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PURCHASE AND SALE AGREEMENT
BY AND AMONG
AMERICA ONLINE, INC.,
ANS COMMUNICATIONS, INC.
AND
WORLDCOM, INC.
DATED AS OF
SEPTEMBER 7, 1997
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TABLE OF CONTENTS
ARTICLE I THE PURCHASE AND SALE.............................................. 2
1.1 Purchase and Sale....................................................... 2
1.2 The Closing............................................................. 2
1.3 Exchange of Consideration............................................... 2
1.4 Delayed Assets and Liabilities.......................................... 3
1.5 CompuServe Transitional Matters......................................... 4
1.6 ANS Transitional Matters................................................ 7
1.7 Employee Severance Obligations.......................................... 9
1.8 Allocation of Consideration............................................. 9
1.9 Treatment of ANS and AOL Options........................................ 10
1.10 Treatment of CompuServe Options........................................ 11
1.11 Treatment of CompuServe Options........................................ 11
ARTICLE II ASSET TRANSFER; SETTLEMENT OF INTERCOMPANY ACCOUNTS............... 11
2.1 Transfer of Assets...................................................... 11
2.2 Intercompany Accounts................................................... 12
2.3 Release of Claims....................................................... 12
ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING AOL AND ANS............. 13
3.1 Organization, Existence and Good Standing............................... 13
3.2 ANS Capital Stock Ownership of ANS Entities; Investments................ 13
3.3 Ownership of ANS Entities' Capital Stock; Investments................... 13
3.4 Power and Authority; Non-Contravention; Filings and Consents............ 14
3.5 Financial Information................................................... 15
3.6 Subsequent Events....................................................... 16
3.7 Legal Proceedings....................................................... 17
3.8 Contracts............................................................... 17
3.9 Accounts Receivable..................................................... 19
3.10 Taxes.................................................................. 19
3.11 Employee Benefit Plans; Employment Matters............................. 20
3.12 Compliance with Laws; Permits.......................................... 22
3.13 Patents, Trademarks, Etc............................................... 23
3.14 No Assets Held by AOL or AOL Entities.................................. 24
3.15 Labor Matters.......................................................... 24
3.16 Insurance.............................................................. 24
3.17 Commissions and Fees................................................... 25
3.18 Real Property.......................................................... 25
ARTICLE IV REPRESENTATIONS AND WARRANTIES REGARDING WORLDCOM................. 25
4.1 Organization, Existence and Good Standing............................... 25
4.2 Power and Authority; Non-Contravention; Filings and Consents............ 25
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4.3 Legal Proceedings...................................................... 26
4.4 No Vote Required....................................................... 27
4.5 Investment Representation.............................................. 27
4.6 CompuServe Agreement.................................................. 27
4.7 Title to CompuServe Assets............................................. 27
4.8 Representations Relating to CompuServe Assets.]........................ 27
4.9 CompuServe Power and Authority; Non-Contravention; Filing and
Consents............................................................... 27
ARTICLE V COVENANTS......................................................... 28
5.1 Interim Conduct of ANS and each ANS Entity and the ANS Network
Services Business...................................................... 28
5.2 Indemnification........................................................ 31
5.3 No Contribution........................................................ 35
5.4 Access to Information.................................................. 35
5.5 Confidentiality........................................................ 35
5.6 HSR Act Compliance, Etc................................................ 36
5.7 Public Disclosures..................................................... 36
5.8 Resignation of Directors and Officers.................................. 36
5.9 Notification of Certain Matters........................................ 36
5.10 No Solicitation....................................................... 37
5.11 Other Actions......................................................... 38
5.12 Cooperation........................................................... 38
5.13 ANS and ANS Network Services Business Employees....................... 38
5.14 ANS Name.............................................................. 39
5.15 CompuServe Name....................................................... 39
5.16 Noncompetition and Nonsolicitation Agreement.......................... 40
5.17 Key-Employee Nondisclosure and Nonsolicitation Agreements............. 40
5.18 Board Seat............................................................ 40
5.19 Services Agreements................................................... 40
5.20 Status of Title to the CompuServe Assets.............................. 40
5.21 Delivery of ANS Shares................................................ 40
5.22 Consummation of Merger................................................ 40
5.23 Covenants Relating to CompuServe Online Services Business............. 40
5.24 Exercise of Option; Negotiation Period................................ 41
ARTICLE VI TAX MATTERS...................................................... 41
6.1 Section 338 Election................................................... 41
6.2 Tax Indemnification.................................................... 43
6.3 Tax Related Adjustments................................................ 47
6.4 Transfer Taxes......................................................... 49
ARTICLE VII CONDITIONS TO CLOSING........................................... 49
7.1 Mutual Conditions...................................................... 49
7.2 Conditions to Obligations of WorldCom.................................. 49
7.3 Conditions to Obligations of AOL and ANS............................... 51
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ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.............................. 52
8.1 Termination............................................................ 52
8.2 Effect of Termination.................................................. 53
8.3 Amendment.............................................................. 53
8.4 Waiver................................................................. 53
8.5 Expenses............................................................... 53
ARTICLE IX MISCELLANEOUS.................................................... 54
9.1 Representations and Warranties; Survival............................... 54
9.2 Notices................................................................ 54
9.3 Governing Law and Dispute Resolution................................... 55
9.4 Specific Performance................................................... 56
9.5 Severability........................................................... 56
9.6 Financial Information.................................................. 56
9.7 Captions............................................................... 56
9.8 Entire Agreement....................................................... 56
9.9 Counterparts........................................................... 56
9.10 Binding Effect; Assignability......................................... 57
9.11 No Rule of Construction............................................... 57
9.12 Schedules............................................................. 57
ARTICLE X DEFINITIONS....................................................... 57
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EXHIBITS
EXHIBIT A FORM OF BILL OF SALE
EXHIBIT B FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT C COST ALLOCATION AND INTER-COMPANY SERVICE ARRANGEMENTS
EXHIBIT D AGREEMENT TO FORM BUSINESS ENTITY
EXHIBIT E NONCOMPETITION AND NONSOLICITATION AGREEMENT
EXHIBIT F KEY EMPLOYEE AGREEMENTS
EXHIBIT G TRANSITION SERVICES AGREEMENT
EXHIBIT H NETWORK SERVICES AGREEMENT 1
EXHIBIT I NETWORK SERVICES AGREEMENT 2
SCHEDULES OF ANS AND AOL
Schedule 1.6 Retention Bonuses
Schedule 1.7(a) Severance Arrangements
Schedule 1.9 Options Convertible into Securities of ANS
Schedule 2.1 Transfer of Assets
Schedule 2.2 Intercompany Accounts As of June 30, 1997
Schedule 2.3(a) Release Of Claims (Release By AOL)
Schedule 2.3(b) Release Of Claims (Release By WorldCom)
Schedule 3.2(a) Issued Capital Stock
Schedule 3.2(b) Liens And Encumbrances On ANS Stock
Schedule 3.2(c) Outstanding Options And Warrants
Schedule 3.3(a) Ownership Of ANS Entities' Stock
Schedule 3.3(b) Capital Stock Of Other Entities
Schedule 3.4(a) Consents And Waivers
Schedule 3.5 ANS Financial Statements
Schedule 3.6 Subsequent Events
Schedule 3.7 Legal Proceedings
Schedule 3.8(a) Contracts (General)
Schedule 3.8(b) