement.
OTHER
WorldCom and CompuServe have entered into certain agreements with each
other and certain of their affiliates in the ordinary course of their
businesses, which agreements have been amended from time to time. In the nine
months ended September 30, 1997 and the twelve months ended December 31, 1996,
CompuServe and its subsidiaries and WorldCom and its subsidiaries have engaged
in transactions aggregating approximately $12.9 million and $13.7 million,
respectively. Transactions in each of the twelve months ended December 31, 1995
and December 31, 1994 did not exceed such amounts.
As of the date hereof, neither WorldCom nor CompuServe is aware of any
material relationship between WorldCom or its directors or executive officers
and CompuServe or its directors or executive officers, except as contemplated by
the CompuServe Merger Agreement or as described herein or in the documents
incorporated by reference herein.
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<PAGE> 83
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of CompuServe
Common Stock in connection with the solicitation of proxies by the CompuServe
Board of Directors for use at the Special Meeting to be held at 5000 Arlington
Centre Boulevard, Columbus, Ohio on January 30, 1998 at 9:00 a.m. local time,
and any adjournment or postponement thereof. This Proxy Statement/Prospectus and
the accompanying form of proxy are first being mailed to stockholders of
CompuServe on or about December 29, 1997.
MATTERS TO BE CONSIDERED
At the Special Meeting, the stockholders of CompuServe will be asked to
consider and vote upon a proposal to approve and adopt the CompuServe Merger
Agreement.
BOARD OF DIRECTORS' RECOMMENDATION
THE COMPUSERVE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND ADOPTED THE
COMPUSERVE MERGER AGREEMENT AND RECOMMENDS THAT THE STOCKHOLDERS OF COMPUSERVE
VOTE FOR APPROVAL AND ADOPTION OF THE COMPUSERVE MERGER AGREEMENT.
RECORD DATE; VOTING RIGHTS
The CompuServe Board of Directors has fixed the close of business on
December 12, 1997 as the record date for determining holders entitled to notice
of and to vote at the Special Meeting. Accordingly, only holders of record of
shares of CompuServe Common Stock on the CompuServe Record Date will be entitled
to notice of and to vote at the Special Meeting.
As of the CompuServe Record Date, there were outstanding and entitled to
vote approximately 92,600,000 shares of CompuServe Common Stock held by
approximately 1,100 stockholders of record. Each share of CompuServe Common
Stock is entitled to one vote on each matter to be voted upon at the Special
Meeting, which vote may be cast either in person or by properly executed proxy.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of CompuServe Common Stock
entitled to vote as of the CompuServe Record Date is necessary to constitute a
quorum at the Special Meeting. Under applicable Delaware law, abstentions and
broker non-votes (that is, proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owner or other
persons entitled to vote shares as to a matter with respect to which the brokers
or nominees do not have discretionary power to vote) will be treated as present
for purposes of determining the presence of a quorum at the Special Meeting.
REQUIRED VOTE
The approval and adoption of the CompuServe Merger Agreement requires the
affirmative vote of the holders of a majority of the votes entitled to be cast
in respect of all outstanding shares of CompuServe Common Stock voting as a
single class. However, if less than a quorum but more than one-third of all
shares eligible to vote is present at the Special Meeting, a majority of the
shares present may adjourn the Special Meeting.
Since the affirmative vote of the holders of a majority of the votes
entitled to be cast of all outstanding shares of CompuServe Common Stock is
required to approve and adopt the CompuServe Merger Agreement, abstentions and
broker non-votes will have the effect of a vote against the approval and
adoption of the CompuServe Merger Agreement.
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<PAGE> 84
H&R BLOCK AND BLOCK GROUP HAVE AGREED TO VOTE ALL OF THE SHARES OF
COMPUSERVE COMMON STOCK OWNED BY BLOCK GROUP IN FAVOR OF APPROVING AND ADOPTING
THE COMPUSERVE MERGER AGREEMENT, WHICH NUMBER OF SHARES IS SUFFICIENT TO APPROVE
AND ADOPT THE COMPUSERVE MERGER AGREEMENT. See "Plan of Merger -- Stockholders
Agreement."
ABSENCE OF APPRAISAL RIGHTS
Holders of the CompuServe Common Stock will not be entitled to any
dissenters' or appraisal rights under Section 262 of the DGCL in connection with
the CompuServe Merger because: (i) shares of CompuServe Common Stock were, at
the CompuServe Record Date for the Special Meeting, designated as Nasdaq
National Market securities; (ii) CompuServe stockholders will not be required to
accept anything in exchange for their shares of CompuServe Common Stock other
than shares of WorldCom Common Stock, which will be designated as Nasdaq
National Market securities as of the Effective Time, and cash in lieu of
fractional shares of such stock; and (iii) the CompuServe Certificate does not
otherwise provide CompuServe stockholders with dissenters' or appraisal rights
applicable to the CompuServe Merger.
PROXIES
The Proxy Statement/Prospectus is being furnished to CompuServe
stockholders in connection with the solicitation of proxies by and on behalf of
the CompuServe Board of Directors for use at the Special Meeting, and is
accompanied by a form of proxy.
All shares of CompuServe Common Stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated on such proxies. IF NO INSTRUCTIONS
ARE INDICATED (OTHER THAN IN THE CASE OF BROKER NON-VOTES), SUCH SHARES OF
COMPUSERVE COMMON STOCK WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE
COMPUSERVE MERGER AGREEMENT AND, IN THE DISCRETION OF THE PROXIES, WITH RESPECT
TO SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF.
CompuServe does not know of any matters other than as described in the
Notice of Special Meeting that are to come before the Special Meeting. If any
other matter or matters are properly presented for action at the Special
Meeting, the persons named in the enclosed form of proxy and acting thereunder
will have the discretion to vote on such matters in accordance with their best
judgment, unless such authorization is withheld. A stockholder who has given a
proxy may revoke it at any time prior to its exercise by giving written notice
thereof to the Secretary of CompuServe, by signing and returning a later dated
proxy, or by voting in person at the Special Meeting; however, mere attendance
at the Special Meeting will not in and of itself have the effect of revoking the
proxy. Any written notice of revocation or subsequent proxy should be sent to
CompuServe Corporation, 5000 Arlington Centre Boulevard, Columbus, Ohio 43220,
Attention: Secretary, or hand delivered to the Secretary of CompuServe at or
before the taking of the vote at the Special Meeting. If a proxy is revoked, the
stockholder may submit a later dated proxy or vote in person at the Special
Meeting. If the stockholder does not submit a later dated proxy or vote in
person at the Special Meeting, such revocation will have the effect of the
stockholder not being treated as present for purposes of determining the
presence of a quorum at the Special Meeting and the effect of a vote against the
approval and adoption of the CompuServe Merger Agreement.
SOLICITATION OF PROXIES
CompuServe will bear its own cost of solicitation of proxies. In addition
to the use of the mails, proxies may be solicited by the directors, officers and
other selected employees of CompuServe by personal interview, telephone,
telegram or e-mail. Such directors and officers will not receive additional
compensation for such solicitation but may be reimbursed for out-of-pocket
expenses incurred in connection therewith. Arrangements may also be made with
brokerage firms and other custodians, nominees and fiduciaries to forward
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<PAGE> 85
solicitation materials to the beneficial owners of shares of CompuServe Common
Stock held of record by such persons, in which case CompuServe will reimburse
such brokerage firms, custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection therewith.
In addition, Corporate Investor Communications, Inc. has been retained by
CompuServe to assist in the solicitation of proxies. Corporate Investor
Communications, Inc. may contact holders of shares of CompuServe Common Stock by
mail, telephone, facsimile, telegraph and personal interviews and may request
brokers, dealers and other nominee stockholders to forward materials to
beneficial owners of shares of CompuServe Common Stock. Corporate Investor
Communications, Inc. will receive reasonable and customary compensation for its
services (estimated at $6,000), will be reimbursed for certain reasonable
out-of-pocket expenses and will be indemnified against certain liabilities and
expenses in connection therewith, including certain liabilities under the
federal securities laws.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF COMPUSERVE. ACCORDINGLY, STOCKHOLDERS OF COMPUSERVE ARE
URGED TO READ AND CONSIDER CAREFULLY THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, SIGN, DATE, AND PROMPTLY RETURN THE PROXY
IN THE ENCLOSED POSTAGE PAID ENVELOPE, WHETHER OR NOT SUCH STOCKHOLDER PLANS TO
ATTEND THE SPECIAL MEETING. COMPUSERVE STOCKHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
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<PAGE> 86
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial statements combine the
consolidated balance sheets and statements of operations of WorldCom and MCI as
if the MCI/WorldCom Merger had occurred for the periods indicated. The
MCI/WorldCom Merger will be treated as a purchase for financial reporting
purposes. No adjustment has been included in the pro forma amounts for any
anticipated cost savings or other synergies. The Pro Forma Financial Information
also does not include amounts with respect to the BFP Merger, the AOL
Transaction or the CompuServe Merger because they are individually, and in the
aggregate, not material to WorldCom.
WORLDCOM PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 and unaudited Pro Forma Condensed Combined Statements of
Operations for the nine months ended September 30, 1997 and for the year ended
December 31, 1996, illustrate the effect of the MCI/WorldCom Merger as if the
MCI/WorldCom Merger had occurred on September 30, 1997, for the Pro Forma
Condensed Combined Balance Sheet and as of the earliest date presented for the
Pro Forma Condensed Combined Statements of Operations. No adjustment has been
included in the pro forma amounts for any anticipated cost savings or other
synergies. The Pro Forma Condensed Combined Financial Statements also do not
include amounts with respect to the BFP Merger, the AOL Transaction or the
CompuServe Merger because they are individually, and in the aggregate, not
material to WorldCom.
Pursuant to the terms of the MCI/WorldCom Merger, each share of MCI Common
Stock will be converted into the right to receive that number of shares of
WorldCom Common Stock equal to the Exchange Ratio. The holder of MCI Class A
Common Stock will be entitled to receive $51.00 per share in cash for each of
the MCI Class A Common Stock shares it owns, or approximately $7 billion in the
aggregate. The Pro Forma Condensed Combined Financial Statements have been
prepared assuming the MCI/WorldCom Average Price to be $33.13, resulting in an
assumed MCI Exchange Ratio of 1.5396. The actual MCI Exchange Ratio may vary as
described herein. The MCI/WorldCom Merger will be accounted for as a purchase.
These Pro Forma Condensed Combined Financial Statements should be read in
conjunction with the historical financial statements of WorldCom and MCI which
are incorporated by reference herein and the Additional Pro Forma Presentation
which is set forth elsewhere herein.
The Pro Forma Condensed Combined Financial Statements are presented for
comparative purposes only and are not intended to be indicative of actual
results had the transactions occurred as of the dates indicated above nor do
they purport to indicate results which may be attained in the future.
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<PAGE> 87
WORLDCOM PRO FORMA CONDENSED COMBINED BALANCE SHEET(1)
AS OF SEPTEMBER 30, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
MCI WORLDCOM
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(3) ADJUSTMENTS COMBINED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Current assets.......................... $ 1,625 $ 4,603 $ 7,446(5) $ 6,228
(7,446)(4)
Property, plant and equipment, net...... 5,419 13,783 (2,700)(4) 16,502
Goodwill and other intangibles, net..... 13,002 2,366 28,621(4) 43,989
Other assets............................ 767 3,965 -- 4,732
------- ------- ------- -------
Total assets.................. $20,813 $24,717 $25,921 $71,451
======= ======= ======= =======
Current liabilities..................... $ 1,870 $ 7,327 $ -- $ 9,197
Long-term debt.......................... 5,349 3,282 7,446(5) 16,077
Other liabilities....................... 228 2,037 (1,015)(4) 1,250
Mandatorily redeemable preferred
stock................................. -- 750 -- 750
Shareholders' equity:
Preferred stock....................... -- -- -- --
Class A common stock.................. -- 14 (14)(6) --
Common stock.......................... 9 60 (60)(6) 18
9(7)
Paid in capital....................... 15,036 6,394 (6,394)(6) 45,838
30,802(7)
Retained earnings (deficit)........... (1,713) 5,607 (5,607)(6) (1,713)
Other................................. 34 (754) 754(6) 34
------- ------- ------- -------
Total shareholders' equity.... 13,366 11,321 19,490 44,177
------- ------- ------- -------
Total liabilities and
shareholders' equity........ $20,813 $24,717 $25,921 $71,451
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
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<PAGE> 88
WORLDCOM PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS(1)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MCI WORLDCOM
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(3) ADJUSTMENTS COMBINED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues................................. $5,349 $14,545 $(280)(8) $19,614
Operating expenses:
Line costs............................. 2,806 8,090 (280)(8) 10,616
Selling, general and administrative.... 1,141 4,028 5,169
Depreciation and amortization.......... 682 1,475 537(9) 2,281
(413)(10)
------ ------- ----- -------
Operating income......................... 720 952 (124) 1,548
Other income (expense):
Interest expense....................... (235) (174) (363)(11) (772)
Other.................................. 17 (94) -- (77)
------ ------- ----- -------
Income before income taxes............... 502 684 (487) 699
Provision for income taxes............... 261 246 19(12) 526
------ ------- ----- -------
Income from continuing operations........ 241 438 (506) 173
Preferred dividend requirements.......... 20 45 -- 65
------ ------- ----- -------
Net income applicable to common
shareholders........................... $ 221 $ 393 $(506) $ 108
====== ======= ===== =======
Number of shares issued and outstanding:
Primary................................ 955 705 1,831
====== ======= =======
Fully diluted.......................... 959 706 1,838
====== ======= =======
Earnings per share(13):
Primary................................ $ 0.25 $ 0.56 $ 0.06
Fully diluted.......................... $ 0.25 $ 0.56 $ 0.06
</TABLE>
The accompanying notes are an integral part of this statement.
73
<PAGE> 89
WORLDCOM PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS(1)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MCI WORLDCOM
WORLDCOM MCI PRO FORMA PRO FORMA
HISTORICAL(2) HISTORICAL(3) ADJUSTMENTS COMBINED
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues.................................. $ 4,485 $18,494 $(558)(8) $22,421
Operating expenses:
Line costs.............................. 2,457 9,489 (500)(8) 11,446
Selling, general and administrative..... 829 5,028 5,857
Depreciation and amortization........... 303 1,664 716(9) 2,133
(550)(10)
Charge for in-process research and
development.......................... 2,140 -- -- 2,140
Other................................... 600 -- (58)(8) 542
------- ------- ----- -------
Operating income (loss)................... (1,844) 2,313 (166) 303
Other income (expense):
Interest expense........................ (222) (196) (484)(11) (902)
Other................................... 6 (127) -- (121)
------- ------- ----- -------
Income (loss) before income taxes......... (2,060) 1,990 (650) (720)
Provision for income taxes................ 129 753 25(12) 907
------- ------- ----- -------
Income (loss) from continuing
operations.............................. (2,189) 1,237 (675) (1,627)
Preferred dividend requirements........... 1 35 -- 36
------- ------- ----- -------
Net income (loss) applicable to common
shareholders............................ $(2,190) $ 1,202 $(675) $(1,663)
======= ======= ===== =======
Number of shares issued and outstanding:
Primary................................. 398 695 1,246
======= ======= =======
Fully diluted........................... 398 701 1,246
======= ======= =======
Earnings (loss) per share(13):
Primary................................. $ (5.50) $ 1.73 $ (1.33)
Fully diluted........................... $ (5.50) $ 1.72 $ (1.33)
</TABLE>
The accompanying notes are an integral part of this statement.
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<PAGE> 90
NOTES TO WORLDCOM PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. The unaudited pro forma financial data do not give effect to any
restructuring costs, nor any potential cost savings or other synergies that
could result from the MCI/WorldCom Merger. WorldCom is in the process of
developing its plan to integrate the operations of MCI which may include
certain exit costs. As a result of this plan, a charge, which may be
material but which cannot now be quantified, is expected to be recognized in
the period in which such a restructuring occurs. Furthermore, the pro forma
financial data do not reflect any expense of intangible assets attributable
to the value of any in-process research and development projects of MCI at
the time of the MCI/WorldCom Merger. However, WorldCom has undertaken a
study to determine the allocation of the total purchase price to the various
assets acquired, including in-process research and development, and the
liabilities assumed. To the extent that a portion of the purchase price is
allocated to in-process research and development projects of MCI, a charge,
which may be material, would be recognized in the period in which the
MCI/WorldCom Merger occurs. The pro forma data are not necessarily
indicative of the operating results or financial position that would have
occurred had the MCI/WorldCom Merger been consummated at the dates
indicated, nor necessarily indicative of future operating results or
financial position.
2. On December 31, 1996, WorldCom completed the MFS Merger. The MFS Merger was
accounted for as a purchase; accordingly, the operating results for MFS are
not reflected in the historical results of WorldCom for the year ended
December 31, 1996. See "Additional Pro Forma Presentation," which should be
read in conjunction with these pro forma financial statements.
3. These columns represent historical results of operations and financial
position.
4. This adjustment reflects the excess of consideration over net assets
acquired. The following is a calculation (in millions except per share
data):
<TABLE>
<S> <C>
MCI Common Stock outstanding at September 30, 1997.......... 560
Shares issuable (treasury stock method) upon exercise of MCI
options................................................... 44
--------
MCI Common Stock assumed outstanding at September 30,
1997...................................................... 604
MCI Exchange Ratio per share................................ 1.5396
--------
WorldCom Common Stock assumed to be issuable................ 930
WorldCom per share closing price on November 7, 1997........ $ 33.13
--------
Sub-total................................................... $ 30,811
Payment to MCI Class A Common Stockholder................... 6,936
Inducement fee and other estimated transaction costs........ 510
--------
Total consideration......................................... $ 38,257
Preliminary purchase accounting adjustments:
Fair value adjustment to property, plant and equipment...... 2,700
Deferred tax impact of fair value adjustment................ (1,015)
--------
39,942
Historical net book value of MCI net assets acquired........ (11,321)
--------
Excess of consideration over net assets acquired............ $ 28,621
========
</TABLE>
The total consideration will be allocated to the assets and liabilities of
MCI based on their estimated fair value. A preliminary allocation of the
purchase price has been presented in the pro forma condensed combined
financial statements in which the historical MCI property, plant and
equipment has been adjusted to its estimated fair value based upon its
depreciated replacement cost. The impact of this fair value adjustment has
also been reflected in pro forma deferred tax balances. The excess of
consideration over the historical book value of MCI net assets acquired has
been preliminarily allocated to goodwill and other intangible assets. A
final allocation of the purchase price to the MCI assets acquired and
liabilities
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<PAGE> 91
assumed is dependent upon certain valuations and studies that have not
progressed to a stage where there is sufficient information to make such an
allocation in the accompanying pro forma financial information. WorldCom's
management believes that the consideration in excess of the historical book
value of MCI's net assets acquired, primarily comprises goodwill, certain
in-process research and development projects and other intangible assets.
In-process research and development projects may include projects for which
technological feasibility has not been established and the technology has no
future alternative use. To the extent that a portion of the purchase price
is allocated to such in-process research and development projects, a charge,
which may be material to WorldCom's results of operations, would be
recognized in the period in which the MCI/WorldCom Merger occurs. (See Note
1).
5. This adjustment represents additional borrowings of $7.4 billion for the
purpose of financing the cash payment to the holder of the MCI Class A
Common Stock of $6.9 billion, and other estimated transaction costs of $510
million (which includes a $465 million inducement fee paid to BT).
6. These adjustments represent the elimination of MCI's stockholders' equity
accounts.
7. These adjustments represent the issuance of approximately 930 million shares
of WorldCom Common Stock in connection with the MCI/WorldCom Merger and an
assumed MCI Exchange Ratio of 1.5396 shares of WorldCom Common Stock for
each share of MCI Common Stock outstanding. The actual MCI Exchange Ratio
may vary as described herein.
8. These estimated adjustments eliminate the revenues and corresponding line
costs and other charges attributable to the intercompany transactions
between WorldCom and MCI.
9. This entry reflects the adjustment to amortization for the effect of the
excess of consideration over net assets acquired in the MCI/WorldCom Merger.
For purposes of the Pro Forma Condensed Combined Financial Statements, the
excess consideration has been amortized over an estimated life of 40 years.
WorldCom management expects that amounts allocated to goodwill and trade
names will be amortized over 40 years while other intangible assets may be
amortized over shorter periods consequently reducing net income reported by
MCI WorldCom. A final determination of the lives attributable to the
intangible assets has not yet been made (See Note 1). As discussed in Note
4, a portion of the excess consideration may be allocated to certain
in-process research and development projects. To the extent amounts are
allocated to certain in-process research and development projects, pro forma
amortization expense would be ratably reduced accordingly.
10. This entry reflects the adjustment to depreciation expense for the effect of
the fair value adjustment of MCI's property, plant and equipment based on a
preliminary evaluation of depreciated replacement cost (See Note 4).
11. These adjustments represent the recognition of interest expense on the
additional borrowings of WorldCom to finance the cash payment to the holder
of the MCI Class A Common Stock and transaction costs (see Note 5). The
interest expense was calculated based on WorldCom's incremental borrowing
rate of 6.5%. A change of 1/8% in the incremental rate would affect
interest expense by $7.0 million for the nine months ended September 30,
1997, and $9.3 million for the year ended December 31, 1996.
12. These entries represent the tax effect of the pro forma adjustments.
13. Pro forma per share data are based on the number of WorldCom common and
common equivalent shares that would have been outstanding had the
MCI/WorldCom Merger occurred on the earliest date presented.
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<PAGE> 92
ADDITIONAL PRO FORMA PRESENTATION
The following unaudited Additional Pro Forma Presentation illustrates the
effect of the MCI/WorldCom Merger and the MFS Merger as well as MFS's earlier
acquisition of UUNET (the "UUNET Acquisition") on the results of operations of
WorldCom for the year ended December 31, 1996, as if the transactions had
occurred on January 1, 1996. The Additional Pro Forma Presentation is presented
for purposes of additional analysis due to the significance of the MFS Merger.
Pursuant to the terms of the MCI/WorldCom Merger, each share of MCI Common
Stock will be converted into the right to receive that number of shares of
WorldCom Common Stock equal to the MCI Exchange Ratio. The holder of MCI Class A
Common Stock will be entitled to receive $51.00 per share in cash for each of
the MCI Class A Common Stock shares it owns, or approximately $7 billion in the
aggregate. The pro forma financial statements have been prepared assuming the
MCI/WorldCom Average Price to be $33.13 resulting in an assumed MCI Exchange
Ratio of 1.5396. The actual MCI Exchange Ratio may vary as described herein. The
MCI/WorldCom Merger will be accounted for as a purchase.
On December 31, 1996, WorldCom through a wholly owned subsidiary merged
with MFS. As a result of the MFS Merger, each share of MFS common stock was
converted into the right to receive 2.1 shares of WorldCom Common Stock or
approximately 471.0 million shares of WorldCom Common Stock in the aggregate.
Each share of MFS Series A 8% Cumulative Convertible Preferred Stock was
converted into the right to receive one share of WorldCom Series A Preferred
Stock or 94,992 shares of WorldCom Series A Preferred Stock. Each share of MFS
Series B Convertible Preferred Stock was converted into the right to receive one
share of WorldCom Series B Preferred Stock or approximately 12.7 million shares
of WorldCom Series B Preferred Stock. In addition, each depositary share
representing 1/100th of a share of MFS Series A Preferred Stock was exchanged
for a depositary share representing 1/100th of a share of WorldCom Series A
Preferred Stock.
On August 12, 1996 and prior to the MFS Merger, MFS issued approximately 58
million shares of MFS common stock and options valued at approximately $2.1
billion in connection with its acquisition of UUNET.
The Additional Pro Forma Presentation should be read in conjunction with
the historical financial statements of WorldCom, MCI, MFS and UUNET which are
incorporated by reference herein.
The Additional Pro Forma Presentation is presented for comparative purposes
only and is not intended to be indicative of actual results had the transactions
occurred as of the dates indicated above nor do they purport to indicate results
which may be attained in the future. No adjustment has been included in the pro
forma amounts for any anticipated cost savings or other synergies. The
Additional Pro Forma Presentation also does not include amounts with respect to
the BFP Merger, the AOL Transaction or the CompuServe Merger because they are
individually, and in the aggregate, not material to WorldCom.
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<PAGE> 93
ADDITIONAL PRO FORMA PRESENTATION(1)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UUNET WORLDCOM/
HISTORICAL(2) MFS/UUNET
WORLDCOM MFS JANUARY 1, 1996 - PRO FORMA PRO FORMA MCI
HISTORICAL(2) HISTORICAL(2) AUGUST 12, 1996 ADJUSTMENTS COMBINED HISTORICAL(2)
------------- ------------- ----------------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 4,485 $1,115 $129 $ (94)(3) $ 5,635 $18,494
Operating expenses:
Line costs....................... 2,457 687 71 (94)(3) 3,121 9,489
Selling, general and
administrative................. 829 493 44 -- 1,366 5,028
Depreciation and amortization.... 303 286 12 237(4) 838 1,664
Charge for in-process research
and development................ 2,140 -- -- -- 2,140 --
Other............................ 600 -- -- -- 600 --
------- ------ ----- ----- ------- -------
Operating income (loss)............ (1,844) (351) 2 (237) (2,430) 2,313
Other income (expense):
Interest expense................. (222) (62) (1) -- (285) (196)
Other............................ 6 (3) -- -- 3 (127)
------- ------ ----- ----- ------- -------
Income (loss) before income
taxes............................ (2,060) (416) 1 (237) (2,712) 1,990
Provision for income taxes......... 129 1 -- (125)(5) 5 753
------- ------ ----- ----- ------- -------
Income (loss) from continuing
operations....................... (2,189) (417) 1 (112) (2,717) 1,237
Preferred dividend requirements.... 1 29 -- -- 30 35
------- ------ ----- ----- ------- -------
Net income (loss) applicable to
common shareholders.............. $(2,190) $ (446) $ 1 $(112) $(2,747) $ 1,202
======= ====== ===== ===== ======= =======
Number of shares issued and
outstanding:
Primary.......................... 398 N/M N/M 869 695
======= ======= =======
Fully diluted.................... 398 N/M N/M 869 701
======= ======= =======
Earnings (loss) per share (6):
Primary.......................... $ (5.50) N/M N/M $ (3.16) $ 1.73
Fully diluted.................... $ (5.50) N/M N/M $ (3.16) $ 1.72
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- ---------
<S> <C> <C>
Revenues........................... $(558)(3) $23,571
Operating expenses:
Line costs....................... (500)(3) 12,110
Selling, general and
administrative................. -- 6,394
Depreciation and amortization.... 716(7) 2,668
(550)(8)
Charge for in-process research
and development................ -- 2,140
Other............................ (58)(3) 542
----- -------
Operating income (loss)............ (166) (283)
Other income (expense):
Interest expense................. (484)(9) (965)
Other............................ -- (124)
----- -------
Income (loss) before income
taxes............................ (650) (1,372)
Provision for income taxes......... 25(5) 783
----- -------
Income (loss) from continuing
operations....................... (675) (2,155)
Preferred dividend requirements.... -- 65
----- -------
Net income (loss) applicable to
common shareholders.............. $(675) $(2,220)
===== =======
Number of shares issued and
outstanding:
Primary.......................... 1,718
=======
Fully diluted.................... 1,718
=======
Earnings (loss) per share (6):
Primary.......................... $ (1.29)
Fully diluted.................... $ (1.29)
</TABLE>
The accompanying notes are an integral part of this statement.
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<PAGE> 94
NOTES TO ADDITIONAL
PRO FORMA PRESENTATION
1. The unaudited Additional Pro Forma Presentation does not give effect to any
potential cost savings or other synergies that could result from the
MCI/WorldCom Merger, the MFS Merger and UUNET Acquisition. WorldCom's results
for 1996 do not include charges related to extraordinary items of $24.4
million, net of taxes. Furthermore, the pro forma financial data do not
reflect any expense of intangible assets attributable to the value of any
in-process research and development projects of MCI at the time of the
MCI/WorldCom Merger. However, WorldCom has undertaken a study to determine
the allocation of the total purchase price to the various assets acquired,
including in-process research and development, and the liabilities assumed.
To the extent that a portion of the purchase price is allocated to certain
in-process research and development projects of MCI, a charge, which may be
material, would be recognized in the period in which the MCI/WorldCom Merger
occurs. The pro forma data are not necessarily indicative of the operating
results or financial position that would have occurred had the MCI/WorldCom
Merger, MFS Merger and UUNET Acquisition been consummated at the date
indicated, nor necessarily indicative of future operating results or
financial position.
2. These columns represent historical results of operations.
3. These estimated adjustments eliminate the revenues, corresponding line costs
and other charges attributable to the intercompany transactions among
WorldCom, MFS, UUNET and MCI.
4. This entry reflects the adjustment to amortization for the effect of the
intangible assets acquired. For purposes of allocating the acquisition costs
among the various assets acquired in the MFS Merger and UUNET Acquisition,
the carrying value of the acquired assets approximated their fair value, with
all of the excess of such acquisition costs being attributed to in-process
research and development (network design and development projects
in-process), goodwill, network technology and assembled workforce. It is
WorldCom's intention to continue to evaluate the acquired assets and, as a
result, the allocation of the acquisition costs among the tangible and
intangible assets acquired may change. Goodwill attributable to MFS is being
amortized over 40 years while goodwill attributable to UUNET is being
amortized over 5 years. Network technology and assembled work force are being
amortized over 5 years and 10 years, respectively.
5. These entries represent the tax effect of the pro forma adjustments.
6. Pro forma per share data is based on the number of shares of WorldCom Common
Stock that would have been outstanding had the MCI/WorldCom Merger, the MFS
Merger and UUNET Acquisition occurred on the earliest date presented. The per
share data also includes the effect of the $2.14 billion charge for in-
process research and development related to the MFS Merger. Excluding this
non-recurring charge from the pro forma data would have resulted in loss per
share of $(0.05).
7. This entry reflects the adjustment to amortization for the effect of the
excess of consideration over net assets acquired in the MCI/WorldCom Merger.
The total consideration of the MCI/WorldCom Merger will be allocated to the
assets and liabilities of MCI based on their estimated fair value. The excess
of consideration over the historical book value of MCI net assets acquired
has been preliminarily allocated to goodwill and other intangible assets. A
final allocation of the purchase price to the MCI assets acquired and
liabilities assumed is dependent upon certain valuations and studies that
have not progressed to a stage where there is sufficient information to make
such an allocation in the accompanying pro forma financial information.
WorldCom's management believes that the consideration in excess of the
historical book value of MCI's net assets acquired, primarily comprises
goodwill, certain in-process research and development projects and other
intangible assets. In-process research and development projects may include
projects for which technological feasibility has not been established and the
technology has no future alternative use. To the extent that a portion of the
purchase price is allocated to such in-process research and development
projects, a charge, which may be material to WorldCom's results of
operations, would be recognized in the period in which the MCI/WorldCom
Merger occurs. For purposes of the Additional Pro Forma Presentation, the
excess consideration has been amortized over an estimated life of 40 years.
WorldCom
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<PAGE> 95
management expects that amounts allocated to goodwill and trade names will be
amortized over 40 years while other intangible assets may be amortized over
shorter periods consequently reducing net income reported by the combined
company. A final determination of lives attributable to the intangible assets
has not yet been made (See Note 1). To the extent amounts are allocated to
certain in-process research and development projects, pro forma amortization
expense would be ratably reduced accordingly.
8. This entry reflects the adjustment to depreciation expense for the effect of
the fair value adjustment of MCI's property, plant and equipment based on a
preliminary evaluation of depreciated replacement cost (See Note 7).
9. These adjustments represent the recognition of interest on the additional
borrowings of WorldCom to finance the cash payment to the holder of the MCI
Class A Common Stock and other estimated transaction costs of $510 million
(which includes a $465 million inducement fee paid to BT). The interest
expense was calculated at WorldCom's incremental borrowing rate of 6.5%. A
change of 1/8% in the incremental rate would affect interest expense by $9.3
million for the year ended December 31, 1996.
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<PAGE> 96
INFORMATION REGARDING COMPUSERVE
The following briefly describes the business of CompuServe. Additional
information regarding CompuServe is contained in its filings with the Commission
pursuant to the Exchange Act. See "Additional Information" and "Incorporation of
Documents by Reference."
BUSINESS OF COMPUSERVE
CompuServe was incorporated in Delaware on February 16, 1996 and holds all
of the outstanding capital stock of CompuServe Incorporated. CompuServe
Incorporated was founded in 1969 as a computer time-sharing service and
introduced its first online service in 1979. Until April 19, 1996, CompuServe
was a wholly-owned subsidiary of Block Group. Block Group is a wholly-owned
subsidiary of H&R Block.
On April 19, 1996, CompuServe completed an initial public offering of
18,400,000 newly issued shares of CompuServe Common Stock. CompuServe's shares
are quoted on The Nasdaq National Market under the symbol "CSRV."
CompuServe operates primarily through two divisions: Interactive Services
and Network Services. Interactive Services offers worldwide online and Internet
access services for consumers, while Network Services provide worldwide network
access, management and applications, and Internet services to businesses.
CompuServe's principal executive offices are located at 5000 Arlington
Centre Boulevard, Columbus, Ohio 43220, and its telephone number is (614)
457-8600.
Interactive Services
CompuServe Interactive Service
CompuServe Interactive Service ("CSi") is one of the two largest consumer
online services in the world. As of April 30, 1997, the number of CSi
subscribers, exclusive of the subscribers of NIFTY SERVE, CompuServe's Japanese
licensee, was approximately 2.8 million, a decrease of about 12% since April 30,
1996. CSi targets the more experienced PC user in both the home and office who
values breadth and depth of professional and business-oriented content. CSi
provides over 2,000 content areas such as finance, current events and online
reference; over one thousand managed forums where subscribers with similar
interests can meet to exchange information, hold online discussions and download
files and programs; e-mail; integrated Internet access; and electronic
commercial services. CSi has been building its extensive content and associated
relationships for over fifteen years.
CompuServe, its licensee and its distributors provide local access to CSi
in approximately 100 cities outside of the United States, from offices in 21
countries around the world. They offer multilingual interfaces, feature local
content and provide customer service.
CompuServe and its licensee had approximately 3.6 million subscribers
outside of the United States as of April 30, 1997, 1.2 million of which were
supported directly by CSi and the remainder of which were NIFTY SERVE
subscribers. CompuServe has licensed its core technology and network model
relating to its online service to NIFTY, a joint venture of Fujitsu Limited and
Nissho Iwai. NIFTY is licensed to operate its own online service, NIFTY SERVE,
in Japan based on CompuServe technology. In addition, NIFTY has the exclusive
right to distribute CSi in Japan. NIFTY has also been authorized by CompuServe
to license a subdistributor in Taiwan and another in South Korea to distribute
CSi in those countries. NIFTY has a right of first refusal to distribute CSi in
14 additional Asian countries should CompuServe decide to license a third-party
distributor in those countries.
NIFTY's license with respect to CompuServe technology is perpetual. NIFTY's
license to act as a distributor of the CSi is for an unlimited number of
five-year renewable terms, and is next up for renewal in calendar 2001. NIFTY
has the right to terminate its license to distribute CSi at any time, upon one
year's advance notice. NIFTY pays CompuServe a royalty fee on the gross monthly
usage revenues of the NIFTY SERVE online service. During each of the last three
years, such royalties accounted for less than 1% of
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<PAGE> 97
CompuServe's total Interactive Services revenues. CompuServe pays NIFTY a
royalty for the CSi business that it generates and the associated support
services that it provides to CSi subscribers.
In addition, CompuServe has arrangements with various distributors in
Australia, New Zealand, Hong Kong, Mexico, Argentina, Chile, Venezuela, Israel
and South Africa, whose main function is to generate customers for CSi.
CompuServe pays royalties to these distributors for the business that they
generate and the associated support service that they provide to CSi subscribers
in countries in which they operate.
WOW!
In March 1996, CompuServe launched WOW!, a consumer online service targeted
to the mass consumer home market. WOW! complemented the existing CSi service by
targeting the less experienced computer user who, management believed, were not
adequately served by existing online services. The WOW! service employed a
unique, intuitive navigation structure designed to mirror the manner in which
non-computer trained individuals perceive the world. The underlying technology
was transparent to the user. CompuServe applied for a patent on the WOW!
navigation structure.
On November 21, 1996, the Company announced a Back-to-Basics strategy aimed
at building on its leadership in the business, professional and technical market
sectors while focusing on profitable segments in the consumer market. As part of
this change in market strategy, the WOW! service was withdrawn effective January
31, 1997.
SPRYNET
SPRY, CompuServe's Internet subsidiary, provides Internet-access-only
services through SPRYNET to those more technically sophisticated users who
choose to access the Internet directly without availing themselves of services
offered through CSi. As of April 30, 1997, SPRYNET had approximately 280,000
subscribers. SPRYNET offers subscribers a choice of unlimited access to the
Internet for a competitive fixed monthly fee, or a fixed amount of access for a
lower monthly fee with a competitive hourly rate thereafter.
Network Services
CompuServe Network Services ("CNS") provides virtual private networkings,
Internet, Intranet, Extranet services plus groupware application and web hosting
services to corporate clients around the world. In addition to providing network
connectivity and Internet access for CompuServe's CSi and SPRYNET service, CNS
offers dial and dedicated connectivity solutions that allow corporate customers'
dispersed users to gain secure, seamless access to IP-based applications as well
as proprietary systems. Customer applications supported by CNS include Vital
Processing Services LLC (Visa International Inc.'s point-of-sale network) for
credit card authorization, Federal Express Corp.'s package tracking system,
Experian Inc.'s (formerly TRW's credit data unit) credit data transmission to
200,000 corporate clients and Charles Schwab's Street Smart product. At the end
of fiscal year 1997 CNS had a client base of approximately 1,200 corporate
customers.
RECENT DEVELOPMENTS
CompuServe recently announced a new Web-based product "C from CompuServe"
which will feature CompuServe's proprietary online service plus links to related
external websites. The new product will be available at three different levels:
(i) the Guest level available to any Web user on a "read-only" basis; (ii) the
Member level available on a pay-per-view basis; and (iii) the Subscriber level
available to those that pay a subscription fee. The new product is aimed at
business, professional, technical and other sophisticated consumers.
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INFORMATION REGARDING WORLDCOM
The following briefly describes the businesses, management and principal
shareholders of WorldCom, as well as information regarding the MCI/WorldCom
Merger and the BFP Merger. Additional information regarding WorldCom is
contained in its filings with the Commission pursuant to the Exchange Act. See
"Available Information" and "Incorporation of Documents by Reference."
BUSINESS OF WORLDCOM
WorldCom is one of the largest telecommunications companies in the United
States, serving local, long distance and Internet customers domestically and
internationally. WorldCom provides telecommunications services to business,
government, telecommunications companies and consumer customers, through its
network of fiber optic cables, digital microwave, and fixed and transportable
satellite earth stations.
WorldCom is one of the first major facilities-based telecommunications
companies with the capability to provide businesses with high quality local,
long distance, Internet, data and international communications services over its
global networks. With service to points throughout the nation and the world,
WorldCom provides telecommunications products and services including: switched
and dedicated long distance and local products, 800 services, calling cards,
domestic and international private lines, broadband data services, debit cards,
conference calling, advanced billing systems, enhanced fax and data connections,
high speed data communications, facilities management, local access to long
distance companies, local access to ATM-based backbone service and
interconnection via Network Access Points to ISPs. In addition, WorldCom's
subsidiary, UUNET, is an international ISP.
WorldCom's principal executive offices are located at 515 East Amite
Street, Jackson, Mississippi 39201-2702, and its telephone number is (601)
360-8600.
RECENT DEVELOPMENTS
The MCI/WorldCom Merger
General. On October 1, 1997, WorldCom announced its intention to make the
MCI Offer. On November 9, 1997, WorldCom entered into the MCI/WorldCom Merger
Agreement with MCI and MCI Merger Sub, a wholly-owned acquisition subsidiary of
WorldCom, providing for the MCI/WorldCom Merger, in which MCI would merge with
and into MCI Merger Sub, with MCI Merger Sub surviving as a wholly-owned
subsidiary of WorldCom. If the Charter Amendment (defined below) is approved,
WorldCom will change its name as of the MCI/WorldCom Effective Time to "MCI
WorldCom, Inc." As a result of the MCI/WorldCom Merger, the separate corporate
existence of MCI will cease, and MCI Merger Sub (which will be renamed "MCI
Communications Corporation") will succeed to all the rights and be responsible
for all the obligations of MCI in accordance with the DGCL. Subject to the terms
and conditions of the MCI/ WorldCom Merger Agreement, each share of MCI Common
Stock outstanding immediately prior to the MCI/WorldCom Effective Time will be
converted into the right to receive the MCI Common Stock Merger Consideration
equal to the MCI Exchange Ratio, and each share of MCI Class A Common Stock
outstanding immediately prior to the MCI/WorldCom Effective Time will be
converted into the MCI Class A Common Stock Merger Consideration. The "MCI
Exchange Ratio" means the quotient (rounded to the nearest (1)/10,000)
determined by dividing $51.00 by the average of the high and low sales prices of
WorldCom Common Stock (previously defined as the "MCI/WorldCom Average Price")
as reported on The Nasdaq National Market on each of the 20 consecutive trading
days ending with the third trading day immediately preceding the MCI/ WorldCom
Effective Time; provided, however, that the MCI Exchange Ratio will not be less
than 1.2439 or greater than 1.7586. Cash will be paid in lieu of any fractional
share of WorldCom Common Stock in the MCI/WorldCom Merger. See "-- Other Terms
of the MCI/WorldCom Merger Agreement -- Conversion of Shares in the MCI/WorldCom
Merger."
Based on the number of shares MCI Common Stock outstanding as of October
31, 1997 and assumed MCI Exchange Ratios of 1.2439 and 1.7586, approximately
703,178,763 shares and 994,139,540 shares, respectively, of WorldCom Common
Stock will be issued in the MCI/WorldCom Merger. In addition,
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outstanding rights and options to purchase shares of MCI Common Stock would be
converted in the MCI/WorldCom Merger to rights and options to acquire an
aggregate of approximately 100,263,626 shares and 141,750,634 shares,
respectively, of WorldCom Common Stock, and the exercise price would be adjusted
to reflect the MCI Exchange Ratio, so that, on exercise, the holders would
receive, in the aggregate, the same number of shares of WorldCom Common Stock as
they would have received had they exercised prior to the MCI/WorldCom Merger, at
the same exercise price.
The MCI/WorldCom Merger will become effective upon the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware or at
such subsequent time as WorldCom and MCI may agree and is specified in the
Certificate of Merger. The filing of the Certificate of Merger will occur as
soon as practicable following the closing of the MCI/WorldCom Merger, which will
occur on the fifth business day after the satisfaction or waiver of the
conditions set forth in the MCI/WorldCom Merger Agreement, unless otherwise
agreed by the parties. Consummation of the MCI/WorldCom Merger, however, is
dependent upon the requisite approvals and authorizations for the MCI/WorldCom
Merger under the Hart-Scott-Rodino Act, the Communications Act of 1934, as
amended (the "Communications Act"), and other applicable federal, state or other
applicable regulatory laws. There can be no assurance as to (i) if or when such
approvals will be obtained or that, if obtained, such approvals will satisfy the
conditions to the consummation of the MCI/ WorldCom Merger set forth in the
MCI/WorldCom Merger Agreement or (ii) whether all of the other conditions
precedent to the MCI/WorldCom Merger will be satisfied or waived by the party
permitted to do so. If the MCI/WorldCom Merger is not effected on or before
December 31, 1998, the MCI/WorldCom Merger Agreement can be terminated by either
MCI or WorldCom, unless the failure to effect the MCI/ WorldCom Merger by such
date is due to the failure of the party seeking to terminate the MCI/WorldCom
Merger Agreement to fulfill its obligations under the MCI/WorldCom Merger
Agreement (including without limitation its obligation to use its best efforts
to consummate the MCI/WorldCom Merger). See "-- Other Terms of the MCI/WorldCom
Merger Agreement -- Conditions Precedent to the MCI/WorldCom Merger" and "--
Termination."
Effects of the MCI/WorldCom Merger; Estimated Synergies
The WorldCom Board of Directors believes that the MCI/WorldCom Merger will
create a fully integrated communications company that will be well positioned to
take advantage of growth opportunities in global telecommunications. The
combined company ("MCI WorldCom") is expected to have over $30 billion in 1998
pro forma revenues and will provide a complete range of local, long distance,
Internet and international communications services. In addition, the WorldCom
Board has concluded that the MCI/ WorldCom Merger presents significant
opportunities for cost savings and operating efficiencies. WorldCom estimates
that annual cash operating cost synergies of $2.5 billion are achievable in
1999, increasing to $5.6 billion by 2002. In addition, capital expenditure
savings of $2 billion per year are expected in 1999 and beyond. There can,
however, be no assurance that any specific level of cost savings or other
synergies will be achieved or that such cost savings or other synergies will be
achieved within the time period contemplated.
Set forth below are the synergies originally estimated by WorldCom to be
achievable as a result of the MCI/WorldCom Merger (the "Previous Synergy
Estimates") and the revised synergy estimates prepared by WorldCom following the
exchange of information between MCI and WorldCom (the "Revised Synergy
Estimates"). Both the Previous Synergy Estimates and the Revised Synergy
Estimates are net of the expenses WorldCom estimates will be incurred to achieve
such savings. WorldCom is in the process of developing its plan to integrate the
operations of MCI which may include certain exit costs. As a result of this
plan, a charge, which may be material but which cannot now be quantified, is
expected to be recognized in the period in which such a restructuring occurs.
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The information contained in this section "Effects of the MCI/WorldCom
Merger; Estimated Synergies" (pages 84-88) was not prepared with a view toward
compliance with published guidelines of the Commission or the American Institute
of Certified Public Accountants regarding forward-looking information or
generally accepted accounting principles and was not examined, reviewed or
compiled by independent public accountants, and, accordingly, the independent
public accountants do not express an opinion or any other form of assurance with
respect thereto. The estimates of achievable cost synergies ("synergies") were
based upon a variety of estimates and assumptions. The estimates and assumptions
underlying the synergies which involved judgments with respect to, among other
things, future economic, competitive, regulatory and financial market conditions
and future business decisions which may not be realized and are inherently
subject to significant business, economic, competitive and regulatory
uncertainties, all of which are difficult to predict and many of which are
beyond the control of WorldCom, MCI and CompuServe and will be beyond the
control of the combined companies. There can be no assurance that the synergies
will be realized, and actual results may vary materially from those shown.
Additionally, the synergies do not reflect revised prospects for WorldCom's,
MCI's or the combined companies' businesses, changes in general business and
economic conditions, or any other transaction or event that has occurred or that
may occur and that was not anticipated at the time such information was
prepared. None of the synergies were intended to be a forecast of profits by
WorldCom, MCI and the combined companies or any of their directors, and in
deciding whether or not to approve the CompuServe Merger, stockholders of
CompuServe should not put undue reliance upon any such synergies. Neither
WorldCom, CompuServe nor MCI have updated or supplemented this information or
intend to do so. This section contains "forward looking statements" within the
meaning of the PSLRA. See "Cautionary Statement Regarding Forward-Looking
Statements" and "Risk Factors."
ESTIMATES OF ACHIEVABLE COST SYNERGIES
PREVIOUS SYNERGY ESTIMATES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
--------------------------------
1999 2000 2001 2002
----- ----- ----- -----
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C>
Network synergies and avoided local losses.................. $1.5 $2.0 $2.7 $3.2
Core SG&A................................................... 0.9 1.0 1.1 1.2
---- ---- ---- ----
Total pre-tax cash operating synergies...................... $2.4 $3.0 $3.8 $4.4
As a % of combined revenues............................... 6% 6% 7% 7%
As a % of combined operating expenses..................... 8% 8% 9% 9%
Capital expenditure savings................................. $1.5 $1.6 $1.5 $1.5
As a % of combined revenues............................... 4% 3% 3% 2%
As a % of combined capital expenditures................... 20% 21% 19% 18%
</TABLE>
REVISED SYNERGY ESTIMATES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
--------------------------------
1999 2000 2001 2002
----- ----- ----- -----
(DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C>
Network synergies and avoided local losses.................. $1.6 $2.6 $3.5 $4.4
Core SG&A................................................... 0.9 1.0 1.1 1.2
---- ---- ---- ----
Total pre-tax cash operating synergies...................... $2.5 $3.6 $4.6 $5.6
As a % of combined revenues............................... 6% 8% 8% 8%
As a % of combined operating expenses..................... 8% 10% 11% 12%
Capital expenditure savings................................. $2.0 $2.0 $2.0 $2.0
As a % of combined revenues............................... 5% 4% 4% 3%
As a % of combined capital expenditures................... 26% 26% 24% 23%
</TABLE>
The Previous Synergy Estimates were developed by WorldCom prior to October
1, 1997 based on publicly available information, WorldCom's general knowledge of
the telecommunications industry and
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WorldCom's experience in prior merger and acquisition transactions. The Revised
Synergy Estimates were developed subsequently by WorldCom following an exchange
of information between MCI and WorldCom and discussions between the companies'
respective management teams. As a result of the information obtained by WorldCom
and the discussions with the MCI management team, the Revised Synergy Estimates
include certain new categories of potential savings, such as cost savings
relating to the elimination of duplicated information technology costs. In
addition, categories of savings included in the Previous Synergy Estimates were
revised by WorldCom in light of improved knowledge about MCI's business and
prospects.
The Previous Synergy Estimates and the Revised Synergy Estimates are net of
the expenses WorldCom believes will be incurred to achieve the estimated costs
synergies.
Network Synergies and Avoided Local Losses. In both the Previous
Synergy Estimates and the Revised Synergy Estimates, network synergies and
avoided local losses were anticipated to be realized in three areas:
reduced domestic network costs, reduced cost of terminating international
traffic and avoided costs in MCI's local activities.
Reduced domestic network costs. As a result of WorldCom's existing
extensive local network, the combined company will carry an increased
proportion of its domestic traffic on its own local network facilities
resulting in a reduction in leased line costs and access costs
associated with switched traffic. By combining WorldCom's and MCI's
traffic, a reduction in variable network costs such as In-WATS, Out-WATS
and directory services are expected as a result of the combined
company's greater purchasing power. Assumptions used by WorldCom to
estimate the magnitude of potential cost savings in this area included:
(i) the magnitude of MCI's and WorldCom's projected costs for
terminating traffic domestically; (ii) the mix of these costs between
different categories such as access, direct access lines and leased
lines, Out-WATS and In-WATS, and entrance facilities; and (iii) the
proportion of the projected costs that net of implementation costs could
be eliminated as a result of combining MCI's and WorldCom's activities.
Reduced cost of terminating international traffic. MCI currently
has more extensive settlement agreements for international traffic than
does WorldCom. The combined company will benefit from these settlement
agreements. In addition, as a result of construction of transatlantic
facilities and network facilities in Europe, the combined company will
be able to lower MCI's average costs of terminating certain traffic in
Europe. Assumptions used by WorldCom to estimate the magnitude of
potential costs savings in this area included: (i) the magnitude of
MCI's and WorldCom's projected costs for terminating traffic overseas on
a country-by-country basis; (ii) the magnitude of MCI's and WorldCom's
projected international traffic on a country-by-country basis; and (iii)
the proportion of MCI's international traffic that could be carried on
WorldCom's facilities in Europe.
Avoided costs in MCI's local activities. As a result of WorldCom's
existing extensive local network and operations, the combined company
will be able to execute MCI's plans to expand in the local market at a
lower cost than MCI would be able to on a stand-alone basis. The
combined company will avoid the need to duplicate certain sales,
marketing and administrative functions and will have reduced network
costs resulting from the more rapid transfer of traffic to the combined
company's network facilities. Assumptions used by WorldCom to estimate
the magnitude of potential cost savings in this area included: (i) the
projected operating costs associated with MCI's plans to expand its
presence in the local market; and (ii) the proportion of these costs
that net of implementation costs could be avoided by combining MCI's and
WorldCom's businesses.
Comparing the Previous Synergy Estimates and the Revised Synergy
Estimates, network synergies and avoided local losses increased by $100
million in 1999 and by $1.2 billion in 2002. These changes occurred as a
result of a substantial increase in estimated reduced costs of terminating
international traffic and a modest increase in reduced domestic network
costs offset by a modest reduction in avoided costs in MCI's local
activities.
Core SG&A. The increased scale of activities in the combined company's
operations will result in opportunities to reduce costs by avoiding
expenditures on duplicative activities, greater purchasing power
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and the adoption of best practices in cost containment across the combined
company resulting in a reduction in core sales, general and administrative
expenses. Assumptions used by WorldCom to estimate the magnitude of
potential cost savings in this area included: (i) the magnitude of MCI's
and WorldCom's sales, general and administrative expense by category such
as sales, accounting and finance and information services; and (ii) the
proportion of the projected costs that net of implementation costs could be
eliminated as a result of combining MCI's and WorldCom's activities, based
in part on a comparison to other comparable companies' levels of sales,
general and administrative expenses as a percentage of sales.
Core sales, general and administrative cost synergies did not change
materially between the Previous Synergy Estimates and the Revised Synergy
Estimates.
Capital Expenditure Savings. Capital expenditure savings are expected
to be realized primarily in three areas: domestic long distance network
activities, local network buildout and information technology. Capital
expenditures relating to the combined company's long distance activities
will be reduced primarily as a result of avoided duplicative fixed capital
expenses and the cost benefits realized from greater purchasing
efficiencies. Capital expenditures relating to the combined company's local
and information technology activities will be reduced primarily as a result
of avoided duplicative capital expenditures. Assumptions used by WorldCom
to estimate the magnitude of potential cost savings in this category
included: (i) the magnitude of MCI's and WorldCom's long distance, local
and information technology related capital expenditures; and (ii) the
proportion of the projected costs that net of implementation costs could be
eliminated as a result of combining MCI's and WorldCom's activities.
Comparing the Previous Synergy Estimates and the Revised Synergy
Estimates, capital expenditure savings increased by approximately $500
million per year primarily as a result of significant anticipated savings
in the area of information technology that were not included in the
Previous Synergy Estimates and a modest increase in anticipated long
distance savings. In the Revised Synergy Estimates, in 1999 approximately
45% of total capital expenditure savings relate to long distance, 35% to
local and 20% to information technology. In 2002, approximately 65% of
total capital expenditure savings relate to long distance, 15% to local and
20% to information technology.
The combined company would be the second largest long distance carrier in
the United States. The combined company would begin operations with one of the
industry's strongest bases of business customers and more than 22 million small
business and residential customers.
The WorldCom Board believes that the MCI/WorldCom Merger would create a
company strongly positioned to fulfill the promise of the Telecom Act and
accelerate the onset of competition in local telecommunications. WorldCom
believes that the combined company can expand further and faster into local
service areas now dominated by incumbent local exchange carriers than either
company could on a stand-alone basis because of the efficiencies that WorldCom
believes the combined company will achieve through, among other things as
described above, reduced capital expenditures in the deployment of the same
amount of, or more, network capacity than the total of what the two companies
would deploy on a stand-alone basis. The new company would offer local service
over its own facilities, including more than 9,000 route miles of local fiber,
in more than 100 markets.
The combined company, with offices in 65 countries, would be the second
largest carrier of international voice traffic in the world. The WorldCom Board
believes that the combination of WorldCom and MCI will position MCI WorldCom as
a powerful competitor in the $670 billion global telecom industry.
MCI WorldCom would bring together the Internet expertise of UUNET and MCI
to create one of the world's largest providers of Internet services. The
combined company's advanced portfolio of Internet/data services would include
access, web hosting and development, intranet applications as well as high-speed
virtual data services.
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The WorldCom Board believes that MCI WorldCom will provide global customers
with unparalleled networking strength and more than 20 years of experience in
systems integration, superior outsourcing capabilities and technology support
and implementation.
Charter Amendment
The WorldCom Board of Directors intends to propose an amendment to the
WorldCom Articles (the "Charter Amendment") and directed that the Charter
Amendment be submitted to the shareholders of WorldCom for approval at a special
meeting of the stockholders of WorldCom (the "WorldCom Special Meeting") called
to obtain shareholder approval of the Share Issuance. The Charter Amendment
would change the name of WorldCom to "MCI WorldCom, Inc." from "WorldCom, Inc."
Approval of the Charter Amendment by the WorldCom shareholders is not a
condition precedent to the consummation of the MCI/ WorldCom Merger.
If approved by the shareholders at the WorldCom Special Meeting, the
Charter Amendment will become effective upon the filing of an amendment to the
WorldCom Articles with the Georgia Secretary of State.
The change in WorldCom's corporate name will not affect the validity or
transferability of stock certificates presently outstanding, or any certificates
issued in connection with the CompuServe Merger, and WorldCom's shareholders,
both prior to and following consummation of the CompuServe Merger, will not be
required to exchange any certificates presently held by them.
Management After the MCI/WorldCom Merger
WorldCom has further agreed to take all necessary action as of the
MCI/WorldCom Effective Time to reconstitute the Board of Directors of WorldCom
to consist of fifteen members, eight of whom will be designated by WorldCom from
among the directors of WorldCom, five of whom will be designated by MCI from
among the directors of MCI and two of whom shall be directors designated by
WorldCom from among pending acquisitions of WorldCom, provided that the persons
designated by each party are reasonably acceptable to the other party. WorldCom
has further agreed to cause Bert C. Roberts, Jr. to be appointed Chairman of
WorldCom and to cause the senior management of WorldCom to be as previously
agreed between the parties. See "-- Management of WorldCom Following the
MCI/WorldCom Merger."
Accounting Treatment
The MCI/WorldCom Merger will be accounted for as a purchase for financial
accounting purposes in accordance with generally accepted accounting principles.
For purposes of preparing WorldCom's consolidated financial statements, WorldCom
will establish a new accounting basis for MCI's assets and liabilities based
upon the fair values thereof, the MCI/WorldCom Merger Consideration and the
costs of the MCI/ WorldCom Merger. WorldCom's management believes that any
excess of cost over the fair value of the net assets of MCI will be recorded as
goodwill, in-process research and development, and other intangible assets.
In-process research and development projects may include projects for which
technological feasibility has not been established and the technology has no
future alternative use. To the extent that a portion of the purchase price is
allocated to such in-process research and development projects, a charge, which
may be material to WorldCom's results of operations, would be recognized in the
period in which the MCI/WorldCom Merger occurs. A final determination of the
intangible asset lives and required purchase accounting adjustments, including
the allocation of the purchase price to the assets acquired and liabilities
assumed based on their respective fair values, has not yet been made.
Accordingly, the purchase accounting adjustments made in connection with the
development of the unaudited pro forma condensed combined financial information
appearing elsewhere in this Proxy Statement/Prospectus are preliminary and have
been made solely for purposes of developing such unaudited pro forma condensed
combined financial information. WorldCom has undertaken a study to determine the
fair value of certain of MCI's assets and liabilities and will make appropriate
purchase accounting adjustments upon completion of that study. For financial
reporting purposes, the results of operations of MCI will be included in the
WorldCom consolidated statement of operations following the MCI/WorldCom
Effective Time. See "Pro Forma Financial Information."
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Certain Regulatory Filings and Approvals
FCC Transfer Approvals. Certain activities of WorldCom and MCI are
regulated by the FCC. Provisions of Title 47 of the United States Code,
including Sub-Titles II and III and the Cable Landing License Act, require the
prior approval of the FCC for the acquisition of control of a company such as
MCI that holds various licenses and authorizations issued by the FCC. The FCC
traditionally grants approval of such transactions if it determines that the
transfer of control is consistent with the public interest, convenience and
necessity, without consideration of the relative merits of such a transfer of
control vis-a-vis those of any other possible transfers of control that may be
pending or contemplated. On October 1, 1997, WorldCom requested FCC approval for
both stages of a two-step transfer of control of MCI to WorldCom that
contemplated as a first step an interim transfer of control to a "caretaker"
voting trustee empowered to acquire and hold shares of MCI tendered pursuant to
the MCI Offer. Subsequently, WorldCom and MCI agreed upon the terms of the
MCI/WorldCom Merger and in light of the MCI/WorldCom Merger Agreement, MCI and
WorldCom jointly requested that the request for a voting trust be withdrawn and
jointly submitted amendments to WorldCom's October 1, 1997 applications under
Title III of the Communications Act relating to MCI's radio licenses, requesting
approval of transfer of control of MCI to WorldCom. WorldCom and its
Subsidiaries already hold certain similar authorizations issued by the FCC, and
WorldCom believes it is likely that the transfer applications will be granted.
However, the transfer applications are subject to public comment, petitions to
deny and informal objections by third parties, which may interpose objections in
an attempt to delay or impede approval by the FCC. Accordingly, there can be no
assurance that the FCC will timely grant the transfer applications or not
subject their approval to various conditions and restrictions. The MCI/WorldCom
Merger is conditioned on receipt of approval of the transfer applications, other
than those the failure of which to be obtained would not reasonably be expected
to have individually or, together with any approvals from the PUCs which shall
not have been obtained, in the aggregate a MCI/WorldCom Material Adverse Effect
(defined below) on WorldCom and its Subsidiaries (defined below) (including the
surviving corporation of the MCI/WorldCom Merger (the "MCI/WorldCom Surviving
Corporation")).
State Regulatory Transfer Approval. WorldCom has amended or expects shortly
to amend pending state transfer applications and to file additional state
applications (the "State Applications") that seek prior approval of the
contemplated acquisition of control of MCI by WorldCom from multiple state PUCs,
whose governing statutes and rules require their consent for transfers of
control of common carriers such as MCI, that provide intrastate local and
interexchange telecommunications services within their respective states. The
State Applications are subject to public comment and objections and oppositions
of third parties which may interpose objections in an attempt to delay or impede
approval by the state PUCs. Notwithstanding any such challenges, WorldCom
believes it is likely that the state PUCs will grant all State Applications
other than those the failure of which to be obtained would not reasonably be
expected to have individually or in the aggregate an MCI/WorldCom Material
Adverse Effect. WorldCom's subsidiaries hold authorizations from the state PUCs,
and most of those authorizations convey the same or similar authority as the
corresponding authorizations held by MCI. There can be no assurance, however,
that the state PUCs will timely grant the transfer applications or not subject
their approval to various conditions and restrictions. The MCI/WorldCom Merger
is conditioned on receipt of approval of the transfer applications, other than
those the failure of which to be obtained would not reasonably be expected to
have individually or, together with any approvals from the FCC which shall not
have been obtained, in the aggregate an MCI/WorldCom Material Adverse Effect on
WorldCom and its Subsidiaries (including the MCI/WorldCom Surviving
Corporation).
Hart-Scott-Rodino Act and European Commission Approvals. Under the
Hart-Scott-Rodino Act and the rules promulgated thereunder by the FTC, the
MCI/WorldCom Merger may not be consummated until notifications have been given
and certain information has been furnished to the FTC and specified waiting
period requirements have been satisfied. WorldCom filed notification and report
forms under the Hart-Scott-Rodino Act with the FTC and the DOJ on October 1,
1997. On October 31, 1997, each of WorldCom and MCI received a request for
additional information from the DOJ.
The consummation of the MCI/WorldCom Merger is also contingent upon
confirmation from the European Commission under the Merger Control Regulation
that the MCI/WorldCom Merger does not create or strengthen a dominant position
as a result of which effective competition would be significantly
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impeded in the common market. MCI and WorldCom jointly filed with the European
Commission the required notification of the MCI/WorldCom Merger on November 20,
1997. On December 18, 1997, the European Commission advised WorldCom and MCI
that it sought additional information regarding the merger. The parties plan to
provide the requested information in mid-January 1998. If, following a one-month
period after the submission of the additional information, the European
Commission considers that it needs to examine the MCI/WorldCom Merger more
closely, it may initiate a Phase II investigation; if it does initiate a Phase
II investigation, the European Commission must make a final determination as to
whether or not the MCI/WorldCom Merger is compatible with the common market no
later than four months after the initiation of such investigation. If the
European Commission were not to make a decision within this four month period,
the MCI/WorldCom Merger would automatically be deemed to be compatible with the
common market and would be allowed to proceed. WorldCom and MCI believe it is
likely that the European Commission will determine that the MCI/WorldCom Merger
is compatible with the common market. However, no assurance can be given that
the European Commission will not impose certain conditions or restrictions on
the MCI/WorldCom Merger.
At any time before or after the MCI/WorldCom Effective Time, and
notwithstanding that the Hart-Scott-Rodino Act waiting period may have expired,
the MCI/WorldCom Merger may have been approved by the European Commission
pursuant to the Merger Control Regulation or the MCI/WorldCom Merger may have
been consummated, the DOJ or any state could take such action under applicable
laws as it deems necessary or desirable. Such action could include seeking to
enjoin the consummation of the MCI/WorldCom Merger or seeking divestiture of MCI
or businesses of WorldCom or MCI acquired as a result of the MCI/ WorldCom
Merger. Private parties may also bring legal actions under the antitrust laws
under certain circumstances.
Percentage Ownership Interest of MCI Stockholders After the MCI/WorldCom
Merger
The number of shares of WorldCom Common Stock to be issued in the
MCI/WorldCom Merger will depend on the actual MCI Exchange Ratio, which will not
be known until the end of the MCI Measurement Period (which ends three trading
days preceding the MCI/WorldCom Effective Time). If the minimum MCI Exchange
Ratio (1.2439) is applicable, and assuming that there will be 942,958,200 shares
of WorldCom Common Stock and 565,301,683 shares of MCI Common Stock outstanding
immediately prior to the MCI/ WorldCom Effective Time (which numbers are based
on the number of shares outstanding on December 15, 1997, in the case of
WorldCom, and October 31, 1997, in the case of MCI, without regard to shares
issuable upon exercise of options, rights or warrants but assuming the
conversion of WorldCom convertible securities), the number of shares of WorldCom
Common Stock to be issued in the MCI/WorldCom Merger would be 703,178,163, which
would represent 42.7% of the outstanding shares of WorldCom Common Stock
immediately after the MCI/WorldCom Effective Time. If the maximum MCI Exchange
Ratio (1.7586) is applicable, and based on the same assumptions, the number of
shares of WorldCom Common Stock to be issued in the MCI/WorldCom Merger would be
994,139,540, which would represent 51.3% of the outstanding shares of WorldCom
Common Stock immediately after the MCI/WorldCom Effective Time. These figures do
not reflect the CompuServe Merger or the BFP Merger.
Other Terms of the MCI/WorldCom Merger Agreement
The description of the MCI/WorldCom Merger and the MCI/WorldCom Merger
Agreement contained in this Proxy Statement/Prospectus describes the material
terms of the MCI/WorldCom Merger Agreement but does not purport to be complete
and is qualified in its entirety by reference to the MCI/WorldCom Merger
Agreement, a copy of which is attached as an exhibit to the Registration
Statement and incorporated herein by reference. Capitalized terms appearing
below that are not otherwise defined herein have the same meanings as are given
such terms in the MCI/WorldCom Merger Agreement. Whenever particular sections or
defined terms are referred to, it is intended that such sections or defined
terms shall be incorporated by reference.
Conversion of Shares in the MCI/WorldCom Merger. At the MCI/WorldCom
Effective Time, by virtue of the MCI/WorldCom Merger and without any further
action on the part of the holder thereof:
(i) each share of common stock of MCI Merger Sub issued and
outstanding immediately prior to the MCI/WorldCom Effective Time will
remain issued, outstanding and unchanged as validly issued,
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fully paid and nonassessable shares of common stock, par value $.01 per
share, of the MCI/WorldCom Surviving Corporation;
(ii) each share of MCI Capital Stock issued and owned or held by
WorldCom, MCI Merger Sub or MCI at the MCI/WorldCom Effective Time will, by
virtue of the MCI/WorldCom Merger, cease to be outstanding and will be
canceled and retired, and no stock of WorldCom or other consideration will
be delivered in exchange therefor;
(iii) each share of MCI Common Stock issued and outstanding
immediately prior to the MCI/ WorldCom Effective Time (other than any
shares to be canceled as described in subparagraph (ii) above) will be
converted into the right to receive that number of shares of WorldCom
Common Stock equal to the MCI Exchange Ratio; provided, however, that cash
will be paid in lieu of any fractional share of WorldCom Common Stock (see
"-- No Fractional Shares"); and
(iv) each share of MCI Class A Common Stock issued and outstanding
immediately prior to the MCI/WorldCom Effective Time (other than shares to
be canceled as described in paragraph (ii) above) will be converted into
the right to receive $51.00 in cash, without interest thereon.
As a result of the MCI/WorldCom Merger and without any action on the part
of the holders thereof, all shares of MCI Capital Stock will cease to be
outstanding and will be canceled and retired and will cease to exist, and each
holder of a certificate which immediately prior to the MCI/WorldCom Effective
Time represented any such shares of MCI Capital Stock (a "Certificate") will
cease to have any rights with respect thereto, except the right to receive, as
hereinafter described: (i) a certificate representing the number of whole shares
of WorldCom Common Stock (or the amount in cash, as applicable) into which any
such shares of MCI Common Stock have been converted, (ii) certain dividends and
other distributions and (iii) the cash, without interest, into which the shares
of MCI Class A Common Stock have been converted and the cash in lieu of any
fractional shares of WorldCom Common Stock that would otherwise be issued.
No Fractional Shares
No certificates or scrip or shares of WorldCom Common Stock representing
fractional shares of WorldCom Common Stock will be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or have any other rights of a stockholder of WorldCom.
In lieu of any such fractional share, each holder of shares of MCI Common Stock
exchanged pursuant to the MCI/WorldCom Merger Agreement who would otherwise have
been entitled thereto (after taking into account all Certificates) will be paid
cash (without interest) in an amount equal to the product of (i) such fractional
part of a share of WorldCom Common Stock multiplied by (ii) the last sales price
per share of WorldCom Common Stock quoted on The Nasdaq National Market on the
closing date of the MCI/ WorldCom Merger Agreement (the "MCI/WorldCom Closing
Date").
Representations and Warranties
The MCI/WorldCom Merger Agreement contains various representations and
warranties of WorldCom, MCI and MCI Merger Sub relating, among other things, to
the following: (i) their incorporation, existence, good standing, corporate
power and similar corporate matters; (ii) their capitalization; (iii) their
authorization, execution, delivery and performance and the enforceability of the
MCI/WorldCom Merger Agreement and related matters; (iv) the absence of
conflicts, violations and defaults under their certificates, or articles of
incorporation and bylaws and certain other agreements and documents; (v) the
absence of required consents, approvals, orders or authorizations of, or
registration, declaration or filing with certain governmental entities; (vi) the
documents and reports filed with the Commission and the accuracy and
completeness of the information contained therein; (vii) the registration
statement and the joint proxy statement/prospectus contained therein relating to
the MCI/WorldCom Merger and the accuracy and completeness of the information
contained therein; (viii) the absence of certain material changes or events with
respect to WorldCom since December 31, 1996; (ix) the stockholder votes required
to approve the MCI/WorldCom Merger; (x) the inapplicability of MCI's stockholder
rights plan to the MCI/WorldCom Merger; (xi) brokers or finders fees and
expenses; (xii) the receipt of fairness opinions by MCI from its financial
advisors; and (xiii) the receipt of letters identifying "affiliates" of each
company for purposes of Rule 145 under the Securities Act.
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All representations and warranties of WorldCom, MCI and MCI Merger Sub
expire at the MCI/ WorldCom Effective Time.
Conduct of Business Pending the MCI/WorldCom Merger
Each of WorldCom and MCI has agreed that during the period from the date of
the MCI/WorldCom Merger Agreement and continuing until the MCI/WorldCom
Effective Time, except as expressly contemplated or permitted by the
MCI/WorldCom Merger Agreement or as otherwise indicated on its disclosure
schedule or as required by a Governmental Entity (defined below) of competent
jurisdiction or to the extent that the other party shall otherwise consent in
writing, it and its Subsidiaries (defined below) will conduct their business in
the usual, regular and ordinary course of business in all material respects, in
substantially the same manner as conducted prior to the MCI/WorldCom Merger
Agreement, and will use all reasonable efforts to preserve intact their present
lines of business, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings with
them to the end that their ongoing businesses are not impaired in any material
respect at the MCI/WorldCom Effective Time. As used in the MCI/WorldCom Merger
Agreement and this description thereof, "Subsidiary" means any corporation or
other organization, whether incorporated or unincorporated, (i) of which such
party or any other Subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such party or
any Subsidiary of such party do not have a majority of the voting interests in
such partnership) or (ii) at least a majority of the securities or other
interests of which have by their terms ordinary voting power to elect a majority
of the Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries and "Governmental Entity" means any
supranational, national, state, municipal or local government, any
instrumentality, subdivision, court, administrative agency or commission or
other authority thereof, or any quasi-governmental or private body exercising
any regulatory, taxing, importing or other governmental or quasi-governmental
authority, including the European Union.
Each of WorldCom and MCI has further agreed that during the period from the
date of the MCI/ WorldCom Merger Agreement and continuing until the MCI/WorldCom
Effective Time, except as expressly contemplated or permitted by the
MCI/WorldCom Merger Agreement or as otherwise indicated on its disclosure
schedule or as required by a Governmental Entity of competent jurisdiction or to
the extent that the other party otherwise consents in writing, that it will not
and will not permit any of its Subsidiaries to:
(i) enter into any new material line of business or incur or commit to
any capital expenditures other than capital expenditures incurred or
committed in the ordinary course of business consistent with past practice
and which, in the case of MCI, together with all such expenditures incurred
or committed to during any fiscal year, are not in excess of specified
amounts;
(ii) (A) declare or pay any dividends on or make other distributions
in respect of any of its capital stock, except (x) in the case of MCI, to
continue the declaration and payment of regular semiannual cash dividends
not in excess of $0.025 per share of MCI Common Stock and MCI Class A
Common Stock, in each case with usual record and payment dates for such
dividends in accordance with MCI's past practice and, in the case of
WorldCom, to continue the declaration and payment of regular quarterly cash
dividends in amounts, including increases, consistent with past practice,
and (y) dividends by its wholly-owned Subsidiaries, (B) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock, except for any such
transaction by a wholly-owned Subsidiary which remains a wholly-owned
Subsidiary after consummation of such transaction, or (C) repurchase,
redeem or otherwise acquire any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital
stock except for the purchase from time to time of capital stock (and in
the case of MCI, the associated preferred stock purchase rights (each, an
"MCI Right" and, collectively, the "MCI Rights") issued pursuant to a
Rights Agreement, dated as of September 30, 1994, between MCI and Morgan
Guaranty Trust Company of New York, as Rights Agent, as amended) in the
ordinary course of business consistent with past practice in connection
with certain of its benefit plans or, in the case of WorldCom,
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repurchases of shares of WorldCom Common Stock in open market or privately
negotiated transactions other than during the MCI Measurement Period;
(iii) amend, in the case of Subsidiaries, in any material respect, or
propose to amend their respective certificates of incorporation, by-laws or
other governing documents, except to the extent required to comply with
their respective obligations under the MCI/WorldCom Merger Agreement,
required by law or required by the rules and regulations of the NASD;
(iv) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock of any class, any debt
securities having the right to vote on any matters on which stockholders
may vote ("Voting Debt") or any securities convertible into or exercisable
for, or any rights, warrants or options to acquire, any such shares or
Voting Debt or enter into any agreement with respect to any of the
foregoing, other than (A) the issuance of common stock (and in the case of
MCI, the associated MCI Rights) upon the exercise of stock options or in
connection with other stock-based benefits plans outstanding on the date of
the MCI/WorldCom Merger Agreement in accordance with their present terms,
(B) issuances by a wholly-owned Subsidiary of capital stock to such
Subsidiary's parent, (C) issuances in accordance with its rights agreement,
(D) in the case of MCI, issuances of shares, options, rights or other
awards and amendments to equity-related awards pursuant to certain of its
benefit plans, in the ordinary course of business and consistent with past
practice, and (E) in the case of WorldCom, issuances in respect of any
acquisitions by WorldCom or its subsidiaries that are currently pending as
of the date of the MCI/WorldCom Merger Agreement ("WorldCom Pending
Acquisitions");
(v) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof
or otherwise acquire or agree to acquire any assets (other than the
acquisition of assets used in the ordinary course) other than (A) in the
case of WorldCom, the WorldCom Pending Acquisitions and (B) acquisitions in
existing or related lines of its business the fair market value of the
total consideration (including the value of indebtedness or other liability
acquired or assumed) for which, in the case of WorldCom, does not exceed
$525 million in the aggregate and for which, in the case of MCI does not
exceed $325 million in the aggregate, provided, however, that the foregoing
does not prohibit (x) internal reorganizations or consolidations involving
existing Subsidiaries or (y) the creation of new Subsidiaries organized to
conduct or continue activities otherwise permitted by the MCI/WorldCom
Merger Agreement;
(vi) sell, lease, encumber or otherwise dispose of, any of its assets
(including capital stock of its Subsidiaries) which are material,
individually or in the aggregate, other than (A) internal reorganizations
or consolidations involving existing Subsidiaries, (B) dispositions
referred to in its reports filed with the Commission prior to the date of
the MCI/WorldCom Merger Agreement and (C) as may be required by or in
conformance with law or regulation in order to permit or facilitate the
consummation of the transactions contemplated hereby;
(vii) make any loans, advances or capital contributions to, or
investments in, any other person, other than by MCI or WorldCom, or a
respective Subsidiary of each to or in MCI or WorldCom or any respective
Subsidiary of each or to pay, discharge or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than indebtedness, issuances of debt securities,
guarantees, loans, advances, capital contributions, investments, payments,
discharges or satisfactions incurred or committed to in the ordinary course
of business consistent with past practice;
(viii) take any action that would prevent or impede the MCI/WorldCom
Merger from qualifying as a reorganization under Section 368 of the Code;
(ix) take any action that would, or that could reasonably be expected
to, result in, except, in the case of MCI as otherwise permitted with
respect to MCI/WorldCom Acquisition Proposals (as hereinafter defined), any
of the conditions to the MCI/WorldCom Merger not being satisfied;
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(x) except as disclosed in its reports filed with the Commission prior
to the date of the MCI/WorldCom Merger Agreement, or as required by a
Governmental Entity, (A) change its methods of accounting in effect at
December 31, 1996, except as required by changes in United States generally
accepted accounting principles as concurred in by its independent auditors,
(B) change its fiscal year or (C) make any material tax election, other
than in the ordinary course of business consistent with past practice,
without consultation with the other party; or
(xi) amend, modify or waive any provision of its respective rights
agreement, and shall not take any action to redeem the respective rights or
render them inapplicable to any transaction, except, in the case of MCI to
(A) render the rights inapplicable to the MCI/WorldCom Merger and (B) to
permit another transaction that the MCI Board has determined is a Superior
Proposal to be consummated no earlier than December 31, 1998. As used in
the MCI/WorldCom Merger Agreement and this Proxy Statement Prospectus,
"Superior Proposal" means a bona fide written MCI/WorldCom Acquisition
Proposal (as hereinafter defined) which the Board of Directors of MCI
concludes in good faith (after consultation with its financial advisors and
legal counsel), taking into account all legal, financial, regulatory and
other aspects of the proposal and the person making the proposal, (x)
would, if consummated, result in a transaction that is more favorable to
MCI's stockholders (in their capacities as stockholders), from a financial
point of view, than the transactions contemplated by the MCI/WorldCom
Merger Agreement and (y) is reasonably capable of being completed (provided
that for purposes of this definition the term "MCI/WorldCom Acquisition
Proposal" will have the meaning assigned to such term in "-- MCI/ WorldCom
Acquisition Proposals" except that the reference to "10%" in the definition
of "MCI/ WorldCom Acquisition Proposal" will be deemed to be a reference to
"50%" and "MCI/WorldCom Acquisition Proposal" will only be deemed to refer
to a transaction involving MCI, or with respect to assets (including the
shares of any Subsidiary of MCI) of MCI and its Subsidiaries, taken as a
whole, and not any of its Subsidiaries alone).
In addition, WorldCom has agreed that it will not, and that it will not
permit any of its Subsidiaries to, enter into any agreement with respect to or
consummate any transaction contemplated by an MCI/ WorldCom Acquisition
Proposal.
Each of WorldCom and MCI has also further agreed that each party will (a)
confer on a regular and frequent basis with the other, (b) report (to the extent
permitted by law or regulation or any applicable confidentiality agreement) on
operational matters, (c) file all reports required to be filed by each of them
with the Commission (and all other Governmental Entities) between the date of
the MCI/WorldCom Merger Agreement and the MCI/WorldCom Effective Time and will
(to the extent permitted by law or regulation or any applicable confidentiality
agreement) deliver to the other party copies of all such reports, announcements
and publications promptly after the same are filed, (d) have the right (subject
to applicable laws relating to the exchange of information) to review in
advance, and will consult with the other with respect to, all the information
relating to the other party and each of their respective Subsidiaries, which
appears in any filings, announcements or publications made with, or written
materials submitted to, any third party or any Governmental Entity in connection
with the transactions contemplated by the MCI/WorldCom Merger Agreement. In
exercising the foregoing right, each of WorldCom and MCI has agreed to act
reasonably and as promptly as practicable, and to the extent practicable and as
timely as practicable, it will consult with, and provide all appropriate and
necessary assistance to, the other party with respect to the obtaining of all
permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary or advisable to consummate the transactions
contemplated by the MCI/WorldCom Merger Agreement and each party will keep the
other party apprised of the status of matters relating to completion of the
transactions contemplated hereby.
Each of WorldCom and MCI has also further agreed that Bernard J. Ebbers, as
Chief Executive Officer of WorldCom, and Gerald H. Taylor, as Chief Executive
Officer of MCI, or their respective successors, jointly will be responsible for
coordinating all aspects of transition planning and implementation relating to
the MCI/ WorldCom Merger and the other transactions contemplated thereby,
including, during the period between the date of the MCI/WorldCom Merger
Agreement and the MCI/WorldCom Effective Time, (i) examining various
alternatives regarding the manner in which to best organize and manage the
businesses of WorldCom
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and MCI after the MCI/WorldCom Effective Time and (ii) coordinating policies and
strategies with respect to regulatory authorities and bodies, in all cases
subject to applicable law and regulation; provided however that nothing
contained in the MCI/WorldCom Merger Agreement will give MCI or WorldCom,
directly or indirectly, the right to control or direct the other party's
operations prior to the MCI/WorldCom Effective Time.
Each of WorldCom and MCI has also further agreed that (i) it will, as
promptly as practicable following the date of the MCI/WorldCom Merger Agreement,
in cooperation with the other, prepare and file with the Commission a joint
proxy statement/prospectus and an amendment to WorldCom's existing registration
statement on Form S-4 with respect to the Share Issuance, (ii) use all
reasonable efforts to have the Form S-4 cleared by the Commission as promptly as
practicable after filing with the Commission and to keep the Form S-4 effective
as long as is necessary to consummate the MCI/WorldCom Merger and (iii) as
promptly as practicable following the execution of the MCI/WorldCom Merger
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders for the purpose of obtaining the required votes with respect to the
transactions contemplated by the MCI/WorldCom Merger Agreement.
WorldCom has further agreed to take all necessary action to, as of the
MCI/WorldCom Effective Time, (i) reconstitute the MCI WorldCom Board to consist
of fifteen members, eight of whom will be designated by WorldCom from among the
directors of WorldCom, five of whom will be designated by MCI from among the
directors of MCI and two of whom shall be directors designated by WorldCom from
among pending acquisitions of WorldCom; provided that the persons designated by
each party are reasonably acceptable to the other party, (ii) cause Bert C.
Roberts, Jr. to be appointed Chairman of the combined company, (iii) cause the
senior management of the combined company to be as previously agreed between the
parties and (iv) amend the WorldCom Articles to change its name to "MCI
WorldCom." Each of WorldCom and MCI has also agreed that the combined company
will be headquartered in Jackson, Mississippi and the MCI/ WorldCom Surviving
Corporation (which will be a subsidiary of MCI WorldCom) will be headquartered
in Washington D.C.
Each of WorldCom and MCI has also further agreed that upon reasonable
notice, during the period prior to the MCI/WorldCom Effective Time, MCI will and
will cause its Subsidiaries to (i) afford to the officers, employees,
accountants, counsel, financial advisors and other representatives of WorldCom
reasonable access during normal business hours to all its properties, books,
contracts, commitments and records and (ii) furnish promptly to WorldCom (a) a
copy of each report, schedule, registration statement and other document filed,
published, announced or received by it during such period pursuant to the
requirements of Federal or state securities laws, as applicable (other than
reports or documents which such party is not permitted to disclose under
applicable law), and (b) consistent with its legal obligations, all other
information concerning its business, properties and personnel as such other
party may reasonably request; provided, however, that MCI may restrict the
foregoing access to the extent that (x) a Governmental Entity requires MCI or
any of its Subsidiaries to restrict access to any properties or information
reasonably related to any such contract on the basis of applicable laws and
regulations with respect to national security matters or (y) any law, treaty,
rule or regulation of any Governmental Entity applicable to MCI requires MCI or
its Subsidiaries to restrict access to any properties or information. The
parties have also agreed to hold any such information which is non-public in
confidence to the extent required by, and in accordance with, the provisions of
the letter dated October 16, 1997 between MCI and WorldCom (the "Confidentiality
Agreement").
Each of WorldCom and MCI has also further agreed that, subject to the terms
and conditions of the MCI/WorldCom Merger Agreement, each party will use its
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the MCI/WorldCom Merger and the other transactions
contemplated by the MCI/WorldCom Merger Agreement as soon as practicable, and in
furtherance thereof, each party has made filings of a Notification and Report
Form pursuant to the Hart-Scott-Rodino Act with respect to the transactions
contemplated by the MCI/WorldCom Merger Agreement and each has agreed to supply
as promptly as practicable any additional information and documentary material
that may be requested pursuant to the Hart-Scott-Rodino Act and to take all
other actions necessary to cause the expiration or termination of the applicable
waiting periods under the Hart-Scott-Rodino Act as soon as practicable.
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Each of WorldCom and MCI has also further agreed that it will, in
connection with the efforts referenced in the previous paragraph, use its best
efforts to (i) cooperate in all respects with the other party in connection with
any filing or submission and in connection with any investigation or other
inquiry, including any proceeding initiated by a private party; (ii) promptly
inform the other party of any communication received by such party from, or
given by such party to, the FCC, PUCs, the DOJ or any other Governmental Entity
and of any material communication received or given in connection with any
proceeding by a private party, in each case regarding any of the transactions
contemplated hereby, and (iii) permit the other party to review any
communication given by it to, and consult with each other in advance of any
meeting or conference with, the FCC, PUCs, the DOJ or any such other
Governmental Entity or, in connection with any proceeding by a private party,
with any other person, and to the extent permitted by the FCC, PUCs, the DOJ or
such other applicable Governmental Entity or other person, give the other party
the opportunity to attend and participate in such meetings and conferences. As
used in the MCI/WorldCom Merger Agreement, "Regulatory Law" means the Sherman
Act, as amended, the Clayton Act, as amended, the Hart-Scott-Rodino Act, the
Federal Trade Commission Act, as amended, the Federal Communications Act, as
amended, and all other federal, state and foreign, if any, statutes, rules,
regulations, orders, decrees, administrative and judicial doctrines and other
laws that are designed or intended to prohibit, restrict or regulate actions
having the purpose or effect of monopolization or restraint of trade or
lessening of competition, whether in the communications industry or otherwise
through merger or acquisition.
Each of WorldCom and MCI has also further agreed that, in furtherance and
not in limitation of the covenants of the parties described in the previous two
paragraphs, if any administrative or judicial action or proceeding, including
any proceeding by a private party, is instituted (or threatened to be
instituted) challenging any transaction contemplated by the MCI/WorldCom Merger
Agreement as violative of any Regulatory Law, it will cooperate in all respects
with the other and use its respective best efforts to contest and resist any
such action or proceeding and to have vacated, lifted, reversed or overturned
any decree, judgment, injunction or other order, whether temporary, preliminary
or permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by the MCI/WorldCom Merger
Agreement provided that the covenant described above of each party to use its
best efforts to effect the MCI/ WorldCom Merger, does not limit a party's right
to terminate the MCI/WorldCom Merger Agreement so long as such party has up to
then complied in all respects with such covenant.
Each of WorldCom and MCI has further agreed that, if any objections are
asserted with respect to the transactions contemplated by the MCI/WorldCom
Merger Agreement under any Regulatory Law or if any suit is instituted by any
Governmental Entity or any private party challenging any of the transactions
contemplated by the MCI/WorldCom Merger Agreement as violative of any Regulatory
Law, it will use its best efforts to resolve any such objections or challenge as
such Governmental Entity or private party may have to such transactions under
such Regulatory Law so as to permit consummation of the transactions
contemplated by the MCI/WorldCom Merger Agreement.
Each of WorldCom, MCI Merger Sub and MCI has further agreed that it will
use its best efforts to cause the MCI/WorldCom Merger to qualify and will not
(both before and after consummation of the MCI/ WorldCom Merger) take any
actions which to its knowledge could reasonably be expected to prevent the
MCI/WorldCom Merger from qualifying as a reorganization under the provisions of
Section 368 of the Code.
MCI/WorldCom Acquisition Proposals
Each of WorldCom and MCI has agreed that neither it nor any of its
Subsidiaries nor any of the officers and directors of it or its Subsidiaries
will, and that it will direct and use its best efforts to cause its and its
Subsidiaries' employees, agents and representatives (including any investment
banker, attorney or accountant retained by it or its Subsidiaries) not to,
directly or indirectly, initiate, solicit, encourage or otherwise facilitate
(including by way of furnishing information) any inquiries or the making of any
proposal or offer with respect to a merger, reorganization, share exchange,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving, or any purchase or sale of all or any
significant portion of the assets or 10% or more of the equity securities of, it
or any of its Subsidiaries that, in any such case, could reasonably be expected
to interfere with the completion of the MCI/WorldCom Merger or the other
transactions
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contemplated by the MCI/WorldCom Merger Agreement (any such proposal or offer
being herein referred to as an "MCI/WorldCom Acquisition Proposal"). Each of
WorldCom and MCI has further agreed not to, directly or indirectly, have any
discussion with or provide any confidential information or data to any person
relating to an MCI/WorldCom Acquisition Proposal, or engage in any negotiations
concerning an MCI/ WorldCom Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an MCI/ WorldCom Acquisition Proposal or
accept an MCI/WorldCom Acquisition Proposal.
Notwithstanding the foregoing, MCI or its Board of Directors may (A) comply
with Rule 14e-2(a) promulgated under the Exchange Act with regard to an
MCI/WorldCom Acquisition Proposal, (B) recommend an unsolicited bona fide
written MCI/WorldCom Acquisition Proposal to the stockholders of MCI, or
withdraw or modify in any adverse manner its approval or recommendation of the
MCI/WorldCom Merger Agreement in response to such an unsolicited bona fide
written MCI/WorldCom Acquisition Proposal or (C) engage in any discussions or
negotiations with, or provide any information to, any person in response to an
unsolicited bona fide written MCI/WorldCom Acquisition Proposal by any such
person, if and only to the extent that, in any such case as is referred to in
clause (B) or (C), (i) the MCI stockholders meeting relating to the MCI/WorldCom
Merger has not occurred, (ii) the Board of Directors of MCI concludes in good
faith that such MCI/WorldCom Acquisition Proposal (x) in the case of clause (B)
above would, if consummated, constitute a Superior Proposal or (y) in the case
of clause (C) above could reasonably be expected to constitute a Superior
Proposal, (iii) prior to providing any information or data to any person in
connection with an MCI/WorldCom Acquisition Proposal by any such person, the MCI
Board of Directors receives from such person an executed confidentiality
agreement on terms substantially similar to those contained in the
Confidentiality Agreement, and (iv) prior to providing any information or data
to any person or entering into discussions or negotiations with any person, the
Board of Directors of MCI notifies WorldCom immediately of such inquiries,
proposals or offers received by, any such information requested from, or any
such discussions or negotiations sought to be initiated or continued with, any
of its representatives indicating, in connection with such notice, the name of
such person and the material terms and conditions of any proposals or offers.
MCI has also agreed that it will keep WorldCom informed, on a current
basis, of the status and terms of any such proposals or offers and the status of
any such discussions or negotiations. Each of WorldCom and MCI has agreed that
it will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted prior to November 9, 1997
with respect to any MCI/WorldCom Acquisition Proposal. Each of WorldCom and MCI
has also agreed that it will take the necessary steps to promptly inform its and
its Subsidiaries' officers and directors, employees and representatives of these
obligations.
Conditions Precedent to the MCI/WorldCom Merger
The respective obligations of MCI, WorldCom and the MCI Merger Sub to
effect the MCI/WorldCom Merger are subject, among other things, to the
satisfaction or waiver on or prior to the MCI/WorldCom Closing Date of the
following conditions: (i) adoption of the MCI/WorldCom Merger Agreement by the
stockholders of MCI; (ii) approval of the Share Issuance by the shareholders of
WorldCom; (iii) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been adopted or promulgated or be in effect, having the
effect of making the MCI/WorldCom Merger illegal or otherwise prohibiting
consummation of the MCI/WorldCom Merger; provided, however, that this provision
shall not be available to any party whose failure to fulfill its obligations
pursuant to the MCI/WorldCom Merger Agreement shall have been the cause of, or
shall have resulted in, such order or injunction; (iv) approvals for the
MCI/WorldCom Merger from the FCC and from the PUCs, other than those the failure
of which to be obtained would not reasonably be expected to have individually or
in the aggregate a MCI/WorldCom Material Adverse Effect on WorldCom and its
Subsidiaries (including the MCI/WorldCom Surviving Corporation); (v) the
expiration or termination of the waiting period (and any extension thereof)
applicable to the MCI/WorldCom Merger under the Hart-Scott-Rodino Act; (vi) the
confirmation by way of a decision from the European Commission under the Merger
Control Regulation (with or without the initiation of proceedings under Article
6(1)(c) thereof) that the MCI/WorldCom Merger and any matters arising therefrom
are compatible with the
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common market; (vii) the approval upon official notice of issuance for quotation
on The Nasdaq National Market of the shares of WorldCom Common Stock to be
issued in the MCI/WorldCom Merger; and (viii) effectiveness of the Form S-4
relating to the MCI/WorldCom Merger by declaration of the Commission under the
Securities Act and the absence of a stop order suspending its effectiveness. As
used in the MCI/WorldCom Merger Agreement and this description thereof,
"MCI/WorldCom Material Adverse Effect" means with respect to any entity, any
adverse change, circumstance or effect that, individually or in the aggregate
with all other adverse changes, circumstances and effects, is or is reasonably
likely to be materially adverse to the business, financial condition or results
of operations of such entity and its Subsidiaries taken as a whole, other than
any change, circumstance or effect relating to (i) the economy or securities
markets in general or (ii) the industries in which WorldCom or MCI operate and
not specifically relating to WorldCom or MCI.
The obligations of WorldCom and the MCI Merger Sub to effect the
MCI/WorldCom Merger are also subject to the satisfaction of, or waiver by
WorldCom, on or prior to the MCI/WorldCom Closing Date of the following
conditions:
(i) the representations and warranties of MCI set forth in the
MCI/WorldCom Merger Agreement that are qualified as to materiality being
true and correct on the date of the MCI/WorldCom Merger Agreement, and each
of the representations and warranties of MCI that is not so qualified being
true and correct in all material respects on the date of the MCI/WorldCom
Merger Agreement, and WorldCom's receipt of a certificate of the chief
executive officer and the chief financial officer of MCI to such effect;
(ii) MCI having performed or complied with all agreements and
covenants required to be performed by it under the MCI/WorldCom Merger
Agreement at or prior to the MCI/WorldCom Closing Date that are qualified
as to materiality and MCI having performed or complied in all material
respects with all other agreements and covenants required to be performed
by it under the MCI/WorldCom Merger Agreement at or prior to the
MCI/WorldCom Closing Date that are not so qualified as to materiality, and
WorldCom's receipt of a certificate of the chief executive officer and the
chief financial officer of MCI to such effect; and
(iii) WorldCom's receipt from counsel to WorldCom, on the MCI/WorldCom
Closing Date, a written opinion stating, among other things, that the
MCI/WorldCom Merger qualifies as a reorganization under Section 368 of the
Code.
The obligations of MCI to effect the MCI/WorldCom Merger are also subject
to the satisfaction of, or waiver by MCI, on or prior to the MCI/WorldCom
Closing Date of the following additional conditions:
(i) the representations and warranties of WorldCom set forth in the
MCI/WorldCom Merger Agreement that are qualified as to materiality being
true and correct on the date of the MCI/WorldCom Merger Agreement, and each
of the representations and warranties of WorldCom that is not so qualified
being true and correct in all material respects on the date of the
MCI/WorldCom Merger Agreement, and MCI's receipt of a certificate of the
chief executive officer and the chief financial officer of WorldCom to such
effect;
(ii) WorldCom having performed or complied with all agreements and
covenants required to be performed by it under the MCI/WorldCom Merger
Agreement at or prior to the MCI/WorldCom Closing Date that are qualified
as to materiality and WorldCom having performed or complied in all material
respects with all other agreements and covenants required to be performed
by it under the MCI/ WorldCom Merger Agreement at or prior to the
MCI/WorldCom Closing Date that are not so qualified as to materiality, and
MCI's receipt of a certificate of the chief executive officer and the chief
financial officer of WorldCom to such effect;
(iii) MCI's receipt from counsel to MCI, on the MCI/WorldCom Closing
Date, a written opinion stating, among other things, that the MCI/WorldCom
Merger qualifies as a reorganization under Section 368 of the Code; and
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(iv) since the date of the MCI/WorldCom Merger Agreement, the absence
of WorldCom and its Subsidiaries having incurred any material liability,
except in the ordinary course of business consistent with past practice, or
any adverse change, circumstance or effect that, individually or in the
aggregate with all other adverse changes, circumstances and effects, is or
is reasonably likely to be materially adverse to the business, financial
condition or results of operations of WorldCom and its Subsidiaries taken
as a whole, other than any change, circumstance or effect relating to (i)
the economy or securities markets in general or (ii) the industries in
which WorldCom or MCI operate and not specifically relating to WorldCom or
MCI.
Stock Options and Other Stock Plans; Employee Benefit Matters
Each of MCI and WorldCom have also agreed that, pursuant to the
MCI/WorldCom Merger Agreement, each option to purchase shares of MCI Common
Stock (each, an "MCI Stock Option") that was granted pursuant to the MCI stock
option plans prior to the MCI/WorldCom Effective Time and which remains
outstanding immediately prior to the MCI/WorldCom Effective Time will be
converted, at the MCI/WorldCom Effective Time, into an option to acquire, on the
same terms and conditions as were applicable under the MCI Stock Option, that
number of shares of WorldCom Common Stock determined by multiplying the number
of shares of MCI Common Stock subject to such MCI Stock Option by the MCI
Exchange Ratio, rounded, if necessary, up to the nearest whole share of WorldCom
Common Stock, at a price per share equal to the per-share exercise price
specified in such MCI Stock Option divided by the MCI Exchange Ratio; provided,
however, that in the case of any MCI Stock Option to which Section 421 of the
Code applies by reason of its qualification under Section 422 of the Code, the
option price, the number of shares subject to such option and the terms and
conditions of exercise of such option will be determined in a manner consistent
with the requirements of Section 424(a) of the Code. In addition, all unvested
and unpaid MCI restricted stock and incentive stock units will be converted to
the number of shares of WorldCom Common Stock or incentive stock units
determined by multiplying such shares of restricted stock and incentive stock
units by the MCI Exchange Ratio.
Indemnification; Directors and Officers' Insurance
The MCI/WorldCom Surviving Corporation will maintain in effect in its
certificate of incorporation and bylaws (i) for a period of six years after the
MCI/WorldCom Effective Time, the current provisions regarding elimination of
liability of directors and indemnification of officers, directors and employees
contained in the certificate of incorporation and bylaws of MCI and (ii) for a
period of six years, the current policies of directors' and officers' liability
insurance and fiduciary liability insurance maintained by MCI (provided that the
MCI/WorldCom Surviving Corporation may substitute therefor policies of at least
the same coverage and amounts containing terms and conditions which are, in the
aggregate, no less advantageous to the insured) with respect to claims arising
from facts or events that occurred on or before the MCI/WorldCom Effective Time;
provided, however, that in no event will the MCI/WorldCom Surviving Corporation
be required to expend in any one year an amount in excess of 200% of the annual
premiums currently paid by MCI for such insurance; and, provided, further, that
if the annual premiums of such insurance coverage exceed such amount, the
MCI/WorldCom Surviving Corporation will be obligated to obtain a policy with the
greatest coverage available for a cost not exceeding such amount.
Termination
The MCI/WorldCom Merger Agreement may be terminated at any time prior to
the MCI/WorldCom Effective Time, by action taken or authorized by the Board of
Directors of the terminating party or parties, and except as provided below,
whether before or after approval of the matters presented in connection with the
MCI/WorldCom Merger by the stockholders of MCI or WorldCom:
(i) By mutual written consent of WorldCom and MCI, by action of their
respective Boards of Directors;
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(ii) By either MCI or WorldCom if the MCI/WorldCom Effective Time has
not occurred on or before December 31, 1998 (the "MCI/WorldCom Termination
Date"); provided, however, that this right to terminate the MCI/WorldCom
Merger Agreement will not be available to any party whose failure to
fulfill any obligation under the MCI/WorldCom Merger Agreement has to any
extent been the cause of, or resulted in, the failure of the MCI/WorldCom
Effective Time to occur on or before the MCI/WorldCom Termination Date;
(iii) By either MCI or WorldCom if any Governmental Entity (A) has
issued an order, decree or ruling or taken any other action (which the
parties have used their best efforts to resist, resolve or lift, as
applicable, in accordance with the MCI/WorldCom Merger Agreement)
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the MCI/WorldCom Merger Agreement, and such
order, decree, ruling or other action has become final and nonappealable or
(B) has failed to issue an order, decree or ruling or to take any other
action (which order, decree, ruling or other action the parties have used
their best efforts to obtain, in accordance with the MCI/WorldCom Merger
Agreement), in each case (A) and (B) which is necessary to fulfill the
conditions set forth in subsections 6.1(c) (FCC and PUC approvals), (d)
(expiration or termination of the waiting period under the
Hart-Scott-Rodino Act) and (e) (receipt of a decision from the European
Commission that the MCI/ WorldCom Merger is compatible with the common
market) of the MCI/WorldCom Merger Agreement, as applicable, and such
denial of a request to issue such order, decree, ruling or take such other
action has become final and nonappealable; provided, however, that this
right to terminate the MCI/WorldCom Merger Agreement will not be available
to any party whose failure to comply with the covenant in the MCI/WorldCom
Merger Agreement requiring such party to use its best efforts to effect the
MCI/ WorldCom Merger has to any extent been the cause of such action or
inaction;
(iv) By either MCI or WorldCom if the approval by the stockholders of
MCI or of WorldCom required for the consummation of the MCI/WorldCom Merger
has not been obtained by reason of the failure to obtain the requisite
votes at a duly held meeting of stockholders of MCI or WorldCom, as the
case may be, or at any adjournment thereof;
(v) By WorldCom if the Board of Directors of MCI, prior to the MCI
stockholders meeting relating to the MCI/WorldCom Merger (A) withdraws or
modifies in any adverse manner its approval or recommendation of the
MCI/WorldCom Merger Agreement, (B) approves or recommends a Superior
Proposal or (C) resolves to take any of the actions specified in clauses
(A) or (B) above; or
(vi) By MCI at any time prior to the MCI stockholders meeting relating
to the MCI/WorldCom Merger, upon two business days' prior notice to
WorldCom, if the Board of Directors of MCI approves a Superior Proposal;
provided, however, that (A) MCI has complied with the provisions described
above under "-- MCI/WorldCom Acquisition Proposals," (B) the Board of
Directors of MCI has concluded in good faith, after giving effect to all
concessions which may be offered by WorldCom pursuant to clause (iii)
below, on the basis of the advice of its financial advisors and outside
counsel, that such proposal is a Superior Proposal and (C) prior to any
such termination, MCI has, and has caused its financial and legal advisors
to, negotiate with WorldCom to make such adjustments in the terms and
conditions of the MCI/ WorldCom Merger Agreement as would enable WorldCom
to proceed with the transactions contemplated thereby; provided, however,
that it is a condition to termination by MCI pursuant to this subsection
(vi) that MCI has made the payment of the WorldCom Alternative Transaction
Fee to WorldCom referred to in "-- Termination Fees."
The right to terminate the MCI/WorldCom Merger Agreement pursuant to the
foregoing is not available to any party (i) that is in material breach of its
obligations under the MCI/WorldCom Merger Agreement or (ii) whose failure to
fulfill its obligations or to comply with its covenants under the MCI/WorldCom
Merger Agreement has been the cause of, or resulted in, the failure to satisfy
any condition to the obligations of either party under the MCI/WorldCom Merger
Agreement.
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Fees and Expenses
Whether or not the MCI/WorldCom Merger is consummated, all expenses
incurred in connection with the MCI/WorldCom Merger Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
expenses, except (a) if the MCI/WorldCom Merger is consummated, the MCI/WorldCom
Surviving Corporation shall pay any and all property or transfer taxes imposed
on MCI or its Subsidiaries and any real property transfer tax imposed on any
holder of shares of capital stock of MCI resulting from the MCI/WorldCom Merger,
(b) expenses incurred in connection with the filing, printing and mailing of the
joint proxy statement/prospectus, which shall be shared equally by WorldCom and
MCI and (c) the Reimbursement Amount described in "-- Termination Fees".
Termination Fees
WorldCom and MCI agreed that (i) if MCI terminates the MCI/WorldCom Merger
Agreement due to the MCI Board having approved a Superior Proposal or (ii) if
(x) MCI or WorldCom terminate the MCI/WorldCom Merger Agreement pursuant to the
failure of the MCI stockholders to approve and adopt the MCI/WorldCom Merger
Agreement or WorldCom terminates the MCI/WorldCom Merger Agreement due to the
withdrawal or modification of the approval or recommendation in any adverse
manner of the Board of Directors of MCI or its approval or recommendation of a
Superior Proposal, (y) at the time of the event giving rise to such termination
there exists an MCI/WorldCom Acquisition Proposal with respect to MCI and (z)
within 12 months of the termination of the MCI/WorldCom Merger Agreement, MCI
enters into a definitive agreement with any third party with respect to an
MCI/WorldCom Acquisition Proposal or an MCI/WorldCom Acquisition Proposal is
consummated, then MCI will pay to WorldCom an amount equal to $750 million (the
"WorldCom Alternative Transaction Fee") and will reimburse WorldCom for the fee
paid by WorldCom to BT pursuant to the BT Agreement (such amount, the
"Reimbursement Amount").
If (a) the MCI/WorldCom Merger Agreement is terminated (i) because the
MCI/WorldCom Merger has not been consummated by December 31, 1998 and any of the
following conditions to the MCI/WorldCom Merger have not been satisfied: absence
of injunctions prohibiting consummation of the MCI/WorldCom Merger Agreement,
receipt of FCC and PUC approvals, expiration or termination of the waiting
period under the Hart-Scott-Rodino Act, receipt of a decision from the European
Commission that the MCI/WorldCom Merger is compatible with the common market,
accuracy of WorldCom's representations and warranties, performance by WorldCom
of its obligations under the MCI/WorldCom Merger Agreement, or absence of any
material adverse change with respect to WorldCom, (ii) because of the issuance
of an order, decree, ruling or other action prohibiting the transactions
contemplated by the MCI/WorldCom Merger Agreement or the absence of a
governmental action necessary to proceed with the transactions contemplated by
the MCI/WorldCom Merger Agreement, or (iii) because of the failure to obtain the
requisite vote to approve the Share Issuance at a duly called WorldCom
shareholders meeting relating to the MCI/WorldCom Merger or (b) notwithstanding
the satisfaction of all the conditions to the obligations of WorldCom to effect
the MCI/WorldCom Merger and the satisfaction or waiver by MCI of all the
conditions to its obligations to effect the MCI/WorldCom Merger, WorldCom is not
willing to consummate the MCI/WorldCom Merger, then, unless (i) MCI has not used
its best efforts to cause, or cause to be taken all things necessary to
consummate the MCI/WorldCom Merger and other transactions contemplated by the
MCI/WorldCom Merger Agreement or (ii) MCI has breached its representations or
warranties or its agreements or covenants under the MCI/WorldCom Merger
Agreement such that either of the conditions to WorldCom's obligations to effect
the MCI/WorldCom Merger has not been satisfied, WorldCom will pay to MCI an
amount in cash equal to $1.635 billion.
Amendment
The MCI/WorldCom Merger Agreement may be amended by WorldCom and MCI at any
time before or after approval of the matters presented in connection with the
MCI/WorldCom Merger by the stockholders of MCI and the shareholders of WorldCom,
but, after any such approval, no amendment may be made that by law or in
accordance with the rules of any relevant stock exchange requires further
approval by such
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stockholders without such further approval. The MCI/WorldCom Merger Agreement
may not be amended except by an instrument in writing signed on behalf of each
of WorldCom and MCI.
Waiver
The MCI/WorldCom Merger Agreement permits WorldCom and MCI at any time
prior to the MCI/WorldCom Effective Time, to (i) extend the time for the
performance of any of the obligations or other acts of the other parties, (ii)
waive any inaccuracies in the representations and warranties contained therein
or in any document delivered pursuant thereto and (iii) waive compliance with
any of the agreements or conditions contained therein, in each case pursuant to
a written instrument.
The BT Agreement
The description of the BT Agreement contained in this Proxy
Statement/Prospectus describes the material terms of the BT Agreement but does
not purport to be complete and is qualified in its entirety by reference to the
BT Agreement, a copy of which is attached as an exhibit to the Registration
Statement and incorporated herein by reference. Capitalized terms appearing
below that are not otherwise defined herein have the same meanings as are given
such terms in the BT Agreement. Whenever particular sections or defined terms
are referred to, it is intended that such sections or defined terms shall be
incorporated by reference.
Termination of the BT/MCI Merger Agreement; Payment of Fees. Pursuant to
the BT Agreement, the BT/MCI Merger Agreement was terminated and WorldCom agreed
to pay BT a fee of $450 million and expenses of $15 million. These fees were
paid on November 12, 1997. WorldCom also agreed to pay to BT an additional
payment of $250 million in the event that WorldCom is required to make a payment
to MCI in accordance with the provisions of the MCI/WorldCom Merger Agreement
(which requires WorldCom to pay MCI $1.635 billion if (a) the MCI/WorldCom
Merger Agreement is terminated (i) because the MCI/WorldCom Merger has not been
consummated by December 31, 1998 and any of the following conditions to be the
MCI/WorldCom Merger have not been satisfied: absence of injunctions, receipt of
FCC and PUC approvals, expiration or termination of the waiting period under the
Hart-Scott-Rodino Act, receipt of a decision from the European Commission that
the MCI/WorldCom Merger is compatible with the common market, accuracy of
WorldCom's representations and warranties, performance by WorldCom of its
obligations under the MCI/WorldCom Merger Agreement, or absence of any material
adverse change with respect to WorldCom, (ii) because the MCI/WorldCom Merger
has been permanently enjoined or a required governmental action or approval has
not been obtained or (iii) because the WorldCom shareholders fail to approve the
Share Issuance or (b) WorldCom is unwilling to consummate the MCI/WorldCom
Merger (notwithstanding the satisfaction of the conditions precedent to its
obligations under the MCI/WorldCom Merger Agreement).
Voting Agreement. Pursuant to the BT Agreement, BT has agreed to vote (or
cause to be voted) its shares of MCI Class A Common Stock in favor of the
MCI/WorldCom Merger, the adoption by MCI of the MCI/WorldCom Merger Agreement
and the approval of the other transactions contemplated by the MCI/WorldCom
Merger Agreement.
Pursuant to the BT Agreement, BT has also agreed to vote (or cause to be
voted) its shares of MCI Class A Common Stock against (i) any merger agreement
or merger (other than the MCI/WorldCom Merger Agreement and the MCI/WorldCom
Merger), consolidation, combination, sale of substantial assets, reorganization,
recapitalization, dissolution, liquidation or winding up of or by MCI or any
other MCI acquisition or (ii) any amendment of the MCI Restated Certificate of
Incorporation or MCI Bylaws or other proposal or transaction involving MCI, or
any of its subsidiaries, which amendment or other proposal or transactions would
in any manner impede, frustrate, prevent or nullify the MCI/WorldCom Merger, the
MCI/WorldCom Merger Agreement or any of the other transactions contemplated by
the MCI/WorldCom Merger Agreement.
Pursuant to the BT Agreement, BT has agreed not to (i) transfer (which term
includes, without limitation, any sale, gift, pledge or other disposition), or
consent to any transfer of, any or all of its shares of MCI Class A Common Stock
or any interest therein, except pursuant to the MCI/WorldCom Merger,
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(ii) enter into any contract, option or other agreement, arrangement or
understanding with respect to any or all of its shares of MCI Class A Common
Stock or any interest therein, (iii) grant any proxy, power-of-attorney or other
authorization in or with respect to its shares of MCI Class A Common Stock,
except for the BT Agreement or (iv) deposit its shares of MCI Class A Common
Stock into a voting trust or enter into a voting agreement or arrangement with
respect to its shares of MCI Class A Common Stock.
Pursuant to the BT Agreement, BT has agreed to use all reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the MCI/WorldCom Merger and the other transactions
contemplated by the MCI/WorldCom Merger Agreement.
Termination of Concert Joint Venture Agreement. Pursuant to the BT
Agreement, WorldCom, MCI and BT have agreed to appropriately modify the Modified
Joint Venture Agreement among BT, Moorgate (Twelve) Limited ("BTH"), MCI, MCI
Ventures Corporation ("Ventures"; together with BTH, the "JV Shareholders") and
Concert Communications Company ("Concert") (the "BT/MCI Joint Venture
Agreement"), effective as of the consummation of the purchase of the joint
venture interest described below (the "JV Purchase Date") to reflect the
following provisions:
(a) The exclusive distribution rights set forth in the BT/MCI Joint
Venture Agreement and the related distribution agreements will be
terminated.
(b) Concert will continue to provide services to MCI on a nonexclusive
basis to customers based in the United States for a period of five years
from the JV Purchase Date in accordance with the terms of the related MCI
distribution agreement. This is intended to enable MCI to continue to
provide services to existing customers under the terms of its contractual
obligations and to enter into new contractual obligations with new
customers and existing customers provided that the term of such obligations
does not extend beyond the fifth anniversary of the JV Purchase Date.
Pursuant to the BT Agreement, BT has agreed to exercise the call option set
forth in the BT/MCI Joint Venture Agreement immediately following the occurrence
of the MCI/WorldCom Effective Time to purchase MCI's interest in Concert.
Pursuant to the BT Agreement, BT and WorldCom have agreed to undertake in
good faith to negotiate within 180 days a transition agreement:
(i) to provide for a professional exit from the existing Concert
arrangements while satisfying the requirements of BT's and MCI's customers
before and during the exit;
(ii) to agree to the requirements (financial, operational, technical)
of making Concert more self-standing and better able to support customer
and distributor requirements; and
(iii) to give BT and customers comfort that during the pendency of the
MCI/WorldCom Merger and the post-merger period underlying components and
services necessary to provide Concert service which are sourced from MCI
are available on commercially reasonable terms despite the change in
circumstances.
Pursuant to the BT Agreement, if the transition agreement is not executed
within 180 days despite BT's and WorldCom's good faith efforts, the nonexclusive
distributorship referred to in (b) above will have a term of two (rather than
five) years.
Litigation. WorldCom agreed to promptly withdraw its complaint in the
matter entitled WorldCom, Inc. and TC Investments Corp. against MCI
Communications Corporation et al., and BT agreed to promptly withdraw the answer
to such complaint filed by it.
MCI/WorldCom Merger Consideration. WorldCom and MCI agreed not to amend the
MCI/WorldCom Merger Agreement to increase the consideration payable to holders
of shares of MCI Common Stock, unless the consideration to be paid in respect of
the shares of MCI Class A Common Stock is increased in such amendment by a like
amount per share.
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Amendments to MCI/WorldCom Merger Agreement. WorldCom and MCI agreed not to
amend the MCI/WorldCom Merger Agreement in a manner that adversely affects the
interests of BT.
Certain Litigation
On November 4, 1996, and thereafter, and on August 25, 1997, and
thereafter, MCI, and all of its directors, including the two directors who are
also executive officers of MCI and the three directors elected by BT, were named
as defendants in a total of 15 complaints filed in the Court of Chancery in the
State of Delaware. BT was named as a defendant in thirteen of the complaints. In
addition, amended or revised complaints were filed in four of the cases
commenced in or about November 1996 and in one of the cases filed in or about
August 1997. The complaints were brought by alleged stockholders of MCI,
individually and purportedly as class actions on behalf of all other
stockholders of MCI. Generally these complaints allege breach of fiduciary duty
by the MCI Board of Directors in connection with the BT/MCI Merger Agreement.
Seven of the complaints in which BT was named as a defendant allege that BT
aided and abetted those breaches of fiduciary duty. Five of the complaints in
which BT was named as a defendant allege that BT owes fiduciary duties to other
MCI stockholders and breached those duties in connection with the BT Merger
Agreement. They seek, inter alia, damages and injunctive and other relief.
On or about October 8, 1997, a purported derivative action was filed in
Delaware Chancery Court on behalf of MCI against the MCI Board, including the
two directors who are also executive officers and the three directors elected by
BT. BT and Tadworth Corporation were also named as defendants, and MCI was named
as a nominal defendant. Generally, the complaint alleges that the MCI Board
breached duties owed to stockholders in connection with the BT Merger Agreement
and the MCI Offer. The complaint seeks damages, injunctive relief, and other
relief.
On November 14, 1997, plaintiffs' counsel and defendants' counsel in the
Delaware actions held a conference with the Court of Chancery, at which
plaintiff sought an injunction requiring plaintiffs' representatives to
participate in any further negotiations. Plaintiffs' counsel also sought
expedited treatment and the setting of an early trial date with respect to their
challenge to the inducement fee to be paid to BT under the BT Merger Agreement
and the different form of consideration payable to BT contemplated by the
MCI/WorldCom Merger Agreement. Citing the absence of immediate and irreparable
injury, the Court denied plaintiffs' request for injunctive relief and expedited
treatment, and declined to set an early trial date. Plaintiffs indicated that
they would be amending their complaints and joining additional parties as
defendants.
On or about November 14, 1997, one of the purported stockholder class
actions pending in Delaware Chancery Court was amended. On November 19, 1997,
plaintiffs in four of the purported stockholder class actions moved to amend
their complaints. The amended complaint and proposed amended complaints name as
defendants MCI, the MCI Board, WorldCom, BT and TC Investments Corp. They
generally allege that the defendants breached their fiduciary duty to
stockholders in connection with the MCI/WorldCom Merger, the agreement to pay a
termination fee to WorldCom, and alleged discrimination in favor of BT in
connection with the MCI/WorldCom Merger. They seek, inter alia, damages and
injunctive relief prohibiting the consummation of the MCI/WorldCom Merger and
the payment of the inducement fee to BT.
On August 28, 1997, a complaint was filed in the federal district court in
Washington D.C., by an alleged stockholder of MCI, individually and putatively
as a class action on behalf of purchasers of MCI's Common Stock during the
period from August 14, 1997 through August 20, 1997. On or about October 27,
1997, another complaint was filed in the federal district court in Washington
D.C. by two alleged stockholders of MCI, individually and putatively as a class
action on behalf of purchasers of MCI during the period from August 14, 1997
through August 22, 1997. On or about October 31, 1997, another complaint was
filed in the federal district court in Washington D.C. by an alleged stockholder
of MCI, individually and putatively as a class action on behalf of purchasers of
MCI during the period from July 10, 1997 through August 22, 1997. The three
complaints allege that MCI and certain of its officers and directors failed to
disclose material information about MCI, including that MCI was negotiating the
terms of the BT Merger Agreement dated November 3, 1996. The complaints seek
damages and other relief.
MCI believes that all of these complaints are without merit.
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Interests of Certain Persons in the MCI/WorldCom Merger
Ownership of MCI Common Stock; Stock Options. As of November 30, 1997,
directors and executive officers of MCI beneficially owned an aggregate of
2,671,400 shares of MCI Common Stock (or approximately 0.5% of the then
outstanding MCI Common Stock), including restricted shares of MCI Common Stock
("MCI Restricted Shares") and incentive stock units ("ISUs") but excluding
shares of MCI Common Stock that may be acquired upon the exercise of outstanding
stock options to purchase MCI Common Stock ("MCI Stock Options.")
As of November 30, 1997, directors and executive officers of MCI held
options to purchase an aggregate of 4,234,020 shares of MCI Common Stock, of
which options to purchase 2,839,010 shares of MCI Common Stock were exercisable,
and the remainder of which will, pursuant to the MCI/WorldCom Merger Agreement,
become fully vested and exercisable immediately prior to the MCI/WorldCom
Effective Time if not previously vested. Of the options that will become fully
vested as a result of the MCI/WorldCom Merger, Bert C. Roberts, Jr. held options
to purchase 261,600 shares with a weighted average exercise price of $30.00,
Gerald H. Taylor held options to purchase 186,100 shares with a weighted average
exercise price of $30.00, Timothy F. Price held options to purchase 180,450
shares with a weighted average exercise price of $28.00, Judith Areen held
options to purchase 40,000 shares with a weighted average exercise price of
$29.75, Richard M. Jones held options to purchase 10,000 shares with a weighted
average exercise price of $25.375, and John R. Worthington held options to
purchase 30,000 shares with a weighted average exercise price of $29.375. The
MCI/WorldCom Merger Agreement provides that each option to purchase shares of
MCI Common Stock that remains outstanding at the MCI/WorldCom Effective Time is
to be converted into an option to acquire that number of shares of WorldCom
Common Stock determined by multiplying the number of shares of MCI Common Stock
subject to such option by the MCI Exchange Ratio, rounded, if necessary, up to
the nearest whole share of WorldCom Common Stock, at a price per share equal to
the per-share exercise price specified in such MCI Stock Option divided by the
MCI Exchange Ratio. See "The MCI/ WorldCom Merger Agreement -- Stock Options and
Other Stock Plans".
As of November 30, 1997, executive officers of MCI held an aggregate of
1,091,086 MCI Restricted Shares and ISUs, including in the case of Mr. Roberts,
Mr. Taylor and Mr. Price, 300,564, 230,037 and 154,368 shares, respectively.
Pursuant to the MCI/WorldCom Merger Agreement at the MCI/WorldCom Effective
Time, all unvested and unpaid MCI Restricted Shares and ISUs outstanding on the
date of execution of the MCI/WorldCom Merger Agreement will become fully vested
and (unless voluntarily deferred) paid. Any ISUs or MCI Restricted Shares, at
the MCI/WorldCom Effective Time, shall be converted to the number of shares of
WorldCom Common Stock or ISUs determined by multiplying such MCI Restricted
Shares and ISUs by the MCI Exchange Ratio.
Employment Agreements. MCI had previously entered into employment
agreements (the "Employment Agreements") with Messrs. Roberts, Taylor, Price,
Douglas L. Maine, Michael J. Rowny, Michael H. Salsbury, Fred M. Briggs and
Scott B. Ross (the "Executives"), effective as of November 2, 1996, and expiring
on December 31, 1999. The Employment Agreements will remain in place whether or
not the MCI/ WorldCom Merger is approved by MCI's stockholders.
Pursuant to the Employment Agreements, each Executive will receive an
annual base salary, subject to increases (but not decreases) at the discretion
of MCI. The current 1997 annual salaries of each of the Executives under the
Employment Agreements are as follows: Bert C. Roberts, Jr., $1,000,000; Gerald
H. Taylor, $700,000; Timothy F. Price, $550,000; Michael J. Rowny, $350,000;
Scott B. Ross, $325,000; Douglas L. Maine, $330,000; Michael H. Salsbury,
$300,000; and Fred M. Briggs, $300,000. In addition, each Executive will receive
an annual bonus for each fiscal year of MCI ending during the term of the
Executive's employment with a minimum bonus amount of no less than the average
annual bonus earned by the Executive in respect of the 1994, 1995 and 1996
fiscal years, which minimum bonus amounts, in the case of Mr. Roberts, Mr.
Taylor and Mr. Price are approximately $1,167,000, $700,000 and $490,000,
respectively. The Executives will also participate in any long-term incentive
compensation plan or program maintained by MCI for senior executives of MCI and
all long-term compensation plans and programs in existence immediately prior to
the MCI/WorldCom Merger are, under the Employment Agreements, required to be
maintained for at least two years following the MCI/WorldCom Effective Time or
replaced by programs that are no less favorable to the
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Executives. In addition, the Executives will participate in all MCI pension and
welfare benefit plans and programs which are applicable to senior executives of
MCI, and all pension and welfare benefit plans and programs in existence
immediately prior to the MCI/WorldCom Merger are, under the Employment
Agreements, required to be maintained for at least two years following the
MCI/WorldCom Effective Time or be replaced by programs that are no less
favorable to the Executives.
Under the Employment Agreements, in the event an Executive's employment is
terminated by MCI (for this purpose "MCI" shall mean MCI, WorldCom and their
respective affiliates) without "Cause" or by the Executive for "Good Reason" (as
each such term is defined below), the Executive is to receive (a) the
Executive's accrued but unpaid salary and vacation pay, and any unpaid bonus
from the prior fiscal year, (b) a cash payment equal to three times the sum of
(x) the Executive's annual base salary and (y) the greater of (A) the average
annual bonus paid to or accrued for the Executive by MCI in respect of the three
calendar years preceding the termination of employment and (B) the annual bonus
paid to or accrued for the Executive in respect of 1995, (which 1995 bonus, in
the case of Mr. Roberts, Mr. Taylor and Mr. Price, was $1.3 million, $800,000
and $600,000, respectively), (c) continued medical, dental and life insurance
coverage for the Executive and the Executive's eligible dependents on the same
basis as in effect immediately prior to the Executive's termination of
employment until the earlier of (A) 36 months after the Executive's termination
of employment or (B) the commencement of coverage with a subsequent employer,
but only to the extent such coverage duplicates or exceeds the coverage provided
by MCI, (d) unless otherwise expressly elected by the Executive prior to such
termination, payment, in a cash lump sum, of all amounts deferred by the
Executive under any non-qualified plan of deferred compensation maintained by
MCI or MCI WorldCom (notwithstanding the payment provisions of any such plan to
the contrary), (e) full acceleration of vesting and exercisability of any equity
based and cash retention awards (including, but not limited to, MCI Stock
Options, MCI Restricted Shares and ISUs) granted to the Executive prior to the
Executive's termination of employment and (f) 36 months of age and service
credit for all purposes under all defined benefit plans of MCI (or the
equivalent).
For purposes of the Employment Agreements, "Cause" means: (i) a deliberate
and material breach by the Executive of his duties and responsibilities under
the Employment Agreement that results in material harm to MCI, which breach is
(A) either the product of willful malfeasance or gross neglect, (B) committed in
bad faith or without reasonable belief that such breach is in, or not contrary
to, the best interests of MCI and (C) not remedied within 30 days after receipt
of written notice from MCI specifying such breach; (ii) the Executive's willful
and material breach of the restrictive covenants contained in the Employment
Agreements which is not remedied within 30 days after receipt of written notice
from MCI specifying such breach; or (iii) the Executive's plea of guilty or nolo
contendere to, or nonappealable conviction of, a felony, which conviction or
plea causes material harm to the reputation or financial position of MCI. "Good
Reason" means the occurrence of any of the following without the Executive's
express written consent: (i) the assignment to the Executive of any duties
inconsistent with the Executive's current positions, duties, responsibilities
and status with MCI, a change in the Executive's reporting responsibilities,
title or offices or any removal of the Executive from or failure to elect or
re-elect the Executive to any position with MCI (including membership on the MCI
Board) except in connection with the Executive's promotion or a termination of
employment for Cause; (ii) a reduction in the Executive's base salary or target
annual bonus or long-term incentives, as such salary, target bonus and
incentives are increased from time to time; (iii) the failure to continue in
effect any employee benefit plan or compensation plan in which the Executive
participates unless the Executive is provided with participation in other plans
that provide substantially comparable benefits or the taking of any action that
would adversely affect the Executive's benefits under any such plan; (iv) any
relocation of the Executive's principal place of business from the location
described in the Employment Agreement; (v) any reduction in fringe benefits and
perquisites provided to the Executive; (vi) any material breach by MCI of any
provisions of the Employment Agreement; and (vii) a failure by MCI WorldCom to
expressly assume, as of the date of the MCI/WorldCom Merger, all obligations of
MCI under the Employment Agreement.
The Employment Agreements further provide that if the payments described
above constitute "parachute payments" under applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), MCI is to pay the
Executive an additional amount sufficient to place the Executive in the same
after-tax
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financial position the Executive would have been in if the Executive had not
incurred the excise tax imposed under Section 4999 of the Code in respect of
such parachute payments.
In the event an Executive's employment is terminated due to the Executive's
death or "Disability" (as defined in the Employment Agreements), the Employment
Agreements provide that MCI is to pay to the Executive (or the Executive's
beneficiaries) a lump sum cash amount equal to (i) the annual rate of the
Executive's annual base salary as in effect on the date of termination and (ii)
the highest bonus paid to the Executive under MCI's annual bonus plan during the
three fiscal years preceding the termination of employment. In addition, the
Executive is to receive (i) the unpaid portion of his annual base salary accrued
to the date of termination and any accrued vacation as of the date of
termination and (ii) the unpaid portion of his bonus accrued with respect to the
last full fiscal year of MCI ended prior to the date of termination, when such
bonus would otherwise be payable.
The Employment Agreements contain confidentiality, non-competition and
non-solicitation clauses which provide, among other things, that the Executive
is not to (i) render services to a competitor of MCI or its affiliates or (ii)
solicit or offer employment to any employee of MCI or its affiliates during the
Executive's employment with MCI or its affiliates and, thereafter, for a period
expiring on the earlier of (x) the first anniversary of the Executive's
termination of employment and (y) the expiration of the term of the Employment
Agreement.
Executive Severance Policy. MCI has adopted an executive severance plan
(the "ESP") effective for the period commencing on November 3, 1996, and
terminating on November 9, 2000 (the "Benefits Termination Date"). The ESP
covers 20 senior executives of MCI (the "Covered Executives") who do not have
employment agreements. The ESP provides that if a Covered Executive's employment
is terminated prior to the Benefits Termination Date for any reason other than
"disability" or for "cause" (as such terms are defined in the ESP), or if the
Covered Executive terminates employment for "good reason" (as such term is
defined in the ESP) prior to the Benefits Termination Date, MCI will pay to the
Covered Executive an amount equal to two times the sum of (x) the Covered
Executive's annual base salary and (y) the greater of (A) the average annual
bonus paid to or accrued by the Covered Executive in respect of the three
calendar years preceding the termination of employment and (B) the Covered
Executive's annual bonus in respect of 1995. Under the ESP, such amount is to be
paid as follows: the amount attributable to base salary will be paid in a lump
sum following the termination of the Covered Executive's employment, except that
if the Covered Executive terminates his employment for good reason such amount
will be payable over a six-month period in equal installments, and the amount
attributable to the annual bonus will be paid in a lump sum following the
termination of the Covered Executive's employment. Under the ESP, a Covered
Executive whose employment terminates under the circumstances described above
will also be entitled to: (i) continued medical, dental and life insurance
coverage (or their equivalents) until the earlier of (A) 24 months after the
Covered Executive's termination of employment or (B) the commencement of
coverage with a subsequent employer to the extent such coverage duplicates or
exceeds the coverage provided by MCI, (ii) unless otherwise expressly elected by
the Covered Executive prior to such termination, payment in a cash lump sum of
all amounts deferred by the Covered Executive pursuant to any non-qualified
deferred compensation and cash retention plan of MCI, (iii) full acceleration of
vesting and exercisability of any equity-based compensation awards granted to
the Covered Executive and (iv) 24 months of age and service credit for all
purposes under all defined benefit pension plans of MCI (or their equivalents).
Under the ESP, in the event of the termination of a Covered Executive's
employment prior to the Benefits Termination Date due to a Covered Executive's
death or disability, MCI will pay to the Covered Executive or his beneficiaries,
as applicable, a lump sum cash amount equal to (i) the Covered Executive's
annual base salary and (ii) the highest bonus paid to the Covered Executive by
MCI during the three fiscal years preceding the termination of employment. In
addition, under the ESP, the Covered Executive will be entitled to payment in a
cash lump sum of all amounts deferred by the Covered Executive under any
nonqualified deferred compensation plan maintained by MCI, unless otherwise
expressly elected by the Covered Executive.
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<PAGE> 123
The ESP also provides for a gross-up payment to be made to a Covered
Executive for any excise tax imposed under Section 4999 of the Code with respect
to any payments made to the Covered Executive under the ESP or under the terms
of any other MCI plan, program, agreement or arrangement.
The ESP contains confidentiality, non-competition and non-solicitation
clauses which provide, among other things, that a Covered Employee may not, for
a period of six months, in the event a Covered Employee terminates his or her
employment for good reason, (i) render services to a competitor of MCI or its
affiliates or (ii) solicit or offer employment to any employees of MCI or its
affiliates.
Retention Bonuses for Senior Executives. In connection with the
MCI/WorldCom Merger, a cash retention award pool (the "Executive Retention
Program") of up to approximately $170 million will be created to provide
retention incentives for MCI senior executives, including Messrs. Roberts,
Taylor and Price, as determined by the MCI Compensation Committee as soon as
practicable after the date of the MCI/ WorldCom Merger Agreement. These bonuses
generally replace the Senior Retention ISUs granted pursuant to the Original
MCI/BT Merger Agreement, which were discontinued when that agreement was
terminated. The schedule of payments of such incentives will be subject to the
approval of WorldCom, which will not be unreasonably withheld and WorldCom will
be informed as to the other aspects of the incentives.
Retention Bonuses for Employees. As was the case under the Original MCI/BT
Agreement, MCI managers are permitted to make discretionary grants of retention
bonuses (in cash or otherwise) to key individuals (other than those individuals
who have entered into the Employment Agreements, and it being understood that it
is intended that the Covered Executives generally are not to be eligible to
participate) from a separate approximately $100 million pool created for that
purpose. Awards are to be granted from this pool as follows: (i) up to one-half
was awarded not earlier than December 1, 1997, and (ii) one-half is to be
awarded not earlier than December 1, 1998, except that upon the closing date of
any transaction involving the sale or other disposition of a majority of MCI's
capital stock or assets, any such amounts that have not yet been paid will be
accelerated and paid out.
Discretionary Retention Bonus Pool. In addition, a cash retention pool of
up to $150 million has been created for post-MCI/WorldCom Merger retention; such
pool will be allocated in consultation with WorldCom.
Director and Officer Indemnification and Insurance. Pursuant to the
MCI/WorldCom Merger Agreement, from and after the MCI/WorldCom Effective Time,
the Surviving Corporation is to cause to be maintained in effect in its
certificate of incorporation and bylaws (i) for a period of six years after the
MCI/WorldCom Effective Time, the current provisions regarding indemnification of
officers and directors contained in the MCI Restated Certificate of
Incorporation (the "MCI Restated Certificate of Incorporation") and the MCI
Bylaws (the "MCI Bylaws") and (ii) for a period of six years, the current
policies of directors' and officers' liability insurance and fiduciary liability
insurance maintained by MCI with respect to claims arising from facts or events
that occurred on or before the MCI/WorldCom Effective Time, except that in no
event is the MCI/WorldCom Surviving Corporation to be required to expend in any
one year an amount in excess of 200% of the annual premiums currently paid by
MCI for such insurance, and, if the annual premiums of such insurance coverage
exceed such amount, the MCI/WorldCom Surviving Corporation is to obtain a policy
with the greatest coverage available for a cost not exceeding such amount.
Business, Management and Principal Stockholders of MCI
Business. MCI is one of the world's leading providers of communications
services and the second largest carrier of long distance telecommunication
services in the U.S. MCI is the second largest carrier of international long
distance telecommunication services in the world. MCI provides a broad range of
communications services, including long distance, local and wireless
telecommunications services and information technology services. The provision
of long distance telecommunication services is MCI's core business. Long
distance telecommunication services comprise a wide spectrum of domestic and
international voice and data services, including long distance telephone
services, data communication services, teleconferencing services and electronic
messaging services.
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<PAGE> 124
Information about Directors and Executive Officers. The directors and
executive officers of MCI are: Clifford L. Alexander, Jr. (Director), Judith
Areen (Director), Michael H. Bader (Director), Sir Peter L. Bonfield (Director),
Richard M. Jones (Director), Gordon S. Macklin (Director), Douglas L. Maine
(Executive Vice President and Chief Financial Officer), Timothy F. Price
(President and Chief Operating Officer), Bert C. Roberts, Jr. (Director,
Chairman), Michael J. Rowny (Executive Vice President), Richard B. Sayford
(Director), Gerald H. Taylor (Director, Chief Executive Officer), Judith
Whittaker (Director), and John R. Worthington (Director).
Security Ownership of Directors, Management and Principal Stockholders. As
of September 30, 1997, the following persons, individually or as a group, were
known to MCI to be deemed to be the beneficial owners of more than five percent
of the issued and outstanding MCI Common Stock or MCI Class A Common Stock.
Other than as set forth in the table below, there are no persons known to MCI to
beneficially own more than 5% of MCI Common Stock or MCI Class A Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF EXISTING PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
<S> <C> <C>
British Telecommunications plc............................ 135,998,932(1) 100%
81 Newgate Street
London, U.K.
</TABLE>
- ---------------
(1) BT has sole voting and investment power with respect to all MCI Class A
Common Stock. BT has agreed, pursuant to the BT Agreement, to exchange all
of its MCI Class A Common Stock for $51 in cash from WorldCom.
The following table sets forth certain information regarding the beneficial
ownership of MCI Common Stock as of November 30, 1997, assuming the exercise of
all options exercisable on, or within 60 days of, such date, by the directors,
the named executive officers and all executive officers and directors as a
group. Each director or executive officer has sole voting and investment power
over the shares listed opposite his name except as set forth in the footnotes
hereto.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
------------------------ --------------------- --------
<S> <C> <C>
Clifford L. Alexander, Jr.............................. 20,000(2) *
Judith Areen........................................... 22,803 *
Michael H. Bader....................................... 246,074(3) *
Sir Peter L. Bonfield.................................. 350(4) *
Richard M. Jones....................................... 60,000(5) *
Gordon S. Macklin...................................... 64,000(6) *
Douglas L. Maine....................................... 498,711(7) *
Timothy F. Price....................................... 271,494(8) *
Bert C. Roberts, Jr.................................... 1,675,758(9) *
Michael J. Rowny....................................... 284,423(10) *
Richard B. Sayford..................................... 60,990(11) *
Gerald H. Taylor....................................... 977,508(12) *
Judith Whittaker....................................... 61,000(13) *
John R. Worthington.................................... 281,184(14) *
All Directors and Current Officers as a Group(15)...... 6,074,660(16) 1.1%
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise noted, each person has sole voting power and sole
investment power with respect to the securities reported, except with
respect to shares of MCI Common Stock allocated to accounts under MCI's
Employee Stock Ownership and 401(k) Plan ("ESOP"), with respect to which
shares such person has sole voting power only. Where indicated, the data
also include shares which each person had the right to acquire upon
exercise of stock options within sixty days of November 30, 1997, and also
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<PAGE> 125
shares issued as awards of MCI Restricted Shares and/or ISUs. As of November 30,
1997, no individual officer or director beneficially owned more than 1% of the
outstanding shares of any class of MCI's capital stock.
(2) Includes 20,000 shares of MCI Common Stock Mr. Alexander has the right to
acquire pursuant to the exercise of stock options. Mr. Alexander shares
voting and investment power with respect to all shares other than those
which he has the right to acquire pursuant to the exercise of such stock
options.
(3) Includes 20,000 shares of MCI Common Stock Mr. Bader has the right to
acquire pursuant to the exercise of stock options. Mr. Bader shares voting
and investment power with respect to all shares other than those which he
has the right to acquire pursuant to the exercise of such stock option. Mr.
Bader is one of seven trustees for the William G. McGowan Charitable Fund,
Inc.; he does not, however, have voting or investment power over any of the
shares of MCI Common Stock held by such Fund.
(4) Sir Peter Bonfield is an executive officer and director of BT, the holder
of all the outstanding MCI Class A Common Stock and 732,499 shares of MCI
Common Stock.
(5) Includes 40,000 shares of MCI Common Stock Mr. Jones has the right to
acquire pursuant to the exercise of stock options.
(6) Includes 40,000 shares of MCI Common Stock Mr. Macklin has the right to
acquire pursuant to the exercise of stock options. Does not include 3,200
shares of MCI Common Stock owned solely by Mr. Macklin's wife, in which
shares he disclaims beneficial ownership.
(7) Includes 14,133 shares of MCI Common Stock allocated to Mr. Maine's ESOP
account, 410,200 shares of MCI Common Stock he has the right to acquire
pursuant to the exercise of stock options and 58,557 shares of MCI Common
Stock issued as ISUs. Does not include 1,700 shares of MCI Common Stock
held by Mr. Maine's wife as custodian for the benefit of a minor child, in
which MCI shares Mr. Maine disclaims beneficial ownership.
(8) Includes 14,887 shares of MCI Common Stock allocated to Mr. Price's ESOP
account, 83,850 shares of MCI Common Stock he has the right to acquire
pursuant to the exercise of stock options and 154,368 shares of MCI Common
Stock issued as ISUs. Does not include 1,000 shares of MCI Common Stock
held by Mr. Price's wife as custodian for the benefit of their minor
children, in which shares Mr. Price disclaims beneficial ownership.
(9) Includes 45,994 shares of MCI Common Stock allocated to Mr. Roberts' ESOP
account, 768,800 shares of MCI Common Stock he has the right to acquire
pursuant to the exercise of stock options, 255,736 shares of MCI Common
Stock issued as restricted stock awards, 44,828 shares of MCI Common Stock
issued as ISUs, 122,400 shares of MCI Common Stock owned by a limited
partnership in which Mr. Roberts is a general partner, and 13,000 shares of
MCI Common Stock owned by the Roberts' Foundation. Does not include 12,000
shares of MCI Common Stock held by Mr. Roberts' wife as custodian for the
benefit of their minor child, in which shares Mr. Roberts disclaims
beneficial ownership.
(10) Includes 1,079 shares of MCI Common Stock allocated to Mr. Rowny's ESOP
account, 202,800 shares of MCI Common Stock he has the right to acquire
pursuant to the exercise of stock options and 77,095 shares of MCI Common
Stock issued as ISUs.
(11) Includes 40,000 shares of MCI Common Stock Mr. Sayford has the right to
acquire pursuant to the exercise of stock options. Does not include 800
shares of MCI Common Stock owned solely by Mr. Sayford's wife, in which
shares he disclaims beneficial ownership.
(12) Includes 36,234 shares of MCI Common Stock allocated to Mr. Taylor's ESOP
account, 639,970 shares of MCI Common Stock he has the right to acquire
pursuant to the exercise of stock options, and 230,037 shares of MCI Common
Stock issued as ISUs.
(13) Includes 40,000 shares of MCI Common Stock Ms. Whittaker has the right to
acquire pursuant to the exercise of stock options.
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<PAGE> 126
(14) Includes 10,000 shares of MCI Common Stock Mr. Worthington has the right to
acquire pursuant to the exercise of stock options. Does not include 147,890
shares of MCI Common Stock owned solely by Mr. Worthington's wife, in which
shares he disclaims beneficial ownership.
(15) This group includes MCI executive officers, as such term is defined in Rule
3b-7 of the Exchange Act, and its directors, a total of 19 persons.
(16) Includes 143,996 shares of MCI Common Stock allocated to such officers'
accounts under the ESOP, 3,403,260 shares of MCI Common Stock that officers
and directors have the right to acquire pursuant to the exercise of stock
options and 1,091,086 shares of MCI Common Stock issued to officers
pursuant to restricted stock awards and/or ISUs. Officers and directors
have shared voting and investment power with respect to 266,074 of these
shares of MCI Common Stock.
Information regarding MCI is contained in its filings with the Commission.
See "Additional Information," "Incorporation of Documents by Reference" and "MCI
Information."
THE BFP MERGER
WorldCom entered into the BFP Merger Agreement with BFP and a wholly owned
acquisition subsidiary of WorldCom, providing for the BFP Merger. In the BFP
Merger, each share of BFP Common Stock will be converted into a fraction of a
share of WorldCom Common Stock equal to the BFP Exchange Ratio. The BFP Exchange
Ratio will be determined as follows: (i) if the average trading price (generally
based on the average reported closing prices for a specified twenty-day period
prior to closing) of a share of WorldCom Common Stock greater than or equal to
$35.15, the BFP Exchange Ratio will equal 1.65 (ii) if such average trading
price is greater than or equal to $31.35 but less than $35.15, the BFP Exchange
Ratio will equal a fraction determined by dividing $58.00 by such average
trading prices; and (iii) if such average trading price is less than $31.35, the
BFP Exchange Ratio will equal 1.85. Based on (i) BFP Common Stock outstanding as
of December 23, 1997 (including an estimated 73,000 shares that will be issuable
immediately prior to the effective time of the BFP Merger pursuant to an
employee stock purchase plan) and (ii) assumed BFP Exchange Ratios of 1.65 and
1.85, approximately 64,729,280 shares and 72,575,253 shares, respectively, of
WorldCom Common Stock will be issued in the BFP Merger (the BFP Exchange Ratio).
In addition, outstanding warrants and options to purchase shares of BFP Common
Stock would be converted in the BFP Merger to warrants and options to acquire an
aggregate of approximately 4,634,777 shares and 5,196,569 shares, respectively,
of WorldCom Common Stock, and the exercise price would be adjusted to reflect
the BFP Exchange Ratio, so that, on exercise, the holders would receive, in the
aggregate, the same number of shares of WorldCom Common Stock as if they had
exercised prior to the BFP Merger, at the same aggregate exercise price. The BFP
Merger has been structured to qualify as a pooling of interests. Consummation of
the BFP Merger is subject to the fulfillment of a number of conditions,
including the expiration or termination of any applicable waiting period under
the Hart-Scott-Rodino Act and the receipt of other required regulatory approvals
(which condition has been satisfied), and the absence of certain material
adverse changes. Consummation of the BFP Merger is also subject to the approval
and adoption of the BFP Merger Agreement by the stockholders of BFP. The BFP
Merger Agreement may be terminated if the effective time has not occurred on or
before March 31, 1998 and under certain other circumstances. Termination of the
BFP Merger Agreement by WorldCom or BFP under certain circumstances will require
one party to make a $40 million payment to the other party. Each of BFP's
directors has agreed to vote his or her beneficially owned shares of BFP stock
in favor of the BFP Merger Agreement. The closing of the BFP Merger is expected
to occur on or about January 29, 1998, provided that the conditions to the BFP
Merger are then fulfilled or waived. Neither WorldCom nor CompuServe assumes any
responsibility for the accuracy of any information contained herein related to
BFP.
In connection with the negotiation and approval of the BFP Merger
Agreement, Mr. Ebbers indicated his expectation that the WorldCom Board of
Directors would consider the nomination of an individual designated by the BFP
Board of Directors (who is expected to be Mr. James C. Allen) for election as a
director of WorldCom following the effective time of the BFP Merger. Mr. Allen
has been Vice Chairman and Chief Executive Officer and a director of BFP since
its inception in November 1993.
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<PAGE> 127
BFP has three issues of public debt outstanding: $425 million aggregate
principal amount of 10 7/8% Senior Discount Notes Due 2006, which were issued on
February 26, 1996 (the "1996A Notes"), $400 million aggregate principal amount
of 11 7/8% Senior Discount Notes Due 2006, which were issued on November 7, 1996
(the "1996B Notes"), and $250 million aggregate principal amount of 10% Senior
Notes Due 2007, which were issued on May 29, 1997 (the "1997 Notes," and
together with the 1996A Notes and the 1996B Notes, the "BFP Notes"). Pursuant to
the terms of the 1996A Notes and the 1996B Notes, cash interest is not payable
until March 1, 2001, with respect to the 1996A Notes, and May 1, 2002, with
respect to the 1996B Notes. As of September 30, 1997, the indebtedness under the
BFP Notes (accreted in the case of the 1996A Notes and 1996B Notes) totalled
$796.1 million.
Pursuant to the terms of the Indentures governing the terms of the BFP
Notes, if the BFP Merger is consummated, BFP will be required to give each
holder of the BFP Notes the option to have BFP repurchase such holder's BFP
Notes, for cash, at 101% of the accreted value, in the case of the 1996A and
1996B Notes, or at 101% of the principal amount plus accrued interest, in the
case of the 1997 Notes, on the date of such repurchase. Such offer to purchase
must generally be made to the holders of the BFP Notes within 30 days of the
effective time of the BFP Merger with all cash payments completed within
approximately 60 days of such offer. WorldCom believes that such repurchase can
be made by BFP, together with WorldCom, after consummation of the BFP Merger
without materially adversely affecting the financial condition of the combined
company.
BFP has a $250 million senior secured revolving credit facility which has a
provision which requires BFP to prepay the loan in full upon a change of control
(which includes the BFP Merger) unless (1) BFP gives notice to the lenders at
least 30 days prior to the occurrence of the change of control and (2) a
majority of lenders do not request that all outstanding loans under the credit
facility be paid in full. As of December 22, 1997, approximately $75 million was
drawn under the credit facility. BFP does not expect any material financial
implication to the combined company if the credit facility is terminated.
The BFP indentures and credit agreement contain certain covenants which,
among other things, restrict BFP's ability to incur additional debt, create
liens, enter into sale-leaseback transactions, pay dividends (including to
WorldCom subsequent to the BFP Merger), make certain restricted payments and
enter into transactions with affiliates.
The following information concerning BFP has been prepared on the basis of
information filed by BFP with the Commission.
BFP, founded in November 1993, is a leading facilities-based provider of
competitive local telecommunications services, commonly referred to as a
competitive local exchange carrier ("CLEC"), in selected cities within the
United States. BFP acquires and constructs its own state-of-the-art fiber optic
networks and facilities and leases network capacity from others to provide long
distance carriers ("IXCs"), ISPs, wireless carriers and business, government and
institutional end users with an alternative to the ILECs for a broad array of
high quality voice, data, video transport and other telecommunications services.
BFP has assembled an experienced management, sales and operations team with
extensive experience and strong contacts within the telecommunications industry.
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<PAGE> 128
BFP's goal is to become the primary full-service provider of competitive
local telecommunications services to its customers in selected cities by
offering superior products with excellent customer service at prices below those
charged by the ILECs. The principal elements of BFP's strategy include targeting
selected U.S. markets with an emphasis on second- and third-tier markets,
aggressively pursuing switched services opportunities, further building out its
existing systems and expanding its service offerings. As of September 30, 1997,
BFP had networks in operation or under construction in a total of 44 U.S.
cities, as follows:
<TABLE>
<CAPTION>
OTHER CLEC
NETWORKS IN CITY
--------------------
CURRENT ANNOUNCED
------- ---------
<S> <C> <C>
EASTERN REGION
Springfield, Massachusetts................................ 0 0
Providence, Rhode Island.................................. 1 0
Hartford, Connecticut(3)(4)............................... 3 0
Grand Rapids, Michigan.................................... 0 1
Lansing, Michigan......................................... 0 1
Traverse City, Michigan................................... 0 0
Toledo, Ohio.............................................. 1 0
White Plains, New York(3)................................. 1 0
Stamford, Connecticut(3).................................. 2 1
Long Island, New York(1)(3)............................... 3 2
Portland, Maine(1)(2)..................................... 0 1
Nashua, New Hampshire(1)(2)............................... 1 0
Manchester, New Hampshire(1)(2)........................... 0 1
CENTRAL REGION
Oklahoma City, Oklahoma................................... 2 1
Tulsa, Oklahoma........................................... 1 1
Little Rock, Arkansas..................................... 3 0
Tucson, Arizona........................................... 2 0
Albuquerque, New Mexico................................... 2 0
Knoxville, Tennessee...................................... 0 2
Jackson, Mississippi...................................... 1 1
Kansas City, Missouri..................................... 3 0
Springfield, Missouri(1).................................. 1 1
Minneapolis, Minnesota(1)(3)(4)........................... 2 2
St. Paul, Minnesota(1)(3)(4).............................. 0 1
Austin, Texas............................................. 2 1
Dallas, Texas(3)(4)....................................... 4 1
Fort Worth, Texas......................................... 2 0
San Antonio, Texas(4)..................................... 2 1
Corpus Christi, Texas(1).................................. 2 0
Houston, Texas(3)(4)...................................... 4 0
Waco, Texas(1)............................................ 0 0
WESTERN REGION
Sacramento, California.................................... 3 2
San Jose, California(3)................................... 3 0
Sunnyvale, California..................................... 3 0
Santa Clara, California................................... 3 0
Stockton, California...................................... 0 0
Fresno, California........................................ 1 0
Bakersfield, California................................... 1 0
Milpitas, California...................................... 3 0
</TABLE>
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<PAGE> 129
<TABLE>
<CAPTION>
OTHER CLEC
NETWORKS IN CITY
--------------------
CURRENT ANNOUNCED
------- ---------
<S> <C> <C>
Palo Alto, California..................................... 3 0
Salt Lake City, Utah...................................... 3 1
San Mateo, California(1).................................. 2 0
Reno, Nevada.............................................. 0 0
San Francisco and Los Angeles, California(3)(4)(5)........ N/A N/A
</TABLE>
- ---------------
(1) Networks under construction.
(2) Majority-owned joint venture.
(3) City where WorldCom has a network.
(4) City where MCImetro has a network.
(5) Facilities management operations.
As of September 30, 1997, BFP had a total of 28 digital telephone switches
installed serving a total of 33 of its operating networks, collocation in a
total of 121 ILEC central offices and a total of 2,177 route miles of optical
fiber cable installed, 1,041,275 voice grade equivalent ("VGE") circuits in
service, 80,019 CLEC lines installed and 1,667 on-net and 2,202 off-net
buildings connected. BFP's annualized revenues, based on the revenues for the
quarter ended September 30, 1997, are $143.1 million, as compared with total
revenues in 1996, 1995 and 1994, BFP's first full year of operation, of $45.6
million, $14.2 million and $2.8 million, respectively.
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Information about Directors and Executive Officers
The directors and executive officers of WorldCom are: Carl J. Aycock
(Director), Max E. Bobbitt (Director), Bernard J. Ebbers (Director, Chairman,
President and Chief Executive Officer), Francesco Galesi (Director), Richard R.
Jaros (Director), Stiles A. Kellett, Jr. (Director), David C. McCourt
(Director), John A. Porter (Director), John W. Sidgmore (Director, Vice Chairman
of the Board and Chief Operations Officer), Scott D. Sullivan (Director, Chief
Financial Officer and Secretary) and Lawrence C. Tucker (Director). In September
1997, Mr. McCourt became Chairman and Chief Executive Officer of Cable Michigan,
Inc. a cable television company, Chairman and Chief Executive Officer of RCN
Corporation, a telecommunications company, and Chairman of the Board and Chief
Executive Officer of Commonwealth Telephone Enterprises, Inc. (formerly known as
C-TEC Corporation), a telecommunications company.
The Audit Committee of the WorldCom Board of Directors consists of Max E.
Bobbitt (Chairman), Francesco Galesi, David C. McCourt and Richard R. Jaros. The
Compensation and Stock Option Committee of the WorldCom Board of Directors
consists of Stiles A. Kellett, Jr. (Chairman), Max E. Bobbitt and Lawrence C.
Tucker. The Nominating Committee of the WorldCom Board of Directors consists of
John A. Porter (Chairman), Carl J. Aycock and Richard R. Jaros.
In the fourth quarter of 1997, Mr. Ebbers and Mr. Sullivan received
payments of $13.0 million and $3.5 million, respectively, pursuant to the
WorldCom Performance Bonus Plan approved by WorldCom shareholders on May 22,
1997.
Security Ownership of Management and Principal Shareholders
As of December 12, 1997 the following persons, individually or as a group,
were known to WorldCom to be deemed to be the beneficial owners of more than
five percent of the issued and outstanding WorldCom
114
<PAGE> 130
Common Stock, each of which persons has sole voting and investment power over
such WorldCom Common Stock, except as set forth in the footnotes hereto:
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE OF EXISTING PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS(1)
------------------- ----------------------- -----------
<S> <C> <C>
FMR Corp.................................... 70,566,021(2) 7.7%
82 Devonshire Street
Boston, Massachusetts 02104
</TABLE>
- ---------------
(1) Based upon 909,044,560 shares of WorldCom Common Stock issued and
outstanding plus, as to the holder thereof only, exercise or conversion of
all derivative securities that are exercisable or convertible currently or
within 60 days after December 15, 1997.
(2) Based upon shares owned as of March 6, 1997, as provided by FMR Corp.,
including 60,322,566 shares beneficially owned by Fidelity Management &
Research Company ("Fidelity"), as a result of its serving as investment
adviser to various investment companies registered under Section 8 of the
Investment Company Act of 1940 and serving as investment adviser to certain
other funds which are generally offered to limited groups of investors;
9,390,385 shares beneficially owned by Fidelity Management Trust Company, as
a result of its serving as trustee or managing agent for various private
investment accounts, primarily employee benefit plans, and serving as
investment adviser to certain other funds which are generally offered to
limited groups of investors; and 853,070 shares beneficially owned by
Fidelity International Limited, as a result of its serving as investment
adviser to various non-United States investment companies.
The number of shares beneficially owned by Fidelity includes 4,301,357
shares issuable upon conversion of WorldCom Series A Preferred Stock. The
number of shares beneficially owned by Fidelity Management Trust Company
includes 267,839 shares issuable upon conversion of WorldCom Series A
Preferred Stock. FMR Corp. has sole voting power with respect to 5,627,963
shares and sole dispositive power with respect to 69,712,951 shares.
Fidelity International Limited has sole voting and dispositive power with
respect to all the shares it beneficially owns.
The following table sets forth the beneficial ownership of WorldCom Common
Stock and WorldCom Series B Preferred Stock, as of December 15, 1997, by each
director, the named executive officers and by all persons, as a group, who are
currently directors and executive officers of WorldCom. No person listed on the
following table is the beneficial owner of any shares of WorldCom Series A
Preferred Stock. Each director or executive officer has sole voting and
investment power over the shares listed opposite his name except as set forth in
the footnotes hereto.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENT OF CLASS(1)
------------------------ --------------------- -------------------
<S> <C> <C>
Carl J. Aycock.......................................... 709,438(2) *
Max E. Bobbitt.......................................... 256,292(3) *
Bernard J. Ebbers....................................... 16,919,993(4) 1.9%
Francesco Galesi........................................ 3,522,108(5) *
Richard R. Jaros........................................ 781,536(6) *
Stiles A. Kellett, Jr................................... 3,507,176(7) *
David C. McCourt........................................ 824,423(8) *
John A. Porter.......................................... 4,668,053(9) *
John W. Sidgmore........................................ 3,470,659(10) *
Scott D. Sullivan....................................... 436,904(11) *
Lawrence C. Tucker...................................... 3,170,096(12) *
All Directors and Current Executive Officers as a Group
(11 persons).......................................... 38,266,678(13) 4.2%
</TABLE>
- ---------------
* Less than one percent.
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<PAGE> 131
(1) Based upon 909,044,560 shares of WorldCom Common Stock issued and
outstanding plus, as to the holder thereof only, exercise or conversion of
all derivative securities that are exercisable or convertible currently or
within 60 days after December 15, 1997.
(2) Includes 5,576 shares owned by Mr. Aycock's spouse; 73,048 shares
purchasable upon exercise of options; and 3,312 shares held as custodian
for children.
(3) Includes 38,512 shares purchasable upon exercise of options; and 117,780
shares as to which Mr. Bobbitt shares voting and investment power with his
spouse.
(4) Includes 36,432 shares held as custodian for children; 2,875,696 shares
purchasable upon exercise of options; and 855,448 shares owned by Mr.
Ebbers' spouse, as to which Mr. Ebbers shares voting and investment power.
(5) Consists of 3,483,596 shares owned by Rotterdam Ventures, Inc., of which
Mr. Galesi is sole shareholder; and 38,512 shares purchasable upon exercise
of options.
(6) Includes 6,449 shares issuable upon conversion of WorldCom Series B
Preferred Stock; 5,000 shares purchasable upon exercise of options; and
15,930 shares held as custodian for Mr. Jaros' children, as to which Mr.
Jaros disclaims beneficial ownership.
(7) Includes 16,000 shares owned by Mr. Kellett's spouse; 860 shares held as
custodian for minor daughter; 400,000 shares owned by a family partnership;
and 90,316 shares purchasable upon exercise of options.
(8) Includes 95 shares issuable upon conversion of WorldCom Series B Preferred
Stock; and 5,000 shares purchasable upon exercise of options.
(9) Includes 167,578 shares held as custodian or trustee for minor children;
73,048 shares purchasable upon exercise of options; 218,000 shares owned by
Mr. Porter's spouse, as to which beneficial ownership is disclaimed; 85,812
shares held in trust for son of majority age, as to which beneficial
ownership is also disclaimed; 5,700 shares held in a trust of which Mr.
Porter is trustee with sole voting and dispositive power; and 3,250 shares
held in trust for employees of Mr. Porter.
(10) Includes 368,704 shares purchasable upon exercise of options; and 13,193
shares held in a trust of which Mr. Sidgmore is sole trustee with sole
voting and dispositive power.
(11) Includes 433,333 shares purchasable upon exercise of options.
(12) A total of 3,131,828 of these shares are beneficially owned by The 1818
Fund, L.P., and The 1818 Fund II, L.P. (collectively, "The 1818 Funds").
Mr. Tucker is the general and managing partner of The 1818 Funds and Mr.
Tucker, as a general partner of Brown Brothers Harriman & Co., shares
voting and investment power with respect to such securities. Also includes
38,268 shares purchasable upon exercise of options.
(13) Includes 4,045,981 shares purchasable upon exercise of options or
conversion of WorldCom Series B Preferred Stock.
Information Regarding Stephen M. Case
The AOL Agreement provides that, if so requested at least five business
days before the closing of the AOL Transaction, WorldCom will cause Stephen M.
Case, Chairman of the Board, Chief Executive Officer and President of AOL, to be
appointed to the Board of Directors of WorldCom. Mr. Case, a co-founder of AOL,
has been Chairman of the Board of Directors of AOL since October 1995, Chief
Executive Officer of AOL since April 1993 and a director of AOL since September
1992. Mr. Case has served as President of AOL since July 1996 and served
previously as President from January 1991 to February 1996. Previously, he
served as Executive Vice President of AOL from September 1987 to January 1991
and Vice President, Marketing, from 1985 to September 1987.
AOL and WorldCom and/or certain of its subsidiaries are currently parties
to certain agreements regarding the provision of dial-up and leased line access
to AOL. In addition, as described under "Certain Related Transactions -- AOL
Transaction," AOL and WorldCom and/or certain of its subsidiaries will enter
into a Master Agreement for Data Communications and a Network Services Agreement
upon the closing of the AOL Transaction. Expenditures by AOL under all of such
agreements during the twelve month period
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commencing as of the closing of the AOL Transaction, is anticipated to exceed
$400 million. Actual results may vary materially from such expectation. See
"Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors."
To the best of WorldCom's knowledge, neither Mr. Case nor AOL has since January
1, 1994 had any transaction with WorldCom or any of its subsidiaries that would
require disclosure under the rules and regulations of the Commission applicable
to the CompuServe Merger, except as described herein. See "Certain Related
Transactions -- AOL Transaction" and "-- Management of WorldCom After the
MCI/WorldCom Merger."
Information Regarding James C. Allen
In connection with the negotiation and approval of the BFP Merger
Agreement, Mr. Ebbers indicated his expectation that the WorldCom Board of
Directors would consider the nomination of an individual designated by the BFP
Board of Directors (who is expected to be Mr. James C. Allen) for election as a
director of WorldCom following the effective time of the BFP Merger. Mr. Allen
has been Vice Chairman and Chief Executive Officer and a director of BFP since
its inception in November 1993. Mr. Allen served as President and Chief
Operating Officer of Brooks Telecommunications Corporation, a founder of BFP,
from April 1993 until it was merged with BFP in January 1996; prior thereto, he
was Chief Operating Officer and Chief Financial Officer of David Lipscomb
University. Since January 1, 1994, Mr. Allen has not had any transactions with
WorldCom or any of its subsidiaries that would require disclosure under the
rules and regulations of the Commission applicable to the CompuServe Merger,
except as described herein. See "Information Regarding WorldCom -- Recent
Developments -- The BFP Merger" and "-- Management of WorldCom Following the
MCI/WorldCom Merger."
The BFP Merger will result in the vesting of Mr. Allen's 66,667 shares of
BFP stock options at $12.50 per share. In addition, BFP entered into a Change of
Control Severance Agreement with Mr. Allen as of April 8, 1997. The agreement
generally provides that if Mr. Allen's employment is terminated, within a three
year period, following a change in control of BFP for any reason other than for
death, disability or cause or by Mr. Allen for "good reason" (including changes
in status, office, title or reporting requirements, other than any change which
is inherent in the BFP Merger, and/or compensation or geographic location) an
amount equal to the product of the sum of Mr. Allen's annual base salary rate
and annual bonus target in effect on the date of termination and a "termination
multiplier" (which, in the event of a termination of Mr. Allen occurring within
the first eighteen months following any change in control, would be three, and,
in the event of a termination at any time thereafter during said three year
period would be a fraction the numerator of which would be the days remaining in
said three year period and the denominator of which would be 365). Mr. Allen's
annual base salary rate is currently $375,000, and his annual bonus target is
currently $281,000. In addition, if any payment to Mr. Allen would be subject to
the excise tax imposed by Section 4999 of the Code or any interest or penalties
with respect to such tax, Mr. Allen would also be entitled to receive an
additional payment (net income and excise taxes) to compensate him for such tax,
interest or penalties. In the event of a termination occurring within the first
eighteen months following the effective time of the BFP Merger, the surviving
corporation in the BFP Merger would be obligated to continue Mr. Allen's medical
insurance benefits for a three year period following termination and, in the
event of a termination thereafter during said three year period, would be
obligated to continue such benefits until the end of said three year period.
Under the terms of the Change of Control Severance Agreement, BFP has agreed to
require the surviving corporation in the BFP Merger to expressly assume and
agree to perform said agreement. The Change of Control Severance Agreement
contains non-competition and non-solicitation provisions binding on Mr. Allen in
the event of payment of benefits thereunder until the sooner to occur of (i) the
end of the eighteen month period following the date of termination or (ii) the
end of such three year period.
MANAGEMENT OF WORLDCOM FOLLOWING THE MCI/WORLDCOM MERGER
General
Pursuant to the terms of the MCI/WorldCom Merger Agreement, WorldCom has
agreed to cause the WorldCom Board of Directors as of the MCI/WorldCom Effective
Time to consist of fifteen members, which shall consist of eight members
designated by WorldCom from among directors of WorldCom, five members designated
by MCI from among directors of MCI, and two additional members designated by
WorldCom
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from among pending acquisitions of WorldCom; provided that the persons
designated by each party are required to be reasonably acceptable to the other
party. As of the date hereof, neither WorldCom nor MCI had designated the
persons to serve as directors after the MCI/WorldCom Effective Time.
Additionally, the AOL Agreement provides that, if so requested at least five
business days before the closing of the AOL Transaction, WorldCom will cause
Stephen M. Case, Chairman of the Board, Chief Executive Officer and President of
AOL, to be appointed to the Board of Directors of WorldCom. See "-- Management
and Principal Shareholders -- Information Regarding Stephen M. Case." Further,
in connection with the negotiation and approval of the BFP Merger Agreement, Mr.
Ebbers indicated his expectation that the WorldCom Board of Directors would
consider the nomination of an individual designated by the BFP Board of
Directors (who is expected to be Mr. James C. Allen, Vice Chairman and Chief
Executive Officer of BFP) for election as a director of WorldCom following the
effective time of the BFP Merger. See "-- Management and Principal
Shareholders -- Information Regarding James C. Allen." If, prior to the
MCI/WorldCom Effective Time, any of the persons named by either WorldCom or MCI
to serve on the MCI WorldCom Board of Directors as of the MCI/WorldCom effective
time declines or is unable to serve as a director, the party that designated
such individual may name a replacement to become a director. The directors of
MCI WorldCom will be elected annually. See "Information Regarding
WorldCom -- Management and Principal Shareholders" for certain information
regarding the current management of WorldCom.
As of November 30, 1997, neither Mr. Allen nor Mr. Case beneficially owned
any shares of WorldCom Common Stock. As of such date, Mr. Allen beneficially
owned 319,885 shares of BFP Common Stock which, based on assumed BFP exchange
ratios of 1.65 and 1.85 (the minimum and maximum exchange ratios, respectively),
would be converted into the right to receive 527,810 shares and 591,787 shares,
respectively, of WorldCom Common Stock as a result of the BFP Merger. Additional
information about such potential director designees is contained under the
captions "Information Regarding WorldCom" as well as in the WorldCom 1996 Form
10-K and the MCI 1996 Form 10-K. See "Incorporation of Documents by Reference,"
"Available Information" and "MCI Information."
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Compensation of Directors
WorldCom's directors are currently paid fees of $22,500 per year and $1,000
per meeting of the Board plus certain expenses. Committee members are currently
paid a fee of $750 for any committee meeting on the same day as a Board meeting
and $1,000 for any other committee meeting, plus certain expenses. The chairman
of each committee receives an additional $3,000 per year.
Pursuant to WorldCom's Third Amended and Restated 1990 Stock Option Plan,
each non-employee director receives annually a non-discretionary grant of
options to purchase 5,000 shares of WorldCom Common Stock at the fair market
value of such stock on the date of grant. Such options are immediately
exercisable and expire on the earliest to occur of (a) ten years following the
date of grant, (b) three months following retirement, (c) 12 months following
termination of service due to disability or death, (d) upon cessation of service
for reasons other than retirement, death or disability, or (e) the date of
consummation of a specified change in control transaction, defined generally to
include the dissolution or liquidation of WorldCom, a reorganization, merger or
consolidation of WorldCom in which WorldCom is not the surviving corporation, or
a sale of substantially all of the assets or 80% or more of the outstanding
stock of WorldCom to another entity. The exercise price may be paid in cash or,
in the discretion of the committee which administers the plan, WorldCom Common
Stock. In the discretion of such committee, shares receivable on exercise may be
withheld to pay applicable taxes on the exercise.
Executive Officers
WorldCom has agreed to cause Bert C. Roberts, Jr. to be appointed Chairman
of MCI WorldCom, and to cause the senior management of MCI WorldCom to be as
previously agreed between the parties. Pursuant to the MCI/WorldCom Merger
Agreement, Bernard J. Ebbers will be the President and Chief Executive Officer
of MCI WorldCom. In addition, Gerald H. Taylor, currently Chief Executive
Officer of MCI, will become Vice Chairman of MCI WorldCom and will be
responsible for international operations and ventures; Timothy F. Price,
currently President and Chief Operating Officer of MCI, will become President
and Chief Executive Officer of MCI WorldCom's U.S. telecommunications operating
subsidiary; John W. Sidgmore will continue to serve as Vice Chairman and Chief
Operating Officer of MCI WorldCom and will continue his current responsibilities
including European operations; and Scott D. Sullivan will continue to serve as
Chief Financial Officer of MCI WorldCom.
Additional information about such persons who are currently executive
officers of MCI follows:
Bert C. Roberts, Jr., age 55, has been Chairman of the Board of MCI since
June 1992. He was Chief Executive Officer of MCI from December 1991 to November
1996. He was President and Chief Operating Officer of MCI from October 1985 to
June 1992 and President of MCI Telecommunications Corporation ("MCIT") from May
1983 to June 1992. Mr. Roberts has been a director of MCI since 1985; a
non-executive director of British Telecommunications plc, a global
telecommunications provider which has an approximate 20% equity interest in MCI,
since October 1994; and a non-executive director of The News Corporation
Limited, a global multi-media company located in Australia, since 1995.
Gerald H. Taylor, age 56, has been Chief Executive Officer of MCI since
November 1996. He has been Vice Chairman of MCIT since July 1995. He was
President and Chief Operating Officer of MCI from July 1994 to November 1996 and
President and Chief Operating Officer of MCIT from April 1994 to July 1995. He
was an Executive Vice President and Group Executive of MCIT from September 1993
to April 1994. He was an Executive Vice President of MCIT, serving as President,
Consumer Markets, from November 1990 to September 1993. Mr. Taylor has been a
director of MCI since September 1994 and was a non-executive director of BT from
November 1996 to November 1997.
Timothy F. Price, age 44, has been President and Chief Operating Officer of
MCI since November 1996. He has been President and Chief Operating Officer of
MCIT since July 1995. He was an Executive Vice President and Group President of
MCIT, serving as Group President, Communication Services, from December 1994 to
July 1995. He was an Executive Vice President of MCIT, serving as President,
Business Markets, from June 1993 to December 1994. He was a Senior Vice
President of MCIT from November 1990
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to June 1993, serving as President, Business Services, from July 1992 to June
1993 and as Senior Vice President, Consumer Markets, from November 1990 to July
1992.
See "Information Regarding WorldCom -- Recent Developments -- The
MCI/WorldCom Merger -- Business, Management and Principal Stockholders of MCI"
for information regarding the ownership of MCI Common Stock by such persons. See
"Information Regarding WorldCom -- Recent Developments -- the MCI/WorldCom
Merger -- Interests of Certain Persons in the MCI/WorldCom Merger" for a
description of certain interests of MCI executive officers in the MCI/WorldCom
Merger. For additional information regarding the executive officers of MCI, see
the MCI 1996 Form 10-K. For additional information regarding the executive
officers of WorldCom, see the WorldCom 1996 Form 10-K.
Compensation of Executive Officers
WorldCom relies on its Compensation and Stock Option Committee (the
"Compensation Committee") to recommend the form and amount of compensation of
its executive officers. It is anticipated that, when the Compensation Committee
meets to determine such compensation after the MCI/WorldCom Closing Date, the
Compensation Committee will evaluate its policies designed to attract, motivate,
reward and retain executives with the skills, experience and talents required to
promote the short- and long-term performance and growth of WorldCom.
Historically, WorldCom's executive compensation has had three elements: base
salary, annual incentive compensation and long-term incentive compensation.
For information concerning the compensation paid to the chief executive
officer and certain other executive officers of each or WorldCom and MCI for the
1996 fiscal year, see the WorldCom 1996 Form 10-K and the MCI 1996 Form 10-K.
DESCRIPTION OF WORLDCOM CAPITAL STOCK
The following summary is a description of the material terms of WorldCom
capital stock, does not purport to be complete and is subject in all respects to
the applicable provisions of the Georgia Business Corporation Code (the "GBCC"),
the WorldCom Articles, the WorldCom Bylaws, the Deposit Agreement (referred to
below), and the WorldCom Rights Agreement. The WorldCom Articles, the WorldCom
Bylaws, the Deposit Agreement and the WorldCom Rights Agreement are included in
or incorporated by reference as exhibits to the Registration Statement of which
this Proxy Statement/Prospectus is a part.
The authorized capital stock of WorldCom consists of 2,500,000,000 shares
of common stock, par value $.01 per share, and 50,000,000 shares of preferred
stock, par value $.01 per share. As of September 30, 1997, there were
907,159,586 shares of WorldCom Common Stock, 94,992 shares of WorldCom Series A
Preferred Stock and 12,445,113 shares of WorldCom Series B Preferred Stock
issued and outstanding. All the shares of WorldCom Series A Preferred Stock are
held by The Bank of New York as Depositary for the holders of WorldCom
Depositary Shares.
COMMON STOCK
All of the outstanding shares of WorldCom Common Stock are fully paid and
nonassessable. Subject to the prior rights of the holders of preferred stock
which may be issued and outstanding, the holders of WorldCom Common Stock are
entitled to receive dividends as and when declared by the Board of Directors out
of funds legally available therefor, and, in the event of the dissolution of
WorldCom, to share ratably in all assets remaining after payment of liabilities
and satisfaction of the liquidation preferences of the holders of WorldCom
preferred stock, as provided in the WorldCom Articles. Each holder of WorldCom
Common Stock is entitled to one vote for each share held of record on all
matters presented to a vote at a shareholders' meeting, including the election
of directors. Holders of WorldCom Common Stock have no cumulative voting rights
or preemptive rights to purchase or subscribe for any stock or other securities
and there are no conversion rights or redemption or sinking fund provisions with
respect to such stock. Additional shares of authorized WorldCom Common Stock may
be issued without shareholder approval.
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<PAGE> 136
The transfer agent and registrar for the WorldCom Common Stock is The Bank
of New York, 101 Barclay Street -- 12W, New York, NY 10286.
PREFERRED STOCK
The authorized but unissued preferred stock of WorldCom is available for
issuance from time to time at the discretion of the WorldCom Board of Directors
without shareholder approval. The WorldCom Board of Directors has the authority
to prescribe for each series of preferred stock it establishes the number,
designation, preferences, limitations and relative rights of the shares of such
series, subject to applicable law and the provisions of any outstanding series
of preferred stock. The terms of any series of preferred stock including, but
not limited to, dividend rate, redemption price, liquidation rights, sinking
fund provisions, conversion rights and voting rights, and any corresponding
effect on other shareholders, will be dependent largely on factors existing at
the time of issuance. Such terms and effects could include restrictions on
dividends on the WorldCom Common Stock if dividends on the preferred stock are
in arrears, dilution of the voting power of other shareholders to the extent a
series of the preferred stock has voting rights, and reduction of amounts
available on liquidation as a result of any liquidation preference granted to
any series of preferred stock.
SERIES A PREFERRED STOCK
The following description of WorldCom Series A Preferred Stock and the
rights represented by the WorldCom Depositary Shares does not purport to be
complete and is subject to, and qualified in its entirety by, the provisions of
the WorldCom Articles. Each of the WorldCom Depositary Shares represents a one
one-hundredth interest in a share of WorldCom Series A Preferred Stock and
entitles the owner to such proportion of all the rights, preferences and
privileges of the shares of WorldCom Series A Preferred Stock represented
thereby. See "-- Depositary Shares" below.
Dividends
The holders of shares of WorldCom Series A Preferred Stock are entitled to
receive when, as and if declared by the Board of Directors out of funds legally
available therefor, cumulative preferential dividends from the issue date of the
WorldCom Series A Preferred Stock, accruing at the rate per share of $268.00 per
annum or $67.00 per quarter (equivalent to $2.68 per annum or $.67 per quarter
for each WorldCom Depositary Share), payable quarterly in arrears. Dividends are
payable in cash or in shares of WorldCom Common Stock, at the election of the
WorldCom Board of Directors. WorldCom intends to pay dividends in shares of
WorldCom Common Stock on each dividend payment date to the extent that it is
unable to pay dividends in cash. If the dividends are paid in shares of WorldCom
Common Stock, the number of shares of WorldCom Common Stock to be issued on each
dividend payment date will be determined by dividing the total dividend to be
paid on each WorldCom Depositary Share by 90% of the average of the high and low
sales prices of the WorldCom Common Stock as reported by The Nasdaq National
Market or any national securities exchange upon which the WorldCom Common Stock
is then listed or included, for each of the ten consecutive trading days
immediately preceding the fifth business day preceding the record date for such
dividend.
Unless all accumulated dividends on the Series A Preferred Stock have been
paid, (i) no dividend (other than a dividend payable solely in shares of junior
stock (as defined in the WorldCom Articles)) may be paid on the WorldCom Common
Stock, (ii) no other distribution shall be made upon any shares of junior stock,
(iii) no shares of junior stock or any series of WorldCom preferred stock shall
be purchased, redeemed, or otherwise acquired for cash or other property
(excluding junior stock or the WorldCom Series B Preferred Stock) by WorldCom or
any of its subsidiaries, and (iv) no monies shall be paid into or set apart or
made available for a sinking or other like fund for the purchase, redemption or
other acquisition for value of any shares of junior stock by WorldCom or any of
its subsidiaries.
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Mandatory Conversion of WorldCom Series A Preferred Stock
On May 31, 1999 (the "Mandatory Conversion Date"), subject to the optional
conversion rights referred to below, each outstanding share of WorldCom Series A
Preferred Stock (and the related WorldCom Depositary Shares) will convert
automatically into shares of WorldCom Common Stock at the Common Equivalent Rate
(as defined below) in effect on such date and the holder will also be entitled
to receive accrued and unpaid dividends thereon. The "Common Equivalent Rate" is
initially four hundred twenty shares (420) of WorldCom Common Stock for each
share of WorldCom Series A Preferred Stock (equivalent to 4.2 shares of WorldCom
Common Stock for each WorldCom Depositary Share), subject to adjustment for
certain capital events.
Right to Redeem WorldCom Series A Preferred Stock
The WorldCom Series A Preferred Stock (and the related WorldCom Depositary
Shares) are not redeemable by WorldCom prior to May 31, 1998 (the "Initial
Redemption Date"). On or after the Initial Redemption Date and prior to the
Mandatory Conversion Date, WorldCom may redeem the WorldCom Series A Preferred
Stock (and thereby the WorldCom Depositary Shares), in whole or in part. Upon
any such redemption, the holder of record of shares of WorldCom Series A
Preferred Stock will receive shares of WorldCom Common Stock equal to the call
price of the WorldCom Series A Preferred Stock in effect on the date of
redemption (the "Call Price") divided by the Current Market Price (as defined in
the WorldCom Articles) of the WorldCom Common Stock. The Call Price of each
WorldCom Series A Preferred Stock is (i) $3,417.00 ($34.170 per WorldCom
Depositary Share) on and after the Initial Redemption Date through August 30,
1998, $3,400.25 ($34.003 per WorldCom Depositary Share) on and after August 31,
1998 through November 29, 1998, $3,383.50 ($33.835 per WorldCom Depositary
Share) on and after November 30, 1998 through February 27, 1999, $3,366.75
($33.668 per WorldCom Depositary Share) on and after February 28, 1999 through
April 29, 1999, and $3,350.00 ($33.500 per WorldCom Depositary Share) on and
after April 30, 1999 until the Mandatory Conversion Date, plus (ii) all accrued
and unpaid dividends thereon to the date fixed for redemption.
Conversion at Option of Holder
The WorldCom Series A Preferred Stock (and thereby the WorldCom Depositary
Shares) are convertible, in whole or in part, at the option of the holder
thereof, at any time prior to the Mandatory Conversion Date, into shares of
WorldCom Common Stock at a rate of 344.274 shares of WorldCom Common Stock for
each WorldCom Series A Preferred Stock (equivalent to 3.443 shares of WorldCom
Common Stock for each WorldCom Depositary Share and equivalent to a conversion
price of $9.73 per share of WorldCom Common Stock), subject to adjustment for
certain capital events (the "Optional Conversion Rate"). The right to convert
WorldCom Series A Preferred Stock called for redemption will terminate at the
close of business on the redemption date.
Adjustment for Consolidation or Merger
In the case of certain mergers, consolidations or other capital
transactions, certain customary provisions are required to be made relating to
the terms of conversion and redemption applicable to the WorldCom Series A
Preferred Stock in order to protect the interests of the holders thereof.
Liquidation Rights
In the event of the liquidation, dissolution, or winding up of the business
of WorldCom, the holders of WorldCom Series A Preferred Stock are entitled to
receive a liquidation preference for each share of WorldCom Series A Preferred
Stock in an amount equal to the greater of (i) the sum of (a) $3,350 and (b) all
accrued and unpaid dividends thereon to the date of liquidation, dissolution or
winding up and (ii) the value of the shares of WorldCom Common Stock into which
such shares of WorldCom Series A Preferred Stock are convertible on the date of
such liquidation, dissolution or winding up.
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Voting Rights
Each share of WorldCom Series A Preferred Stock is entitled to ten votes
per share (equivalent to 0.1 of a vote for each WorldCom Depositary Share) with
respect to all matters voted on at a shareholders' meeting, including the
election of directors. The holders of the WorldCom Series A Preferred Stock and
the holders of WorldCom Common Stock will vote together as a single class,
unless otherwise provided by law or the WorldCom Articles. The approval of more
than two-thirds of the votes entitled to be cast by the holders of issued and
outstanding shares of WorldCom Series A Preferred Stock is required for any
amendment to the WorldCom Articles that materially adversely changes the rights,
preferences or privileges of the WorldCom Series A Preferred Stock. The holders
of the outstanding shares of WorldCom Series A Preferred Stock shall also have
the right, voting together with the holders of any other outstanding shares of
Voting Preferred Stock (as hereinafter defined) as a separate voting group, to
elect two members of the WorldCom Board of Directors at any time six or more
quarterly dividends on any shares of Voting Preferred Stock shall be in arrears
and unpaid, in whole or in part, whether or not declared and whether or not any
funds shall be or have been legally available for payment thereof. For this
purpose, "Voting Preferred Stock" shall mean the shares of WorldCom Series A
Preferred Stock and each other series of WorldCom Preferred Stock which shall
have substantially similar voting rights (including voting as one voting group
with other shares of Voting Preferred Stock) with respect to the election of
directors upon substantially similar arrearages of dividends.
SERIES B PREFERRED STOCK
The following description of WorldCom Series B Convertible Preferred Stock
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of the WorldCom Articles.
Dividends
The holders of WorldCom Series B Preferred Stock are entitled to receive
when, as and if declared by the Board of Directors out of funds legally
available therefor, cumulative dividends from the issue date of the WorldCom
Series B Preferred Stock, accruing at the rate per share of $.0775 per annum,
payable when and as the WorldCom Board of Directors may determine, in cash,
before any dividends shall be set apart for or paid upon the WorldCom Common
Stock or any other stock ranking as to dividends junior to the WorldCom Series B
Preferred Stock in any year. Notwithstanding the foregoing, WorldCom may
declare, set apart and pay dividends on shares of the WorldCom Series A
Preferred Stock whether or not dividends have been declared, set apart or paid
on the shares of WorldCom Series B Preferred Stock. Dividends are only payable
in cash, except for payment of accrued but unpaid dividends upon conversion,
redemption or liquidation of the WorldCom Series B Preferred Stock, as the case
may be, as described below.
WorldCom is not permitted to set apart for or pay upon the WorldCom Common
Stock any Extraordinary Cash Dividend (as defined below) unless, at the same
time, WorldCom shall have set apart for or paid upon all shares of WorldCom
Series B Preferred Stock an amount of cash per share of WorldCom Series B
Preferred Stock equal to the Extraordinary Cash Dividend that would have been
paid in respect of such share if the holder of such share of WorldCom Series B
Preferred Stock had converted such share into shares of WorldCom Common Stock
immediately prior to the record date for such Extraordinary Cash Dividend. The
term "Extraordinary Cash Dividend" means, with respect to any cash dividend or
distribution paid on any date, the amount, if any, by which all cash dividends
and cash distributions on the WorldCom Common Stock paid during the consecutive
12-month period ending on and including such date exceeds, on a per share of
WorldCom Common Stock basis, 10% of the average daily closing price of the
WorldCom Common Stock over such 12-month period.
Conversion at Option of Holder
The shares of WorldCom Series B Preferred Stock are convertible, in whole
or in part, at the option of the holder thereof, at any time, unless previously
redeemed, into shares of WorldCom Common Stock at a rate of 0.0973912 shares of
WorldCom Common Stock for each share of WorldCom Series B Preferred Stock
(equivalent to an initial conversion price of $10.268 per share of WorldCom
Common Stock), subject to
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adjustment for certain capital events (the "Series B Conversion Rate"), and the
holder will also be entitled to receive accrued and unpaid dividends payable in
cash or, at the option of WorldCom, in shares of WorldCom Common Stock, based on
the Fair Market Value thereof (as defined in the WorldCom Articles).
Adjustment for Consolidation or Merger
In the case of certain mergers, consolidations or other capital
transactions, certain customary provisions are required to be made relating to
the terms of conversion and redemption applicable to the WorldCom Series B
Preferred Stock in order to protect the interests of the holders thereof.
Right to Redeem WorldCom Series B Preferred Stock
The WorldCom Series B Preferred Stock is not redeemable by WorldCom prior
to September 30, 2001. Thereafter, WorldCom has the right to redeem the shares
of WorldCom Series B Preferred Stock, in whole or in part, at a redemption price
of $1.00 per share plus an amount equal to all accrued and unpaid dividends
thereon (the "Redemption Price"); provided, that all or any portion of the
Redemption Price may be paid in shares of WorldCom Common Stock as determined by
the WorldCom Board of Directors based on the Fair Market Value thereof (as
defined in the WorldCom Articles).
Liquidation Rights
In the event of the liquidation, dissolution, or winding up of the business
of WorldCom, the holders of WorldCom Series B Preferred Stock are entitled to
receive a liquidation preference for each share of WorldCom Series B Preferred
Stock in an amount equal to the sum of $1.00 plus all accrued and unpaid
dividends thereon to the date of liquidation, dissolution or winding up.
Voting Rights
Each share of WorldCom Series B Preferred Stock is entitled to one vote per
share with respect to all matters voted on at a shareholders' meeting, including
the election of directors. The holders of the WorldCom Series B Preferred Stock
and the holders of WorldCom Common Stock (and WorldCom Series A Preferred Stock)
will vote together as a single class, unless otherwise provided by law or the
WorldCom Articles. The approval of at least a majority of the votes entitled to
be cast by the holders of issued and outstanding shares of WorldCom Series B
Preferred Stock is required to adversely change the rights, preferences or
privileges of the WorldCom Series B Preferred Stock. For this purpose, the
authorization or issuance of any series of preferred stock with preference or
priority over, or being on a parity with the WorldCom Series B Preferred Stock
as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of WorldCom shall not be deemed to affect
adversely the WorldCom Series B Preferred Stock. In case WorldCom shall at any
time prior to March 23, 1999 subdivide (whether by stock dividend, stock split
or otherwise) its outstanding shares of WorldCom Common Stock into a greater
number of shares (each a "Subdivision"), the voting rights of each share of
WorldCom Series B Preferred Stock will be adjusted to provide that the
percentage of the aggregate voting power of the WorldCom Common Stock
represented by the WorldCom Series B Preferred Stock shall be the same as such
percentage immediately prior to such Subdivision, with the holder of each share
of WorldCom Series B Preferred Stock being entitled to the number of votes
proportionate to such adjustment. Such adjustments made pursuant to a
Subdivision will become effective immediately after the effective date of the
Subdivision.
DEPOSITARY SHARES
Each WorldCom Depositary Share represents a one-hundredth interest in a
share of WorldCom Series A Preferred Stock deposited under the Deposit Agreement
(the "Deposit Agreement"), by and among WorldCom, The Bank of New York, as
Depositary (the "Depositary"), and the holders from time to time of Depositary
Receipts issued thereunder. Subject to the terms of the Deposit Agreement, each
owner of a WorldCom Depositary Share is entitled proportionately to all of the
rights and preferences of the shares of WorldCom Series A Preferred Stock
represented thereby (including dividend, voting, redemption and
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liquidation rights) contained in the WorldCom Articles and summarized above
under "Description of WorldCom Capital Stock -- Preferred Stock" and "-- Series
A Preferred Stock."
The WorldCom Depositary Shares are evidenced by depositary receipts issued
pursuant to the Deposit Agreement ("Depositary Receipts"). The following
description of the WorldCom Depositary Shares does not purport to be complete
and is subject to, and qualified in its entirety by, the provisions of the
Deposit Agreement.
Mandatory Conversion, or Call. As described under "-- Preferred
Stock -- Series A Preferred Stock," the WorldCom Series A Preferred Stock is
subject to mandatory conversion into shares of WorldCom Common Stock on the
Mandatory Conversion Date, and to the right of WorldCom to call the WorldCom
Series A Preferred Stock, at WorldCom's option, for redemption on or after the
Initial Redemption Date and before the Mandatory Conversion Date. The WorldCom
Depositary Shares are subject to mandatory conversion or call upon substantially
the same terms and conditions as the WorldCom Series A Preferred Stock, except
that the number of shares of WorldCom Common Stock received upon mandatory
conversion or redemption of each WorldCom Depositary Share will be equal to the
number of shares of WorldCom Common Stock received upon mandatory conversion or
redemption of each share of WorldCom Series A Preferred Stock divided by one
hundred.
Conversion at the Option of Holder. As described under "-- Preferred
Stock -- Series A Preferred Stock," the WorldCom Series A Preferred Stock may be
converted, in whole or in part, into shares of WorldCom Common Stock at the
option of the holders of WorldCom Series A Preferred Stock at any time before
the Mandatory Conversion Date, unless previously redeemed. The WorldCom
Depositary Shares may, at the option of holders thereof, be converted into
shares of WorldCom Common Stock upon the same terms and conditions as the
WorldCom Series A Preferred Stock, except that the number of shares of WorldCom
Common Stock received upon conversion of each WorldCom Depositary Share will be
equal to the number of shares of WorldCom Common Stock received upon conversion
of each share of WorldCom Series A Preferred Stock divided by one hundred.
Voting of WorldCom Series A Preferred Stock. Each record holder of
Depositary Receipts on the record date (which will be the same date as the
record date for the WorldCom Series A Preferred Stock) will be entitled to
instruct the Depositary as to the exercise of the voting rights pertaining to
the number of WorldCom Series A Preferred Stock represented by such holder's
WorldCom Depositary Shares. The Depositary will abstain from voting WorldCom
Series A Preferred Stock to the extent it does not receive specific written
voting instructions from the holders of Depositary Receipts representing such
WorldCom Series A Preferred Stock.
Termination of Deposit Agreement. The Deposit Agreement is subject to
termination by WorldCom, or, if the Depositary resigns and no successor
depositary is properly appointed and accepted, by the Depositary. If any
Depositary Receipts remain outstanding after the date of termination, the
Depositary thereafter will discontinue the transfer of Depositary Receipts, will
suspend the distribution of dividends to the holders thereof, and will not give
any further notices (other than notice of such termination) or perform any
further acts under the Deposit Agreement except as provided below and except
that the Depositary will continue (i) to collect dividends on the WorldCom
Series A Preferred Stock and any other distributions with respect thereto and
(ii) to deliver the WorldCom Series A Preferred Stock and any money and other
property represented by Depositary Shares upon surrender thereof by the holders
thereof. WorldCom does not intend to terminate the Deposit Agreement or to
permit the resignation of the Depositary without appointing a successor
depositary. In the event the Deposit Agreement is terminated, WorldCom has
agreed to use its best efforts to list the WorldCom Series A Preferred Stock on
The Nasdaq National Market.
WORLDCOM SERIES 3 PREFERRED STOCK
In connection with the issuance of the WorldCom Rights (as hereinafter
defined), the WorldCom Board of Directors has authorized 2,500,000 shares of
preferred stock to be issued as Series 3 Junior Participating Preferred Stock
(the "WorldCom Series 3 Preferred Stock"), a description of the terms of which
is set forth below under "-- Preferred Stock Purchase Rights."
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PREFERRED STOCK PURCHASE RIGHTS
On August 25, 1996, WorldCom entered into the WorldCom Rights Agreement,
and the WorldCom Board of Directors authorized the issuance of one preferred
share purchase right (a "WorldCom Right") for each outstanding share of WorldCom
Common Stock outstanding as of September 6, 1996 and issued thereafter until the
Distribution Date, as defined in the WorldCom Rights Agreement (the "WorldCom
Distribution Date"). Each WorldCom Right entitles the registered holder to
purchase from WorldCom one one-thousandth of a share of Series 3 Preferred Stock
at an initial price of $160.00 per one one-thousandth of such share, subject to
adjustment as described in the WorldCom Rights Agreement.
The WorldCom Rights will be evidenced by the WorldCom Common Stock, and a
WorldCom Distribution Date will occur upon the earlier of ten business days
following public disclosure or the date on which WorldCom first determines that
certain persons or groups (a "WorldCom Acquiring Person") have become the
beneficial owner of 15% or more of the outstanding shares of voting stock of
WorldCom (the "Stock Acquisition Date") or ten business days (or such later date
as may be determined by action of the WorldCom Board of Directors but not later
than the Stock Acquisition Date) following the commencement of a tender offer or
exchange offer that would result in certain persons or groups becoming a
WorldCom Acquiring Person. Pursuant to the WorldCom Rights Agreement, as
amended, the WorldCom Rights are not exercisable until the WorldCom Distribution
Date and will expire, if not previously exercised, on September 6, 2001, unless
such final expiration date is extended (subject to shareholder approval) or
unless the WorldCom Rights are earlier redeemed or exchanged by WorldCom.
Upon the occurrence of a WorldCom Distribution Date, each holder of a
WorldCom Right, except for a WorldCom Acquiring Person, has the right to
acquire, upon exercise of the WorldCom Right, WorldCom Common Stock having a
value equal to two times the exercise price of the WorldCom Right. If a person
becomes a WorldCom Acquiring Person and (i) WorldCom is acquired in a merger or
other business combination transaction in which either WorldCom is not the
surviving corporation or WorldCom Common Stock is exchanged or changed, or (ii)
50% or more of WorldCom's assets or earnings power is sold in one or several
transactions, each holder of a WorldCom Right, except for a WorldCom Acquiring
Person, would acquire, upon exercise of the WorldCom Right, such number of
shares of the acquiring company's common stock as shall be equal to the result
obtained by multiplying the then current exercise price for a WorldCom Right by
the number one one-thousandths of a share of WorldCom Series 3 Preferred Stock
for which a WorldCom Right is then exercisable and dividing that product by 50%
of the then current market price per share of the common stock of the acquiring
company on the date of such merger or other business combination transaction.
If a certain person or group acquires more than 15% but less than 50% of
the outstanding WorldCom Common Stock, WorldCom can exchange each WorldCom
Right, except those held by such persons, for one share of WorldCom Common
Stock.
The WorldCom Series 3 Preferred Stock will be nonredeemable and junior to
any other series of WorldCom preferred stock (unless otherwise provided in the
terms of such WorldCom preferred stock). Each share of WorldCom Series 3
Preferred Stock will have a preferential dividend in an amount equal to 1,000
times any dividend declared on each share of WorldCom Common Stock. In the event
of liquidation, the holders of the WorldCom Series 3 Preferred Stock will
receive a preferred liquidation payment equal to the greater of $1,000 or 1,000
times the payment made per share of WorldCom Common Stock. Each share of
WorldCom Series 3 Preferred Stock will have 1,000 votes, voting together with
the WorldCom Common Stock. In the event of any merger, consolidation or other
transaction in which shares of WorldCom Common Stock are converted or exchanged,
each share of WorldCom Series 3 Preferred Stock will be entitled to receive
1,000 times the amount and type of consideration received per share of WorldCom
Common Stock. The rights of the WorldCom Series 3 Preferred Stock as to
dividends, liquidation and voting, and in the event of mergers and
consolidations, are protected by customary antidilution provisions.
At any time prior to the time a WorldCom Acquiring Person becomes such,
WorldCom may redeem the WorldCom Rights in whole, but not in part, at a price of
$.01 per WorldCom Right. The redemption of the WorldCom Rights may be made
effective at such time, on such basis and with such conditions as the
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WorldCom Board of Directors, in its sole discretion, may establish. Immediately
upon any redemption of the WorldCom Rights, the right to exercise the WorldCom
Rights will terminate, and the only right of the holders of the WorldCom Rights
will be to receive the redemption price.
The terms of the WorldCom Rights may be amended by the WorldCom Board of
Directors without the consent of the holders of the WorldCom Rights, including
an amendment to lower certain thresholds described above to not less than the
greater of (i) any percentage greater than the largest percentage of the voting
power of all securities of WorldCom then known to WorldCom to be beneficially
owned by certain persons or groups and (ii) 10%, except that from and after such
time as any person or group of affiliated or associated persons becomes a
WorldCom Acquiring Person no such amendment may adversely affect the interests
of the holders of the WorldCom Rights.
The WorldCom Rights have certain anti-takeover effects. The WorldCom Rights
will cause substantial dilution to a person or group that attempts to acquire or
merge with WorldCom in certain circumstances. Accordingly, the existence of the
WorldCom Rights may deter certain potential acquirors from making certain
takeover proposals or tender offers. The WorldCom Rights should not interfere
with any merger or other business combination approved by the WorldCom Board of
Directors since WorldCom may redeem the WorldCom Rights as described above.
CERTAIN CHARTER AND BYLAW PROVISIONS
In addition to the WorldCom Rights Agreement described above, the WorldCom
Articles and the WorldCom Bylaws contain certain provisions, which are referred
to below and which may have the effect of discouraging certain types of
transactions that involve an actual or threatened change of control of WorldCom.
Reference is made to the full text of the WorldCom Articles and the WorldCom
Bylaws, which are incorporated by reference as exhibits to the Registration
Statement of which this Proxy Statement/Prospectus is a part. See "Comparative
Rights of Shareholders -- Election of Directors," "--Special Meetings of
Shareholders," "--Special Redemption Provisions," and "-- Business Combination
Restrictions." In addition, one of the effects of the existence of unissued and
unreserved WorldCom Common Stock and preferred stock may be to enable the
WorldCom Board of Directors to issue shares to persons friendly to current
management, which could render more difficult or discourage an attempt to obtain
control of WorldCom by means of a merger, tender offer, proxy contest or
otherwise, and thereby protect the continuity of WorldCom's management and
possibly deprive the shareholders of opportunities to sell their shares of
WorldCom Common Stock at prices higher than the prevailing market prices. Such
additional shares also could be used to dilute the stock ownership of persons
seeking to obtain control of WorldCom.
COMPARATIVE RIGHTS OF SHAREHOLDERS
As a result of the CompuServe Merger, the stockholders of CompuServe, whose
rights are currently governed by Delaware law, the CompuServe Certificate and
the CompuServe Bylaws, will become shareholders of WorldCom whose rights will be
governed by Georgia law, the WorldCom Articles and the WorldCom Bylaws. The
following discussion is intended only to highlight certain material differences
between the rights of corporate shareholders under Georgia law and Delaware law
generally and specifically with respect to stockholders of CompuServe and
shareholders of WorldCom pursuant to their respective charters and bylaws. The
discussion does not constitute a complete comparison of the differences between
the rights of such holders or the provisions of the GBCC, the DGCL, the
CompuServe Certificate and the CompuServe Bylaws and the WorldCom Articles and
the WorldCom Bylaws, and the GBCC, and CompuServe stockholders are referred to
the DGCL, the CompuServe Certificate and the CompuServe Bylaws, the WorldCom
Articles, and the WorldCom Bylaws for more complete information regarding such
differences.
ELECTION OF DIRECTORS
Under Delaware law, directors, unless their terms are staggered, are
elected at each annual stockholder meeting. Vacancies on the board of directors
may be filled by the stockholders or directors, unless the certificate of
incorporation or a bylaw provides otherwise. The certificate of incorporation
may authorize the
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election of certain directors by one or more classes or series of shares, and
the certificate of incorporation, an initial bylaw or a bylaw adopted by a vote
of the stockholders may provide for staggered terms for the directors. The
certificate of incorporation or the bylaws also may allow the stockholders or
the board of directors to fix or change the number of directors, but a
corporation must have at least one director. Under Delaware law, stockholders do
not have cumulative voting rights unless the certificate of incorporation so
provides.
The CompuServe Board of Directors, which presently consists of six members,
has been established with staggered terms for directors. Presently, the
CompuServe Certificate divides the directors into three classes. Each class of
directors must consist, as nearly as possible, of one-third of the total number
of directors, with each director serving for a term of three years. Subject to
certain restrictions, nominations to the CompuServe Board of Directors may be
made by either the Board or stockholders. The CompuServe Bylaws provide that a
stockholder's notice in connection with the nomination of directors is timely
received by CompuServe if received not later than the following dates: (i) with
respect to an election to be held at an annual meeting of stockholders, 60 days
in advance of such meeting if such meeting is to be held on a day which is
within 30 days preceding the anniversary of the previous year's annual meeting,
or 90 days in advance of such meeting if such meeting is to be held on or after
the anniversary of the previous year's annual meeting; and (ii) with respect to
an election to be held at a special meeting of stockholders for the election of
directors, the close of business on the tenth day following the date on which
notice of such meeting is first given to stockholders. Each share of CompuServe
Common Stock is entitled to one vote per share with respect to the election of
directors of CompuServe (and each other matter coming before any meeting of
CompuServe stockholders). The CompuServe Certificate does not provide for
cumulative voting so that stockholders holding more than 50% of the outstanding
shares entitled to vote may be able to elect all members of the Board of
Directors.
Upon consummation of the CompuServe Merger, the former stockholders of
CompuServe will have rights under Georgia law in the election of directors
similar to those provided by Delaware law. Directors, unless their terms are
staggered pursuant to the corporation's articles of incorporation or a bylaw
adopted by the shareholders, are elected at each annual shareholder meeting
under Georgia law, and vacancies on the board of directors may be filled by the
shareholders or directors, unless the articles of incorporation or a bylaw
approved by the shareholders provides otherwise. The articles of incorporation
may authorize the election of certain directors by one or more classes or series
of shares. The articles of incorporation or the bylaws also may allow the
shareholders or the board of directors to fix or change the number of directors.
Currently, the WorldCom Bylaws provide that the number of members of the
WorldCom Board of Directors shall be fixed by the WorldCom Board of Directors
but shall not be less than three. Neither the WorldCom Articles nor the WorldCom
Bylaws provide for a staggered board of directors. Subject to certain
restrictions, nominations to the WorldCom Board of Directors may be made by
either the Board or shareholders, if delivered to WorldCom not later than 90
days prior to the anniversary date of the immediately preceding annual meeting
of WorldCom shareholders. Under Georgia law, shareholders do not have cumulative
voting rights for the election of directors unless the articles of incorporation
so provide. The WorldCom Articles do not provide for cumulative voting.
REMOVAL OF DIRECTORS
Under Delaware law, classified directors of a corporation may only be
removed for cause, by the holders of a majority of the shares entitled to vote
at an election, unless the certificate of incorporation of the corporation
specifically provides that such directors can be removed without cause. The
CompuServe Certificate provides that directors may be removed only for cause by
the affirmative vote of the holders of not less than 80% of the voting power
represented by all of the shares of CompuServe Common Stock.
Georgia law provides that, unless director terms are staggered, directors
may be removed with or without cause by a majority of the votes entitled to be
cast, unless the articles of incorporation or a bylaw adopted by the
shareholders provides that directors may be removed only for cause, provided,
however, that if a director is elected by a particular voting group of
shareholders, that director may only be removed by the requisite vote of that
voting group. The WorldCom Articles and the WorldCom Bylaws contain no
provisions that a director
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may be removed only for cause and, because director terms are not staggered,
directors of WorldCom may be removed with or without cause.
VACANCIES ON THE BOARD OF DIRECTORS
Under Delaware law, the board of directors of a corporation may fill any
vacancy on the board, including vacancies resulting from an increase in the
number of directors. The CompuServe Certificate provides that any vacancy on the
Board of Directors that results from an increase in the number of directors
shall be filled by a majority of the directors then in office, even if less than
a quorum, or by a sole remaining director. The CompuServe Bylaws provide that
any other vacancy occurring in the Board of Directors shall be filed by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director.
Under Georgia law, the articles of incorporation or a bylaw approved by the
shareholders may make specific provision for filling vacancies on the board of
directors. Under the WorldCom Bylaws, any vacancy occurring on the WorldCom
Board created by an increase in the number of directors by action of the
shareholders must be filled by the shareholders in the same manner as at an
annual election of directors. The WorldCom Bylaws provide that the WorldCom
Board shall fill any vacancy occurring on the board created by an increase in
the number of directors by action of the board or the removal or resignation of
a director, as provided in the WorldCom Bylaws, except such vacancy shall be
filled pursuant to the WorldCom Articles to the extent such Articles provide
that a class of shareholders may fill a vacancy created by the removal or
resignation of a director elected by that class. A director elected to fill a
vacancy created by the removal or resignation of a director shall hold office
for the unexpired term of his or her predecessor.
ACTION BY WRITTEN CONSENT
Delaware law provides that, unless limited by the certificate of
incorporation, any action that could be taken by stockholders at a meeting may
be taken without a meeting if a consent (or consents) in writing, setting forth
the action so taken, is signed by the holders of record of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. The CompuServe Certificate provides that any
action that could be taken at a meeting of stockholders can only be taken at
such a meeting and cannot be taken by the written consent of the stockholders.
Subject to compliance with certain requirements, Georgia law provides that
any action required or permitted to be taken by the shareholders at a meeting
may be taken by the shareholders without a meeting if evidenced by one or more
written consents describing the action taken, signed and dated by all
shareholders entitled to vote on such action, or, if the articles of
incorporation provide for less than all shareholders, by persons who would be
entitled to vote shares at a meeting having the requisite voting power to take
action at a meeting at which all shareholders entitled to vote were present and
voted. The WorldCom Articles do not provide for the consent of a lesser number
of shares with respect to an action by written consent, thus the written consent
of all shareholders of WorldCom entitled to vote on such action would be
required in order to take such an action without a meeting of shareholders.
AMENDMENTS TO CHARTER
Under Delaware law, unless a higher vote is required in the certificate of
incorporation, an amendment to the certificate of incorporation of a corporation
may be approved by a majority of the outstanding shares entitled to vote upon
the proposed amendment. The CompuServe Certificate generally does not require a
higher vote to amend its terms and provisions. However, the CompuServe
Certificate provides that no amendment that is inconsistent with the following
provisions of the CompuServe certificate of incorporation may be made unless
such amendment is approved by the affirmative vote of the holders of not less
than 80% of the votes entitled to be cast on the amendment: (i) the staggered
CompuServe Board of Directors, (ii) the filling of vacancies of the CompuServe
Board of Directors, (iii) the supermajority requirement for the removal of
directors of CompuServe for cause and (iv) the supermajority voting requirement
to amend the Bylaws of CompuServe.
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Georgia law provides that directors may only make certain relatively
technical amendments to a corporation's articles of incorporation without
shareholder action. Otherwise, unless Georgia law, the articles of incorporation
or the corporation's board of directors require a greater vote or a vote by
voting groups, the affirmative vote of a majority of the votes entitled to be
cast on the amendment by each voting group entitled to vote on the amendment is
required to amend a Georgia corporation's articles of incorporation.
AMENDMENTS TO BYLAWS
The DGCL provides that a corporation's bylaws may be amended by that
corporation's stockholders, or, if so provided in the corporation's certificate
of incorporation, the power to amend the corporation's bylaws may also be
conferred on the corporation's directors. The CompuServe Certificate provides
that the CompuServe Bylaws may be amended or repealed by the stockholders by the
affirmative vote of the holders of not less than 80% of the votes entitled to be
cast on the matter.
Georgia law provides that, unless a corporation's articles of
incorporation, applicable law or a particular bylaw approved by the
corporation's shareholders provides otherwise, either the corporation's
directors or its shareholders may amend that corporation's bylaws. The WorldCom
Bylaws allow the directors or shareholders to amend or repeal the WorldCom
Bylaws unless the WorldCom Articles or applicable law reserves the power to
amend or repeal a particular bylaw exclusively to the shareholders or unless the
shareholders, in amending or repealing a particular bylaw, provide expressly
that the directors may not amend or repeal that bylaw.
SPECIAL MEETINGS OF SHAREHOLDERS
Delaware law provides that special meetings of the stockholders of a
corporation may be called by the corporation's board of directors or by such
other persons as may be authorized in the corporation's certificate of
incorporation or bylaws. The CompuServe Bylaws provide that special meetings of
CompuServe's stockholders may only be called by the CompuServe Board of
Directors, the Chairman of the CompuServe Board of Directors or the President of
CompuServe.
Georgia law permits the board of directors or any person authorized in the
corporation's articles of incorporation or bylaws to call special meetings of
shareholders. Except in the case of a corporation having 100 or fewer
shareholders of record, a special meeting may also be called by at least 25% or
such greater or lesser percentage of all the votes entitled to be cast on any
issue proposed to be considered at the special meeting as may be provided in the
corporation's articles of incorporation or bylaws. The WorldCom Bylaws provide
that a special meeting may be called by the WorldCom Board of Directors, the
President of WorldCom or the holders of not less than 40% of all the votes
entitled to be cast on the issue proposed to be considered at the proposed
special meeting.
VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS
Delaware law provides that, unless otherwise specified in a corporation's
certificate of incorporation or unless the provisions of Delaware law relating
to business combinations discussed below are applicable, a sale or other
disposition of all or substantially all of the corporation's assets, a merger or
consolidation of the corporation with another corporation or a dissolution of
the corporation requires the affirmative vote of the Board of Directors (except
in certain limited circumstances) plus, with certain exceptions, the affirmative
vote of a majority of the outstanding stock entitled to vote thereon. The
foregoing provisions apply to CompuServe and its stockholders.
Georgia law is similar to Delaware law in that, except as described below
with respect to business combinations, a sale or other disposition of all or
substantially all of the corporation's assets, a merger of the corporation with
and into another corporation, a share exchange involving one or more classes or
series of the corporation's shares or a dissolution of the corporation must be
adopted by the Board of Directors plus, with certain exceptions, the affirmative
vote of a majority of all shares of stock entitled to vote thereon.
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RIGHTS OF INSPECTION
The DGCL allows any stockholder, upon written demand under oath stating the
purpose thereof, to have the right during the usual hours for business to
inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose means a purpose reasonably related to such person's
interest as a stockholder.
Georgia law permits any shareholder who gives at least five business days'
written notice to the corporation to have the right to inspect and copy, during
normal business hours, at the principal office of the corporation, certain of
the corporation's books and records, including: (i) the articles of
incorporation and the bylaws currently in effect; (ii) all resolutions adopted
by shareholders or the board of directors increasing or decreasing the number of
directors, the classification of directors, if any, and the names and residence
addresses of all members of the board of directors; (iii) resolutions adopted by
the board of directors creating one or more classes or series of shares, and
fixing their relative rights, if any, if shares issued under the resolutions are
outstanding; (iv) resolutions adopted by the board of directors that affect the
size of the board of directors; (v) the minutes of all shareholders' meetings
and executed written consents evidencing all action taken by shareholders
without a meeting for the past three years; (vi) all written communications to
shareholders generally within the past three years, including the annual
financial statements furnished as provided in GBCC Section 14-2-1620; (vii) the
names and business addresses of the corporation's current directors and
officers; and (vii) the most recent annual registration of the corporation filed
with the Georgia Secretary of State. A shareholder is also entitled to receive,
upon written request, a copy of the corporation's most recent balance sheet and
profit and loss statement.
A shareholder has only a qualified right to inspect certain other specified
records of the corporation, including (i) excerpts from minutes of any meeting
of the board, records of action of a committee of the board of directors while
acting for the board, minutes of meetings of shareholders, and records of action
taken by shareholders or the board of directors without a meeting, to the extent
not subject to inspection under the mandatory inspection and copying provision;
(ii) accounting records of the corporation; and (iii) the record of
shareholders.
DIVIDENDS
Subject to any restrictions contained in a corporation's certificate of
incorporation, Delaware law generally provides that a corporation may declare
and pay dividends out of "surplus" (defined as the excess, if any, of net assets
(total assets less total liabilities) over capital) or, when no surplus exists,
out of net profits for the fiscal year in which the dividend is declared and/or
the preceding fiscal year, except that dividends may not be paid out of net
profits if the capital of the corporation is less than the amount of capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In accordance with the DGCL,
"capital" is determined by the board of directors and shall not be less than the
aggregate par value of the outstanding capital stock of the corporation having
par value. The CompuServe Certificate of Incorporation contains no additional
restrictions on the declaration or payment of dividends.
Georgia law provides that, subject to any restrictions contained in a
corporation's articles of incorporation, the directors of a corporation may
authorize the payment of dividends to that corporation's shareholders, provided
that no such dividend may be paid if, after giving effect to such payment, (a)
the corporation would be unable to pay its debts as they come due in the usual
course of business or (b) the corporation's total assets would be less than the
sum of its total liabilities plus (unless the corporation's articles of
incorporation permit otherwise) any preferential liquidation amounts payable to
shareholders whose preferential rights on dissolution are superior to those of
the shareholders receiving the dividend. Other than the preferential rights of
the holders of WorldCom preferred stock with respect to dividends and
liquidation (see "Description of WorldCom Capital Stock -- Preferred Stock"),
the WorldCom Articles contain no additional restrictions on the declaration or
payment of dividends.
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APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
Under Delaware law, in certain circumstances a stockholder of a Delaware
corporation is generally entitled to demand appraisal and obtain payment of the
judicially determined fair value of his or her shares in the event of any plan
of merger or consolidation to which the corporation, the shares of which he or
she holds, is a party, provided such stockholder continuously holds such shares
through the effective date of the merger, otherwise complies with the
requirement of Delaware law for the perfection of appraisal rights and does not
vote in favor of the merger. However, this right to demand appraisal does not
apply to stockholders if: (1) they are stockholders of a surviving corporation
and if a vote of the stockholders of such corporation is not necessary to
authorize the merger or consolidation; and (2) the shares held by the
stockholders are of a class or series registered on the New York Stock Exchange
or the American Stock Exchange, designated as a national market system security
on an interdealer quotation system by the NASD or are held of record by more
than 2,000 stockholders on the date set to determine the stockholders entitled
to vote on the merger or consolidation. Notwithstanding the above, appraisal
rights are available for the shares of any class or series of stock of a
Delaware corporation if the holders thereof are required by the terms of an
agreement of merger or consolidation to accept for their stock anything except:
(i) shares of stock of the corporation surviving or resulting from the merger or
consolidation; (ii) shares of stock of any other corporation which at the
effective date of the merger or consolidation will be listed on the New York
Stock Exchange or the American Stock Exchange, designated as a national market
system security on an interdealer quotation system by the NASD or held of record
by more than 2,000 stockholders; (iii) cash in lieu of fractional shares of the
corporations described in (i) and (ii); or (iv) any combination of the shares of
stock and cash in lieu of fractional shares described in (i), (ii) and (iii).
A Delaware corporation may provide in its certificate of incorporation that
appraisal rights shall be available for the shares of any class or series of its
stock as the result of an amendment to its certificate of incorporation, any
merger or consolidation to which the corporation is a party or a sale of all or
substantially all of the assets of the corporation.
Holders of CompuServe Common Stock are not entitled to appraisal rights in
connection with the Merger, because: (i) shares of CompuServe Common Stock were,
at the Record Date for the Special Meeting, designated as Nasdaq National Market
securities; (ii) CompuServe stockholders will not be required to accept anything
in exchange for their shares of CompuServe Common Stock other than shares of
WorldCom Common Stock, which will be designated as Nasdaq National Market
securities as of the Effective Time, and cash in lieu of fractional shares of
such stock; and (iii) the CompuServe Certificate of Incorporation does not
otherwise provide CompuServe stockholders with dissenters' or appraisal rights
applicable to the Merger. See "The Special Meeting -- Appraisal Rights."
Georgia law provides that shareholders are entitled to dissent from and
obtain payment of the fair value of their shares in the event of mergers, share
exchanges, sales or exchanges of all or substantially all of the corporation's
assets, amendments to the articles of incorporation that materially and
adversely affect certain rights in respect of a dissenter's shares and certain
other actions taken pursuant to a shareholder vote to the extent provided for
under Article 9 of the GBCC, the articles of incorporation, bylaws or resolution
of board of directors; provided, however, unless the corporation's articles of
incorporation otherwise provide, appraisal rights are not available: (i) to
holders of shares of any class of shares not entitled to vote on the merger,
share exchange or sale or exchange of all or substantially all of a
corporation's assets; (ii) in a sale of all or substantially all of the property
of the corporation pursuant to court order; (iii) in a sale of all or
substantially all of the corporation's assets for cash, where all or
substantially all of the net proceeds of such sale will be distributed to the
shareholders within one year; or (iv) to holders of shares which at the record
date were either listed on a national securities exchange or held of record by
more than 2,000 shareholders, unless: (a) in the case of a plan of merger or
share exchange, the holders of shares of the class or series are required under
the plan of merger or share exchange to accept for their shares anything except
shares of the surviving corporation or a publicly held corporation which at the
effective date of the merger or share exchange are either listed on a national
securities exchange or held of record by more than 2,000 shareholders, except
for scrip or cash payments in lieu of fractional shares; or (b) the articles of
incorporation or a resolution of the board of directors approving the
transaction provides otherwise. Appraisal rights under Georgia law differ from
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appraisal rights under Delaware law in that, under Georgia law, shareholders
have appraisal rights for more types of transactions than under Delaware law,
and unlike the appraisal rights provisions under Delaware law, under Georgia
law, the board of directors may voluntarily extend appraisal rights to
shareholders.
INDEMNIFICATION AND LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS
Delaware law permits a corporation to adopt a provision in its certificate
of incorporation eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except that such provision shall not limit the liability of
a director for: (i) any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
liability under Section 174 of the DGCL for unlawful payment of dividends or
stock purchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit. The CompuServe Certificate limits the
personal liability of CompuServe's directors for monetary damages to the fullest
extent permissible under applicable law.
Under Delaware law, a corporation may indemnify any person made a party or
threatened to be made a party to any type of proceeding (other than an action by
or in the right of the corporation) because he is or was an officer, director,
employee or agent of the corporation, or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
entity, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such proceeding: (1) if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation; or (2) in the case of a
criminal proceeding, he had no reasonable cause to believe that his conduct was
unlawful. A corporation may indemnify any person made a party or threatened to
be made a party to any threatened, pending or completed action or suit brought
by or in the right of the corporation because he was an officer, director,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
other entity, against expenses actually and reasonably incurred in connection
with such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
except that there may be no such indemnification if the person is found liable
to the corporation unless, in such a case, the court determines the person is
entitled thereto. A corporation must indemnify a director, officer, employee or
agent against expenses actually and reasonably incurred by him who successfully
defends himself in a proceeding to which he was a party because he was a
director, officer, employee or agent of the corporation. Expenses incurred by an
officer or director (or other employees or agents as deemed appropriate by the
Board of Directors) in defending a civil or criminal proceeding may be paid by
the corporation in advance of the final disposition of such proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation. The Delaware law indemnification and expense
advancement provisions are not exclusive of any other rights which may be
granted by the bylaws, a vote of stockholders or disinterested directors,
agreement or otherwise.
The CompuServe Bylaws provide for the indemnification to the fullest extent
not prohibited by law, including those circumstances in which indemnification
would otherwise be discretionary, of any current or former director, officer and
the indemnification of any current or former employee or agent of CompuServe who
is made, or threatened to be made, a party to an action, suit or proceeding,
whether civil, criminal, administrative, investigative or other (including an
action, suit or proceeding by or in the right of CompuServe, by reason of the
fact that such person is or was a director, officer, employee or agent of
CompuServe or a fiduciary within the meaning of the Employee Retirement Income
Security Act of 1974 with respect to any employee benefit plan of CompuServe, or
serves or served at the request of CompuServe as a director, officer, employee
or agent, or as a fiduciary of an employee benefit plan, of another corporation,
partnership, joint venture, trust or other enterprise, except that CompuServe
shall not be obligated to advance expenses or to indemnify any such person (a)
with respect to proceedings, claims or actions initiated or brought voluntarily
by any such person and not by way of defense; (b) for any amounts paid in
settlement of an action indemnified against by CompuServe without the prior
written consent of the Board of Directors; or
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(c) in connection with any event in which the person did not act in good faith
and in a manner reasonably believed to be in or not opposed to the best interest
of CompuServe. CompuServe will pay all expenses incurred by any such person in
defending such a proceeding in advance of its final disposition at the written
request of such person if the person furnishes CompuServe (a) a written
statement of a good faith belief that he or she is entitled to indemnification
and (b) a written undertaking to repay such advance if it is ultimately
determined by a court that such person is not entitled to be indemnified. No
amendment to the CompuServe Certificate that limits CompuServe's obligation to
indemnify directors, officers and employees of CompuServe will have any effect
on such obligation for any act or omission which occurred prior to the later of
the effective date of the amendment or the date notice of the amendment is given
to the officer, director or employee.
The CompuServe Merger Agreement provides that, from and after the Effective
Time, WorldCom and the Surviving Corporation will, jointly and severally,
indemnify, defend and hold harmless the directors and officers of CompuServe as
and to the extent provided in the CompuServe Certificate, Bylaws or
indemnification agreements, as in effect as of the date of the CompuServe Merger
Agreement, with respect to matters occurring through the Closing Date, provided
that this obligation will not relieve H&R Block or Block Group of their
indemnification obligations under Section 8.4 of the CompuServe Merger
Agreement. To the extent reasonably available, WorldCom has agreed to cause the
Surviving Corporation to maintain in effect for not less than three years after
the Closing Date policies of directors' and officers' liability insurance
comparable to those maintained by CompuServe with carriers comparable to
CompuServe's existing carriers; provided, however, that the Surviving
Corporation will not be required to pay an annual premium for such insurance in
excess of 150% of the last annual premium paid prior to the date hereof, but in
such case is required to purchase as much coverage as possible for such amount.
(Section 12.10 of the CompuServe Merger Agreement). See "Plan of Merger -- Terms
and Conditions of the Proposed CompuServe Merger -- Interests of Certain Persons
in the CompuServe Merger -- Indemnification."
Georgia law permits corporations to adopt a provision in their articles of
incorporation eliminating or limiting the personal liability of a director to
the corporation or its shareholders for monetary damages for any action taken,
or any failure to take action as a director, except that Georgia law does not
permit the elimination or limitation of monetary liability for a director in the
event of (i) misappropriation of corporate business opportunities; (ii)
intentional misconduct or knowing violation of the law; (iii) unlawful
distributions; or (iv) any transaction in which such director receives an
improper personal benefit. The WorldCom Articles limit the personal liability of
directors for monetary damages to the fullest extent permissible under the GBCC.
Section 14-2-851 of the GBCC provides that a Georgia corporation may
indemnify an individual who is a party to a proceeding because he or she is or
was a director, against liability incurred in such proceeding, provided that
such individual acted in good faith and reasonably believed (a) in the case of
conduct in his or her official capacity, that such conduct was in the best
interests of the corporation, (b) in all other cases other than a criminal
proceeding, that such conduct was at least not opposed to the best interests of
the corporation, and (c) in the case of a criminal proceeding, that such
individual had no reasonable cause to believe that such conduct was unlawful. A
Georgia corporation may not indemnify a director under Section 14-2-851 (i) in
connection with a proceeding by or in the right of the corporation, except for
reasonable expenses incurred by such director in connection with the proceeding,
provided it is determined that such director met the relevant standard of
conduct set forth above, or (ii) in connection with any proceeding with respect
to conduct for which such director was adjudged liable on the basis that he or
she received an improper personal benefit.
Prior to indemnifying a director under Section 14-2-851 of the GBCC, a
determination must be made that the director has met the relevant standard of
conduct. Such determination must be made by: (i) a majority vote of a quorum
consisting of directors not at that time parties to the suit; (ii) a duly
designated committee of directors; (iii) duly selected special legal counsel; or
(iv) a vote of the shareholders, excluding shares owned by or voted under the
control of directors who are at the time parties to the suit.
A Georgia corporation may, before final disposition of a proceeding,
advance funds to pay for or reimburse the reasonable expenses incurred by a
director who is a party to a proceeding because he or she is a director,
provided that such director delivers to the corporation a written affirmation of
his or her good faith
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belief that he or she met the relevant standard of conduct described in Section
14-2-851 of the GBCC, or that the proceeding involves conduct for which such
director's liability has been properly eliminated by action of the corporation,
and a written undertaking by the director to repay any funds advanced if it is
ultimately determined that such director was not entitled to such
indemnification.
The GBCC also allows a Georgia corporation to indemnify directors made a
party to a proceeding without regard to the above-referenced limitations, if
authorized by the articles of incorporation or a bylaw, contract, or resolution
duly adopted by a vote of the shareholders of the corporation by a majority of
votes entitled to be cast, excluding shares owned or voted under the control of
the director or directors who are not disinterested, and to advance funds to pay
for or reimburse reasonable expenses incurred in the defense thereof, subject to
restrictions similar to the restrictions described in the preceding paragraph;
provided, however, that the corporation may not indemnify a director adjudged
liable: (1) for any appropriation, in violation of his duties, of any business
opportunity of the corporation; (2) for acts or omissions which involve
intentional misconduct or a knowing violation of law; (3) for unlawful
distributions; or (4) for any transaction from which he received an improper
personal benefit.
Under Georgia law, a corporation's authority to indemnify officers, unlike
directors, is restricted only by public policy. A person who is both an officer
and a director is treated, for indemnification purposes, as a director. The
WorldCom Articles and the WorldCom Bylaws authorize indemnification of its
officers and directors to the fullest extent permitted by Georgia law.
PREEMPTIVE RIGHTS
Neither Delaware nor Georgia law provides (except in limited instances) for
preemptive rights to acquire a corporation's unissued stock. However, such right
may be expressly granted to the shareholders in a corporation's certificate or
articles of incorporation. Neither the CompuServe Certificate nor the WorldCom
Articles provide for preemptive rights.
SPECIAL REDEMPTION PROVISIONS
Under the DGCL, a corporation may purchase or redeem shares of any class of
its capital stock, but subject generally to the availability of sufficient
lawful funds therefor and provided that at all times, at the time of any such
redemption, the corporation shall have outstanding shares of one or more classes
or series of capital stock which have full voting rights that are not subject to
redemption. The CompuServe Certificate contains no provision for special
redemptions of shares of its capital stock.
Under the GBCC, a corporation may acquire its own shares of capital stock,
subject to the requirement that at all times the corporation must have
authorized: (i) at least one or more classes of shares that together have
unlimited voting rights; and (ii) at least one or more classes of shares (which
may be the same class or classes as those with unlimited voting rights) that
together are entitled to receive the net assets of the corporation upon
dissolution. In addition, a corporation's acquisition of its own shares of
capital stock is deemed a "distribution" under Georgia law and, accordingly, is
subject to the restrictions on distributions set forth in the corporation's
articles of incorporation and Section 14-2-640 of the GBCC.
The WorldCom Articles contain provisions permitting WorldCom to redeem
shares of its capital stock from certain foreign shareholders in order to enable
it to continue to hold certain common carrier radio licenses. These provisions
are intended to cause WorldCom to remain in compliance with the Communications
Act and the regulations of the FCC promulgated thereunder. Under these
provisions, at such time as the percentage of capital stock owned by foreign
shareholders or certain affiliates thereof exceeds 20%, WorldCom has the right
to redeem the excess shares held by such persons at the fair market value
thereof. Following any determination that such excess shares exist, such excess
shares shall not be deemed outstanding for purposes of determining the vote
required on any matter brought to the attention of the shareholders of WorldCom
and such excess shares shall have no right to receive any dividends or other
distributions, including distributions in liquidation. If such shares are traded
on a national securities exchange or in the over-the-counter market, such fair
market value is the average closing price for the 45 trading days immediately
preceding the date of redemption. If such shares are not so traded, such fair
market value shall be established by the WorldCom
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Board of Directors. In the event there is a foreign shareholder who acquired
shares within 120 days of the date of redemption, however, the redemption price
shall not exceed the price per share paid by such shareholder. At least 30 days'
notice of redemption must be given, and the redemption price may be paid in
cash, securities or any combination thereof. WorldCom may require confirmation
of citizenship from any record or beneficial owner of shares of its capital
stock, and from any transferee thereof, as a condition to the registration or
transfer of those shares.
PREFERRED STOCK PURCHASE RIGHTS
Delaware case law authorizes Delaware corporations to issue stock purchase
rights, having terms and conditions similar to those set out in the CompuServe
Rights Agreement, to its stockholders. In April, 1996, CompuServe entered into
the CompuServe Rights Agreement, and the CompuServe Board of Directors
authorized the issuance of one CompuServe Right for each share of CompuServe
Common Stock outstanding as of March 31, 1996 and issued thereafter until the
Distribution Date (as defined in the CompuServe Rights Agreement). Each
CompuServe Right entitles the holder to purchase from CompuServe one
one-hundredth of a share of CompuServe Series A Junior Participating Preferred
Stock at an initial purchase price of $150, subject to adjustment. The
CompuServe Rights expire on April 19, 2006, unless extended or earlier redeemed
by CompuServe.
The CompuServe Rights separate from the CompuServe Common Stock and a
Distribution Date occurs upon the earlier of 10 days following public disclosure
that certain persons or groups of persons have become a beneficial owner of 10%
or more of the outstanding CompuServe Common Stock or 15 business days following
the commencement of a tender offer or exchange offer that would result in
certain persons or groups becoming an Acquiring Person (as defined in the
CompuServe Rights Agreement). H&R Block and Block Group are excluded from the
definition of an Acquiring Person. Upon the occurrence of a Distribution Date,
each holder of a CompuServe Right has the right to receive, upon exercise of the
right, CompuServe Common Stock having a value equal to two times the exercise
price of the CompuServe Right, except that all CompuServe Rights held by an
Acquiring Person become null and void.
In the event that a person becomes an Acquiring Person and CompuServe is
acquired in a merger or other business combination in which CompuServe is not
the surviving corporation or more than 50% of the assets or earning power of
CompuServe's assets are sold or transferred, each holder, except for Acquiring
Persons, of a CompuServe Right has the right to receive, upon exercise, common
stock of the acquiring company which has a value equal to two times the exercise
price of the CompuServe Right.
CompuServe may redeem the CompuServe Rights in whole, but not in part, at
any time until ten days following the date on which there has been public
disclosure that, or facts indicating that, a person has become an Acquiring
Person, at a price of $.01 per CompuServe Right (or such other consideration
deemed appropriate by the CompuServe Board of Directors) by resolution of the
CompuServe Board of Directors, subject to certain exceptions. The redemption of
the CompuServe Rights may be made effective at such time, on such basis and with
such conditions as the CompuServe Board of Directors in its sole discretion may
establish. The CompuServe Rights terminate immediately upon the action of the
CompuServe Board of Directors ordering redemption of the CompuServe Rights, and,
thereafter, the holders of CompuServe Rights will only be able to receive the
Redemption Price.
The CompuServe Rights Agreement may be amended by resolution of the
CompuServe Board of Directors, subject to certain exceptions, prior to the
Distribution Date. After the Distribution Date, the CompuServe Rights Agreement
may be amended by resolution of the CompuServe Board of Directors, subject to
certain exceptions, in order to cure any ambiguity, to make changes which do not
adversely affect the interests of holders of CompuServe Rights (excluding the
interests of any Acquiring Person or its affiliates or associates) or to shorten
or lengthen any time period under the CompuServe Rights Agreement; provided,
however, that no amendment to adjust the time period governing redemption may be
made at such time as the CompuServe Rights are not redeemable.
In connection with the execution of the CompuServe Merger Agreement, on
September 7, 1997, the CompuServe Board of Directors amended the CompuServe
Rights Agreement to provide, in part, that
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WorldCom would not be deemed to be an Acquiring Person and a Distribution Date
(each as defined in the CompuServe Rights Agreement) would not be deemed to have
occurred as a result of the acquisition by WorldCom of CompuServe Common Stock
pursuant to the CompuServe Merger, the execution of the CompuServe Merger
Agreement, the acquisition by WorldCom of the Option (or any part thereof) to
acquire shares of CompuServe Common Stock pursuant to the Stockholders Agreement
or the acquisition by WorldCom of shares of CompuServe Common Stock pursuant to
the exercise of the Option. The effect of this amendment was to render the
anti-takeover effects of the CompuServe Rights Agreement inapplicable to such
transactions.
The CompuServe Rights have certain anti-takeover effects. The CompuServe
Rights will cause substantial dilution to a person or group that attempts to
acquire, or merge with, CompuServe without conditioning the offer on the
CompuServe Rights being rendered inapplicable.
For a description of the WorldCom Preferred Stock Purchase Rights, see
"Description of WorldCom Capital Stock -- Preferred Stock Purchase Rights."
STOCKHOLDER SUITS
Under Delaware law, a stockholder may institute a lawsuit against one or
more directors, either on his own behalf, or derivatively on behalf of the
corporation. An individual stockholder may also commence a lawsuit on behalf of
himself and other similarly situated stockholders when the requirements for
maintaining a class action under Delaware law have been met. Section 102(b)(7)
of the DGCL enables a corporation in its certificate of incorporation to
eliminate or limit, and the CompuServe Certificate limits, the personal
liability of a director for monetary damages for violations of the director's
fiduciary duty, except (i) for any breach of a director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
liability pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit.
Under Georgia law, a shareholder may institute a lawsuit against one or
more directors, either on his or her own behalf, or derivatively on behalf of
the corporation. As noted previously, Georgia law contains a provision allowing
a corporation, through a provision in its articles of incorporation, to limit or
eliminate the personal liability of a director to the corporation or its
shareholders for monetary damages for any action taken, or any failure to take
any action, as a director except in certain enumerated circumstances. The
WorldCom Articles contain such a provision. No director of WorldCom shall be
liable to the corporation or to its shareholders for monetary damages for any
action taken, or any failure to take any action, as a director, except for
liability (i) for any appropriation, in violation of his or her duties, of any
business opportunity of the corporation; (ii) for acts or omissions which
involve intentional misconduct or a knowing violation of law; (iii) for unlawful
distributions; or (iv) for any transaction from which a director received an
improper personal benefit.
BUSINESS COMBINATION RESTRICTIONS
In general, Section 203 of the DGCL prevents an "Interested Stockholder"
(defined generally as a person with 15% or more of a corporation's outstanding
voting stock, with the exception of any person who owned and has continued to
own shares in excess of the 15% limitation since December 23, 1987) from
engaging in a Business Combination with a Delaware corporation for three years
following the date such person became an Interested Stockholder. The term
"Business Combination" includes mergers or consolidations with an Interested
Stockholder and certain other transactions with an Interested Stockholder,
including, without limitation: (i) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (except proportionately as a stockholder of such
corporation) to or with the Interested Stockholder of assets (except
proportionately as a stockholder of the corporation) having an aggregate market
value equal to 10% or more of the aggregate market value of all assets of the
corporation or of certain subsidiaries thereof determined on a consolidated
basis or the aggregate market value of all the outstanding stock of the
corporation; (ii) any
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transaction which results in the issuance or transfer by the corporation or by
certain subsidiaries thereof of stock of the corporation or such subsidiary to
the Interested Stockholder, except pursuant to certain transfers in a conversion
or exchange or a pro rata distribution to all stockholders of the corporation or
certain other transactions, none of which increase the Interested Stockholder's
proportionate ownership of any class or series of the corporation's or such
subsidiary's stock; (iii) any transaction involving the corporation or certain
subsidiaries thereof which has the effect, directly or indirectly, of increasing
the proportionate share of the stock of any class or series, or securities
convertible into stock of the corporation or any subsidiary which is owned by
the Interested Stockholder (except as a result of immaterial changes due to
fractional share adjustments or as a result of any purchase or redemption of any
shares of stock not caused directly or indirectly by the Interested
Stockholder); or (iv) any receipt by the Interested Stockholder of the benefit
(except proportionately as a stockholder of such corporation) of any loans,
advances, guarantees, pledges, or other financial benefits provided by or
through the corporation or certain subsidiaries.
The three-year moratorium may be avoided if: (i) before such person became
an Interested Stockholder, the Board of Directors of the corporation approved
either the Business Combination or the transaction in which the Interested
Stockholder became an Interested Stockholder; or (ii) upon consummation of the
transaction which resulted in the stockholder becoming an Interested
Stockholder, the stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding shares
held by directors who are also officers of the corporation and by employee stock
ownership plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) on or following the date on which such
person became an Interested Stockholder, the Business Combination is approved by
the Board of Directors of the corporation and authorized at an annual or special
meeting of stockholders (not by written consent) by the affirmative vote of the
stockholders of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder.
The Business Combination restrictions described above do not apply if,
among other things: (i) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by the statute; (ii)
the corporation by action by the holders of a majority of the voting stock of
the corporation approve an amendment to its certificate of incorporation or
bylaws expressly electing not to be governed by the statute (effective twelve
(12) months after the amendment's adoption), which amendment shall not be
applicable to any business combination with a person who was an Interested
Stockholder at or prior to the time of the amendment; or (iii) the corporation
does not have a class of voting stock that is (a) listed on a national
securities exchange, (b) authorized for quotation on Nasdaq or a similar
quotation system; or (c) held of record by more than 2,000 stockholders. The
statute also does not apply to certain Business Combinations with an Interested
Stockholder when such combination is proposed after the public announcement of,
and before the consummation or abandonment of, a merger or consolidation, a sale
of 50% or more of the aggregate market value of the assets of the corporation on
a consolidated basis or the aggregate market value of all outstanding shares of
the corporation, or a tender offer for 50% or more of the outstanding voting
shares of the corporation, if the triggering transaction is with or by a person
who either was not an Interested Stockholder during the previous three years or
who became an Interested Stockholder with Board of Director approval, and if the
transaction is approved or not opposed by a majority of the current directors
who were also directors prior to any person becoming an Interested Stockholder
during the previous three years. CompuServe is subject to the Business
Combination restrictions described above. The Board of Directors of CompuServe
has approved the CompuServe Merger Agreement and the transactions contemplated
by the CompuServe Merger Agreement making the Business Combination restrictions
inapplicable to the CompuServe Merger.
Under Georgia law, Georgia corporations may adopt a provision in their
bylaws requiring that Business Combinations be approved by a special vote of the
board of directors and/or the shareholders unless certain fair pricing criteria
are met. Georgia corporations may also adopt a provision in their articles of
incorporation or bylaws which requires that Business Combinations with
Interested Shareholders be approved by a super-majority vote. These provisions,
neither of which has been adopted by WorldCom, are described below. Also
described below is the business combination restriction contained in the
WorldCom Articles.
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Georgia's fair price statute authorizes a corporation to adopt a bylaw
provision which requires special approval by the board of directors and/or
shareholders for Business Combinations unless certain fair price criteria are
met. Generally, for purposes of this statute, "Business Combinations" are
defined to include mergers, sales of 10% or more of the corporation's assets out
of the ordinary course of business, liquidations, and certain issuances of
securities, involving the corporation and any Interested Shareholder. For
purposes of this statute, an "Interested Shareholder" is defined as a person or
entity that is the beneficial owner of 10% or more of the voting power of the
corporation's voting stock, or a person or entity that is an affiliate of the
corporation and, at any time within the two-year period immediately prior to the
date in question, was the beneficial owner of 10% or more of the then
outstanding voting power of the corporation's voting stock. To satisfy Georgia's
fair price statute, a Business Combination with an Interested Shareholder must
meet one of three criteria: (i) the transaction must be approved unanimously by
the "Continuing Directors" (directors who served as directors immediately prior
to the date the Interested Shareholder first became an Interested Shareholder
and who are not affiliates or associates of the Interested Shareholder or his
affiliates), provided that the Continuing Directors constitute at least three
members of the board of directors at the time of such approval; (ii) the
transaction must be recommended by at least two-thirds of the Continuing
Directors and approved by a majority of the votes entitled to be cast by holders
of voting shares, excluding shares beneficially owned by the Interested
Shareholder or his affiliates who is, or whose affiliate is, a party to the
Business Combination; or (iii) the terms of the transaction must meet statutory
fair pricing criteria and certain other tests intended to assure that all
shareholders receive a fair price and equivalent consideration for their shares
regardless of when they sell to the acquiring party.
Georgia's business combination statute authorizes a "resident domestic
corporation" to adopt a bylaw provision which prohibits Business Combinations
with Interested Shareholders occurring within five years of the date a person
first becomes an Interested Shareholder, unless special approval of the
transaction is obtained. For purposes of this statute, Business Combination is
defined to include mergers, sales of 10% or more of the corporation's net
assets, and certain issuances of securities, all involving the corporation and
any Interested Shareholder. Interested Shareholder has the same definition as
under the Georgia fair price statute. With limited exceptions, any Business
Combination with an Interested Shareholder within five years of the date such
person first became an Interested Shareholder requires approval in one of three
ways: (i) prior to becoming an Interested Shareholder, the corporation's board
of directors must have approved the Business Combination or the transaction
which resulted in the shareholder becoming an Interested Shareholder; (ii) the
Interested Shareholder must acquire at least 90% of the outstanding voting stock
of the corporation (other than shares owned by officers, directors and their
affiliates and associates) in the same transaction in which such person becomes
an Interested Shareholder; or (iii) subsequent to becoming an Interested
Shareholder, such person acquires additional shares resulting in ownership of at
least 90% of the outstanding shares (other than shares owned by officers,
directors and their affiliates and associates), and obtains the approval of the
Business Combination by the holders of a majority of the shares entitled to vote
thereon, exclusive of shares held beneficially by the Interested Shareholder,
its affiliates (and shares owned by officers, directors and their affiliates and
associates).
The WorldCom Articles contain a provision that requires the approval by the
holders of at least 70% of the voting power of the outstanding shares of any
class of stock of WorldCom entitled to vote generally in the election of
directors as a condition for Business Transactions (defined below) involving
WorldCom and a Related Person (defined below) or in which a Related Person has
an interest, unless (a) the Business Transaction is approved by at least a
majority of WorldCom's Continuing Directors (defined below) then serving on the
Board of Directors, but if the votes of such Continuing Directors would have
been insufficient to constitute an act of the Board of Directors, then such
transaction must have been approved by the unanimous vote of such Continuing
Directors so long as there were at least three such Continuing Directors serving
on the Board of Directors at the time of such unanimous vote, provided that no
such Continuing Director is a Related Person who has an interest in the Business
Transaction (other than a proportionate interest as a shareholder of WorldCom),
or (b) certain minimum price and procedural requirements are met. A "Business
Transaction" is defined to mean: (i) any merger, share exchange or consolidation
involving WorldCom or any of its subsidiaries; (ii) any sale, lease, exchange,
transfer or other disposition by WorldCom or any of its subsidiaries of more
than 20% of its assets; (iii) any sale, lease, exchange, transfer or disposition
of more than 20% of the
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assets of an entity to WorldCom or a subsidiary of WorldCom; (iv) the issuance,
sale, exchange, transfer or other disposition by WorldCom or a subsidiary of
WorldCom of any securities of WorldCom or any subsidiary in exchange for cash,
securities or other properties having an aggregate fair market value of $15.0
million or more; (v) any merger, share exchange or consolidation between
WorldCom and any subsidiary of WorldCom in which WorldCom is not the survivor
and the charter of the surviving corporation does not contain provisions similar
to this provision; (vi) any recapitalization or reorganization of WorldCom or
reclassification of its securities which would have the effect of increasing the
voting power of a Related Person; (vii) any liquidation, spin off, split off,
split up or dissolution of WorldCom; and (viii) any agreement, contract or other
arrangement providing for any of the Business Transactions defined or having a
similar purpose or effect. A "Related Person" is defined to mean a beneficial
owner which, together with its Affiliates and Associates (defined below),
beneficially own 10% or more of WorldCom's outstanding voting stock or who had
such level of beneficial ownership: (a) at the time of entering into the
definitive agreement providing for the Business Transaction; (b) at the time of
adoption by the Board of Directors of a resolution approving such transaction;
or (c) as of the record date for the determination of shareholders entitled to
vote on or consent to the Business Transaction. A "Continuing Director" is a
director of WorldCom who either was a member of the Board of Directors on
September 15, 1993, or who became a director of WorldCom subsequent to such date
and whose election, or nomination for election by the shareholders, was approved
by at least a majority of the Continuing Directors then on the Board of
Directors. If the votes of such Continuing Directors would have been
insufficient to constitute an act of the Board of Directors, then such election
or nomination must have been approved by the unanimous vote of the Continuing
Directors so long as there were at least three such Continuing Directors on the
Board of Directors at the time of such unanimous vote. An "Affiliate" is defined
to mean a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such specified person. An "Associate" is defined to mean: (a) any corporation,
partnership or other organization of which such specified person is an officer
or partner; (b) any trust or other estate in which such specified person has a
substantial beneficial interest or as to which such specified person serves as
trustee or in a similar fiduciary capacity; (c) any relative or spouse of such
specified person, or any relative of such spouse, who has the same home as such
specified person or who is a director or officer of WorldCom or any of its
subsidiaries; and (d) any person who is a director, officer or partner of such
specified person or of any corporation (other than WorldCom or any wholly owned
subsidiary of WorldCom), partnership or other entity which is an Affiliate of
such specified person.
DISCLOSURE OF INTERESTS
Acquirors of shares of CompuServe Common Stock are subject to disclosure
requirements under Section 13(d)(1) of the Exchange Act and Rule 13d-1
thereunder, which provide that any person who becomes the beneficial owner of
more than 5% of the issued and outstanding shares of CompuServe Common Stock
shall, within 10 days after such acquisition, file a Schedule 13D with the
Commission disclosing certain specified information, and send a copy of the
Schedule 13D to CompuServe and to the NASD.
After the CompuServe Merger, acquirors of WorldCom Common Stock will be
required to comply with, among other things, the provisions of Section 13(d) of
the Exchange Act and Rule 13d-1 thereunder.
LEGAL MATTERS
Certain legal and tax matters with respect to the CompuServe Merger will be
passed upon for WorldCom by Bryan Cave LLP, St. Louis, Missouri and for
CompuServe by Sullivan & Cromwell, New York, New York and Russell P. Austin,
Esq., Acting General Counsel and Assistant Secretary of CompuServe. Mr. Austin
is also a partner in Arter & Hadden, Columbus, Ohio, which has from time to time
performed legal services for CompuServe. Bryan Cave LLP has historically served
as principal outside legal counsel to H&R Block and certain of its affiliates.
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EXPERTS
The consolidated financial statements and schedule of WorldCom as of
December 31, 1996 and 1995, and for each of the years in the three-year period
ended December 31, 1996, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included in WorldCom's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and are incorporated herein by reference, in reliance upon
the authority of such firm as experts in accounting and auditing in giving said
reports.
The consolidated financial statements of MFS as of December 31, 1996 and
for the period then ended (See Note 1 to the MFS Consolidated Financial
Statements), and for the year ended December 31, 1996, included in WorldCom's
Current Report on Form 8-K/A dated August 25, 1996 (filed December 19, 1997) and
incorporated by reference into this registration statement, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated herein by reference, in
reliance upon the authority of such firm as experts in accounting and auditing
in giving said reports.
The consolidated financial statements of MFS as of December 31, 1995 and
1994 and for each of the three and two years in the period ended December 31,
1995, included in WorldCom's Current Report on Form 8-K/A dated August 25, 1996
(filed November 4, 1996 and December 19, 1997) and incorporated by reference
into this registration statement, have been incorporated in reliance on the
reports of Coopers & Lybrand L.L.P., independent accountants, given upon the
authority of that firm as experts in accounting and auditing.
The consolidated financial statements of UUNET Technologies, Inc. as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995, included in WorldCom's Current Report on Form 8-K/A dated
August 25, 1996 (filed November 4, 1996) and incorporated by reference into this
registration statement, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto and are
incorporated herein by reference in reliance upon the authority of said firm as
experts in giving said reports.
The financial statements and the related financial statement schedules
incorporated in this prospectus by reference from CompuServe Corporation's
Annual Report on Form 10-K/A for the year ended April 30, 1997 have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports,
which are incorporated herein by reference, and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements and financial statement schedule of
MCI for the year ended December 31, 1996 incorporated in this Proxy
Statement/Prospectus by reference to MCI's Annual Report on Form 10-K for the
year ended December 31, 1996, have been so incorporated in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
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APPENDIX I
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
<PAGE> 158
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I -- TERMS OF THE MERGER...................................... I-2
1.1 The Merger.................................................. I-2
1.2 Effective Time.............................................. I-2
1.3 Merger Consideration........................................ I-2
1.4 Stockholders' Rights Upon Merger............................ I-3
1.5 Surrender and Exchange of Shares............................ I-3
1.6 Certificate of Incorporation................................ I-4
1.7 Bylaws...................................................... I-4
1.8 Other Effects of Merger..................................... I-4
1.9 No Dissenters' Rights....................................... I-4
1.10 Additional Actions.......................................... I-4
ARTICLE II -- ASSET TRANSFER; SETTLEMENT OF INTERCOMPANY ACCOUNTS; I-4
RELEASE OF CLAIMS...................................................
2.1 Transfer of Assets.......................................... I-4
2.2 Intercompany Accounts....................................... I-5
2.3 Release of Claims........................................... I-5
ARTICLE III -- REPRESENTATIONS AND WARRANTIES REGARDING COMPUSERVE.... I-5
3.1 Organization, Existence and Good Standing................... I-5
3.2 CompuServe Capital Stock.................................... I-6
3.3 Ownership of CompuServe Entities' Capital Stock; I-6
Investments.................................................
3.4 Power and Authority; Non-Contravention; Filing and I-7
Consents....................................................
3.5 CompuServe SEC Documents; Financial Information............. I-8
3.6 Subsequent Events........................................... I-8
3.7 Legal Proceedings........................................... I-9
3.8 Contracts................................................... I-10
3.9 Accounts Receivable......................................... I-11
3.10 Taxes....................................................... I-11
3.11 Employee Benefit Plans; Employment Matters.................. I-12
3.12 Compliance With Laws; Permits............................... I-13
3.13 Patents, Trademarks, Etc.................................... I-13
3.14 Labor Matters............................................... I-14
3.15 Insurance................................................... I-15
3.16 Rights Agreement............................................ I-15
3.17 Commissions and Fees........................................ I-15
3.18 Vote Required............................................... I-15
3.19 Opinion of Financial Advisor................................ I-15
3.20 Takeover Statutes........................................... I-15
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES REGARDING H&R BLOCK...... I-15
4.1 Organization, Existence and Good Standing................... I-15
4.2 H&R Block Ownership of Capital Stock........................ I-16
4.3 Power and Authority; Non-Contravention; Filings and I-16
Consents....................................................
4.4 Taxes....................................................... I-17
4.5 Assets and Employees Used in CompuServe's Business.......... I-17
4.6 Legal Proceedings........................................... I-17
4.7 Rights Agreement............................................ I-18
4.8 Commissions and Fees........................................ I-18
4.9 Opinion of Financial Advisor................................ I-18
ARTICLE V -- REPRESENTATIONS AND WARRANTIES REGARDING BLOCK GROUP..... I-18
5.1 Organization, Existence and Good Standing................... I-18
</TABLE>
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5.2 Block Group Ownership of CompuServe Entities' Capital I-18
Stock.......................................................
5.3 Power and Authority; Non-Contravention; Filings and I-18
Consents....................................................
5.4 Legal Proceedings........................................... I-19
ARTICLE VI -- REPRESENTATIONS AND WARRANTIES REGARDING WORLDCOM....... I-19
6.1 Organization, Existence and Good Standing................... I-19
6.2 WorldCom Capital Stock...................................... I-20
6.3 Power and Authority; Non-Contravention; Filings and I-20
Consents....................................................
6.4 WorldCom SEC Documents; Financial Information............... I-21
6.5 Subsequent Material Adverse Change.......................... I-22
6.6 Legal Proceedings........................................... I-22
6.7 Taxes....................................................... I-22
6.8 Compliance with Laws in General............................. I-22
6.9 Vote Required............................................... I-22
6.10 Commissions and Fees........................................ I-23
ARTICLE VII -- REPRESENTATIONS AND WARRANTIES REGARDING WAC........... I-23
7.1 Organization, Existence, Good Standing and Ownership I-23
Interest....................................................
7.2 Power and Authority; Non-Contravention...................... I-23
7.3 Consents and Approvals...................................... I-23
7.4 Legal Proceedings........................................... I-24
7.5 No Contracts or Liabilities................................. I-24
7.6 Commissions and Fees........................................ I-24
ARTICLE VIII -- COVENANTS............................................. I-24
8.1 Interim Conduct of CompuServe and the CompuServe Entities... I-24
8.2 Voting of Shares............................................ I-26
8.3 No Transfers................................................ I-27
8.4 Indemnification............................................. I-27
8.5 No Contribution............................................. I-29
8.6 Meeting of CompuServe Stockholders.......................... I-29
8.7 Registration Statement; Proxy Statement..................... I-30
8.8 Access to Information....................................... I-31
8.9 Confidentiality............................................. I-32
8.10 HSR Act Compliance, etc..................................... I-32
8.11 Public Disclosures.......................................... I-32
8.12 Resignation of Directors and Officers....................... I-32
8.13 Notification of Certain Matters............................. I-32
8.14 No Solicitation............................................. I-33
8.15 Other Actions............................................... I-34
8.16 Cooperation................................................. I-34
8.17 CompuServe and CompuServe Entity Employees.................. I-34
8.18 CompuServe Name............................................. I-36
8.19 Affiliate Letters........................................... I-36
8.20 Noncompete and Nonsolicitation Agreement.................... I-36
8.21 Facilities Agreements....................................... I-36
8.22 SEC and Stockholder Filings................................. I-36
8.23 Takeover Statutes........................................... I-36
8.24 Comfort Letters............................................. I-36
8.25 Interim Conduct of WorldCom................................. I-37
8.26 Stock Options............................................... I-37
ARTICLE IX -- TAX MATTERS............................................. I-37
9.1 Section 338 Election........................................ I-37
9.2 Tax Indemnification......................................... I-39
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9.3 Tax Related Adjustments..................................... I-43
9.4 Transfer Taxes.............................................. I-43
ARTICLE X -- CONDITIONS TO CLOSING.................................... I-43
10.1 Mutual Conditions........................................... I-43
10.2 Conditions to Obligations of WorldCom and WAC............... I-44
10.3 Conditions to Obligations of H&R Block, Block Group and I-45
CompuServe..................................................
ARTICLE XI -- TERMINATION, AMENDMENT AND WAIVER....................... I-46
11.1 Termination................................................. I-46
11.2 Effect of Termination....................................... I-46
11.3 Amendment................................................... I-46
11.4 Waiver...................................................... I-46
11.5 Expenses.................................................... I-47
ARTICLE XII -- MISCELLANEOUS.......................................... I-48
12.1 Representations and Warranties; Survival.................... I-48
12.2 Notices..................................................... I-48
12.3 Governing Law and Dispute Resolution........................ I-49
12.4 Specific Performance........................................ I-49
12.5 Severability................................................ I-49
12.6 Captions.................................................... I-49
12.7 Entire Agreement............................................ I-49
12.8 Counterparts................................................ I-49
12.9 Binding Effect; Assignability............................... I-50
12.10 Director and Officer Indemnification........................ I-50
12.11 No Rule of Construction..................................... I-50
12.12 Schedules................................................... I-50
ARTICLE XIII -- DEFINITIONS........................................... I-50
EXHIBITS
<TABLE>
<S> <C>
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)
</TABLE>
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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
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
I-iv
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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.
WITNESSETH:
WHEREAS, the Boards of Directors of H&R Block, Block Group, CompuServe and
WorldCom, and the sole member (WorldCom) of WAC each have determined that it is
in the best interests of their respective stockholders or member that they enter
into this Agreement, which provides for the merger of WAC with and into
CompuServe (the "Merger") in accordance with the laws of the State of Delaware
and the provisions of this Agreement, and have authorized their respective
officers to execute and deliver this Agreement on their behalf;
WHEREAS, the Board of Directors of CompuServe has determined it is in the
best interests of its stockholders to consummate the Merger and has adopted a
resolution approving and adopting this Agreement, subject to authorization by
resolution of the stockholders of CompuServe;
WHEREAS, the Board of Directors of H&R Block, as sole stockholder of Block
Group, has determined it is in the best interests of its shareholders to
consummate the transactions contemplated by this Agreement and has adopted a
resolution approving and adopting the Agreement;
WHEREAS, WorldCom, as the sole member of WAC, has approved this Agreement;
WHEREAS, as a condition and inducement to WorldCom's and WAC's entering
into this Agreement and incurring the obligations set forth herein, concurrently
with the execution and delivery of this Agreement, H&R Block and Block Group are
entering into a stockholder's agreement with WorldCom in the form attached
hereto as Exhibit A (the "Stockholders Agreement"), pursuant to which, among
other things, Block Group has agreed to grant WorldCom an irrevocable option to
purchase all of the capital stock of CompuServe held by Block Group, agreed to
vote all of its CompuServe Common Shares in favor of the Merger and granted
WorldCom an irrevocable proxy to vote such shares;
WHEREAS, as a condition and inducement to WorldCom's and WAC's entering
into this Agreement and incurring the obligations set forth herein, concurrently
with the execution and delivery of this Agreement, H&R Block and Block Group are
entering into a standstill agreement in the form attached hereto as Exhibit B
(the "Standstill Agreement"), pursuant to which, among other things, H&R Block
and Block Group agree to restrictions with respect to the acquisition of
WorldCom Common Shares;
WHEREAS, the parties intend that WorldCom's acquisition of CompuServe
through the Merger shall constitute a qualified stock purchase within the
meaning of Section 338(d)(3) of the Code; and
WHEREAS, H&R Block, Block Group, CompuServe, WorldCom and WAC desire to
make certain representations, warranties, covenants and agreements in connection
with the transactions contemplated by this Agreement and also to prescribe
various conditions to the consummation thereof;
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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."
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
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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.
(d) Subject to the provisions of this Agreement, at the Effective Time, the
interest of WorldCom in WAC outstanding immediately prior to the Merger shall be
converted, by virtue of the Merger and without any action on the part of the
holder thereof, into one share of the common stock, par value $.01 per share, of
the Surviving Corporation (the "Surviving Corporation Common Stock"), which one
share of the Surviving Corporation Common Stock shall constitute all of the
issued and outstanding capital stock of the Surviving Corporation and shall be
owned by WorldCom.
1.4 Stockholders' Rights upon Merger. Upon consummation of the Merger, the
certificates which theretofore represented CompuServe Common Shares (the
"Certificates") shall cease to represent any rights with respect thereto, and,
subject to applicable law and this Agreement, shall only represent the right to
receive the Merger Consideration.
1.5 Surrender and Exchange of Shares. (a) Prior to the Closing Date,
WorldCom shall appoint The Bank of New York or such other entity as may be
serving as WorldCom's transfer agent to act as exchange agent (the "Exchange
Agent") for the Merger. Promptly after the Effective Time, WorldCom shall make
available, or cause to be made available, to the Exchange Agent such
certificates evidencing such number of shares of WorldCom Common Stock and such
amount of cash, as and when necessary, in order to enable the Exchange Agent to
effect the exchange of certificates and make the cash payment required pursuant
to Section 1.3(a)(ii) above if elected by Block Group, and the cash payments in
respect of fractional shares contemplated by Section 1.3(b) above.
(b) On the Closing Date, WorldCom shall instruct the Exchange Agent to mail
to each holder of record of a Certificate within five Business Days of receiving
from CompuServe a list of such holders of record, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
WorldCom may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing the
Merger Consideration.
(c) After the Effective Time, each holder of a CompuServe Common Share
shall surrender and deliver the Certificates to the Exchange Agent together with
a duly completed and executed transmittal letter. Upon such surrender and
delivery, the holder shall receive a certificate representing the number of
whole shares of WorldCom Common Stock into which such holder's CompuServe Common
Shares have been converted pursuant to this Agreement, subject to the cash
payment required pursuant to Section 1.3(a)(ii) above if elected by Block Group
and the cash payment in lieu of any fractional share contemplated by Section
1.3(b) above. Until so surrendered and exchanged, each outstanding Certificate
after the Effective Time shall be deemed for all purposes to evidence only the
right to receive that number of whole shares of WorldCom Common Stock into which
the CompuServe Common Shares have been converted pursuant to this Agreement,
subject to the cash payment required pursuant to Section 1.3(a)(ii) above if
elected by Block Group and the cash payment in lieu of any fractional share
contemplated by Section 1.3(b) above; provided, however, that no dividends or
other distributions, if any, in respect of the shares of WorldCom Common Stock,
declared after the 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
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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
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
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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
Block and the H&R Block Entities to CompuServe and the CompuServe Entities is
set forth on Schedule 2.2 hereto.
2.3 Release of Claims. Effective as of the Effective Time, H&R Block, for
itself and on behalf of each of the H&R Block Entities, releases and forever
discharges CompuServe and the CompuServe Entities from any and all claims,
demands, proceedings, causes of action, orders, obligations, contracts,
agreements, debts, and liabilities whatsoever, that H&R Block or any H&R Block
Entity now has, has ever had, or may hereafter have against CompuServe or the
CompuServe Entities arising at or prior to the Effective Time or on account of
or arising out of any matter, cause, or event occurring at or prior to the
Effective Time, including, but not limited to, any rights to indemnification,
contribution or reimbursement from CompuServe or any of the CompuServe Entities,
and whether or not relating to matters pending on, or asserted after, the
Effective Time. Further, H&R Block and each of the H&R Block Entities, as of the
Effective Time, irrevocably covenants to refrain from, directly or indirectly,
asserting any claim or demand, or commencing, instituting, or causing to be
commenced, any proceeding of any kind against CompuServe or any of the
CompuServe Entities, based upon any matter purported to be released hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES REGARDING COMPUSERVE
H&R Block, Block Group and CompuServe, jointly and severally, hereby make
the following representations and warranties to WorldCom and WAC:
3.1 Organization, Existence and Good Standing. CompuServe is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. CompuServe has all necessary corporate power and authority to
own, lease, operate and transfer its properties and to conduct its business as
currently conducted. Each CompuServe Entity is duly organized, validly existing
and, to the extent such concept is applicable under the laws of such
jurisdiction, in good standing in its respective jurisdiction of organization,
and has all necessary corporate power to own, lease, operate and transfer its
properties and carry on its business as currently conducted, except where the
failure to be so organized, existing and in good standing or to have such power
and authority would not have a Material Adverse Effect. CompuServe and each
CompuServe Entity is duly qualified to do business and, to the extent such
concept is applicable in such jurisdictions, is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so duly qualified and in good standing would not
have a Material Adverse Effect. CompuServe has made available to WorldCom
complete and correct copies of its Certificate of Incorporation and Bylaws and
other comparable charter or organizational documents of each CompuServe Entity,
in each case as amended to the date of this Agreement. Schedule 3.1 sets forth a
complete and accurate list of all CompuServe Entities and
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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.
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)), 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
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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, 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
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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 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;
(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;
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(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;
(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.
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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
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
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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.
(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);
(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
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(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, 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
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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 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.
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
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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.
(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
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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 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
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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.
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 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
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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.
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
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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 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 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
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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.
5.4 Legal Proceedings. Except as set forth on Schedule 5.4, there is no
action, suit, claim, demand, proceeding or investigation pending or to the
knowledge of Block Group, threatened against Block Group or affecting the
transactions contemplated by this Agreement which, if resolved adversely to
Block Group, could prevent or materially delay the consummation of the
transactions contemplated by this Agreement and the Stockholders Agreement.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES REGARDING WORLDCOM
WorldCom hereby makes the following representations and warranties to H&R
Block, Block Group and CompuServe:
6.1 Organization, Existence and Good Standing. WorldCom is a corporation
duly organized, and validly existing and in good standing under the laws of the
State of Georgia and has all necessary corporate power and authority to own,
lease and operate its properties and to conduct its business as currently
conducted. Each WorldCom Entity is duly organized, validly existing and, to the
extent such concept is applicable under the laws of such jurisdictions, in good
standing in its respective jurisdiction of organization, and has all necessary
corporate power to own, lease and operate its properties and to carry on its
business as currently conducted, except where the failure to be so organized,
existing and in good standing or to have such power
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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 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
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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 are subject, which breach, default,
lien, encumbrance, Tax, termination, cancellation, modification or acceleration
would have a Material Adverse Effect, or which would prevent or materially delay
the consummation of the transactions contemplated by this Agreement, the
Stockholders Agreement, and the Standstill Agreement or otherwise prevent
WorldCom from performing its obligations hereunder in any material respect, or
(iii) subject to obtaining the consents, approvals, orders, authorizations and
registrations, and making the filings described in Section 6.3(b) below, violate
any law, order, writ, judgment, award, statute, rule, regulation or decree of
any Governmental Entity or arbitrator, which, if violated or accelerated, would
have a Material Adverse Effect or which would prevent or materially delay the
consummation of the transactions contemplated by this Agreement or otherwise
prevent WorldCom from performing its obligations hereunder in any material
respect. The execution and delivery of this Agreement, the Stockholders
Agreement, and the Standstill Agreement have been approved by the Board of
Directors of WorldCom. This Agreement, the Stockholders Agreement, and the
Standstill Agreement have been duly executed and delivered by WorldCom and,
assuming this Agreement, the Stockholders Agreement, and the Standstill
Agreement constitute valid and binding obligations of H&R Block, Block Group and
CompuServe, enforceable against them in accordance with their respective terms,
constitute valid and binding obligations of WorldCom, enforceable against
WorldCom in accordance with its terms.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required to be obtained,
made or filed by WorldCom or any WorldCom Entity in connection with the
execution and delivery of this Agreement by WorldCom or the consummation by
WorldCom of the transactions contemplated hereby, except for (i) the filing of a
pre-merger notification and report form by WorldCom under the HSR Act, (ii)
filings with and, where required, approval by one or more non-U.S. competition
or antitrust regulatory bodies, (iii) filings with the SEC of (x) the
Registration Statement and related prospectus and (y) such reports under the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement, (iv) the filing of such notices and
other reports as may be required by any applicable securities or "blue sky" laws
of states or other jurisdictions, and (v) such consents, approvals, orders,
authorizations, registrations, declarations, or filings the failure of which to
be obtained, made or filed would not (A) impair in any material respect the
ability of WorldCom to perform its obligations hereunder, (B) prevent or impede,
in any material respect, the consummation of the transactions contemplated by
this Agreement, or (C) have a Material Adverse Effect on WorldCom.
6.4 WorldCom SEC Documents; Financial Information. WorldCom has filed with
the SEC all reports, proxy statements, forms, and other documents required to be
filed therewith prior to the date of this Agreement (the "WorldCom SEC
Documents") and, as of the Closing Date, WorldCom shall have filed with the SEC
all WorldCom SEC Documents required to be filed prior thereto. As of their
respective dates, (i) the WorldCom SEC Documents complied, and all similar
documents filed with the SEC after the date of this Agreement but prior to the
Closing Date will comply, in all material respects, with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such WorldCom SEC
Documents and (ii) none of the WorldCom SEC Documents contained, nor will any
similar document filed after the date of this Agreement but prior to the Closing
Date contain, any untrue statement of a material fact and none of the WorldCom
SEC Documents omitted, nor will any similar document filed after the date of
this Agreement but prior to the Closing Date omit, to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements (including any related notes and schedules)
of WorldCom included in the WorldCom SEC Documents (including any similar
documents filed with the SEC after the date of this Agreement but prior to the
Closing Date) comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto and have been or will be prepared in accordance with GAAP
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(except, in the case of unaudited statements, as permitted by Form 10-Q under
the Exchange Act) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position of WorldCom and its
consolidated subsidiaries (including all applicable WorldCom Entities) as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then-ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Nothing in this Section 6.4 shall constitute
a representation or warranty by WorldCom to the extent that any untrue
statement, omission or failure to comply results from information supplied by
H&R Block, Block Group or CompuServe to WorldCom for inclusion in any documents
filed by WorldCom with the SEC. Except as disclosed in the WorldCom SEC
Documents, and except for liabilities and obligations incurred in the ordinary
course of business consistent with past practice since the date of the most
recent consolidated balance sheet included in the WorldCom SEC Documents (the
"WorldCom Balance Sheet"), neither WorldCom nor any WorldCom Entity has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) which would be required by GAAP to be set forth on a consolidated
balance sheet of WorldCom and its consolidated subsidiaries or in the notes
thereto that are not so included or disclosed and which would reasonably be
expected to have a Material Adverse Effect.
6.5 Subsequent Material Adverse Change. Except as disclosed in the
WorldCom SEC Documents or as otherwise permitted hereunder, through the date
hereof (i) WorldCom has not, since the date of the WorldCom Balance Sheet,
suffered any Material Adverse Change, and (ii) no event has occurred which would
prevent or materially impair WorldCom's ability to perform its obligations
hereunder.
6.6 Legal Proceedings. Except as set forth in the WorldCom disclosure
letter of even date herewith or disclosed in the WorldCom SEC Documents, there
is no action, suit, claim, demand, proceeding or investigation pending or, to
the knowledge of WorldCom, threatened against WorldCom or any of the WorldCom
Entities or affecting the consummation by WorldCom of the transactions
contemplated hereby which, if resolved adversely to WorldCom or any of the
WorldCom Entities, would have a Material Adverse Effect or which could prevent
or materially delay the consummation of the transactions contemplated by this
Agreement and the Stockholders Agreement. There are no Material judgments,
decrees, injunctions or orders of any Governmental Entity or arbitrator against
WorldCom or any WorldCom Entity.
6.7 Taxes. Except as disclosed in the WorldCom SEC Documents or as set
forth on Schedule 6.7: (i) WorldCom has filed all Material Tax Returns required
to be filed by it or requests for extensions to file such returns or reports
have been timely filed and granted and have not expired, except to the extent
that such failures to file, taken together, would not have a Material Adverse
Effect; (ii) all Taxes required to be paid by WorldCom have been paid or
adequately reserved in accordance with GAAP in the financial statements of
WorldCom other than the failure to pay or reserve as would not have a Material
Adverse Effect; (iii) WorldCom has not been notified that any Tax Returns of
WorldCom are currently under audit by the IRS or, except for Tax Returns that
are not Material to WorldCom or do not involve any Material amounts of Taxes
shown to be due on any Returns, any state, local or foreign Tax agency; and (iv)
there are no waivers of the statute of limitations for the assessment or payment
of any federal, state, local or foreign Taxes by WorldCom that would be Material
to WorldCom.
6.8 Compliance with Laws in General. Except as disclosed in the WorldCom
SEC Documents, neither WorldCom nor any WorldCom Entity has violated, failed to
comply with or acted or failed to act in any material respect so as to incur
liability under any federal, state, local or foreign law, regulation or
ordinance, judgment, decree or order relating to its business, operations,
properties or assets including the Occupational Safety and Health Act, the
Americans with Disabilities Act and any Environmental Laws, except where such a
violation, action or failure to act would not have a Material Adverse Effect,
and no notice of any pending investigation or inquiry of a potential violation
of, non-compliance with or alleged liability under any such law, regulation or
ordinance, judgment, decree or order has been received by WorldCom, which, if it
were determined that a violation had occurred, would have a Material Adverse
Effect.
6.9 Vote Required. No vote is required of the holders of any class or
series of WorldCom capital stock to approve this Agreement and consummate the
transactions contemplated hereby.
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6.10 Commissions and Fees. There are no valid claims for brokerage
commissions, investment bankers' fees or finder's or similar fees in connection
with any of the other transactions contemplated by this Agreement and the
Stockholders Agreement which may be now or hereafter be asserted against H&R
Block or CompuServe resulting from any action taken by WorldCom or any of
WorldCom's directors, officers, employees or agents.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES REGARDING WAC
WorldCom and WAC, jointly and severally, hereby make the following
representations and warranties to H&R Block, Block Group and CompuServe:
7.1 Organization, Existence, Good Standing and Ownership Interest. WAC is
a limited liability company duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all necessary limited
liability company power to own its properties and assets and to carry on its
business as contemplated to be conducted. WorldCom is the sole member of WAC.
There are no options, warrants or debt securities or other instruments or
securities outstanding which are convertible into, or which grant the holder
thereof the right to acquire any securities of or interests in WAC.
7.2 Power and Authority; Non-Contravention. WAC has full limited liability
company power and authority to execute, deliver and perform its obligations
under this Agreement and all other agreements and other documents executed and
delivered, or to be executed and delivered, by it pursuant to this Agreement and
has taken or will have taken all actions required by law, its Certificate of
Formation, its Limited Liability Company Agreement or otherwise, to duly and
validly authorize the execution and delivery of, and the performance of its
obligations under, this Agreement and such related documents and the
consummation of the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement do not and the consummation of the
transactions contemplated by this Agreement will not (i) conflict with or
violate any provisions of the Certificate of Formation or Limited Liability
Company Agreement of WAC, or (ii) constitute a breach of or default under or
result in the creation of any Lien or Other Encumbrance or Tax on or against,
any assets, rights or property of WAC or give rise, with or without notice or
lapse of time, to any third-party right of termination, cancellation, material
modification or acceleration under any note, bond, mortgage, pledge, lien,
lease, agreement, license, commitment or instrument, applicable to WAC or to
which WAC is a party or by which WAC is bound, or conflict with or violate any
restrictions of any kind to which they are subject, which breach, default, lien,
encumbrance, Tax, termination, cancellation, modification or acceleration would
prevent or materially delay the consummation of the transactions contemplated by
this Agreement or otherwise prevent WAC from performing its obligations
hereunder in any material respect, or (iii) subject to obtaining the consents,
approvals, orders, authorizations and registrations, and making the filings
described in Section 7.3 below, violate any law, order, writ, judgment, award,
statute, rule, regulation or decree of any Governmental Entity or arbitrator,
which, if violated or accelerated, would prevent or materially delay the
consummation of the transactions contemplated by this Agreement or otherwise
prevent WAC from performing its obligations hereunder or thereunder in any
material respect. The execution, delivery and performance of this Agreement have
been approved by WorldCom as the sole member of WAC. This Agreement has been
duly executed and delivered by WAC and, assuming this Agreement constitutes a
valid and binding obligation of CompuServe, Block Group and H&R Block,
enforceable against them in accordance with their respective terms, constitutes
a valid and binding obligation of WAC, enforceable against WAC in accordance
with its terms.
7.3 Consents and Approvals. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required to be obtained, made or filed by WAC in connection with the execution
and delivery of this Agreement by WAC or the consummation by WAC of the
transactions contemplated by this Agreement, except for such consents,
approvals, orders, authorizations, registrations, declarations, or filings the
failure of which to be obtained, made or filed would not (a) impair in any
material respect the ability of WAC to perform its obligations hereunder or (b)
prevent or impede, in any material respect, the consummation of the transactions
contemplated by this Agreement.
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7.4 Legal Proceedings. There are no actions, suits, claims, demands or
proceedings pending or, to the knowledge of WAC, threatened against WAC.
7.5 No Contracts or Liabilities. WAC has not engaged in any business
activities of any type or kind whatsoever, other than preparation for the
transactions contemplated by this Agreement, and, other than its obligations
under this Agreement, is not obligated under any contracts, claims, leases,
liabilities (contingent or otherwise), loans or otherwise.
7.6 Commissions and Fees. There are no valid claims for brokerage
commissions, investment bankers' fees or finder's or similar fees in connection
with any of the other transactions contemplated by this Agreement which may be
now or hereafter asserted against H&R Block or CompuServe resulting from any
action taken by WAC, WorldCom as its sole member or any of WorldCom's or WAC's
directors, officers, employees or agents.
ARTICLE VIII
COVENANTS
8.1 Interim Conduct of CompuServe and the CompuServe Entities. Each of H&R
Block and Block Group covenants to use all reasonable efforts to ensure, and H&R
Block, Block Group and CompuServe jointly and severally, covenant and agree with
WorldCom and WAC, that, except (1) as contemplated by this Agreement or (2) with
the prior written consent of WorldCom, which consent will not be unreasonably
withheld, after the date hereof and until the earlier of the termination of this
Agreement pursuant to Article XI and the Closing Date:
(a) Subject to the other provisions of this Section 8.1, the business
of each of CompuServe and the CompuServe Entities, including investment
practices and policies, will be conducted only in the ordinary course of
business consistent with past practice, and CompuServe and the CompuServe
Entities will use all reasonable efforts to preserve their business
organizations and maintain their existing relations with all of their
customers, suppliers, employees, creditors and business partners;
(b) Neither CompuServe nor any CompuServe Entity will, directly or
indirectly, split, combine or reclassify the outstanding shares of capital
stock of CompuServe or any outstanding capital stock, interest in or
security of any CompuServe Entity;
(c) Neither CompuServe nor any CompuServe Entity will: (i) amend its
Articles of Incorporation or Certificate of Incorporation, as the case may
be, or Bylaws or similar organizational documents; (ii) declare, set aside
or pay any dividend or other distribution with respect to capital stock
payable in cash, stock, securities or property other than dividends paid by
CompuServe's wholly-owned, direct or indirect, subsidiaries to CompuServe
or one of CompuServe's wholly-owned, direct or indirect, subsidiaries;
(iii) issue, sell, transfer, grant, award, pledge, dispose of or encumber
any shares of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, any
shares of capital stock of any class of CompuServe (except for CompuServe
Common Shares issued pursuant to the terms of CompuServe Stock Options
outstanding as of the date of this Agreement, or pursuant to the terms of
the Crystal Club Plan in the ordinary course of business consistent with
past practice)) or interest in or securities of any CompuServe Entity; (iv)
transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber
any of its assets, in an amount in any instance or series of related
instances exceeding $1,000,000 in the aggregate (measured in terms of net
book value), except pursuant to the existing terms of contracts entered
into prior to the date hereof and set forth on Schedule 8.1(c); or (v)
redeem, purchase or otherwise acquire, directly or indirectly, any of the
capital stock of CompuServe or any interest in or securities of any
CompuServe Entity (except for CompuServe Common Shares acquired pursuant to
the terms of the Employee Stock Purchase Plan and the Crystal Club Plan in
the ordinary course of business consistent with past practice);
(d) CompuServe and the CompuServe Entities will not: (i) hire
employees and consultants such that the total number of employees and
consultants of CompuServe and the CompuServe Entities would
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exceed 3,080 or (ii) terminate employees and consultants such that the net
decrease in the number of employees and consultants of CompuServe and the
CompuServe Entities resulting therefrom would exceed 200 (which net
decrease calculation shall be based on a starting point of 2,880 employees
and consultants and shall not include employees and consultants who
voluntarily terminate their employment or services); (iii) grant any
increase in the compensation or bonus payable or to become payable by
CompuServe or any of the CompuServe Entities to any director, officer or
employee of CompuServe or any of the CompuServe Entities, except (1) to the
extent that each such grant or increase is in the ordinary course of
business and consistent with past practice and the aggregate of all such
grants or increases does not exceed $6,000,000 on an annualized basis, and
(2) bonuses in an aggregate amount not in excess of $15,000,000 (half of
which shall be paid by H&R Block) to key employees (equitably distributed
as between the Online Services Business and the other businesses of
CompuServe and the CompuServe Entities) as CompuServe deems necessary in
order to encourage such employees to continue their employment from the
date hereof until the Effective Time, payable only if such employment so
continues; (iv) adopt any new, or amend or otherwise increase, or
accelerate the payment or vesting of the amounts payable or to become
payable under any existing CompuServe Benefit Plan, except as contemplated
in Section 8.26; (v) enter into any, or amend any existing, employment,
consulting or severance agreement with, or grant any severance or
termination pay to, any officer, director or employee of CompuServe or any
of the CompuServe Entities; (vi) make any additional contributions to any
grantor trust created by CompuServe or any of the CompuServe Entities to
provide funding for non-tax-qualified employee benefits or compensation
except as required by the terms of any grantor trust of CompuServe existing
on the date hereof; or (vii) provide any new severance program to or
increase the benefits under any existing severance program of CompuServe or
any of the CompuServe Entities;
(e) Except in the ordinary course of business and consistent with past
practice, neither CompuServe nor any CompuServe Entity will in any respect
modify, amend or terminate any of its contracts, intellectual property
licenses, leases or other agreements and arrangements, or waive, release or
assign any rights or claims thereto or thereunder;
(f) Except as would not be Material, neither CompuServe nor any
CompuServe Entity will permit any insurance policy naming CompuServe or any
of the CompuServe Entities as a beneficiary or a loss payable payee to be
canceled or terminated;
(g) Neither CompuServe nor any CompuServe Entity will: (i) incur or
assume any debt except for borrowings under existing credit facilities
which are identified in the CompuServe SEC Documents or in the ordinary
course of business consistent with past practice in an amount not exceeding
$1,000,000 in the aggregate; (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other Person in an amount exceeding $1,000,000
in the aggregate, whether or not in the ordinary course of business or
consistent with past practice, except for customary indemnification
obligations pursuant to agreements entered into in the ordinary course of
business, consistent with past practice; (iii) make any loans, advances or
capital contributions to, or investments in, any other Person (other than a
wholly-owned CompuServe Entity) in an amount exceeding $1,000,000 in the
aggregate, or modify any credit policies or practices granted to customers
or make any concessions or offer any inducements to accelerate payments;
(iv) other than as contemplated by CompuServe's May 23, 1997 business plan
for fiscal 1998 as furnished to WorldCom, enter into any financial
commitments (including any capital expenditure or asset purchase), whether
or not in the ordinary course of business or consistent with past practice,
in an amount exceeding $1,000,000 in the aggregate; (v) other than in the
ordinary course of business consistent with past practice, enter into any
contract granting any third-party geographic or market or programming or
content exclusivity; or (vi) other than contracts entered into for capital
expenditures in accordance with CompuServe's May 23, 1997 business plan,
enter into any contract that is not terminable without penalty on or prior
to December 31, 2000 involving payments by CompuServe or any of the
CompuServe Entities in excess of $1,000,000 individually or $10,000,000 in
the aggregate;
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(h) Except as would not be Material, neither CompuServe nor any
CompuServe Entity will change any of the accounting principles or practices
used by it unless required by statutory accounting principles or GAAP and
notice thereof is given to WorldCom promptly following such change;
(i) Neither CompuServe nor any CompuServe Entity will pay, discharge
or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction of any such claims, liabilities or obligations
(i) reflected or reserved against in, or contemplated by, the CompuServe
Balance Sheet in an amount not in excess of that in the CompuServe Balance
Sheet; (ii) incurred in the ordinary course of business consistent with
past practice and in accordance with the other restrictions contained
herein, and which by their terms have become due and payable since the date
of the CompuServe Balance Sheet; (iii) which are legally required to be
paid, discharged or satisfied and are paid in accordance with the terms of
such claims, liabilities or obligations in existence as of the date of this
Agreement; or (iv) out of insurance proceeds not in excess of $1,000,000 in
the aggregate;
(j) Neither CompuServe nor any CompuServe Entity will adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation, share
exchange, restructuring, recapitalization or other reorganization of
CompuServe or any of the CompuServe Entities;
(k) Other than in the ordinary course of business consistent with past
practice, and except as contemplated by this Agreement, neither CompuServe
nor any CompuServe Entity will engage in any transaction, or enter into any
agreement, arrangement, or understanding with, directly or indirectly, any
Related Party except on terms no less favorable than would be available in
competitive arm's-length transactions;
(l) Except as would not be Material or as contemplated by Article IX
hereof, neither CompuServe nor any CompuServe Entity will make any Tax
election or increase or establish any reserve for Taxes or any other
liability on its books or otherwise provided therefor, except as required
by applicable law or GAAP and as to which CompuServe has provided prompt
notice after any such election, or increase or establishment of reserve to
WorldCom;
(m) Neither CompuServe nor any CompuServe Entity will settle any
litigation, other proceeding or arbitration requiring a payment in an
amount equal to or greater than $250,000 individually or $1,000,000 in the
aggregate or involving any material limitation on its future actions or the
surrender or compromise of any of its material rights;
(n) Neither CompuServe nor any CompuServe Entity will enter into an
agreement, contract, commitment or arrangement to do any of the foregoing,
or to authorize, recommend, propose or announce an intention to do any of
the foregoing; and
(o) Neither CompuServe nor any CompuServe Entity will act, or fail or
omit to act, so as to cause any Material Adverse Change.
8.2 Voting of Shares. H&R Block and Block Group hereby jointly and
severally agree that at any meeting of stockholders of CompuServe, however
called, Block Group will vote, and H&R Block will cause Block Group to vote, all
of Block Group's CompuServe Common Shares (i) in favor of the adoption and
approval of this Agreement (as amended from time to time) and the transactions
contemplated by this Agreement by the stockholders of CompuServe, (ii) against
any proposal for any recapitalization, merger (other than the Merger), share
exchange, exchange offer, tender offer, sale of assets, sale of stock or other
business combination between or among CompuServe or any of the CompuServe
Entities, on the one hand, and any other Person other than WorldCom or any
WorldCom Entity, on the other hand, or any liquidation, dissolution or other
action or agreement, that would result in a breach of any representation,
warranty, covenant or other obligation or agreement of H&R Block, Block Group or
CompuServe under this Agreement or that would result in any of the conditions to
the obligations of any party under this Agreement not being fulfilled, and (iii)
in favor of any other matter necessary for the consummation of the transactions
contemplated by this Agreement with respect to which Block Group may be entitled
to vote.
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8.3 No Transfers. Each of H&R Block, Block Group and CompuServe hereby
covenants and agrees that, until the termination of this Agreement pursuant to
Article XI, it will not, and H&R Block will not cause or permit Block Group to,
sell, transfer, tender, assign, hypothecate or otherwise dispose of, or create
or permit to exist any Liens or Other Encumbrances on, whether directly or
indirectly, any of the CompuServe Common Shares or securities of interests in a
CompuServe Entity, respectively, or any of the assets required to be transferred
to CompuServe pursuant to Section 2.1 hereof (except in accordance with Section
2.1).
8.4 Indemnification. (a) Indemnification by H&R Block. H&R Block and Block
Group, jointly and severally, hereby agree to indemnify, defend and hold
harmless WorldCom and WAC and, after the Closing Date, CompuServe and the
CompuServe Entities, each of their respective successors-in-interest and
assigns, and each of their respective past and current directors, officers,
employees, consultants, representatives and agents (the "H&R Block Indemnified
Parties"), from and against any and all Losses and Expenses which are based on,
arise out of or relate to, directly or indirectly (i) the conduct of the
business or affairs of H&R Block, Block Group or any other H&R Block Entity on
or prior to the Closing Date; (ii) any action, suit, claim, demand, proceeding
or investigation brought by or on behalf of persons who were, at or prior to the
Effective Time, holders of the capital stock of H&R Block, Block Group or
CompuServe which suit, claim, demand, action, proceeding or investigation
alleges that any action or failure to act of the issuer of such capital stock,
any Affiliate of such issuer or any director, officer, employee or agent of such
issuer or any Affiliate of such issuer in connection with this Agreement, the
Stockholders Agreement, or the Standstill Agreement or any of the transactions
contemplated hereby or thereby was a breach of fiduciary duty, or a violation of
law or unauthorized, ultra vires or otherwise wrongful or illegal; or (iii) any
breach of the representations, warranties, covenants or agreements of H&R Block
or Block Group set forth in this Agreement or pursuant to the certificates
contemplated in Section 10.2(d) relating to Sections 2.1, 2.2, 2.3, 4.1, 4.2,
4.3, 4.5 or 4.6, Article V, or Sections 8.2, 8.3, 8.6, 8.7 (as to H&R Block or
Block Group), 8.10 (as to H&R Block or Block Group), 8.15 (as to H&R Block or
Block Group), 8.16 (as to H&R Block or Block Group), 8.18, 8.20, 8.21, or 8.23
(as to H&R Block or Block Group) or (iv) any action, suit, claim, demand or
proceeding or investigation brought in connection with the enforcement of any or
all of the foregoing clauses (i), (ii) or (iii).
(b) General Indemnification by H&R Block. H&R Block and Block Group hereby
agree, jointly and severally, to indemnify, defend and hold harmless the H&R
Block Indemnified Parties from and against 80.13% of any Losses and Expenses
which are based on, arise out of or relate to, directly or indirectly, (i) the
matters set forth in Schedule 8.4(b) whether or not disclosed on any other
Schedule to this Agreement or otherwise, each of which shall be deemed to be a
Third-Party Claim (as defined in Section 8.4(e)(i) below) as to which any
required notification of claim for indemnification shall be deemed to have been
given; (ii) any breach of the representations, warranties, covenants or
agreements set forth in this Agreement or pursuant to the certificates
contemplated in Section 10.2(d) relating to Sections 3.1, 3.2, 3.3, 3.4, 3.17,
3.18, 8.6, 8.7 (as to CompuServe) or 8.10 (as to CompuServe); (iii) any breach
of any representations, warranties, covenants or agreements of H&R Block, Block
Group or CompuServe herein (or in the certificates contemplated by Section
10.2(d)), other than those described in the foregoing clause (ii) and without
regard to any qualification as to materiality stated herein (including any
reference to Material, Material Adverse Change or Material Adverse Effect), with
regard to any claim for indemnification relating to any matter for which
indemnification is provided by WorldCom pursuant to or arising out of any
agreement providing for or relating to the divestiture by WorldCom of any or all
of the Online Services Business, if and to the extent that the aggregate of all
Losses and Expenses based on, arising out of or related to all breaches (other
than with respect to a knowing or intentional breach of any such representation,
warranty, covenant or agreement, as to which no dollar threshold shall apply)
described in this clause (iii) exceeds $10 million; (iv) any breach of any
representations, warranties, covenants or agreements, other than those described
in the foregoing clause (ii) and without regard to any qualification as to
materiality stated herein (including any reference to Material, Material Adverse
Change or Material Adverse Effect), with regard to any claim for indemnification
regarding any matter other than matters covered in the foregoing clause (iii),
if and to the extent that the aggregate of all Losses and Expenses based on,
arising out of or related to all breaches (other than with respect to a knowing
or intentional breach of any such representation, warranty, covenant or
agreement, as to which no dollar threshold shall apply) described in this clause
(iv) exceeds $10 million; or (v) any action, suit, claim, demand or proceeding
brought in connection with the enforcement of the foregoing clauses (i), (ii),
(iii) and
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(iv). Any matter covered by both of the foregoing clauses (iii) and (iv) shall
be apportioned equally to both thresholds.
(c) Indemnification by WorldCom and WAC. WorldCom and WAC and, after the
Closing, CompuServe, hereby agree, jointly and severally, to indemnify, defend
and hold harmless H&R Block, Block Group, their respective successors
in-interest and assigns, and each of their respective past and current
directors, officers, employees, consultants, representatives and agents from and
against any Losses and Expenses which are based on, arise out of or relate to,
directly or indirectly, (i) the conduct of the business of CompuServe after the
Closing as long as and to the extent that CompuServe constitutes a WorldCom
Entity; or (ii) any action, claim or proceeding brought in connection with the
enforcement of the foregoing clause (i).
(d) Notification of Claims. For the purpose of this Section 8.4, the term
"Indemnifying Party" shall mean the party having an obligation hereunder to
indemnify the other party or parties pursuant to this Section 8.4, and the term
"Indemnified Party" shall mean the party having the right to be indemnified
pursuant to this Section 8.4. Whenever any claim shall arise for indemnification
under this Section 8.4, the Indemnified Party shall promptly notify the
Indemnifying Party in writing of such claim and, when known, the facts
constituting the basis for such claim (in reasonable detail). Failure by the
Indemnified Party to so notify the Indemnifying Party shall not relieve the
Indemnifying Party of any liability hereunder unless and only to the extent such
failure prejudices the Indemnifying Party. The H&R Block Indemnified Parties
shall not be entitled to indemnification under Section 8.4(b)(ii) unless, prior
to March 15, 1999, a H&R Block Indemnified Party has notified H&R Block and
Block Group in writing of the existence of any Losses and Expenses that may
reasonably be expected to give rise to any such indemnification obligation.
Notwithstanding any provision herein to the contrary, (i) any claim for
indemnification related to or arising out of any Tax matter may be brought at
any time prior to 60 Business Days after the expiration of the applicable Tax
statute of limitations with respect to the relevant taxable period (including
all extensions obtained, whether automatic or permissive) and (ii) any claim for
indemnification based on, related to or arising out of any Tax matter set forth
in Section 9.2(a) and Section 9.2(b) shall be governed solely by Section 9.2
hereof.
(e) Indemnification Procedures.
(i) After the giving of notice by an Indemnified Party as required by
paragraph (d) of any claim of the commencement of any action by a Person or
Governmental Entity who is not a party to this Agreement or an Affiliate of
such a party (a "Third-Party Claim"), if the Indemnifying Party undertakes
to defend any such claim, it shall be required to take control of the
defense and investigation with respect to such claim and to employ and
engage reputable attorneys of its own choice reasonably acceptable to the
Indemnified Party to handle and defend the same, at the Indemnifying
Party's cost, risk and expense, upon written notice to the Indemnified
Party of such election, which notice acknowledges the Indemnifying Party's
obligation to provide indemnification hereunder. The Indemnifying Party
shall not settle any Third-Party Claim that is the subject of
indemnification without the written consent of the Indemnified Party, which
consent shall not be unreasonably withheld or delayed. The Indemnified
Party shall cooperate in all reasonable respects with the Indemnifying
Party and its attorneys in the investigation, trial and defense of any
lawsuit or action with respect to such claim and any appeal arising
therefrom (including the filing in the Indemnified Party's name of
appropriate crossclaims and counterclaims). In connection with any
Third-Party Claim, each Indemnified Party shall use reasonable efforts to
make available to the Indemnifying Party, upon written request and at
reasonable times, its and its subsidiaries' officers, directors, employees
and agents to act as witnesses to the extent that such persons may
reasonably be required to be available in connection with any claim under
this Section 8.4. The Indemnified Party may, at its own cost, participate
in any investigation, trial and defense of such lawsuit or action
controlled by the Indemnifying Party and any appeal arising therefrom. If
there are one or more legal defenses available to the Indemnified Party
that conflict with those available to the Indemnifying Party, the
Indemnified Party shall have the right, at the expense of the Indemnifying
Party, to assume the defense of the lawsuit or action; provided, however,
that the Indemnified Party may not settle such lawsuit or action without
the consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. Notwithstanding anything to the contrary
in this paragraph (e)(i), if a Third-Party Claim is for money damages
asserted in an amount not to exceed $1,000,000 and is principally for non-
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monetary relief that would have a continuing Material Adverse Effect on the
Indemnified Party, then the Indemnified Party shall be entitled to take
control of the defense and investigation with respect to such claim and to
employ and engage reputable attorneys of its own choice reasonably
acceptable to the Indemnifying Party to handle and defend the same, at the
Indemnifying Party's cost, risk and expense, upon written notice to the
Indemnifying Party of such election
(ii) If, within a reasonable time following receipt of a notice of a
Third-Party Claim pursuant to paragraph (d), the Indemnifying Party does
not undertake to defend any such claim, the Indemnified Party may, but
shall have no obligation to, contest at the expense of the Indemnifying
Party to the extent provided in this Section 8.4 any lawsuit or action with
respect to such claim and the Indemnifying Party shall be bound by the
result obtained with respect thereto by the Indemnified Party (including
the settlement thereof without the consent of the Indemnifying Party).
(iii) Any claim of indemnification for Losses and Expenses which does
not result from a Third-Party Claim shall be asserted by written notice
given by the party claiming a right of indemnification ("Indemnitee") to
the party from whom indemnification is sought ("Indemnitor") specifying in
reasonable detail the nature and basis for the claim and the Losses and
Expenses incurred. Such Indemnitor shall have a period of 30 days after the
receipt of such notice within which to respond thereto. If the Indemnitor
does not respond within such 30-day period, such Indemnitor shall be deemed
to have refused to accept responsibility to make payment. If such
Indemnitor does not respond within such 30-day period or rejects such claim
in whole or in part, the Indemnitee shall be free to pursue such remedies
as may be available to such party, under applicable law or under this
Agreement.
(iv) If the amount of any Losses and Expenses shall, at any time
subsequent to the payment required by this Agreement, be reduced by
recovery, settlement, insurance proceeds or otherwise, the amount of such
reduction, less any expenses incurred in connection therewith, shall
promptly be repaid by the Indemnitee to the Indemnitor.
(f) Tax-Related Adjustment. An indemnity payment otherwise due and payable
hereunder (i) shall be decreased (but not below zero) to the extent of any net
actual reduction in federal income Tax liability that is actually realized by
the Indemnified Party at the time of its payment of an indemnifiable loss and
(ii) shall be increased to indemnify the Indemnified Party for any additional
federal income Taxes payable by the Indemnified Party by reason of the receipt
or accrual of such indemnity payment.
8.5 No Contribution. Each of H&R Block and Block Group, for itself and on
behalf of the other H&R Block Entities, waives, and acknowledges and agrees that
it and they will not have and will not exercise or assert (or attempt to
exercise or assert), any right of contribution, right of subrogation, right of
indemnity or other similar right or remedy against CompuServe or any of the
CompuServe Entities, with respect to any action or failure to act by H&R Block,
Block Group or any other H&R Block Entity or CompuServe or any CompuServe
Entity, occurring on or prior to the Effective Time in connection with any
actual or alleged breach of any representation, warranty, covenant or other
obligation or agreement set forth in this Agreement, or any Losses or Expenses
referred to in Section 8.4 or Section 9.2 of this Agreement, at or after the
Effective Time, for any other claim accrued as of the Effective Time.
8.6 Meeting of CompuServe Stockholders. CompuServe shall take all steps
necessary in accordance with its Certificate of Incorporation and Bylaws and the
DGCL to call, set a record date, give notice of, convene and hold a special
meeting of its stockholders (the "CompuServe Stockholders Meeting") to occur as
soon as practicable for the purpose of approving and adopting this Agreement and
authorizing the Merger and for such other purposes as may be necessary (the
"CompuServe Proposal"). Subject to Section 8.14(a) of this Agreement, the Board
of Directors of CompuServe shall (i) take all steps necessary to present and
recommend to its stockholders the approval and adoption of this Agreement and
approval of the transactions contemplated hereby to which it is a party and any
other matters to be submitted to its stockholders in connection therewith and
(ii) use all reasonable efforts to obtain the approval and adoption by the
CompuServe stockholders of this Agreement and any of the transactions
contemplated hereby requiring such stockholder approval.
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8.7 Registration Statement; Proxy Statement. (a) As soon as practicable
after the date of this Agreement, WorldCom and CompuServe shall prepare and file
with the SEC the proxy statement relating to the CompuServe Stockholders Meeting
(the "CompuServe Proxy Statement" or "Proxy Statement"), and WorldCom shall
prepare a Registration Statement on Form S-4 (the "Registration Statement") with
respect to the Merger and registration of the WorldCom Common Shares to be
issued to CompuServe's stockholders in connection therewith. Each of WorldCom,
H&R Block and CompuServe shall use all reasonable efforts to have the
Registration Statement declared effective by the SEC as promptly as practicable
thereafter. The CompuServe Proxy Statement will be mailed to the stockholders of
CompuServe as soon as possible after the Registration Statement is declared
effective. No amendment or supplement to the Proxy Statement shall be made
without providing each other such party with reasonable time to review and
comment on such amendment or supplement and in any case without prior written
consent of WorldCom. No amendment (or supplement) to the Registration Statement
(or the prospectus forming a part thereof) shall be made without providing each
other such party with reasonable time to review and comment on such amendment
(or supplement) and in any case without prior approval of CompuServe, which
approval shall not be unreasonably withheld. Promptly after receiving notice
thereof, unless such notice was received from another party hereto, each of
WorldCom and CompuServe shall advise each such other party of the time when the
Registration Statement has become effective or any amendment thereto or any
supplement or amendment to the CompuServe Proxy Statement has been filed, or the
issuance of any stop order, or of any request by the SEC or NASDAQ for amendment
of the Registration Statement. WorldCom shall also take any action (other than
qualifying to do business in any jurisdiction in which it is not now so
qualified or consenting to service of process in any jurisdiction in any action
other than one arising out of the offering of the WorldCom Common Shares in such
jurisdiction) reasonably required to be taken under any applicable state
securities or "blue sky" laws in connection with the issuance of WorldCom Common
Shares in connection with the Merger, and each of CompuServe and H&R Block shall
furnish all information concerning CompuServe or H&R Block, as the case may be,
as may be reasonably requested in connection with any such action. Except for
the Proxy Statement or the preliminary prospectus/proxy statement, none of
WorldCom, CompuServe or H&R Block shall distribute any written material that
might constitute a "prospectus" relating to the Merger within the meaning of the
Securities Act or any applicable state securities law, without the prior written
consent of WorldCom.
(b) Each of H&R Block, CompuServe and WorldCom covenants that none of the
information supplied or to be supplied by it for inclusion, or incorporated or
to be incorporated by reference, in (i) the Registration Statement will, at the
time the Registration Statement is filed with the SEC, at any time it is amended
or supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (ii) the CompuServe Proxy Statement will, at the date it is
first mailed to the stockholders of CompuServe, or at the time of the CompuServe
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. Each of H&R Block, CompuServe and WorldCom covenants that
the CompuServe Proxy Statement and the Registration Statement will comply as to
form in all material respects with the requirements of the Exchange Act or the
Securities Act, as the case may be. Notwithstanding the foregoing, (i) no
representation or covenant is made by CompuServe or H&R Block with respect to
statements made or incorporated by reference therein based on information
supplied by WorldCom for inclusion or incorporated by reference in the
CompuServe Proxy Statement or the Registration Statement and (ii) no
representation or covenant is made by WorldCom with respect to statements made
or incorporated by reference therein based on information supplied by CompuServe
or H&R Block for inclusion or incorporated by reference in the CompuServe Proxy
Statement or the Registration Statement. If at any time prior to the Effective
Time there shall occur (i) any event with respect to CompuServe or any
CompuServe Entity, or with respect to other information supplied by CompuServe
for inclusion or incorporated by reference in the Proxy Statement or the
Registration Statement, (ii) any event with respect to H&R Block or any H&R
Block Entity, or with respect to other information supplied by H&R Block for
inclusion or incorporated by reference in the Proxy Statement or the
Registration Statement or (iii) any event with respect to WorldCom, or with
respect to information
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supplied by WorldCom for inclusion or incorporated by reference in the Proxy
Statement or the Registration Statement, in any case which event is required to
be described in an amendment of, or a supplement to, the CompuServe Proxy
Statement or the Registration Statement, such event shall be so described, and
such amendment or supplement shall be promptly filed with the SEC and, as
required by law, disseminated to the stockholders of CompuServe.
(c) Each of CompuServe and WorldCom shall promptly notify the other parties
of the receipt of any comments from the SEC or its staff or any other
appropriate government official and of any requests by the SEC or its staff or
any other appropriate government official for amendments or supplements to any
of the filings with the SEC in connection with the Merger and other transactions
contemplated hereby or for additional information and shall supply the other
with copies of all correspondence between CompuServe or any of its respective
representatives, or WorldCom or any of its representatives, as the case may be,
on the one hand, and the SEC or its staff or any other appropriate government
official, on the other hand, with respect thereto. CompuServe and WorldCom shall
use all of their respective reasonable efforts to respond to any comments of the
SEC with respect to the Registration Statement and the Proxy Statement as
promptly as practicable. CompuServe, H&R Block and WorldCom shall cooperate with
each other and furnish all information necessary in order to prepare the
Registration Statement and the Proxy Statement, and shall provide promptly to
the other parties any information such party may obtain that could necessitate
amending or supplementing any such document.
(d) WorldCom covenants that it shall apply to have the WorldCom Common
Shares to be issued in connection with the Merger approved for quotation on
NASDAQ, subject to official notice of issuance.
(e) WorldCom covenants that it will not, without the prior written consent
of CompuServe, (i) agree to waive any obligations of AOL under Sections 5.6 or
5.12 of the Purchase and Sale Agreement or (ii) request from or deem be to
provided by AOL a waiver of any of WorldCom's obligations under such sections.
8.8 Access to Information. Subject to the provisions of the
Confidentiality Agreement, between the date hereof and the Closing Date, each of
H&R Block, Block Group, CompuServe and WorldCom and their respective Entities
shall (i) give to each such other party and its counsel, accountants and other
representatives reasonable access, at reasonable times and after reasonable
notice, to all the properties, documents, contracts, personnel files (subject to
applicable law) and other records of such party; (ii) furnish the other party
with copies of such documents and with such information with respect to the
affairs of such party as the other party may from time to time reasonably
request; and (iii) shall disclose and make available to each such party and its
representatives all books, contracts, accounts, personnel records, letters of
intent, papers, records, communications with regulatory authorities and other
documents relating to the business and operations of such party as the other
party may from time to time reasonably request. In addition, CompuServe shall
make available to WorldCom all such banking, investment and financial
information as shall be necessary to allow for the efficient integration of
CompuServe's banking, investment and financial arrangements with those of
WorldCom at the Closing, including monthly financial statements. Nothing
contained in this Section 8.8 shall be deemed to create any duty or
responsibility on the part of any party to investigate or evaluate the value,
validity or enforceability of any contract, lease or other asset included in the
assets of any other party. With respect to matters as to which any party has
made express representations or warranties herein, the parties shall be entitled
to rely upon such express representations and warranties irrespective of any
investigations made by such parties. With respect to the obligations of H&R
Block, Block Group, CompuServe and their respective Entities under this Section
8.8, "other party" as used in clauses (i), (ii) and (iii), above, shall be
deemed to include AOL. None of H&R Block, the H&R Block Entities, CompuServe,
the CompuServe Entities, WorldCom or the WorldCom Entities shall be required to
provide access to customer identity or pricing information or to furnish any
documents or information that such party has been advised by counsel may not be
provided under applicable law, would result in the loss of a legal privilege or
would violate a confidentiality obligation, provided that, in the case of
documents or information subject to a legal duty, such party shall use its
reasonable best efforts to obtain any third party consents required to comply
with any confidentiality obligations giving rise to such legal duty, in the case
of customer identity or pricing information, such party shall make arrangements
for such information to be furnished to counsel for the party requesting such
information and, in the case of privileged information, such party shall make
arrangements for such
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documentation to be provided to counsel for the party requesting such
information, to the extent reasonable assurance can be obtained that the legal
privilege would not thereby be lost.
8.9 Confidentiality. CompuServe and WorldCom acknowledge and confirm that
they have entered into a letter agreement with AOL dated August 14, 1997 (the
"Confidentiality Agreement") and that the Confidentiality Agreement shall remain
in full force and effect in accordance with its terms, notwithstanding
WorldCom's and CompuServe's entering into this Agreement and whether or not the
transactions contemplated by this Agreement are consummated or terminated.
8.10 HSR Act Compliance, Etc. (a) H&R Block and WorldCom shall promptly
make their respective filings, and shall thereafter use their best efforts to
promptly make any required submissions, under the HSR Act with respect to the
transactions contemplated hereby. H&R Block, Block Group, CompuServe and
WorldCom shall use their respective reasonable efforts to promptly make all
other required filings and submissions with respect to all other permits,
authorizations, consents and approvals from third parties and Governmental
Entities necessary to consummate the transactions contemplated by this Agreement
and the Stockholders Agreement.
(b) H&R Block, Block Group, CompuServe and WorldCom also agree to take any
and all of the following actions to the extent necessary to obtain the approval
of any Governmental Entity with jurisdiction over the enforcement of any
applicable laws regarding the transactions contemplated by this Agreement and
the Stockholders Agreement: entering into negotiations; providing information;
substantially complying with any second request for information pursuant to the
HSR Act or any similar foreign antitrust law; and making proposals. The parties
hereto will consult, consistent with their respective legal obligations, and
cooperate with each other, and consider in good faith the views of each other,
in connection with any analyses, appearances, presentations, memoranda, briefs,
arguments, opinions and proposals made or submitted by or on behalf of any party
hereto in connection with proceedings under or relating to the HSR Act or any
other federal, state or foreign antitrust or fair trade law.
8.11 Public Disclosures. H&R Block, Block Group, CompuServe and WorldCom
shall consult with each other before issuing any press release or otherwise
making any public statement with respect to the transactions contemplated by
this Agreement or the Stockholders Agreement, and shall not issue any such press
release or make any such public statement prior to such consultation except as
may be required by applicable law or requirements of the Exchange Act, NASDAQ or
any national securities exchange as advised by counsel, in which case the
parties shall use their reasonable efforts to consult with each other prior to
issuing such a release or making such a statement. WorldCom, H&R Block and
CompuServe shall issue a joint press release, mutually acceptable to H&R Block,
CompuServe and WorldCom, promptly upon execution and delivery of this Agreement.
H&R Block, Block Group, CompuServe and WorldCom shall cooperate and consult with
each other to develop and implement guidelines for communications to employees,
customers and suppliers of CompuServe regarding the transactions contemplated by
this Agreement.
8.12 Resignation of Directors and Officers. At or prior to the Closing,
CompuServe shall deliver to WorldCom if and as requested by WorldCom evidence
satisfactory to WorldCom of the resignation of the directors and officers,
solely in their capacities as such, of CompuServe and any CompuServe Entity,
such resignations to be effective at the Closing.
8.13 Notification of Certain Matters. H&R Block, Block Group and
CompuServe shall give prompt notice to WorldCom, and WorldCom shall give prompt
notice to H&R Block, Block Group and CompuServe, of (a) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would or
could reasonably be expected to cause any representation or warranty
respectively made by them and contained in this Agreement or the Stockholders
Agreement to be untrue or inaccurate at or prior to the Closing, as the case may
be, and (b) any failure of H&R Block, Block Group, CompuServe or WorldCom, as
the case may be, to comply with or satisfy any covenant, agreement or condition
to be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 8.13 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
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8.14 No Solicitation. (a)(i) CompuServe shall, and shall direct and use
reasonable efforts to cause its officers, directors, employees, representatives
and agents to, immediately cease any discussions or negotiations with any
parties that may be ongoing with respect to a Competitive Proposal. CompuServe
shall not, nor shall it permit any of the CompuServe Entities to, nor shall it
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of the CompuServe Entities to, directly or
indirectly, (A) solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed or reasonably likely to
facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Competitive Proposal or (B)
participate in any discussions or negotiations regarding any Competitive
Proposal. "Competitive Proposal" means any inquiry, proposal or offer from any
Person relating to any direct or indirect acquisition or purchase of 10% or more
of the assets of CompuServe and the CompuServe Entities or 10% or more of any
class of equity securities of CompuServe or any of the CompuServe Entities, any
tender offer or exchange offer that if consummated would result in any Person
beneficially owning 10% or more of any class of equity securities of CompuServe
or any of the CompuServe Entities, any merger, consolidation, share exchange,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving CompuServe or any of the CompuServe Entities, other than
the transactions contemplated by this Agreement and the Stockholders Agreement,
or any other transaction the consummation of which could reasonably be expected
to impede, interfere with, prevent or materially delay the Merger or which would
reasonably be expected to dilute materially the benefits to WorldCom of the
transactions contemplated by this Agreement and the Stockholders Agreement.
(ii) Except to the extent the Board of Directors of CompuServe determines
it is required to do otherwise in accordance with its fiduciary duties, neither
the Board of Directors of CompuServe nor any committee thereof shall withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to
WorldCom, the approval or recommendation by such Board of Directors or such
committee of the CompuServe Proposal. Neither the Board of Directors nor any
committee thereof shall approve or recommend, or propose publicly to approve or
recommend, any Competitive Proposal or cause CompuServe to enter into any letter
of intent, agreement in principle, acquisition agreement or other similar
agreement related to a Competitive Proposal. Any such withdrawal or modification
of the recommendation of the CompuServe Proposal shall not change the approval
of the Board of Directors of CompuServe for purposes of causing Section 203 of
the DGCL to be inapplicable to the CompuServe Proposal or the status of WorldCom
and WAC as other than an "Acquiring Person" under the CompuServe Rights
Agreement and shall not directly or indirectly cause a "Shares Acquisition Date"
or a "Distribution Date" (as such terms are defined in the CompuServe Rights
Agreement) to occur.
(iii) In addition to the obligations of CompuServe set forth in paragraphs
(a)(i) and (a)(ii) of this Section 8.14, CompuServe shall immediately advise
WorldCom orally and in writing of any request for information or of any
Competitive Proposal, the material terms and conditions of such request or
Competitive Proposal and the identity of the person making such request or
Competitive Proposal. CompuServe will keep WorldCom fully informed of the status
and details (including amendments or proposed amendments) of any such request or
Competitive Proposal.
(b) (i) H&R Block shall, and shall direct and use reasonable efforts to
cause its officers, directors, employees, representatives and agents to,
immediately cease any discussions or negotiations with any parties that may be
ongoing with respect to a Competitive Proposal. H&R Block shall not, nor shall
it permit any of the H&R Block Entities to, nor shall it authorize or permit any
of its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
the H&R Block Entities to, directly or indirectly, (A) solicit, initiate or
encourage (including by way of furnishing information), or take any other action
designed or reasonably likely to facilitate, any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, any
Competitive Proposal or (B) participate in any discussions or negotiations
regarding any Competitive Proposal.
(ii) In addition to the obligations of H&R Block set forth in paragraph
(b)(i) of this Section 8.14, H&R Block shall immediately advise WorldCom orally
and in writing of any request for information or of any Competitive Proposal,
the material terms and conditions of such request or Competitive Proposal and
the
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identity of the person making such request or Competitive Proposal. H&R Block
will keep WorldCom fully informed of the status and details (including
amendments or proposed amendments) of any such request or Competitive Proposal.
(c) Nothing contained in this Section 8.14 shall prohibit CompuServe from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to its
stockholders if, in the good faith judgment of the Board of Directors of
CompuServe, after consultation with outside counsel, failure so to disclose
would be inconsistent with its fiduciary duties to CompuServe's stockholders,
under applicable law; provided, however, neither CompuServe nor its Board of
Directors nor any committee thereof shall, except as permitted by Section
8.14(a)(ii), as applicable, withdraw or modify, or propose publicly to withdraw
or modify, its position with respect to the CompuServe Proposal or approve or
recommend, or propose publicly to approve or recommend, a Competitive Proposal.
8.15 Other Actions. Unless such action or omission is required by
applicable law or otherwise contemplated or permitted by this Agreement
(including the assignment of the Online Services Business), neither H&R Block,
Block Group, nor CompuServe, nor WorldCom nor WAC shall knowingly or
intentionally take any action or omit to take any action, if such action or
omission would, or reasonably might be expected to, result in any of the
representations and warranties set forth herein being or becoming untrue or
inaccurate or any of the conditions to the Merger set forth in this Agreement or
to transactions contemplated by the Stockholders Agreement not being satisfied,
or would adversely affect the ability of CompuServe, Block Group, H&R Block,
WorldCom or WAC to obtain any consents or approvals required of it for the
consummation of the transactions contemplated by this Agreement and the
Stockholders Agreement, without imposition of a condition or restriction which
would have a Material Adverse Effect, or would, or might reasonably be expected
to, materially delay or prevent the holding of the CompuServe Stockholders
Meeting or the taking of a vote thereat, the filing and clearance of the
CompuServe Proxy Statement or the filing and effectiveness of the Registration
Statement or would, or might reasonably be expected to, otherwise materially
impair the ability of H&R Block, Block Group, CompuServe, WorldCom or WAC to
consummate the transactions contemplated by this Agreement and the Stockholders
Agreement, in accordance with the terms of this Agreement and the Stockholders
Agreement or materially delay any such consummation.
8.16 Cooperation. Each of H&R Block, Block Group, CompuServe, WorldCom and
WAC shall use its best efforts (i) to cooperate with each other in determining
whether any filings are required to be made or consents are required to be
obtained in any jurisdiction prior to the Closing (and the closing under the
Stockholders Agreement), in connection with the consummation of the transactions
contemplated hereby and thereby and cooperate in making any such filings
promptly and in seeking to obtain any such consents in a timely manner, or (ii)
to take, or cause to be taken, all actions necessary to comply promptly with all
legal requirements which may be imposed by agency or court order on such party
(or any subsidiaries or other Affiliates of such party) with respect to this
Agreement and the Stockholders Agreement, and (iii) to take, or cause to be
taken, all actions necessary to obtain (and to cooperate with the other party to
obtain) any consent, authorization, order or approval of, or any exemption by,
any Governmental Entity and/or any other public entity which is required to be
obtained or made by such party or any of its subsidiaries or other Affiliates in
connection with this Agreement and the Stockholders Agreement and the
transactions contemplated hereby and thereby. H&R Block and CompuServe shall
reasonably cooperate with WorldCom in furnishing financial information relating
to the Online Services Business, the network services business and any other
business of CompuServe for periods prior to the Closing to the extent such
information may be required to prepare financial information required to be
filed under the Securities Act, the Exchange Act or the rules and regulations
promulgated by the SEC thereunder.
8.17 CompuServe and CompuServe Entity Employees. (a) All current employees
of CompuServe or a CompuServe Entity ("CompuServe Employees") as of the Closing
shall be employed, immediately after the Closing, by CompuServe or a CompuServe
Entity. On and after the Closing, WorldCom shall honor, and cause CompuServe to
honor, all provisions of all employment or severance agreements or plans in
effect for CompuServe Employees (or any former employee of CompuServe or any
CompuServe Entity) as of the Closing. H&R Block, Block Group and CompuServe
jointly and severally represent and warrant that Schedule 8.17 is a complete
list of all such employment and severance agreements and plans existing as of
the
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date hereof (the "Schedule 8.17 Agreements"). Notwithstanding the foregoing, at
any time after the Closing, the employment of any CompuServe Employee may be
terminated and any Schedule 8.17 Agreement may be amended or terminated in
accordance with its terms; provided, however, that WorldCom agrees that it shall
not, either directly or indirectly through control of CompuServe or any
CompuServe Entity, provide notice of a materially adverse amendment or
termination of any CompuServe severance plan, policy or agreement described in
Schedule 8.17 for a period of twelve months following the Closing Date.
(b) WorldCom, following the Closing Date, shall permit such CompuServe
Employees who are retained as CompuServe or CompuServe Entity employees or
become WorldCom employees thereafter, and who were participating in CompuServe
Benefit Plans immediately prior to the Closing Date, to participate in
corresponding employee compensation and benefit plans, programs, policies and
fringe benefits (including severance and post-employment benefits, if any) of
WorldCom which shall, in the aggregate, provide the CompuServe Employees with
benefits that are comparable to those provided under the CompuServe Benefit
Plans as of the Closing Date and substantially in accordance with the
eligibility criteria thereof, which shall be of general applicability, it being
understood that such plans, programs, policies and fringe benefits after the
Closing will be those of WorldCom immediately before the Closing and it being
further understood that such plans, programs, policies or fringe benefits may
not be materially and adversely amended, terminated or discontinued for a period
of six months following the Closing Date unless otherwise required by applicable
law. Notwithstanding the foregoing, (i) WorldCom may continue (or cause
CompuServe to continue after the Closing) one or more of the CompuServe Benefit
Plans, and WorldCom will be deemed to have satisfied its obligations under this
Section 8.17(b) with respect to the type of benefits provided under such
CompuServe Benefit Plan(s) and (ii) WorldCom agrees that it will not, either
directly or indirectly through its control of CompuServe, amend in any material
respect or terminate the CompuServe Deferred Compensation Plan for a period of
six months following the Closing Date. WorldCom shall credit prior service of
CompuServe Employees with CompuServe or any CompuServe Entity, as applicable,
for purposes of determining the vesting, eligibility, waiting periods or
qualification of or participation of such employees under WorldCom's benefit
programs and any successor benefit programs to the extent that such prior
service was recognized under such CompuServe Benefit Plans (which shall include
severance, if any, and vacation pay plans but shall not include stock option or
award plans and shall not result in duplication of benefits); such prior service
credited under a WorldCom benefit program shall include service with other
entities to the extent that such service is credited by CompuServe or any
CompuServe Entity for purposes of any CompuServe Benefit Plan similar to such
WorldCom benefit plan. Any WorldCom benefit plan which is a Block Group health
plan within the meaning of Section 5000(b) of the Code shall waive all
pre-existing condition limitations with respect to the CompuServe Employees.
WorldCom agrees that the vacation benefits of the CompuServe Employees that have
accrued and are unused as of the Closing Date (including vacation days carried
over in accordance with the CompuServe vacation policy) shall be carried over
for use after the Closing Date in accordance with the CompuServe vacation policy
so long as such policy remains in effect.
(c) The parties hereto acknowledge and agree that (i) the consummation of
the transactions contemplated by this Agreement shall constitute a "change in
control" of CompuServe for purposes of the CompuServe Benefit Plans (including
the Schedule 8.17 Agreements) and (ii) the resignation of any officer or
director of CompuServe in his or her position as such pursuant to Section 8.12
of this Agreement shall not be treated as a voluntary termination of employment
of such officer or director for purposes of any Section 8.17 Agreement and will
not otherwise adversely affect the material rights of such officers or directors
under any Section 8.17 Agreement.
(d) Notwithstanding the provisions of Section 8.17(a), (b) and (c) or any
other provision of this Agreement, in the event WorldCom assigns or transfers
the Online Services Business to AOL (or its Affiliate or assignee), WorldCom
shall have no obligation hereunder to provide any employment, compensation or
benefits to any former employee of the Online Services Business, but WorldCom
shall provide, in the documents relating to such assignment or transfer, that
AOL (or such Affiliate or assignee) shall provide benefits to such employees
which are substantially equivalent in value to the benefits otherwise called for
under paragraph (b) above.
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8.18 CompuServe Name. Each of H&R Block and Block Group acknowledges that
the name "CompuServe," whether alone or in combination with one or more other
words, and including any abbreviations or derivations of such name, is an asset
of CompuServe and will be an asset solely of CompuServe immediately following
the Closing. Nothing in this Agreement constitutes a license or transfer of
rights in or with respect to the word "CompuServe" or any such abbreviation or
derivation to H&R Block, Block Group or any other Person (except WorldCom) after
the Closing and neither H&R Block, Block Group nor any such other Person shall
use or purport to use, license or otherwise transfer the word "CompuServe" or
any such abbreviation or derivation for any business purpose after the Closing.
Following the Closing, each of H&R Block and Block Group agrees to take all
actions and to execute all documents and certificates as WorldCom may reasonably
request to effectuate the intention of this Section 8.18.
8.19 Affiliate Letters. At least 30 days prior to the Closing Date, H&R
Block, Block Group and CompuServe shall deliver to WorldCom a list of names and
addressees of those persons who were, in the reasonable judgment of H&R Block,
Block Group or CompuServe, as the case may be, at the record date for the
CompuServe Stockholders Meeting, "affiliates" (each such Person, a "Rule 145
Affiliate") of either H&R Block, Block Group or CompuServe within the meaning of
Rule 145 of the rules and regulations promulgated under the Securities Act. H&R
Block and Block Group shall execute and deliver, and H&R Block, Block Group and
CompuServe shall use all reasonable efforts to deliver or cause to be delivered
to WorldCom, prior to the Closing Date, from each of their respective Rule 145
Affiliates identified in the foregoing list, an Affiliate Letter in the form
attached as Exhibit C. WorldCom shall be entitled to place legends as specified
in such Affiliate Letters on the certificates evidencing any WorldCom Common
Shares to be received by such Rule 145 Affiliates pursuant to the Merger and
terms hereof, and to issue appropriate stop transfer instructions to the
transfer agent for the WorldCom Common Shares, consistent with the terms of such
Affiliate Letters.
8.20 Noncompete and Nonsolicitation Agreement. Subject to the satisfaction
of the conditions to its obligations in Article X, below, each of H&R Block and
Block Group shall execute and deliver to WorldCom at the Closing, without
further consideration, a noncompete and nonsolicitation agreement in
substantially the form attached hereto as Exhibit D (the
"Noncompete/Nonsolicitation Agreement").
8.21 Facilities Agreements. H&R Block hereby agrees that, for a period of
two years following the Closing, it will not terminate any of the sublease
agreements in effect on the date of this Agreement between H&R Block or a H&R
Block Entity, as sublessor, and CompuServe or a CompuServe Entity, as sublessee,
governing the use by CompuServe or such CompuServe Entity of office space for
the operation of communications processors and attendant equipment, provided,
however, that H&R Block or such H&R Block Entity may terminate any such
agreement in accordance with its terms if (i) H&R Block's or such H&R Block
Entity's tenancy under the applicable master lease agreement is terminated at
any time or (ii) CompuServe or such CompuServe Entity defaults in payment of
rent reserved under such sublease or shall materially breach or violate any
other term, covenant or condition of such sublease or of the applicable master
lease agreement.
8.22 SEC and Stockholder Filings. Each of CompuServe and WorldCom shall
send to the other a copy of all material public reports and materials as and
when it sends the same to its stockholders, the SEC or any state or foreign
securities commission.
8.23 Takeover Statutes. If any "fair price," "moratorium," "business
combination," "control share acquisition" or other similar antitakeover statute
or regulation enacted under state or federal laws in the United States (each a
"Takeover Statute"), including Section 203 of the DGCL, is or may become
applicable to the Merger or the Stockholders Agreement, CompuServe, H&R Block
and the members of their respective Boards of Directors will grant such
approvals, and take such actions as are necessary so that the transactions
contemplated by this Agreement and the Stockholders Agreement may be consummated
as promptly as practicable on the terms contemplated hereby and thereby and
otherwise act to eliminate or minimize the effects of any Takeover Statute on
any of the transactions contemplated hereby or thereby.
8.24 Comfort Letters. (a) Upon the request of WorldCom, CompuServe shall
use reasonable business efforts to provide to WorldCom prior to the Effective
Time "comfort letters" from the independent certified
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public accountants for CompuServe and the CompuServe Entities dated the date on
which the Registration Statement, or last amendment thereto, shall become
effective, and dated the Closing Date, addressed to the Board of Directors of
each of CompuServe and WorldCom, covering such matters as WorldCom shall
reasonably request with respect to facts concerning the financial condition of
CompuServe and the CompuServe Entities and customary for such certified public
accountants to deliver in connection with a transaction similar to the Merger.
(b) Upon the request of CompuServe, WorldCom shall use reasonable business
efforts to provide to CompuServe prior to the Effective Time "comfort letters"
from the independent certified public accountants for WorldCom and the WorldCom
Entities dated the date on which the Registration Statement, or last amendment
thereto, shall become effective, and dated the Closing Date, addressed to the
Board of Directors of CompuServe and WorldCom, covering such matters as
CompuServe shall reasonably request with respect to facts concerning the
financial condition of WorldCom and the WorldCom Entities and customary for such
certified public accountants to deliver in connection with a transaction similar
to the Merger.
8.25 Interim Conduct of WorldCom. WorldCom covenants and agrees with H&R
Block, Block Group and CompuServe that, except (i) as contemplated in this
Agreement, or (ii) with the prior written consent of H&R Block, which consent
shall not be unreasonably withheld, after the date hereof and until the earlier
of the termination of this Agreement pursuant to Article XI and the Closing
Date:
(a) WorldCom will not declare, set aside or pay any dividend or other
distribution payable in cash, stock, securities or property other than cash
or stock dividends on preferred stock or stock dividends;
(b) WorldCom will not adopt a plan of complete or partial liquidation,
dissolution or recapitalization of WorldCom; and
(c) Neither WorldCom nor any WorldCom Entity will enter into an
agreement, contract, commitment or arrangement to do any of the foregoing,
or authorize, recommend, propose or announce an intention to do any of the
foregoing.
8.26 Stock Options. WorldCom and CompuServe hereby agree that all
CompuServe Stock Options, including all rights, options or similar rights to
acquire CompuServe Common Stock, shall be canceled as of the Effective Time
without any further liability or obligation of CompuServe thereunder in
accordance herewith. On or as soon as practicable following the date of this
Agreement and prior to the Effective Time, the Board of Directors of CompuServe
(or, if appropriate, any committee administering the CompuServe Stock Option
Plans), shall adopt such resolutions or take such other actions as may be
required to cause all CompuServe Stock Options not previously exercised in
accordance with their terms to be canceled effective immediately prior to the
Effective Time (or earlier if permitted under the terms thereof), and only
entitle the holders thereof, upon surrender thereof, to receive an amount in
cash as set forth on Schedule 8.26 (the "CompuServe Stock Option Payments").
ARTICLE IX
TAX MATTERS
9.1 Section 338 Election. (a) The parties intend that the acquisition of
CompuServe by WorldCom through the Merger will constitute a qualified stock
purchase within the meaning of Section 338(d)(3) of the Code. In order to
effectuate such intent:
(i) Block Group acknowledges that pursuant to the terms of this
Agreement, as a consequence of the Merger it has the right to receive in
exchange for its shares of CompuServe Common Stock either (A) shares of
WorldCom Common Stock or (B) both shares of WorldCom Common Stock and cash,
as provided in Section 1.3(a)(ii) above, in either case subject to receipt
of cash in lieu of fractional shares as provided in Section 1.3(b) above.
In order to allow the transaction contemplated by this Agreement to
constitute a qualified stock purchase under Section 338 of the Code and not
a tax-free reorganization, by
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executing this Agreement Block Group hereby elects to receive both shares
of WorldCom Common Stock and cash, as provided in Section 1.3(a)(ii), and
agrees that such election shall be irrevocable.
(ii) H&R Block (as the common parent of the selling consolidated group
within the meaning of Section 338(h)(10) of the Code), WorldCom and
CompuServe shall jointly make timely and irrevocable elections under
Section 338(h)(10) of the Code (which elections shall be made with respect
to the CompuServe and each of the eligible CompuServe Entities requested by
WorldCom) and, if permissible, similar elections under any applicable
state, local or foreign income tax laws (jointly, the "Elections"). H&R
Block and WorldCom agree to report the transfer of the CompuServe Common
Shares (and the deemed sale of the shares of the affected CompuServe
Entities) under this Agreement consistent with such Election and agree not
to take any action that could cause such Election to be invalid, and shall
take no position contrary thereto unless required to do so pursuant to a
determination (as defined in Section 1313(a) of the Code or any similar
state, local or foreign tax provision).
(b) (i) To the extent possible, WorldCom, H&R Block, and CompuServe agree
to execute at the Closing any and all forms necessary to effectuate the Election
(including Internal Revenue Service Form 8023-A and any similar forms under
applicable state, local and foreign income tax laws (the "Section 338 Forms")).
In the event, however, any Section 338 Forms are not executed at the Closing,
WorldCom, H&R Block and CompuServe agree to prepare and complete each such
Section 338 Form no later than 10 Business Days prior to the date such Section
338 Form is required to be filed. H&R Block and WorldCom shall each cause the
Section 338 Forms to be duly executed by an authorized person for H&R Block and
WorldCom, in each case, and shall duly and timely file the Section 338 Forms in
accordance with applicable tax laws and the terms of this Agreement.
(ii) As soon as practicable after the Closing Date, WorldCom shall
deliver to H&R Block a written notice setting forth (with reasonable
specificity) WorldCom's good faith calculation of (1) the Modified
Aggregate Deemed Sales Price (as defined below) and the allocation thereof
among the assets of CompuServe and of the affected CompuServe Entities in
accordance with the principles of Treasury Regulation
sec.1.338(h)(10)-1(f)(1)(ii) and (2) the adjusted grossed-up basis of the
assets of CompuServe and of the assets of the affected CompuServe Entities
pursuant to Treasury Regulation sec.1.338(h)(10)-1(e)(5) (the "Deemed
Purchase Price") (collectively, "Buyer's Allocation"). Within 20 Business
Days after receipt thereof, H&R Block shall deliver to WorldCom written
notice indicating whether H&R Block agrees or disagrees with Buyer's
Allocation. If H&R Block agrees with Buyer's Allocation or if H&R Block
fails to deliver such written notice within such 20 Business Days, Buyer's
Allocation shall constitute the "Agreed Allocation." If H&R Block provides
timely written notice to WorldCom of any disagreement with Buyer's
Allocation, the Agreed Allocation shall be determined through the Tax
Settlement Procedure. Except as determined to the contrary by the
appropriate taxing authority upon an audit of its (or its Affiliates') Tax
Returns, each of H&R Block, CompuServe, the affected CompuServe Entities
and WorldCom shall file all Tax Returns consistent with the Agreed
Allocation. For purposes of this Section 9.1, the term "Modified Aggregate
Deemed Sales Price" shall mean the amount resulting from the Elections,
determined pursuant to Treasury Regulation sec.1.338(h)(10)-1(f) without
regard to items described in Treasury Regulation
sec.1.338(h)(10)-1(f)(4)(ii) (it being understood that H&R Block may take
such items into account in filing Tax Returns).
(c) For purposes of this Agreement, the "Tax Settlement Procedure" is as
follows:
Upon receipt by H&R Block or by WorldCom, as the case may be (the
"Calculating Party"), of notice from the other party (the "Disputing
Party") of disagreement with any Tax calculation or determination supplied
by the Calculating Party, the Calculating Party and the Disputing Party
shall begin good faith negotiations to resolve such disagreement. If the
Calculating Party and the Disputing Party are able to resolve such
disagreement within ten Business Days after the Calculating Party's receipt
of notice of disagreement (or any longer period mutually agreed to by the
parties), the relevant amount will become the amount agreed upon by the
Calculating Party and the Disputing Party. If the Calculating
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Party and the Disputing Party are unable to resolve any disagreement within
ten (10) Business Days after the Calculating Party's receipt of notice of
disagreement, the Calculating Party and the Disputing Party shall jointly
request the national office of Arthur Andersen LLP, or, if such firm is
unavailable, another independent nationally recognized auditing firm
selected by the parties (the "Tax Settlement Auditor") to resolve any issue
in dispute as soon as possible and shall cooperate with the Tax Settlement
Auditor to resolve such dispute. The Tax Settlement Auditor shall make a
determination with respect to all disputed issues, which determination
shall be set forth in a written report delivered to the Calculating Party
and the Disputing Party. The Calculating Party and the Disputing Party
shall each pay one-half of the fees and expenses of the Tax Settlement
Auditor with respect to such determination.
9.2 Tax Indemnification. (a) H&R Block and the H&R Block Entities (other
than CompuServe and the CompuServe Entities) jointly and severally shall be
responsible for, shall pay or cause to be paid, and shall indemnify and hold
harmless WorldCom and WAC and, after the Closing, CompuServe and the CompuServe
Entities (subject to the obligations of CompuServe and the CompuServe Entities
to make payments under Section 9.2(j)) and each of their respective
successors-in-interest from and against any and all Losses and Expenses for or
in respect of each of the following:
(i) Any and all Taxes with respect to any taxable period of CompuServe
or any of the CompuServe Entities (or any predecessor) ending on or before
the Closing Date (including any and all Taxes arising as a result of the
Elections), but excluding any transactions occurring after the Closing
(other than the Elections) which are not related to the Merger and the
other transactions contemplated by this Agreement ("Excluded
Transactions");
(ii) Any and all Taxes resulting from CompuServe or any of the
CompuServe Entities (or any predecessor) having been (or ceasing to be)
included in any affiliated, consolidated, combined or unitary Tax Return
that included CompuServe or any of the CompuServe Entities (or any
predecessor) for any taxable period (or portion thereof) ending on or
before the Closing Date (including any liability for Taxes resulting from
an acceleration of an "intercompany transaction" within the meaning of
Treasury Regulation sec.1.1502-13(d), any deferred income triggered by
Treasury Regulation sec.1.1502-14, and any excess loss accounts taken into
income under Treasury Regulation sec.1.1502-19 or any analogous or similar
provisions under state, local or foreign law or any predecessor provision
or regulation) that occurred on or before the Closing Date (but excluding
the Excluded Transactions);
(iii) Any and all Taxes of any member of an affiliated, consolidated,
combined or unitary group (other than CompuServe or any CompuServe Entity)
of which CompuServe or any CompuServe Entity (or any predecessor) is or was
a member on or prior to the Closing Date, by reason of the liability of
CompuServe or any CompuServe Entity (i) pursuant to Treasury Regulation
sec.1.1502-6(a) or any analogous or similar state, local or foreign law or
regulation, (ii) as a transferee or successor, or (iii) by contract or
otherwise (including under any Tax sharing, Tax indemnity, Tax allocation
or similar contracts (whether or not written) to which CompuServe or any of
the CompuServe Entities, any predecessor of CompuServe or any of the
CompuServe Entities, or any transferor to CompuServe or any of the
CompuServe Entities, is a party or is obligated thereunder;
(iv) Any and all Employment and Withholding Taxes with respect to all
periods prior to and as of the Closing Date;
(v) To the extent not previously paid, any and all real property Taxes
allocable to CompuServe or any CompuServe Entity (or any predecessor)
pursuant to Section 9.2(c) hereof (excluding real property Taxes resulting
from the Excluded Transactions and any increase in real property Taxes
arising from a revaluation of the property as a result of the sale of the
CompuServe Common Shares or the Elections);
(vi) Any and all Taxes allocable to H&R Block, CompuServe or any
CompuServe Entity pursuant to Section 9.2(c) hereof and not previously paid
thereunder; and
(vii) Any breach of any representation or warranty contained in
Section 3.10 or of any covenant of H&R Block or any other H&R Block Entity
contained in Section 9.2.
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(b) WorldCom agrees to indemnify and hold harmless H&R Block and the other
H&R Block Entities from and against (and H&R Block and the other H&R Block
Entities shall have no liability under Section 9.2(a) on account of) any and all
Losses and Expenses for or in respect of any and all Taxes of CompuServe or any
of the CompuServe Entities (or any predecessor) that are not described in
Section 9.2(a) (including Taxes resulting from an Excluded Transaction).
(c) H&R Block and WorldCom shall, to the extent permitted by applicable
law, elect with the relevant taxing authority to close the taxable period of
CompuServe and the CompuServe Entities on the Closing Date. In any case where
applicable law does not permit CompuServe or any CompuServe Entity to close its
taxable year on the Closing Date (and in the case of Taxes described in Section
9.2(a)(v)), Taxes attributable to the taxable period of CompuServe or any
CompuServe Entity beginning on or before and ending after the Closing Date shall
be allocated (i) to H&R Block for the period up to and including the Closing
Date (excluding any Excluded Transaction and any increase in real property Taxes
arising from a revaluation of the property as a result of the merger or the
Elections), and (ii) to WorldCom, CompuServe or any CompuServe Entity, as
appropriate, for the period subsequent to the Closing Date (including any
Excluded Transaction and any increase in real property Taxes arising from a
revaluation of the property as a result of the merger or the Elections). Any
allocation required to determine any Taxes attributable to any period beginning
on or before and ending after the Closing Date (including any Taxes resulting
from a Tax audit or administrative or court proceeding) shall be made by means
of a closing of the books and records of CompuServe and the CompuServe Entities
as of the close of business on the Closing Date, excluding any Excluded
Transaction, and, to the extent not susceptible to such allocation, by
apportionment on the basis of elapsed days, except that extraordinary items
described in Treasury Regulation sec.1.1502-76(b)(2)(ii)(C) shall be allocated
to the day that they are taken into account. Real property Taxes (excluding
those arising from any Excluded Transaction and any increase in such Taxes
arising from a revaluation of the property as a result of the merger or the
Elections) shall be allocated on the basis of elapsed days.
(d) (i) Promptly after receipt by WorldCom, WAC, CompuServe or any of the
CompuServe Entities of written notice of the assertion or commencement of any
claim, audit, examination, or other proposed change or adjustment by any taxing
authority concerning any Tax covered by Section 9.2(a) (each a "Tax Claim"),
WorldCom shall notify H&R Block. Such notice shall contain factual information
(to the extent known by WorldCom, CompuServe or any of the CompuServe Entities)
describing the asserted Tax Claim in reasonable detail and shall include copies
of any notice or other document received from any taxing authority in respect of
any such asserted Tax Claim. The failure of WorldCom to give H&R Block prompt
notice as provided herein shall not relieve H&R Block of any of its obligations
under Section 9.2, except and only to the extent that H&R Block is materially
prejudiced by such failure.
(ii) H&R Block shall promptly notify WorldCom of the commencement of any
claim, audit, examination or other proposed change or adjustment by any taxing
authority which could reasonably be expected to affect the liability of
CompuServe or any of the CompuServe Entities for Taxes. Such notice shall
contain factual information (to the extent known by H&R Block or any H&R Block
Entities) describing the asserted Tax Claim in reasonable detail and shall
include copies of any notice or other document received from any taxing
authority in respect of any such asserted Tax Claim. The failure of H&R Block to
give WorldCom prompt notice as provided herein shall not relieve WorldCom of any
of its obligations under Section 9.2, except and only to the extent that
WorldCom or any of the WorldCom Entities (including CompuServe and any of the
CompuServe Entities) is materially prejudiced by such failure.
(iii) H&R Block shall have the sole right to represent CompuServe's or any
of the CompuServe Entities' interests in any Tax audit or administrative or
court proceeding relating to any Tax covered by Section 9.2(a) and to employ
counsel of its choice, provided that if the results of such Tax audit or
proceeding could reasonably be expected to be material to WorldCom, CompuServe,
any of the CompuServe Entities or their Affiliates for any taxable period
including or ending after the Closing Date, then H&R Block and WorldCom shall
jointly control the defense and settlement of any such Tax audit or proceeding
and each party shall cooperate with the other party at its own expense and there
shall be no settlement or closing or other agreement with respect thereto
without the consent of the other party, which consent shall not be unreasonably
withheld; provided, however, for a Tax audit or proceeding with respect to any
Seller
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Consolidated and Combined Return, WorldCom shall only be entitled to participate
actively with respect to those issues as to which they have an interest and not
control jointly the settlement of the entire audit. H&R Block shall promptly
notify WorldCom if it decides not to control the defense or settlement of any
such Tax audit or administrative or court proceeding and WorldCom thereupon
shall be permitted to defend and settle such Tax audit or proceeding.
(e) (i) H&R Block shall properly prepare or cause to be properly prepared,
and shall timely file or cause to be timely filed, (x) all Tax Returns which
include CompuServe or any CompuServe Entities required to be filed on or before
the Closing Date, and (y) all Tax Returns which include CompuServe or any
CompuServe Entities or their assets or operations for all taxable periods of
CompuServe and of the CompuServe Entities ending on or before the Closing Date
(which Tax Returns shall include CompuServe and the CompuServe Entities and the
reportable items from the assets or operations of CompuServe and the CompuServe
Entities through and including the Closing Date). Such Tax Returns (insofar as
they relate to CompuServe or any of the CompuServe Entities) shall be prepared
in a manner consistent with past practices and prior audit adjustments and H&R
Block shall pay or cause to be paid all Taxes shown as due on such Tax Returns
or otherwise levied or assessed upon CompuServe or any of the CompuServe
Entities or any of their assets on or prior to the Closing Date. Insofar as they
relate to CompuServe and the CompuServe Entities, such Tax Returns shall be
provided to WorldCom for WorldCom's review and comment 20 Business Days prior to
filing, and WorldCom shall be entitled to suggest to H&R Block any reasonable
changes to such Tax Returns, which suggestions may be rejected by H&R Block in
its discretion. H&R Block shall, subsequent to the Closing Date, provide written
notice to WorldCom of its intent to file any amended Tax Return or claim for
refund with respect to any taxable period ending on or prior to the Closing Date
that could reasonably be expected to be material to WorldCom, CompuServe, any of
the CompuServe Entities, or their Affiliates for any taxable period including or
ending after the Closing Date, and H&R Block shall not make such filing without
the consent of WorldCom, which consent shall not be unreasonably withheld.
(ii) Except as set forth in clause (i) above, WorldCom shall be responsible
for the filing and payment (subject to WorldCom's right to indemnification to
the extent provided in Section 9.2(a)) of all other Tax Returns required to be
filed after the Closing Date by or on behalf of CompuServe and any of the
CompuServe Entities, or with respect to their assets and operations. WorldCom
shall, subsequent to the Closing Date, provide written notice to H&R Block of
its intent to file any amended Tax Return that could reasonably be expected to
be material to H&R Block, and WorldCom shall not make such filing without the
consent of H&R Block, which consent shall not be unreasonably withheld.
(iii) With respect to any Tax Return required to be filed by WorldCom for a
taxable period of CompuServe or any of the CompuServe Entities beginning on or
before the Closing Date and ending after the Closing Date, WorldCom shall
deliver, at least 30 Business Days prior to the due date for filing such Tax
Return (including extensions), to H&R Block a statement setting forth the amount
of Tax allocated to H&R Block pursuant to Section 9.2(c), (the "Tax Statement")
and copies of such Tax Returns, and WorldCom shall cause CompuServe and the
CompuServe Entities to pay all Taxes shown as due on such Tax Returns. H&R Block
shall have the right to review such Tax Return and the Tax Statement prior to
the filing of such Tax Return and to suggest to WorldCom any reasonable changes
to such Tax Returns. Any disagreement between the parties will be resolved
through the Tax Settlement Procedure. If the Tax Settlement Auditor is unable to
make a determination with respect to any disputed issue within five Business
Days prior to the due date (including extensions) for the filing of the Tax
Return in question, then WorldCom may file such Tax Return on the due date
(including extensions) therefor without such determination having been made and
without H&R Block's consent. Notwithstanding the filing of such Tax Return, the
Tax Settlement Auditor shall make a determination with respect to any disputed
issue, and the amount of Taxes that are allocated to H&R Block pursuant to
Section 9.2(c) or Section 9.2(a)(v), as the case may be, shall be as determined
by the Tax Settlement Auditor. The fees and expenses of the Tax Settlement
Auditor shall be paid one-half by WorldCom, on the one hand, and one-half by H&R
Block, on the other. Nothing in this Section 9.2(e)(iii) shall excuse H&R Block
from its indemnification obligations pursuant to Section 9.2 hereof if the
amount of Taxes as ultimately determined (on audit or otherwise), for the
periods covered by such Tax
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Returns and which are allocable to H&R Block pursuant to Section 9.2(c) or
Section 9.2(a)(v), as the case may be, exceeds the amount determined under this
Section 9.2(e)(iii).
(iv) H&R Block and WorldCom shall cooperate fully with each other and make
available to each other in a timely fashion such Tax data and other information
as may be reasonably required by H&R Block or WorldCom for the preparation and
timely filing of any Tax Returns required to be prepared and filed by H&R Block,
WorldCom, CompuServe or any CompuServe Entity hereunder (or by AOL as assignee
of the Online Services Business) or in connection with the preparation or filing
of any election, claim for refund, consent or certification.
(f) H&R Block and WorldCom shall provide to each other, and WorldCom shall
cause CompuServe and the CompuServe Entities to provide to H&R Block, full
access, at any reasonable time and from time to time, at the business location
at which the books and records are maintained, after the Closing Date, to such
Tax data of CompuServe and the CompuServe Entities as H&R Block or WorldCom, as
the case may be, may from time to time reasonably request and shall furnish, and
request the independent accountants and legal counsel of H&R Block, WorldCom,
CompuServe and the CompuServe Entities to furnish to H&R Block, WorldCom,
CompuServe and the CompuServe Entities as the case may be, such additional Tax
and other information and documents in the possession of such persons as H&R
Block, WorldCom, CompuServe and the CompuServe Entities may from time to time
reasonably request.
(g) Any claim for indemnity hereunder may be made at any time prior to 60
Business Days after the expiration of the applicable Tax statute of limitations
with respect to the relevant taxable period (including all extensions obtained,
whether automatic or permissive).
(h) The party seeking indemnification or other payment pursuant to this
Section 9.2 shall give the other party written notice of claim for
indemnification or payment, which notice shall include a calculation of the
amount of the requested indemnity or other payment and shall furnish to the
other party copies of all books, records and other information reasonably
requested by the other party to the extent necessary to substantiate such claim
and verify the amount thereof. If reasonably necessary in order to make or
substantiate a claim (or to determine if a claim should be made), each party
shall be permitted access to the other party's books, records and other
information in connection therewith. The party requested to make any indemnity
or other payment pursuant to this Section 9.2 shall deliver to the party
requesting payment, within 20 Business Days after receiving both the foregoing
notice and all books, records and other information reasonably requested by it,
a detailed statement describing its objections (if any) thereto. Any such
objections will be resolved through the Tax Settlement Procedure.
(i) H&R Block shall be responsible for, shall pay or cause to be paid, and
shall indemnify and hold harmless WorldCom, WAC, CompuServe, and the CompuServe
Entities, from and against any Losses and Expenses arising after the Closing
Date arising under any Tax sharing, Tax indemnity, Tax allocation or similar
contracts (whether or not written) to which CompuServe or any of the CompuServe
Entities, any predecessor of CompuServe or any of the CompuServe Entities, or
any transferor to CompuServe or any of the CompuServe Entities, is a party or is
obligated thereunder (other than the tax sharing agreement between H&R Block and
CompuServe dated April 22, 1996), in each case on or prior to the Closing Date.
None of WorldCom, WAC, CompuServe or any of the CompuServe Entities shall have
any liability pursuant to any such agreement after the Closing Date.
(j) All Tax sharing agreements between H&R Block and CompuServe shall be
terminated as of the Closing Date except for the Tax Sharing Agreement between
CompuServe and H&R Block dated April 22, 1996, as currently in effect, which
shall continue to apply as provided therein, except to the extent inconsistent
with the provisions of this Section 9.2, it being the intent of the parties that
CompuServe shall be entitled to all the benefits payable and shall be subject to
all the liabilities under that agreement (subject to adjustment as provided
therein) with respect to the taxable periods it was a member of the H&R Block
Group (as defined in that agreement); provided, however, any amounts due and
payable under that agreement shall be computed without taking into account the
Taxes resulting from the Elections (i.e., as though the Elections were not made)
to the extent such Tax liabilities are subject to indemnification under Section
9.2.
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9.3 Tax Related Adjustments. (a) H&R Block and WorldCom agree that any
indemnity payment made under this Agreement shall be treated by the parties on
their Tax Returns as an adjustment to the Exchange Ratio. If, notwithstanding
such treatment by the parties, any indemnity payment is determined to be taxable
to (i) H&R Block (other than as an adjustment to the Exchange Ratio) or (ii)
WorldCom, WAC, CompuServe or any CompuServe Entity, for federal income Tax
purposes by the IRS, the indemnifying party shall indemnify the indemnified
party for any additional federal income Taxes payable by the indemnified party
by reason of the receipt or accrual of such indemnity payment (including any
payments under this Section 9.3).
(b) An indemnity payment otherwise due and payable hereunder shall be
decreased (but not below zero) to the extent of any net actual reduction in
federal income Tax liability that is actually realized by the indemnified party
at the time of its payment of an indemnifiable loss.
(c) WorldCom shall pay to H&R Block, any refund of any Tax for which H&R
Block is responsible under Section 9.2(a) other than as a result of a carryback
of any credit or deduction from a taxable year ending after the Closing Date.
WorldCom shall pay to H&R Block such refund (including interest received
thereon) (reduced by any actual Tax increase or actual Tax detriment to
WorldCom, WAC, CompuServe or any of the CompuServe Entities as a result of the
receipt thereof, but increased by any actual Tax benefit resulting from such
payment) promptly upon receipt thereof by the recipient thereof. WorldCom shall,
if H&R Block requests, cause the relevant entity to file for and obtain any
refunds or equivalent amounts to which H&R Block is entitled under this Section
9.3(c), and WorldCom shall permit H&R Block to principally control the
prosecution of any such refund claim, provided, however, that WorldCom must
consent to any such refund claim, which consent may not be unreasonably
withheld, and that any such refund claim shall be at the sole expense of the H&R
Block.
9.4 Transfer Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) ("Transfer Taxes") incurred in connection with the effectuation of the
Merger and all transactions pursuant to this Agreement (including the Elections)
shall be shared equally by H&R Block and WorldCom. Any Tax Returns that must be
filed in connection with Transfer Taxes shall be prepared by H&R Block. At least
20 Business Days prior to the date such Tax Returns are to be filed, H&R Block
shall provide copies of any such Tax Returns to WorldCom for WorldCom's review.
Any dispute as to the amount of such Taxes shall be resolved in accordance with
the Tax Settlement Procedure. H&R Block and WorldCom shall cooperate in the
timely completion and filing of all such Tax Returns.
ARTICLE X
CONDITIONS TO CLOSING
10.1 Mutual Conditions. The respective obligations of each party to
consummate the Merger shall be subject to the satisfaction, at or prior to the
Closing, of the following conditions:
(a) The holders of the requisite number of CompuServe Common Shares
shall have duly and validly approved and adopted this Agreement;
(b) Any mandatory waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act, any foreign
competition law or similar law shall have expired or been terminated;
(c) No Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, injunction or other
order, whether temporary, preliminary or permanent, which is in effect and
which has or would have the effect of making the transactions contemplated
by this Agreement illegal or restraining or prohibiting consummation of
such transactions;
(d) The Registration Statement shall have been declared effective, no
stop order with respect to the Registration Statement shall be in effect,
and no proceeding for that purpose shall have been instituted or threatened
by the SEC;
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(e) The WorldCom Common Shares to be issued in connection with the
Merger shall have been approved for quotation on NASDAQ, subject to
official notice of issuance; and
(f) There shall not have occurred and be continuing any general
banking moratorium in the United States or any general suspension of
trading of securities on any national stock exchange or in the over-the-
counter market.
10.2 Conditions to Obligations of WorldCom and WAC. The obligations of
WorldCom and WAC to consummate the Merger shall be subject to the satisfaction,
at or prior to the Closing, of the following conditions (any of which may be
waived prior to the Closing by WorldCom):
(a) The representations and warranties of H&R Block, Block Group and
CompuServe set forth in this Agreement that are qualified by Material
Adverse Effect or otherwise as to materiality shall be true and correct,
and those that are not so qualified shall be true and correct except for
failures to be true and correct as would not have a Material Adverse Effect
on CompuServe, as of the date of this Agreement and as of the Closing as
though made at and as of the Closing, except to the extent that such
representations and warranties expressly relate to a specific earlier date
(in which case such representations and warranties that are qualified by a
Material Adverse Effect shall be true and correct, and those that are not
so qualified shall be true and correct except for failures to be true and
correct as would not, individually or in the aggregate, have a Material
Adverse Effect on CompuServe, on and as of such earlier date). None of the
representations or warranties regarding CompuServe or any of the CompuServe
Entities contained in Article III, disregarding any qualifications
regarding materiality (including any reference to Material, Material
Adverse Change or Material Adverse Effect), shall be untrue or incorrect,
except for such untrue or incorrect representations or warranties that,
when taken together as a whole, do not constitute a Material Adverse
Effect.
(b) Neither CompuServe nor any CompuServe Entity shall have suffered a
Material Adverse Change from the date of the CompuServe Balance Sheet to
the Closing Date.
(c) Each of the covenants and agreements of H&R Block, CompuServe and
Block Group to be performed or observed at or prior to the Closing Date
pursuant to the terms hereof shall have been duly performed or observed
except where such failure would not have a Material Adverse Effect on
CompuServe or would not materially impair the ability of H&R Block, Block
Group or CompuServe to consummate the Merger and the other transactions
contemplated hereby.
(d) WorldCom shall have been furnished with certificates, executed by
duly authorized officers of H&R Block, CompuServe and Block Group, as the
case may be, dated the Closing Date, certifying as to the fulfillment of
the conditions set forth in the immediately preceding clauses (a) and (c)
and Section 10.1(a), which certificates shall constitute a restatement of
each such party's representations and warranties as of the Closing Date,
except to the extent a representation or warranty is specifically limited
to a particular date.
(e) WorldCom shall have received opinions of counsel to H&R Block,
Block Group and CompuServe, dated as of the Closing Date, in form and
substance reasonably satisfactory to WorldCom, covering the matters set
forth in Exhibit E.
(f) No Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, injunction or other
order, whether temporary, preliminary or permanent, which is in effect
which would impose Material restrictions on the conduct of WorldCom's
business or CompuServe's business following consummation of the Merger.
(g) WorldCom shall have received the opinion of counsel to WorldCom,
dated as of the Closing Date, in form and substance reasonably satisfactory
to WorldCom, covering the Tax matters set forth in Exhibit F.
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(h) Each of H&R Block and Block Group shall have executed and
delivered to WorldCom an Affiliate Letter in the form attached hereto as
Exhibit C executed by an authorized officer of each of H&R Block and Block
Group.
(i) The Standstill Agreement shall have been duly and validly executed
and delivered by each of H&R Block and Block Group to WorldCom and shall be
a valid and binding obligation of each of H&R Block and Block Group
enforceable against H&R Block and Block Group in accordance with its terms.
(j) The Noncompete/Nonsolicitation Agreement in the form attached as
Exhibit D shall have been duly and validly executed and delivered by each
of H&R Block and Block Group to WorldCom and shall be a valid and binding
obligation of each of H&R Block and Block Group enforceable against H&R
Block and Block Group in accordance with its terms.
(k) The conditions to closing set forth in Section 7.1(a) (in the form
existing as of the date of this Agreement) of the Purchase and Sale
Agreement, dated as of the date of this Agreement, by and among WorldCom,
AOL and ANS shall have been satisfied or waived by the applicable party.
10.3 Conditions to Obligations of H&R Block, Block Group and
CompuServe. The obligations of H&R Block, Block Group and CompuServe to
consummate the Merger shall be subject to the satisfaction, at or prior to the
Closing, of the following conditions (any of which may be waived prior to the
Closing by H&R Block, Block Group or CompuServe):
(a) The representations and warranties of WorldCom and WAC set forth
in this Agreement that are qualified by Material Adverse Effect or
otherwise as to materiality shall be true and correct, and those that are
not so qualified shall be true and correct except for failures to be true
and correct as would not have a Material Adverse Effect on WorldCom as of
the date of this Agreement and as of the Closing as though made at and as
of the Closing, except to the extent that such representations and
warranties expressly relate to a specific earlier date (in which case such
representations and warranties that are qualified by a Material Adverse
Effect shall be true and correct, and those that are not so qualified shall
be true and correct except for failures to be true and correct as would
not, individually or in the aggregate, have a Material Adverse Effect on
WorldCom, on and as of such earlier date).
(b) Each of the covenants and agreements of WorldCom and WAC to be
performed or observed at or prior to the Closing Date pursuant to the terms
hereof shall have been duly performed or observed except where such failure
would not have a Material Adverse Effect on WorldCom or WAC or would not
materially impair the ability of WorldCom or WAC to consummate the Merger
and the other transactions contemplated hereby.
(c) Each of CompuServe, Block Group and H&R Block shall have been
furnished with a certificate, executed by a duly authorized officer of
WorldCom, dated the Closing Date, certifying as to the fulfillment of the
conditions set forth in the immediately preceding clauses (a) and (b),
which certificate shall constitute a restatement of WorldCom's and WAC's
representations and warranties as of the Closing Date, except to the extent
a representation or warranty is specifically limited to a particular date.
(d) Each of CompuServe, Block Group and H&R Block shall have received
opinions of counsel to WorldCom, dated as of the Closing Date, in form and
substance reasonably satisfactory to H&R Block, Block Group and CompuServe,
covering the matters set forth in Exhibit G.
(e) Each of Block Group and H&R Block shall have received the opinion
of counsel of Block Group and H&R Block, dated as of the Closing Date,
covering the Tax matters set forth in Exhibit H.
(f) The Registration Rights Letter in the form attached as Exhibit I
shall have been duly and validly executed and delivered by WorldCom to
Block Group and shall be a valid and binding obligation of WorldCom
enforceable against it in accordance with its terms.
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ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing, whether before or after adoption and approval of the CompuServe
Proposal by the holders of CompuServe Common Shares:
(a) By mutual written consent of WorldCom, H&R Block, Block Group and
CompuServe;
(b) by any of WorldCom, H&R Block, Block Group or CompuServe if the
Closing shall not have occurred on or before March 1, 1998, unless the
failure to do so is the result of a breach of this Agreement by the party
seeking to terminate this Agreement (for which purposes CompuServe shall be
deemed to include H&R Block and Block Group, if CompuServe is seeking to
terminate this Agreement, and each of H&R Block and Block Group shall be
deemed to include CompuServe and each other, if either H&R Block or Block
Group is seeking to terminate this Agreement);
(c) by WorldCom, if there occurs a breach by H&R Block, Block Group or
CompuServe under Section 8.14;
(d) by WorldCom, in the event of a breach by H&R Block, Block Group or
CompuServe of any representation, warranty, covenant or other agreement
contained in this Agreement which (i) would result in the failure of a
condition set forth Section 10.2 and (ii) cannot be or has not been cured
by March 1, 1998 (a "H&R Block Material Breach" or a "CompuServe Material
Breach," as the case may be), provided that there is not then a WorldCom
Material Breach (as hereinafter defined);
(e) by H&R Block, Block Group or CompuServe, in the event of a breach
by WorldCom of any representation, warranty, covenant or other agreement
contained in this Agreement which (i) would result in the failure of a
condition set forth in Section 10.3 and (ii) cannot be or has not been
cured by March 1, 1998 (a "WorldCom Material Breach"), provided that there
is not then a CompuServe Material Breach or H&R Block Material Breach;
(f) by WorldCom if (i) the Board of Directors of CompuServe or any
committee thereof shall have withdrawn or modified in a manner adverse to
WorldCom its approval or recommendation of the CompuServe Proposal, or
failed to reconfirm its recommendation within fifteen business days after a
written request to do so, or approved or recommended any Competitive
Proposal or (ii) the Board of Directors of CompuServe or any committee
thereof shall have resolved to take any of the foregoing actions;
(g) by CompuServe, if the Average Trading Price of a WorldCom Common
Share is less than $24.00.
11.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 11.1, this Agreement shall forthwith become void and be
of no further legal effect, without any liability or obligation on the part of
any party, other than the provisions of this Section 11.2 and Sections 8.4, 8.9,
11.5, 12.2, 12.3, 12.4, 12.5, 12.6, 12.7, 12.8, 12.10 and 12.11 and except that
nothing herein shall relieve any party from liability for any breach by a party
of any of its representations, warranties, covenants or agreements set forth in
this Agreement. In the event of any termination of this Agreement, the
Confidentiality Agreement shall also remain in full force and effect in
accordance with its terms.
11.3 Amendment. This Agreement may be amended by the parties at any time
before or after the approval and adoption of this Agreement by the holders of
CompuServe Common Shares; provided, however, that any such amendment shall be
consistent with the DGCL, the DLLCA and the MGBCL. This Agreement may not be
amended except by an instrument in writing signed on behalf of the party to be
charged by its duly authorized officer.
11.4 Waiver. Subject to the applicable provisions of the DGCL, the DLLCA
and the MGBCL, the parties hereto may waive any provision of this Agreement by a
writing signed by the party against whom the waiver is to be effective by a duly
authorized officer. No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof
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preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights herein provided shall be cumulative.
11.5 Expenses. (a) All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses, except that at the Closing, H&R Block shall
pay or reimburse all costs and expenses in excess of $2,200,000 in the aggregate
incurred by it and by CompuServe and any CompuServe Entity (including the fees,
commissions and expenses of all investment bankers, financial advisors, legal
advisors, consultants and accountants) in connection with this Agreement and the
transactions contemplated hereby and in connection with any and all discussions,
negotiations and other activities concerning any previously contemplated
possible transaction with any other Person. Notwithstanding the foregoing, if
this Agreement is terminated (i) by WorldCom, H&R Block, Block Group or
CompuServe pursuant to Section 11.1(b) after the failure of the holders of
CompuServe Common Shares to approve and adopt the CompuServe Proposal at the
CompuServe Stockholders Meeting, or (ii) by WorldCom pursuant to Section 11.1(c)
or, as a result of a willful or knowing breach, Section 11.1(d), (iii) by
WorldCom pursuant to Section 11.1(f), or (iv) by H&R Block, Block Group or
CompuServe pursuant to Section 11.1(e) as a result of a willful or knowing
breach, then in the case of clause (i), (ii) or (iii) H&R Block, Block Group and
CompuServe shall be obligated, jointly and severally, to pay, and shall
forthwith pay, to WorldCom the amount of $15,000,000 or in the case of clause
(iv), WorldCom shall be obligated to pay, and shall forthwith pay, to H&R Block,
Block Group and CompuServe the aggregate amount of $15,000,000, in each case in
immediately available funds. Further, if this Agreement is terminated pursuant
to Section 11.1(b); (A) by WorldCom and the condition set forth in Section
10.2(k) has not been satisfied or waived prior to the date of termination and no
other conditions to the parties' obligations to consummate the Merger, other
than conditions within the control of WorldCom, remain unsatisfied, or (B) by
H&R Block, Block Group or CompuServe on or after June 1, 1998, and prior thereto
the condition set forth in Section 10.2(k) has not been satisfied or waived,
WorldCom shall be obligated to pay, and shall forthwith pay, to CompuServe the
aggregate amount of $45,000,000 in immediately available funds. The parties
acknowledge and agree that any of the foregoing payments would be a
non-accountable reimbursement of certain direct and indirect expenses, costs and
lost opportunities of, consequences to and forbearances of the other party or
parties relating to discussions and negotiations regarding, and the preparation,
execution and partial performance of, this Agreement and the transactions
contemplated hereby, which amounts H&R Block, Block Group, CompuServe and
WorldCom agree is reasonable in the circumstances; provided, however, that
nothing in this Section 11.5 shall be deemed to be exclusive of any other rights
any party may have hereunder or at law or in equity for any willful or knowing
Material breach that occurred prior to the termination of this Agreement,
provided that any damages to which a party receiving a payment pursuant to this
paragraph is entitled shall be offset by such payments.
(b) H&R Block, Block Group, CompuServe and WorldCom acknowledge that the
provisions for the allocation of expenses in Section 11.5 are integral parts of
the transactions contemplated by this Agreement and that, without these
provisions, they would not have entered into this Agreement. Accordingly, if an
expense reimbursement or fee shall become due and payable by either party, and
such party shall fail to pay such expense or fee when due pursuant to Section
11.5, and, in order to obtain such payment, suit is commenced which results in a
judgment against such party therefor, such party shall pay the other party's
reasonable costs, fees and expenses (including reasonable attorneys' fees) in
connection with such suit, together with interest computed on any such amounts
determined to be due pursuant to Section 11.5 (computed from the date upon which
such amounts were due and payable pursuant to Section 11.5 on the basis of the
number of days elapsed) and such costs (computed from the date incurred) at the
prime or base rate of interest publicly announced from time to time by
NationsBank of Texas, N.A. for its most favored borrowers.
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ARTICLE XII
MISCELLANEOUS
12.1 Representations and Warranties; Survival. The representations,
warranties, covenants and agreements in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Closing, subject to the
applicable time periods, if any, specified herein.
12.2 Notices. Any notices or other communications required or desired to
be given hereunder shall be deemed to have been properly given if sent by hand
delivery, facsimile and overnight courier, registered or certified mail, return
receipt requested, postage prepaid, to the parties hereto at the following
addresses, or at such other address as such party may advise the others in
writing from time to time by like notice:
If to WorldCom or WAC:
WorldCom, Inc.
515 East Amite Street
Jackson, Mississippi 39201
Attention: Charles T. Cannada
Facsimile: (601) 360-8615
with copies to:
WorldCom, Inc.
10777 Sunset Office Drive
Suite 330
St. Louis, Missouri 63127
Attention: P. Bruce Borghardt
Facsimile: (314) 909-4101
and
Bryan Cave LLP
One Metropolitan Square, Suite 3600
St. Louis, Missouri 63102-2750
Attention: R. Randall Wang
Facsimile: (314) 259-2020
If to H&R Block, Block Group or (prior to the Closing) CompuServe:
H&R Block, Inc.
World Headquarters
4400 Main Street
Kansas City, MO 64111
Attention: Frank L. Salizzoni
Facsimile: (816) 753-8628
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with a copy to:
H&R Block, Inc.
World Headquarters
4400 Main Street
Kansas City, MO 64111
Attention: James Ingraham
Facsimile: (816) 753-8628
and
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Benjamin F. Stapleton
Facsimile: (212) 558-3588
All such notices or other communications shall be deemed to have been duly given
on the date of hand delivery or telecopy or facsimile, if receipt is confirmed,
or on the next Business Day following timely deposit of such communications with
overnight courier or on the third Business Day following the date of mailing, if
delivered by registered or certified mail.
12.3 Governing Law and Dispute Resolution. This Agreement shall be
interpreted, construed and enforced in accordance with the law of the State of
Delaware, applied without giving effect to any conflicts-of-law principles,
except to the extent that Missouri law is applicable to the internal affairs of
H&R Block or Georgia law is applicable to the internal affairs of WorldCom. Any
dispute relating to this Agreement or the transactions contemplated hereby shall
be resolved in the state courts of general jurisdiction, or the Chancery Court
if it has subject matter jurisdiction, of the State of Delaware or in the United
States District Court for the District of Delaware. Each party irrevocably
submits to such courts' exclusive jurisdiction and acknowledges that such courts
are a convenient forum and consents to service of process at the address for
such party set forth in Section 12.2.
12.4 Specific Performance. Each party acknowledges and agrees that, in the
event of an actual or threatened breach of any of the provisions of this
Agreement by such party, the harm to the others will be immediate, substantial
and irreparable and that monetary damages will be inadequate. Accordingly, each
party agrees that, in such an event, the others will be entitled to equitable
relief, including an injunction and an order of specific performance, in
addition to any and all other remedies at law or in equity.
12.5 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement or the application thereof to any Person or any
circumstance is invalid or unenforceable, (a) a suitable and equitable provision
shall be substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (b) the remainder of this Agreement and the application of such provision to
other persons, entities or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
12.6 Captions. The captions or headings in this Agreement are made for
convenience and general reference only and shall not be construed to describe,
define or limit the scope or intent of the provisions of this Agreement.
12.7 Entire Agreement. This Agreement, including all exhibits and
schedules attached hereto, contains the entire agreement of the parties and
supersedes any and all prior or contemporaneous agreements, written or oral,
between the parties with respect to the subject matter hereof, except the
Confidentiality Agreement.
12.8 Counterparts. This Agreement may be executed in several counterparts,
each of which, when so executed, shall be deemed to be an original, and such
counterparts shall, together, constitute and be one and the same instrument.
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12.9 Binding Effect; Assignability. This Agreement shall be binding on,
and shall inure to the benefit of, the parties hereto, and their respective
successors and assigns. Other than the provisions of Sections 8.4, 8.17, 9.2 and
12.10, which provisions are intended to be for the benefit of, and shall be
enforceable by, the specified indemnified parties (in the case of Sections 8.4,
9.2 and 12.10), or the CompuServe Employees (in the case of Section 8.17) and
may be enforced by such beneficiaries, nothing contained in this Agreement or in
any instrument or document executed by any party in connection with the
transactions contemplated hereby shall create any rights in, or be deemed to
have been executed for the benefit of, any Person that is not a party hereto or
thereto, or a successor or permitted assign of such party. No party may assign
or delegate any right or obligation hereunder without the prior written consent
of the other parties; provided, however, that WorldCom, WAC and, after the
Closing, CompuServe and the CompuServe Entities may assign any or all of their
rights and delegate any or all of their obligations under Sections 2.1, 2.3 8.16
(the last sentence only), 8.17 and 8.18 (the last sentence only) hereof;
provided, however, that, notwithstanding the foregoing, WorldCom shall remain
primarily liable for its obligations hereunder. Any assignment of rights or
delegation of obligations not in compliance herewith shall be null and void.
12.10 Director and Officer Indemnification. From and after the Effective
Time, WorldCom and the Surviving Corporation shall, jointly and severally,
indemnify, defend and hold harmless the directors and officers of CompuServe as
and to the extent provided in CompuServe's Certificate of Incorporation, By Laws
or indemnification agreements, as in effect as of the date hereof, with respect
to matters occurring through the Closing Date, provided that this Section 12.10
shall not relieve H&R Block or Block Group of their obligations under Section
8.4 hereof. To the extent reasonably available, WorldCom agrees to cause the
Surviving Corporation to maintain in effect for not less than three years after
the Closing Date policies of directors' and officers' liability insurance
comparable to those maintained by CompuServe with carriers comparable to
CompuServe's existing carriers; provided, however, that the Surviving
Corporation shall not be required to pay an annual premium for such insurance in
excess of 150% of the last annual premium paid prior to the date hereof, but in
such case shall purchase as much coverage as possible for such amount.
12.11 No Rule of Construction. The parties acknowledge that all parties
have read and negotiated the language used in this Agreement. The parties agree
that, because all parties participated in negotiating and drafting this
Agreement, no rule of construction shall apply to this Agreement which construes
ambiguous language in favor of or against any party by reason of that party's
role in drafting this Agreement.
12.12 Schedules. The Schedules in this Agreement shall be arranged in
separate parts corresponding to the numbered and lettered sections, and the
disclosure in any numbered or lettered part shall be deemed to relate to and to
qualify only the particular representation or warranty set forth in the
corresponding numbered or lettered section, and not any other representation or
warranty (unless an express and specific reference to any other Schedule which
clearly identifies the particular item being referred is set forth therein).
ARTICLE XIII
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
indicated below:
"Acquiring Person" has the meaning set forth in Section 3.16.
"Affiliate" means, with respect to any Person, at the time in question, any
other Person controlling, controlled by or under common control with such
Person. For purposes of this definition, "control" (including the terms
"controlling," "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities or otherwise.
"Agreed Allocation" has the meaning set forth in Section 9.1(b)(ii).
"Agreement" has the meaning set forth in the first paragraph of this
Agreement and Plan of Merger.
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"ANS" means ANS Communications, Inc., a Delaware corporation and wholly
owned subsidiary of AOL.
"AOL" means America Online, Inc., a Delaware corporation.
"Average Trading Price" means the average of the daily closing prices per
WorldCom Common Share, as quoted by NASDAQ as reported in The Wall Street
Journal, Eastern Edition, or if not reported thereby, The New York Times, for
the twenty consecutive full NASDAQ trading days ending on the date immediately
prior to the third full NASDAQ trading day immediately preceding the Closing
Date.
"Block Group" has the meaning set forth in the first paragraph of this
Agreement.
"H&R Block" has the meaning set forth in the first paragraph of this
Agreement.
"H&R Block Entity" or "H&R Block Entities" means any corporation, limited
liability company, partnership, limited partnership or other organization
whether incorporated or unincorporated, other than CompuServe or a CompuServe
Entity, (i) of which at least a majority of the securities or interests having
by the terms thereof ordinary voting power to elect at least a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by H&R Block and/or by any one or more of the H&R Block Entities, (ii) of which
H&R Block or any one or more of the H&R Block Entities is the general partner or
managing member or (iii) which H&R Block or any one or more of the H&R Block
Entities otherwise controls.
"Business Day" means a day other than a Saturday, Sunday or a day on which
the banks in New York City are authorized or obligated by law or executive order
to close.
"Buyer's Allocation" has the meaning set forth in Section 9.1(b)(ii).
"Calculating Party" has the meaning set forth in Section 9.1(c).
"Certificate of Merger" has the meaning set forth in Section 1.1.
"Certificates" has the meaning set forth in Section 1.4.
"Closing" has the meaning set forth in Section 1.2.
"Closing Date" has the meaning set forth in Section 1.2.
"Code" means the Internal Revenue Code of 1986, as amended (including any
successor statute), and the rules and regulations promulgated thereunder.
"Competitive Proposal" has the meaning set forth in Section 8.14(a)(i).
"Confidentiality Agreement" has the meaning set forth in Section 8.9.
"CompuServe" has the meaning set forth in the first paragraph of this
Agreement.
"CompuServe Balance Sheet" has the meaning set forth in Section 3.5.
"CompuServe Benefit Plans" has the meaning set forth in Section 3.11(a).
"CompuServe Common Shares" means the shares of CompuServe Common Stock.
"CompuServe Common Stock" means the common stock, $.01 par value per share,
of CompuServe.
"CompuServe Employees" has the meaning set forth in Section 8.17(a).
"CompuServe Entity" or "CompuServe Entities" means any corporation, limited
liability company, partnership, limited partnership or other organization
whether incorporated or unincorporated (i) of which at least a majority of the
securities or interests having by the terms thereof ordinary voting power to
elect at least a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by CompuServe and/or by any one or more of the
CompuServe Entities, (ii) of which CompuServe or any one or more of the
CompuServe Entities is the
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general partner or managing member or (iii) which CompuServe or any one or more
of the CompuServe Entities otherwise controls.
"CompuServe Material Breach" has the meaning set forth in Section 11.1(d).
"CompuServe Proposal" has the meaning set forth in Section 8.6(a).
"CompuServe Proxy Statement" has the meaning set forth in Section 8.7.
"CompuServe Rights" has the meaning set forth in Section 3.13.
"CompuServe Rights Agreement" means that certain Rights Agreement dated as
of April 19, 1996, as amended on September 7, 1997, between CompuServe and
Harris Trust and Savings Bank.
"CompuServe SEC Documents" has the meaning set forth in Section 3.5.
"CompuServe Stock Options" has the meaning set forth in Section 3.2.
"CompuServe Stock Plans" has the meaning set forth in Section 3.2.
"CompuServe Stockholders Meeting" has the meaning set forth in Section 8.6.
"CompuServe Stock Option Payments" has the meaning set forth in Section
8.26.
"CompuServe Stock Options" has the meaning set forth in Section 3.2.
"CompuServe Stock Plans" has the meaning set forth in Section 3.2.
"Deemed Purchase Price" has the meaning set forth in Section 9.1(b)(ii).
"DGCL" means the Delaware General Corporation Law.
"DLLCA" means the Delaware Limited Liability Company Act.
"Disputing Party" has the meaning set forth in Section 9.1(c).
"Distribution Date" has the meaning set forth in Section 3.16.
"Effective Time" shall have the meaning set forth in Section 1.2.
"Elections" has the meaning set forth in Section 9.1(a)(ii).
"Employment and Withholding Taxes" means all employment, payroll and
withholding Taxes payable with respect to salaries, wages, commissions, other
compensation or other payments actually or constructively made by CompuServe or
any CompuServe Entity on or before the Closing Date, except to the extent such
Taxes have been withheld on or prior to the Closing Date and are required to be
paid to the appropriate taxing authority after the Closing Date.
"Environmental Laws" means any federal, state or local, domestic or foreign
statute, regulation, rule or ordinance, and any judicial or administrative
interpretation thereof, regulating the use, generation, handling, storage,
transportation, discharge, emission, spillage or other release of Hazardous
Substances or relating to the protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Exchange Agent" has the meaning set forth in Section 1.5(a).
"Exchange Ratio" has the meaning set forth in Section 1.3(a)(i).
"Excluded Transactions" has the meaning set forth in Section 9.2(a)(i).
"GAAP" means United States generally accepted accounting principles and its
foreign equivalents.
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"Governmental Authorization" means any (a) permit, license, certificate,
franchise, permission, clearance, registration, qualification or authorization
issued, granted, given or otherwise made available by or under the authority of
any Governmental Entity or pursuant to any legal requirement; or (b) right under
any contract with any Governmental Entity.
"Government Contracts" has the meaning set forth in Section 3.8(e).
"Governmental Entity" means any federal, state or local government or any
court, administrative or regulatory agency, body or commission or other
government authority or agency, domestic or foreign.
"H&R Block Indemnified Parties" has the meaning set forth in Section
8.4(a).
"H&R Block Material Breach" has the meaning set forth in Section 11.1(d).
"H&R Block Rights Agreement" means that certain Rights Agreement dated as
of July 14, 1988, as amended on May 9, 1990, September 11, 1991 and May 10,
1995, between H&R Block and Boatmen's Trust Company.
"Hazardous Substances" means any hazardous substances as defined by 42
U.S.C. sec.9601(14), any pollutant or contaminant as defined by 42 U.S.C.
sec.9601(33) or any toxic substance, oil or hazardous materials or other
chemicals or substances regulated by any Environmental Laws which the applicable
party or any predecessor in interest has generated, transported or disposed of
or has been found at any property owned or operated by such party.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and regulations promulgated thereunder.
"including" means, when following any general statement, term or matter,
"including but not limited to," "including, without limitation," or words of
similar import and shall not be construed to limit such statement, term or
matter to the specific terms or matters as provided immediately following the
word "including" or to similar items or matters, whether or not non-limiting
language is used with reference to the word "including" or similar items or
matters, but rather shall be deemed to refer to all other items or matters that
could reasonably fall within the broadest possible scope of the general
statement, term or matter.
"Indemnified Party" or "Indemnified Parties" has the meaning set forth in
Section 8.4(d).
"Indemnifying Party" has the meaning set forth in Section 8.4(d).
"Indemnitee" has the meaning set forth in Section 8.4(e)(iii).
"Indemnitor" has the meaning set forth in Section 8.4(e)(iii).
"International Distribution Agreements" has the meaning set forth in
Section 3.8(c).
"IRS" means the Internal Revenue Service of the United States of America.
"knowledge" means, with respect to H&R Block, Block Group, CompuServe or
WorldCom, the actual knowledge of, or knowledge which could reasonably be
obtained through reasonably diligent investigation or inquiry by, any director
or executive officer of the applicable entity, as the case may be, and, in the
case of CompuServe, shall also include the actual knowledge of, or knowledge
which could reasonably be obtained through reasonably diligent investigation or
inquiry by, H&R Block's Chief Executive Officer, Chief Financial Officer and
Vice President, Legal, Block Group's Chief Executive Officer, Chief Financial
Officer and Secretary, and CompuServe's General Counsel and his predecessor, and
the following additional CompuServe and CompuServe Entity officers and
employees: any persons principally responsible for the finance and accounting
function and operations of the Online Services Business of CompuServe and the
CompuServe Entities, the European Online Services Business of CompuServe and the
CompuServe Entities and the network services business of CompuServe and the
CompuServe Entities, and the officers of each CompuServe Entity.
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"Liens or Other Encumbrance" means any lien, pledge, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any shareholder or other agreement or
encumbrance or any other rights of third parties.
"Losses and Expenses" means any and all damages, debts, liabilities,
obligations, losses, deficiencies, demands, claims, penalties, assessments,
judgments, fees, actions, proceedings, orders and suits of whatever kind and
nature, and regardless of whether or not related to a Third-Party Claim, a
direct claim or otherwise, and all costs and expenses related thereto (including
reasonable attorney's fees and disbursements).
"Material" means, when used in connection with any party hereto, material
with respect to the business, operations, properties, assets, liabilities,
condition (financial or otherwise) or prospects of such party, and its related
Entities, taken as a whole.
"Material Adverse Change" means, when used in connection with any party
hereto, any change which is materially adverse to the business, operations,
properties, assets, liabilities or condition (financial or otherwise) of such
party, and its related Entities, taken as a whole.
"Material Adverse Effect" means, when used in connection with any party
hereto, any effect that has a material adverse impact on the business,
operations, properties, assets, liabilities or condition (financial or
otherwise) of such party, and its related Entities, taken as a whole.
"Merger" has the meaning set forth in Section 1.1.
"Merger Consideration" has the meaning set forth in Section 1.3(a)(i).
"MGBCL" means the Missouri General Business and Corporation Law.
"Modified Aggregate Deemed Sales Price" has the meaning set forth in
Section 9.1(b)(ii).
"Network Services Agreements" has the meaning set forth in Section 3.8(d).
"NASDAQ" means the Nasdaq National Market.
"Noncompete/Nonsolicitation Agreement" has the meaning set forth in Section
8.20.
"Online Services Business" means electronic information services providing
access for computer users to "proprietary" content, services, entertainment
and/or other information, to "open" services such as the Internet, the World
Wide Web and/or a combination of the foregoing, including organization-specific
LANs, WANs and Intranets, regardless of means of delivery or transport media.
"Person" means and includes any natural person, corporation, limited
liability company, partnership, limited partnership, firm, joint venture,
association, joint-stock company, trust, business trust, unincorporated
organization, Governmental Entity or other entity.
"Proxy Statement" has the meaning set forth in Section 8.7.
"Purchase and Sale Agreement" has the meaning set forth in Section 10.2(k).
"Registration Statement" has the meaning set forth in Section 8.7.
"Related Party" means, with respect to any party, any of such party's or
its parent's or subsidiaries' directors, officers, 50% or greater shareholders,
employees or, except with respect to such party's primary relationship with such
other Person, a consultant or agent.
"Rights" has the meaning set forth in Section 3.16.
"Rule 145 Affiliate" has the meaning set forth in Section 8.19.
"Schedule 8.17 Agreements" has the meaning set forth in Section 8.17(a).
"SEC" means the Securities and Exchange Commission.
"Section 338 Forms" has the meaning set forth in Section 9.1(b)(i).
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"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Seller Consolidated and Combined Return" means any consolidated,
affiliated, combined or unitary income or franchise Tax Return of H&R Block,
Block Group or CompuServe which includes CompuServe and/or any CompuServe
Entity.
"Shares Acquisition Date" has the meaning set forth in Section 3.16.
"Standstill Agreement" has the meaning set forth in the recitals.
"Surviving Corporation" has the meaning set forth in Section 1.1.
"Surviving Corporation Common Stock" has the meaning set forth in Section
1.3(d).
"Takeover Statute" has the meaning set forth in Section 8.23.
"Tax" and "Taxes" means all taxes, charges, fees, levies, tariffs, duties
or other similar assessments, including, (i) income, gross receipts, gains,
surtax, severance, payroll, production, ad valorem or value added, surtax,
premium, excise, real property, personal property, windfall profit, sales, use,
transfer, duty, licensing, withholding, employment, payroll, estimated and
franchise taxes imposed by the United States of America, any state, local, or
foreign government, or any subdivision, agency, or other similar Person of the
United States or any such government, and (ii) any interest, fines, penalties,
assessments, or additions to tax resulting from, attributable to or incurred in
connection with any Tax or any contest, dispute or refund thereto; whether or
not imposed on a consolidated combined or unitary basis or as a result of
transferee, joint or several liability.
"Tax Claim" has the meaning set forth in Section 9.2(d)(i).
"Tax Return" means any report, return, statement or other information
required to be supplied to a taxing authority in connection with Taxes.
"Tax Settlement Auditor" has the meaning set forth in Section 9.1(c).
"Tax Settlement Procedure" has the meaning set forth in Section 9.1(c).
"Tax Sharing Agreement" means the Tax Sharing Agreement, dated as of April
22, 1996, between H&R Block and CompuServe.
"Tax Statement" has the meaning set forth in Section 9.2(e)(iii).
"Third-Party Claim" has the meaning set forth in Section 8.4(f)(i).
"Transfer Taxes" has the meaning set forth in Section 9.4.
"WAC" has the meaning set forth in the first paragraph of this Agreement.
"WorldCom" has the meaning set forth in the first paragraph of this
Agreement.
"WorldCom Balance Sheet" has the meaning set forth in Section 6.4.
"WorldCom Common Shares" means the shares of WorldCom Common Stock.
"WorldCom Common Stock" means the common stock, $.01 par value per share,
of WorldCom.
"WorldCom Entity" or "WorldCom Entities" means any corporation, limited
liability company, partnership, limited partnership or other organization
whether incorporated or unincorporated (i) of which at least a majority of the
securities or interests having by the terms thereof ordinary voting power to
elect at least a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by WorldCom and/ or by any one or more of the
WorldCom Entities, (ii) of which WorldCom or any one or more of the WorldCom
Entities is the general partner or managing member or (iii) which WorldCom or
any one or more of the WorldCom Entities otherwise controls.
"WorldCom Material Breach" has the meaning set forth in Section 11.1(e).
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"WorldCom Preferred Stock" has the meaning set forth in Section 6.2.
"WorldCom Rights Agreement" means that certain Rights Agreement dated as of
August 25, 1996 between WorldCom and The Bank of New York, as Rights Agent, as
amended by Amendment No. 1 to Rights Agreement dated as of May 22, 1997.
"WorldCom SEC Documents" has the meaning set forth in Section 6.4.
"WorldCom Stock Plans" has the meaning set forth in Section 6.2.
IN WITNESS WHEREOF, H&R Block, Block Group, CompuServe, WorldCom and WAC
have caused this Agreement and Plan of Merger to be executed by their respective
duly authorized officers, and have caused their respective corporate seals to be
hereunto affixed, all as of the day and year first above written.
H&R BLOCK, INC.
By: /s/ FRANK L. SALIZZONI
----------------------------------
H&R BLOCK GROUP, INC.
By: /s/ FRANK L. SALIZZONI
----------------------------------
COMPUSERVE CORPORATION
By: /s/ FRANK L. SALIZZONI
----------------------------------
WORLDCOM, INC.
By: /s/ CHARLES T. CANNADA
----------------------------------
WALNUT ACQUISITION COMPANY, L.L.C.
By: /s/ CHARLES T. CANNADA
----------------------------------
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APPENDIX II
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement") dated as of September 7,
1997, by and among H&R BLOCK, INC., a Missouri corporation ("H&R Block"), H&R
BLOCK GROUP, INC., a Delaware corporation ("Block Group"), and WORLDCOM, INC., a
Georgia corporation ("WorldCom"),
WITNESSETH:
WHEREAS, H&R Block owns all of the issued and outstanding shares of capital
stock of Block Group;
WHEREAS, as of the date hereof, H&R Block beneficially owns and Block Group
directly owns approximately 80.13% of the shares of common stock, par value
$0.01 per share (the "Common Shares"), of CompuServe Corporation, a Delaware
corporation ("CompuServe") (all such CompuServe Common Shares which are now
owned by Block Group, together with all shares of capital stock of CompuServe
which are hereafter acquired by Block Group or any of its Affiliates, are
referred to herein as the "Shares");
WHEREAS, WorldCom, Walnut Acquisition Company, L.L.C., a Delaware limited
liability company which is wholly owned by WorldCom ("WAC"), CompuServe, H&R
Block and Block Group have entered into an Agreement and Plan of Merger dated as
of the date hereof (as amended from time to time, the "Merger Agreement")
(capitalized terms used but not otherwise defined in this Agreement having the
meanings assigned to such terms in the Merger 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 the Merger Agreement; and
WHEREAS, the parties intend that WorldCom's acquisition of the Shares shall
constitute a qualified stock purchase within the meaning of Section 338(d)(3) of
the Code;
WHEREAS, as a condition to the willingness of WorldCom and WAC to enter
into the Merger Agreement and incur the obligations set forth therein, WorldCom
has required that H&R Block and Block Group agree, and in order to induce
WorldCom to enter into the Merger Agreement, H&R Block and Block Group have
agreed, to enter into this Agreement and undertake the obligations set out
herein.
NOW, THEREFORE, in consideration of the foregoing premises and agreements
contained herein, the parties hereto agree as follows:
ARTICLE I
VOTING OF SHARES AND APPOINTMENT AS PROXY
1.1 Voting Agreement. H&R Block and Block Group hereby agree that during
the term hereof, at any meeting of the stockholders of CompuServe, however
called, and in any action by consent of the stockholders of CompuServe, Block
Group shall vote, and H&R Block shall cause Block Group to vote, the Shares: (A)
in favor of the Merger, the Merger Agreement and this Agreement and the
transactions contemplated by the Merger Agreement and this Agreement, (B)
against any proposal for any recapitalization, merger (other than the Merger),
share exchange, exchange offer, tender offer, sale of assets or other business
combination between CompuServe or any CompuServe Entity and any person or entity
(other than WorldCom or WAC) or any liquidation, dissolution or any other action
or agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of CompuServe, H&R Block or Block
Group under the Merger Agreement or this Agreement or which would result in any
of the conditions to the Merger Agreement or this Agreement not being fulfilled;
and (C) in favor of any other matter necessary for the transactions contemplated
hereby or the Merger Agreement with respect to which Block Group may be entitled
to vote.
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1.2 No Disposition or Encumbrance of Shares. H&R Block and Block Group,
jointly and severally, hereby covenant and agree that, from the date hereof
until the termination of this Agreement, they shall not, and shall not offer or
agree to, directly or indirectly, sell, transfer, tender, assign, hypothecate or
otherwise dispose of, or create or permit to exist any Encumbrance (as
hereinafter defined) on, the Shares, or any interest in the Shares, at any time
prior to the expiration of the term of this Agreement.
1.3 Voting of Shares; Further Assurances.
(a) H&R Block and Block Group, by this Agreement, with respect to the
Shares, do hereby constitute and appoint WorldCom, or any nominee of WorldCom,
with full power of substitution, from the date hereof until the termination of
this Agreement, as its true and lawful attorney, agent and proxy (its "Proxy"),
for and in its name, place and stead, to vote the Shares in such manner as it or
its nominee shall in its sole discretion deem proper, and otherwise act with
respect to the Shares, at any meeting (whether annual or special and whether or
not an adjourned meeting) of CompuServe's stockholders, including the right to
sign its name (as stockholder) to any consent, certificate or other document
relating to CompuServe that the law of the State of Delaware may permit or
require, regardless of the subject matter of such vote or other action:
(i) in favor of the Merger, the Merger Agreement and this Agreement
and the transactions contemplated by the Merger Agreement and this
Agreement;
(ii) against any proposal for any recapitalization, merger (other than
the Merger), share exchange, exchange offer, tender offer, sale of assets
or other business combination between CompuServe or any CompuServe Entity
and any person or entity (other than WorldCom or WAC) or any liquidation,
dissolution or any other action or agreement that would result in a breach
of any covenant, representation or warranty or any other obligation or
agreement of CompuServe, H&R Block or Block Group under the Merger
Agreement or this Agreement or which could result in any of the conditions
to the Merger Agreement or this Agreement not being fulfilled; and
(iii) in favor of any other matter necessary for the transactions
contemplated hereby or by the Merger Agreement with respect to which Block
Group may be entitled to vote.
(b) In addition, upon WorldCom's exercise of the Option in accordance with
the terms hereof, the power of attorney and proxy granted in Section 1.3(a)
shall automatically and without the necessity of any additional action, consent,
other writing or agreement on the part of WorldCom, H&R Block or Block Group be
expanded in scope to permit WorldCom or its nominee to act for Block Group as
its Proxy, for and in its name, place and stead, with full power of
substitution, to vote the Shares in such manner as it or its nominee shall in
its sole discretion deem proper, and otherwise act with respect to the Shares,
at any meeting and to exercise the full rights of the owner or holder of the
Shares, including the right to request or call and attend any and all meetings
(whether annual or special and whether or not an adjourned meeting) of
CompuServe's stockholders, including the right to sign its name (as stockholder)
to any consent, certificate or other document relating to CompuServe that the
law of the State of Delaware may permit or require, regardless of the subject
matter of such vote or other action.
(c) SUBJECT ONLY TO THE EXPIRATION OF THE TERM OF THIS AGREEMENT, THE
FOREGOING PROXY AND POWER OF ATTORNEY IS IRREVOCABLE, IS GRANTED IN
CONSIDERATION OF WORLDCOM AND WAC ENTERING INTO THE MERGER AGREEMENT AND THIS
AGREEMENT AND IS COUPLED WITH AN INTEREST SUFFICIENT IN LAW TO SUPPORT AN
IRREVOCABLE POWER. This appointment shall revoke all prior powers of attorney
and proxies appointed by H&R Block or Block Group at any time with respect to
the Shares and no subsequent powers of attorney or proxies will be appointed by
H&R Block or Block Group, or be effective with respect thereto, during the term
of this Agreement.
(d) H&R Block and Block Group shall each perform such further acts and
execute such further documents and instruments as may reasonably be required to
vest in WorldCom the power to carry out and give effect to the provisions of
this Article I, including applying a legend reasonably satisfactory to WorldCom
promptly after the date hereof to the certificates evidencing the Shares
reflecting the provisions of this Agreement and, at the request of WorldCom, to
deliver such certificates to WorldCom to hold in custody.
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ARTICLE II
GRANT OF OPTION
2.1 Grant of Option.
(a) Subject to the terms and conditions hereof, H&R Block and Block Group
hereby grant to WorldCom an irrevocable option (the "Option") to purchase (the
"Purchase") all (but not less than all) of the Shares, whether before or after
any transfer of such Shares, for and in consideration of the payment of the
Purchase Price described below to Block Group. WorldCom shall not be under any
obligation to elect to purchase the Shares and may allow this Agreement to
terminate without effecting the purchase of Shares hereunder.
(b) The per Share price for each Share shall equal 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 paragraph (d)
below (the aggregate of such shares of WorldCom Common Stock, together with such
cash payment in lieu of fractional shares, is referred to herein as the
"Purchase Price"). 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.
(c) In order to allow the transaction that would result from the exercise
of the Option 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 (1) reduce the aggregate Purchase Price otherwise payable to Block
Group hereunder 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 (2) in
lieu of such shares, receive $1,000,000 in cash.
(d) No fractional shares of WorldCom Common Stock shall be issued hereunder
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, if Block Group would otherwise be entitled to a
fractional share of WorldCom Common Stock pursuant to the provisions hereof, it
shall receive in lieu of such fractional share 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.
(e) For purposes of this Agreement, the "Average Trading Price" shall mean
the average of the daily closing prices per WorldCom Common Share, as quoted by
NASDAQ as reported in The Wall Street Journal, Eastern Edition, or if not
reported thereby, The New York Times, for the twenty consecutive full NASDAQ
trading days ending on the date immediately prior to the third full NASDAQ
trading day immediately preceding the day on which the Closing (as defined
below) occurs.
2.2 Exercise of Option. Upon the occurrence of one or more of the events
set forth below (the "Triggering Events"), WorldCom may exercise the Option, in
whole but not in part, at any time during the term of this Agreement as set
forth in Section 7.2 hereof:
(a) the Board of Directors of CompuServe or any committee thereof
shall have withdrawn or modified in a manner adverse to WorldCom its
approval or recommendation of the CompuServe Proposal, or failed to
reconfirm its recommendation within fifteen business days after a written
request to
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do so, or the Board of Directors of CompuServe or any committee thereof
shall have resolved to take any of the foregoing actions;
(b) CompuServe shall fail to call, give notice of, convene and hold
the CompuServe Stockholders Meeting as soon as practicable pursuant to
Section 8.6 of the Merger Agreement; or
(c) Any party to the Merger Agreement shall have terminated such
agreement pursuant to Section 11.1(b) thereof or WorldCom shall have
terminated the Merger Agreement pursuant to Section 11.1(c), (d) or (f)
thereof and, in any such case, H&R Block, Block Group or CompuServe shall
have breached one of its covenants or agreements thereunder or a condition
to WorldCom's obligations thereunder that is within the control of H&R
Block, Block Group or CompuServe shall not have been satisfied at the time
of such termination, including, without limitation, the failure of the
CompuServe stockholders to approve the CompuServe Proposal.
H&R Block and Block Group shall notify WorldCom promptly in writing of the
occurrence of any Triggering Event, it being understood that the giving of such
notice by H&R Block or Block Group shall not be a condition to the right of
WorldCom to exercise its Option or obtain the expanded proxy rights described in
Section 1.3(b).
2.3 Notice of Exercise; Conditions to Closing. If WorldCom desires to
exercise the Option, it shall notify Block Group in writing of its election.
Once WorldCom has delivered its notice of exercise of the Option, it shall be
obligated to consummate the Purchase, except that, notwithstanding the delivery
of any such notice:
(a) WorldCom's obligation to close the Purchase shall be subject to
the following conditions being fulfilled on or prior to the date of
Closing, any of which may be waived by WorldCom, in its discretion:
(i) Representations and Warranties of H&R Block. The
representations and warranties of H&R Block, Block Group and CompuServe
set forth in this Agreement that are qualified by Material Adverse
Effect or otherwise as to materiality shall be true and correct, and
those that are not so qualified shall be true and correct except for
failures to be true and correct as would not have a Material Adverse
Effect on CompuServe, as of the date of this Agreement and as of the
Closing as though made at and as of the Closing, except to the extent
that such representations and warranties expressly relate to a specific
earlier date (in which case such representations and warranties that are
qualified by a Material Adverse Effect shall be true and correct, and
those that are not so qualified shall be true and correct except for
failures to be true and correct as would not, individually or in the
aggregate, have a Material Adverse Effect on CompuServe, on and as of
such earlier date). None of the representations or warranties regarding
CompuServe or any of the CompuServe Entities incorporated herein from
Article III of the Merger Agreement, disregarding any qualifications
regarding materiality (including any reference to Material, Material
Adverse Change or Material Adverse Effect), shall be untrue or
incorrect, except for such untrue or incorrect representations or
warranties that, when taken together as a whole, do not constitute a
Material Adverse Effect.
(ii) Performance of this Agreement. Each of the covenants and
agreements of H&R Block and Block Group to be performed or observed at
or prior to the Closing pursuant to the terms hereof shall have been
duly performed or observed, except where such failure would not have a
Material Adverse Effect on CompuServe or would not materially impair the
ability of H&R Block, Block Group or CompuServe to consummate the
Purchase and the other transactions contemplated hereby.
(iii) No Material Adverse Change. Neither CompuServe nor any
CompuServe Entity shall have suffered a Material Adverse Change from the
date of the CompuServe Balance Sheet to the Closing.
(b) Block Group's obligation to close the Purchase shall be subject to
the following conditions being fulfilled on or prior to the date of
Closing, any of which may be waived by WorldCom, in its discretion:
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(i) Representations and Warranties of WorldCom. The
representations and warranties of WorldCom set forth in this Agreement
that are qualified by Material Adverse Effect or otherwise as to
materiality shall be true and correct, and those that are not so
qualified shall be true and correct except for failures to be true and
correct as would not have a Material Adverse Effect on WorldCom as of
the date of this Agreement and as of the Closing as though made at and
as of the Closing, except to the extent that such representations and
warranties expressly relate to a specific earlier date (in which case
such representations and warranties that are qualified by a Material
Adverse Effect shall be true and correct, and those that are not so
qualified shall be true and correct except for failures to be true and
correct as would not, individually or in the aggregate, have a Material
Adverse Effect on WorldCom, on and as of such earlier date).
(ii) Performance of this Agreement. Each of the covenants and
agreements of WorldCom to be performed or observed at or prior to the
Closing pursuant to the terms hereof shall have been duly performed or
observed except where such failure would not have a Material Adverse
Effect on WorldCom or would not materially impair the ability of
WorldCom to consummate the Merger and the other transactions
contemplated hereby.
(iii) Minimum Average Trading Price. The Average Trading Price
shall be no less than $24.00, after 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.
(c) WorldCom's and Block Group's obligations to close the Purchase
shall be subject to the following conditions being fulfilled on the date of
Closing, to the extent applicable to such party:
(i) No Injunction or Action. No Governmental Entity shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order, whether temporary, preliminary or
permanent, which is in effect and which has or would have the effect of
making the transactions contemplated by this Agreement illegal or
restraining or prohibiting consummation of such transactions.
(ii) Hart-Scott-Rodino Act. Any mandatory waiting period (and any
extension thereof) applicable to the consummation of the Purchase under
the HSR Act, any foreign competition law or similar law shall have
expired or been terminated.
(d) WorldCom and H&R Block and Block Group will cooperate in filing
any notifications or applications required and shall otherwise cooperate
promptly in taking any actions necessary to satisfy the conditions referred
to in this Section.
(e) Upon the giving by WorldCom to Block Group of the written notice
of exercise of the Option provided for under this Section 2.3 and the
tender of the applicable Purchase Price, WorldCom shall be deemed to be the
holder of record of the Shares issuable upon such exercise, notwithstanding
that the stock transfer books of CompuServe shall then be closed or that
certificates representing such Shares shall not then have actually been
delivered to WorldCom. H&R Block shall pay all expenses, and any and all
United States federal, state, and local taxes and other charges that may be
payable in connection with the preparation, issuance and delivery of stock
certificates under this Section in the name of WorldCom or its assignee,
transferee, or designee.
2.4 Closing.
(a) Date of Closing. Subject to the terms and conditions hereof, the
closing (the "Closing") for the purchase of Shares hereunder shall occur on
the date designated by WorldCom in its written notice to Block Group of its
desire to purchase its Shares as provided in Section 2.2 above, subject to
the fulfillment or waiver of the conditions to the parties obligations
hereunder, provided that the Closing shall take place no earlier than two
Business Days after and no later than five Business Days after the
satisfaction or waiver of such conditions. Unless otherwise agreed by the
parties, the Closing shall take place at the offices of Bryan Cave LLP,
Washington, D.C. at 10:00 a.m. local time.
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(b) Closing Procedure. At the Closing, (i) H&R Block and Block Group
shall deliver or cause to be delivered to WorldCom all of the certificates
evidencing the Shares to be sold hereunder, with appropriate stock powers
attached, properly signed, with any necessary documentary or transfer tax
stamps duly affixed and (ii) WorldCom shall deliver, or cause to be
delivered such certificates evidencing such number of shares of WorldCom
Common Stock (and such cash to be paid in lieu of fractional shares of such
WorldCom Common Stock and to be paid pursuant to Block Group's election to
receive cash, if any, under Section 2.1(c)) in order to satisfy its
obligation to pay the Purchase Price to Block Group.
(c) Closing Deliveries. H&R Block and Block Group, on the one hand,
and WorldCom, on the other hand, will use reasonable efforts to deliver or
cause to be delivered to the other at or prior to the Closing hereunder the
certificates, opinions and other documents contemplated by Article X of the
Merger Agreement, provided that references therein to the Merger, the
Merger Agreement, the Closing Date or the Effective Time shall be deemed
modified as contemplated by Section 3.4, Section 5.2 and Article VI hereof;
and provided further that H&R Block and Group agree to execute and deliver
the Standstill Agreement and the Noncompete/Nonsolicitation Agreement, the
Registration Rights Letter, and a Registration Rights Letter for the
benefit of WorldCom with respect to the Shares purchased hereunder in
substantially the form contemplated by the Merger Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF H&R BLOCK AND BLOCK GROUP
H&R Block and Block Group, jointly and severally, hereby make the following
representations and warranties to WorldCom, each of which shall be true and
correct on the date hereof, on the date on which WorldCom delivers notice of its
exercise of the Option, if it does so, and on the date of the Closing, if any.
3.1 Representations and Warranties Under the Merger Agreement
Restated. Subject to the Schedules to the Merger Agreement, H&R Block and
Block Group, jointly and severally, hereby make the representations and
warranties to WorldCom contained in Articles III, IV and V of the Merger
Agreement, except that (a) any such representation and/or warranty as to
the effect of the Merger Agreement or the Merger on any of H&R Block, Block
Group or CompuServe (or any of their associated Entities) shall be
considered a representation and/or warranty as to the effect of this
Agreement or the Purchase, as the case may be, on any such entity or
entities, as appropriate, and (b) the following representations and
warranties are not hereby repeated: Sections 3.19 and 4.11. H&R Block and
Block Group further jointly and severally represent and warrant that Block
Group has, and the transfer of the Shares upon exercise of the Option will
pass to WorldCom, good and marketable title to the Shares, free and clear
as provided in Section 5.2 of the Merger Agreement.
3.2 Rights Agreement. CompuServe has effected an amendment to the
CompuServe Rights Agreement with the effect that (a) (i) WorldCom will not
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 or any other agreement provided for herein or
the taking of any action provided for herein.
3.3 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 by CompuServe, H&R Block or WorldCom or the consummation of the
transactions contemplated hereby.
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ARTICLE IV
SECURITIES LAWS MATTERS
Each of WorldCom and Block Group hereby makes the following representations
and warranties to the other, solely with respect to matters relating to itself,
each of which shall be true and correct on the date hereof, on the date on which
WorldCom delivers notice of its exercise of the Option, if it does so, and on
the date of the Closing, if any:
4.1 Qualification. Each of WorldCom and Block Group has such
knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the agreements and
obligations entered into by them hereunder and bearing the economic risks
associated therewith. The information provided by WorldCom and Block Group
to the other concerning its knowledge and experience is correct in all
material respects. Each of WorldCom and Block Group has received and
reviewed such information concerning the securities which may be issued to
it hereunder (the "Securities") as it has deemed appropriate, including the
filings with the Securities and Exchange Commission made by CompuServe and
WorldCom, respectively, since January 1, 1995, and has had the opportunity
to ask questions and receive answers thereto concerning CompuServe,
WorldCom and the Merger and the transactions contemplated hereby, and to
obtain such further information as it has determined desirable. Each of
WorldCom and Block Group has been advised by counsel and financial advisors
with respect to this Agreement and the agreements and obligations contained
herein. Each of WorldCom and Block Group is an "accredited investor" within
the meaning of Rule 501 of Regulation D promulgated under the Securities
Act of 1933, as amended (the "Securities Act").
4.2 Not Registered Under Securities Act. Each of WorldCom and Block
Group understands that the Securities will not, when delivered hereunder,
be registered under the Securities Act, in reliance on an exemption
thereunder for transactions not involving a public offering and that the
Securities have not been approved or disapproved by the Securities and
Exchange Commission or any other federal or state agency. Each of WorldCom
and Block Group acknowledges that the other has relied upon its
representations and warranties contained in this Agreement as a basis for
such exemption.
4.3 Investment Purpose. Each of WorldCom and Block Group will be
acquiring any Securities which it may acquire hereunder for its own
account, for investment purposes only, and not with a view to the sale or
other distribution, in whole or in part, except as permitted by law.
4.4 Restrictions on Transfers. Each of WorldCom and Block Group
understands that the Securities may not be assigned, pledged, hypothecated,
sold, made subject to a security interest, or otherwise transferred without
(i) an effective registration statement for such Securities under the
Securities Act and such applicable state securities laws, or (ii) delivery
to the issuer of such Securities of an opinion of counsel prepared at the
expense of the holder thereof, which form of opinion and counsel shall be
reasonably satisfactory to the issuer and its counsel, that an exemption
from registration is available under the Securities Act or under any
applicable state securities laws. Each of WorldCom and Block Group further
understands that there will be placed on the certificate(s) representing
the Securities a legend stating in substance:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED
UNTIL A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO, OR, IN THE OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER OF THESE
SHARES, REGISTRATION UNDER SUCH SECURITIES ACT OR SUCH APPLICABLE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF WORLDCOM
WorldCom hereby makes the following representations and warranties to H&R
Block and Block Group, each of which shall be true and correct on the date
hereof, on the date on which WorldCom delivers notice of its exercise of the
Option, if it does so, and on the date of the Closing, if any:
5.1 Representations and Warranties Under the Merger Agreement Restated.
Subject to the Schedules to the Merger Agreement, WorldCom hereby makes the
representations and warranties to H&R Block and Block Group contained in Article
VI of the Merger Agreement, except that any such representation and/or warranty
as to the effect of the Merger Agreement or the Merger on WorldCom or any
WorldCom Entity shall be considered a representation and/or warranty as to the
effect of this Agreement or the Purchase on any such entity or entities, as
appropriate.
ARTICLE VI
COVENANTS
The parties hereto each hereby agree to their respective covenants
contained in Articles II, VIII (other than Sections 8.17, 8.24 and 8.25) and IX
and the first sentence of Section 11.5(a) of the Merger Agreement as independent
obligations of such parties under this Agreement, it being agreed that H&R Block
and Block Group further agree to cause CompuServe and the CompuServe Entities to
perform their covenants under the Merger Agreement, which covenant of H&R Block
and Block Group shall be considered a separate obligation under this Agreement,
provided that (a) no such covenant is repeated herein to the extent it relates
solely to the mechanics required to effectuate a merger, (b) any covenant that
refers to the Merger Agreement shall be deemed to refer to this Agreement, as
appropriate, and (c) any covenant that refers to the "Closing Date" or the
"Effective Time" shall be deemed to refer to the Closing hereunder, as
appropriate. Without limiting the foregoing, the parties agree that (a) the
indemnification covenants under Section 8.4 of the Merger Agreement are hereby
agreed to as applicable to breaches of representations, warranties and covenants
under this Agreement, and (b) Section 9.1(a)(i) of the Merger Agreement is
hereby agreed to as applicable to the Purchase. The parties agree to make the
Elections described in Article IX of the Merger Agreement, as they apply to the
Purchase, if the Purchase is consummated.
ARTICLE VII
TERM OF AGREEMENT
7.1 Commencement of Agreement. The rights and obligations of the parties
under this Agreement are effective as of the date hereof.
7.2 Term.
(a) This Agreement and the rights granted hereunder shall remain in effect
until the earlier of (i) the Closing hereunder, (ii) the Closing under the
Merger Agreement, and (iii) thirty (30) business days following the termination
of the Merger Agreement pursuant to Section 11.1 thereof.
(b) Notwithstanding the foregoing paragraph (a), upon exercise of the
Option, the rights and obligations of the parties shall remain in effect
following termination of the Merger Agreement, provided that, after exercise,
the Option and this Agreement shall terminate if the Closing does not take place
within one year following the date of termination of the Merger Agreement.
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ARTICLE VIII
MISCELLANEOUS
8.1 Representations and Warranties; Survival. The representations,
warranties, covenants and agreements contained in this Agreement, including
those referenced from the Merger Agreement, or in any instrument delivered
pursuant to this Agreement shall survive the termination of the Merger Agreement
and the Option and the Closing hereunder.
8.2 Notices. Any notices or other communications required or desired to be
given hereunder shall be deemed to have been properly given if sent by hand
delivery, facsimile and overnight courier, registered or certified mail, return
receipt requested, postage prepaid, to the parties hereto at the following
addresses, or at such other address as such party may advise the others in
writing from time to time by like notice:
If to WorldCom:
WorldCom, Inc.
515 East Amite Street
Jackson, Mississippi 39201
Attention: Charles T. Cannada
Facsimile: (601) 360-
with copies to:
WorldCom, Inc.
10777 Sunset Office Drive
Suite 330
St. Louis, Missouri 63127
Attention: P. Bruce Borghardt
Facsimile: (314) 909-4101
and
Bryan Cave LLP
One Metropolitan Square, Suite 3600
St. Louis, Missouri 63102-2750
Attention: R. Randall Wang
Facsimile: (314) 259-2020
If to H&R Block or Block Group:
H&R Block, Inc.
World Headquarters
4400 Main Street
Kansas City, MO 64111
Attention: Frank L. Salizzoni
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with a copy to:
H&R Block, Inc.
World Headquarters
4400 Main Street
Kansas City, MO 64111
Attention: James Ingraham
and
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Benjamin F. Stapleton
Facsimile: (212) 558-3588
All such notices or other communications shall be deemed to have been duly given
on the date of hand delivery or telecopy or facsimile, if receipt is confirmed,
or on the next Business Day following timely deposit of such communications with
overnight courier or on the third Business Day following the date of mailing, if
delivered by registered or certified mail.
8.3 Governing Law and Dispute Resolution. This Agreement shall be
interpreted, construed and enforced in accordance with the law of the State of
Delaware, applied without giving effect to any conflicts-of-law principles,
except to the extent that Missouri law is applicable to the internal affairs of
H&R Block or Georgia law is applicable to the internal affairs of WorldCom. Any
dispute relating to this Agreement or the transactions contemplated hereby shall
be resolved in the state courts of general jurisdiction, or the Chancery Court
if it has subject matter jurisdiction, of the State of Delaware or in the United
States District Court for the District of Delaware. Each party irrevocably
submits to such courts' exclusive jurisdiction and acknowledges that such courts
are a convenient forum and consents to service of process at the address for
such party set forth in Section 8.2.
8.4 Specific Performance. Each party acknowledges and agrees that, in the
event of an actual or threatened breach of any of the provisions of this
Agreement by such party, the harm to the others will be immediate, substantial
and irreparable and that monetary damages will be inadequate. Accordingly, each
party agrees that, in such an event, the others will be entitled to equitable
relief, including an injunction and an order of specific performance, in
addition to any and all other remedies at law or in equity.
8.5 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement or the application thereof to any Person or any
circumstance is invalid or unenforceable, (a) a suitable and equitable provision
shall be substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (b) the remainder of this Agreement and the application of such provision to
other persons, entities or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
8.6 Captions. The captions or headings in this Agreement are made for
convenience and general reference only and shall not be construed to describe,
define or limit the scope or intent of the provisions of this Agreement.
8.7 Entire Agreement. This Agreement, together with the Merger Agreement
and the Standstill Agreement, and any documents delivered by the parties in
connection therewith and herewith, constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto. No
addition to or modification of any
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provision of this Agreement shall be binding upon any party hereto unless made
in writing and signed by all parties hereto.
8.8 Counterparts. This Agreement may be executed in several counterparts,
each of which, when so executed, shall be deemed to be an original, and such
counterparts shall, together, constitute and be one and the same instrument.
8.9 Binding Effect; Assignability. This Agreement shall be binding on, and
shall inure to the benefit of, only the parties hereto, and their respective
successors and assigns, and nothing in this Agreement, express or implied is
intended to or shall confer upon any Person any right, benefit or remedy of
nature whatsoever under or by virtue of this Agreement. No party may assign or
delegate any right or obligation hereunder without the prior written consent of
the other party; provided, however, that WorldCom may assign any or all of its
rights to a direct or indirect subsidiary of WorldCom or, with the prior written
consent of Block Group, which shall not be unreasonably withheld, to any other
Person. Any assignment of rights or delegation of obligations not in compliance
herewith shall be null and void.
8.10 No Rule of Construction. The parties acknowledge that all parties
have read and negotiated the language used in this Agreement. The parties agree
that, because all parties participated in negotiating and drafting this
Agreement, no rule of construction shall apply to this Agreement which construes
ambiguous language in favor of or against any party by reason of that party's
role in drafting this Agreement.
8.11 Adjustment upon Changes in Capitalization.
(a) In the event of any change in capitalization of CompuServe prior to
purchase of the Shares by reason of any stock dividend, split-up, merger,
recapitalization, combination, exchange of shares or the like, the price and the
number and kind of securities subject to the Option and the Purchase Price
therefor shall be appropriately adjusted and proper provision shall be made in
the agreements governing such transaction so that WorldCom shall receive, upon
exercise of the Option, the number and class of shares or other securities or
property that WorldCom would have received in respect of the Shares if the
Option had been exercised immediately prior to such event, or the record date
therefor, as applicable. If, on or after the date hereof, CompuServe should
declare or pay any cash or stock dividend or other distribution or issue any
rights with respect to the Shares, payable or distributable to shareholders of
record on a date prior to the transfer to the name of WorldCom or its nominee on
the stock transfer records of CompuServe of any Shares or other securities
purchased hereunder, then the amount of any such cash dividend or cash
distribution, and the whole of any such non-cash dividend distribution or right
which would have been payable with respect to each Share purchased by WorldCom,
will be promptly remitted and transferred by Block Group to WorldCom. Upon the
purchase of the Shares, to the extent consistent with law, pending remittance,
WorldCom will be entitled to all rights and privileges as owner of any such
non-cash dividend, distribution or right.
(b) In the event that CompuServe shall enter into an agreement (i) to
consolidate with or merge into any person, other than WorldCom or one of its
subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than WorldCom or one
of its subsidiaries, to merge into CompuServe and CompuServe shall be the
continuing or surviving corporation, but, in connection with such merger, the
then outstanding Common Shares shall be changed into or exchanged for stock or
other securities of CompuServe or any other person or cash or any other property
or the outstanding Common Shares immediately prior to such merger shall after
such merger represent less than 50% of the outstanding Common Shares and share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than WorldCom or one of its
subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option to acquire the number and
class of shares or other securities or property that WorldCom would have
received in respect of Shares if the Option had been exercised immediately prior
to such consolidation, merger, sale or transfer, or the record date therefor, as
applicable. Notwithstanding the foregoing, H&R Block and Block Group covenant
and agree to take any and all actions within their power to prevent any such
agreement from being entered into by CompuServe during the term of this
Agreement.
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(c) If any event described in paragraph (a) or (b) above shall occur in
respect of WorldCom or the WorldCom Common Stock to be issued to Block Group on
exercise of the Option, corresponding adjustments to the rights of Block Group
and the obligations of WorldCom shall be made on terms corresponding to those
set forth in such paragraphs.
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be executed by its officer thereunto duly authorized as of the date first
written above.
H&R BLOCK, INC.
By: /s/ FRANK L. SALIZZONI
----------------------------------
Name: Frank L. Salizzoni
Title: President and Chief
Executive Officer
H&R BLOCK GROUP, INC.
By: /s/ FRANK L. SALIZZONI
----------------------------------
Name: Frank L. Salizzoni
Title: President
WORLDCOM, INC.
By: /s/ CHARLES T. CANNADA
----------------------------------
Name: Charles T. Cannada
Title: Senior Vice President
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APPENDIX III
STANDSTILL AGREEMENT
THIS STANDSTILL AGREEMENT (this "Agreement") dated as of September 7, 1997,
by and among H&R BLOCK, INC., a Missouri corporation ("H&R Block"), H&R BLOCK
GROUP, INC., a Delaware corporation ("Block Group"), and WORLDCOM, INC., a
Georgia corporation ("WorldCom").
WITNESSETH:
WHEREAS, WorldCom, Walnut Acquisition Company, L.L.C., a Delaware limited
liability company which is wholly owned by WorldCom ("WAC"), CompuServe
Corporation, a Delaware corporation ("CompuServe"), H&R Block and Block Group, a
wholly-owned subsidiary of H&R Block, have entered into an Agreement and Plan of
Merger dated as of September 7, 1997 (the "Merger Agreement") (capitalized terms
used but not otherwise defined in this Agreement have the meanings assigned to
such terms in the Merger 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 the Merger Agreement; and
WHEREAS, as a condition to the willingness of WorldCom and WAC to enter
into the Merger Agreement and incur the obligations set forth therein, WorldCom
has required that H&R Block and Block Group agree, and in order to induce
WorldCom to enter into the Merger Agreement, H&R Block and Block Group have
agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and agreements
contained herein, the parties hereto agree as follows:
ARTICLE I
STANDSTILL PROVISIONS
1.1 The Standstill Obligation. During the Standstill Period (as defined
below), without the prior written consent of WorldCom, each of H&R Block and
Block Group agrees that it shall not, nor shall H&R Block or Block Group permit
any of its affiliates (as such term is defined in the Securities Exchange Act of
1934, as amended (the "Exchange Act")) to, nor shall H&R Block agree, or advise,
assist, encourage, provide information or provide financing to others, or permit
its affiliates to agree, or to advise, assist, encourage, provide information or
provide financing to others, to, individually or collectively, directly or
indirectly:
(a) acquire or offer to acquire or agree to acquire from any
individual, partnership, limited partnership, limited liability company,
firm, joint venture, association, joint-stock company, corporation, trust,
business trust, unincorporated organization or other entity or government
or any department or agency thereof (each, a "Person"), directly or
indirectly, by purchase or merger, through the acquisition of control of
another Person, by joining a partnership, limited partnership or other
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) or
otherwise, beneficial ownership of any equity securities of WorldCom, or
direct or indirect rights (including convertible securities) or options to
acquire such beneficial ownership (or otherwise act in concert with respect
to any such securities, rights or options with any Person that so acquires,
offers to acquire or agrees to acquire); provided, however, that no such
acquisition, offer to acquire or agreement to acquire shall be deemed to
occur solely due to (a) a stock split, reverse stock split,
reclassification, reorganization or other transaction by WorldCom affecting
any class of the outstanding capital stock of WorldCom generally or (b) a
stock dividend or other pro rata distribution by WorldCom to holders of its
outstanding capital stock; or
(b) make, or in any way participate in, directly or indirectly, any
"solicitation" of "proxies" to vote (as such terms are used in the
Regulation 14A promulgated under the Exchange Act), become a "participant"
in any "election contest" (as such terms are defined in Rule 14a-11
promulgated under the Exchange Act) or initiate, propose or otherwise
solicit stockholders of WorldCom for the approval of any stockholder
proposals, in each case with respect to WorldCom; provided, however, that
the foregoing
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shall not apply to any person who is a director of WorldCom acting in his
capacity as a director of WorldCom with respect to matters approved by a
majority of the Board of Directors of WorldCom; or
(c) form, join, in any way participate in, or encourage the formation
of, a group (within the meaning of Section 13(d)(3) of the Exchange Act)
with respect to any voting securities of WorldCom; or
(d) deposit any securities of WorldCom into a voting trust, or subject
any securities of WorldCom to any agreement or arrangement with respect to
the voting of such securities, or other agreement or arrangement having
similar effect; or
(e) alone or in concert with others, seek, or encourage or support any
effort, to influence or control the management, Board of Directors,
business, policies, affairs or actions of WorldCom; or
(f) request WorldCom (or any directors, officers, employees or agents
of WorldCom), directly or indirectly, to amend, waive or modify any
provision of this Section 1.1.
1.2 The Standstill Period. As used in this Agreement, the term "Standstill
Period" shall mean that period commencing immediately following the consummation
of the Merger and expiring on the first anniversary of the date of such
consummation.
ARTICLE II
MISCELLANEOUS
2.1 Notices. Any notices or other communications required or desired to be
given hereunder shall be deemed to have been properly given if sent by hand
delivery, facsimile and overnight courier, registered or certified mail, return
receipt requested, postage prepaid, to the parties hereto at the following
addresses, or at such other address as such party may advise the others in
writing from time to time by like notice:
If to WorldCom:
WorldCom, Inc.
515 East Amite Street
Jackson, Mississippi 39201
Attention: Charles T. Cannada
Facsimile: (601) 360-8615
with copies to:
WorldCom, Inc.
10777 Sunset Office Drive
Suite 330
St. Louis, Missouri 63127
Attention: P. Bruce Borghardt
Facsimile: (314) 909-4101
If to H&R Block or Block Group:
H&R Block, Inc.
World Headquarters
4400 Main Street
Kansas City, MO 64111
Attention: James Ingraham
Facsimile: (816) 753-8628
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with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Benjamin F. Stapleton
Facsimile: (212) 558-3588
All such notices or other communications shall be deemed to have been duly given
on the date of hand delivery or telecopy or facsimile, if receipt is confirmed,
or on the next Business Day following timely deposit of such communications with
overnight courier or on the third Business Day following the date of mailing, if
delivered by registered or certified mail.
2.2 Governing Law and Dispute Resolution. This Agreement shall be
interpreted, construed and enforced in accordance with the law of the State of
Delaware, applied without giving effect to any conflicts-of-law principles,
except to the extent that Missouri law is applicable to the internal affairs of
H&R Block or Georgia law is applicable to the internal affairs of WorldCom. Any
dispute relating to this Agreement or the transactions contemplated hereby shall
be resolved in the state courts of general jurisdiction, or the Chancery Court
if it has subject matter jurisdiction, of the State of Delaware or in the United
States District Court for the District of Delaware. Each party irrevocably
submits to such courts' jurisdiction and acknowledges that such courts are a
convenient forum and consents to service of process at the address for such
party set forth in Section 2.1.
2.3 Specific Performance. Each party acknowledges and agrees that, in the
event of an actual or threatened breach of any of the provisions of this
Agreement by such party, the harm to the others will be immediate, substantial
and irreparable and that monetary damages will be inadequate. Accordingly, each
party agrees that, in such an event, the others will be entitled to equitable
relief, including an injunction and an order of specific performance, in
addition to any and all other remedies at law or in equity.
2.4 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement or the application thereof to any Person or any
circumstance is invalid or unenforceable, (a) a suitable and equitable provision
shall be substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (b) the remainder of this Agreement and the application of such provision to
other persons, entities or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
2.5 Captions. The captions or headings in this Agreement are made for
convenience and general reference only and shall not be construed to describe,
define or limit the scope or intent of the provisions of this Agreement.
2.6. Entire Agreement. This Agreement and any documents delivered by the
parties in connection herewith constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
2.7 Counterparts. This Agreement may be executed in several counterparts,
each of which, when so executed, shall be deemed to be an original, and such
counterparts shall, together, constitute and be one and the same instrument.
2.8 Binding Effect; Assignability. This Agreement shall be binding on, and
shall inure to the benefit of, only the parties hereto, and their respective
successors and assigns, and nothing in this Agreement, express or implied is
intended to or shall confer upon any Person any right, benefit or remedy of
nature whatsoever under or by virtue of this Agreement. No party may assign or
delegate any right or obligation hereunder without the
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prior written consent of the other party. Any assignment of rights or delegation
of obligations not in compliance herewith shall be null and void.
2.9 No Rule of Construction. The parties acknowledge that all parties have
read and negotiated the language used in this Agreement. The parties agree that,
because all parties participated in negotiating and drafting this Agreement, no
rule of construction shall apply to this Agreement which construes ambiguous
language in favor of or against any party by reason of that party's role in
drafting this Agreement.
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be executed by its respective officer thereunto duly authorized as of the
date first written above.
H&R BLOCK, INC.
By: /s/ FRANK L. SALIZZONI
-----------------------------------
Name: Frank L. Salizzoni
Title: President and Chief
Executive Officer
H&R BLOCK GROUP, INC.
By: /s/ FRANK L. SALIZZONI
-----------------------------------
Name: Frank L. Salizzoni
Title: President
WORLDCOM, INC.
By: /s/ CHARLES T. CANNADA
-----------------------------------
Name: Charles T. Cannada
Title: Senior Vice President
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LETTERHEAD OF GOLDMAN SACHS & CO APPENDIX IV
September 7, 1997
Board of Directors
CompuServe Corporation GOLDMAN SACHS LOGO
5000 Arlington Centre Blvd.
Columbus, Ohio 43220
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders (excluding H&R Block Group, Inc. ("Block Group"), a
wholly-owned subsidiary of H&R Block, Inc. ("H&R Block")) of the outstanding
shares of Common Stock, par value $0.01 per share (the "Shares"), of CompuServe
Corporation ("CompuServe" or the "Company") of the exchange ratio of .40625
shares (subject to adjustment as described below) of Common Stock, par value
$.01 per share (the "WorldCom Common Stock"), of WorldCom, Inc. ("WorldCom") to
be received for each Share ("the "Exchange Ratio") pursuant to the Agreement and
Plan of Merger, dated as of September 7, 1997, by and among H&R Block, Block
Group, WorldCom, Walnut Acquisition Company, L.L.C, a wholly-owned subsidiary of
WorldCom, and CompuServe (the "Agreement"). Pursuant to the Agreement, the
"Exchange Ratio" shall be determined as follows: (i) if the Average Trading
Price (as defined in the Agreement) of WorldCom Common Stock is greater than or
equal to $29.54, the Exchange Ratio shall equal 0.40625; (ii) if the Average
Trading Price of WorldCom Common Stock 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 WorldCom Common Stock; and (iii) if the Average Trading Price of
WorldCom Common Stock is less than $24.00, the Exchange Ratio shall equal 0.5.
Goldman, Sachs & Co. ("Goldman Sachs"), as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. We are familiar with CompuServe having provided certain
investment banking services to CompuServe from time to time, including having
acted as lead managing underwriter of the initial public offering of 18,400,000
Shares on April 19, 1996, and having acted as its financial advisor in
connection with the Agreement. As you are aware, the Company, H&R Block, Block
Group and the underwriters for such initial public offering, including Goldman
Sachs, have been named as defendants in certain actions relating to such public
offering, and such underwriters, including Goldman Sachs, have received
customary indemnifications from, and are being indemnified by, the Company, H&R
Block and Block Group in connection with such offering. We have also provided
certain investment banking services to H&R Block from time to time, including
having acted as the sole dealer of its commercial paper program since 1993, and
during March and April of 1993, entering into certain financial contracts as a
principal in connection with its share repurchase program, and we may provide
investment banking services to H&R Block in the future. In the past, we have
provided certain investment banking services to WorldCom and its subsidiaries.
Such services for WorldCom have included acting as co-lead manager on a variety
of financings including a $1,347,000,000 exchange offer on August 22, 1997, a
$1,100,000,000 offering on April 1, 1997 of 7.75% senior notes due April 1, 2007
and a $300,000,000 offering on April 1, 1997 of 7.75% senior notes due on April
1, 2027, and a $600,000,000 offering on April 1, 1997 of 7.55% senior notes due
April 1, 2004, and acting as lead underwriter of a $320,000,000 loan syndication
on February 6, 1997 for a joint venture of which WorldCom is a member.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Prospectus dated as of April 18, 1996, which is included in
CompuServe's Registration Statement on Form S-1 (File
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No.: 333-1498), Annual Reports to Stockholders and Annual Reports on Form 10-K
of the Company for the fiscal year ended April 30, 1997, and Annual Reports to
Stockholders and Annual Reports on Form 10-K of WorldCom for the five years
ended December 31, 1996; certain interim reports to stockholders and Quarterly
Reports on Form 10-Q of the Company and WorldCom; certain other communications
from the Company and WorldCom to their respective stockholders; and certain
internal financial analyses and forecasts for the Company prepared by its
management. We also have held discussions with members of the senior management
of CompuServe and WorldCom regarding the past and current business operations,
financial condition and future prospects of their respective companies. In
addition, we have reviewed the reported price and trading activity for the
Shares and WorldCom Common Stock; compared certain financial and stock market
information for the Company and WorldCom with similar information for certain
other companies the securities of which are publicly traded; reviewed the
financial terms of certain recent business combinations in the Internet, online
and network industries specifically and in other industries generally; and
performed such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. With respect to the
financial projections for the Company prepared by its management, you have
informed us of your view regarding the risks and uncertainties inherent in
achieving such projections. As you are aware, WorldCom did not make available to
us its projections of expected future performance. Accordingly, we note that our
review with respect to such information was limited to discussions with the
management of WorldCom of research analysts estimates for WorldCom for 1997,
1998 and 1999. In addition, we have not made an independent evaluation or
appraisal of the assets and liabilities of the Company or WorldCom or any of
their respective subsidiaries, and we have not been furnished with any such
evaluation or appraisal. Our advisory services and the opinion expressed herein
are provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transaction contemplated by
the Agreement and such opinion does not constitute a recommendation as to how
any holder of Shares should vote with respect to the merger contemplated by the
Agreement.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair from a financial point of view
to the holders (excluding Block Group) of the Shares.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- ------------------------------------
Goldman, Sachs & Co.
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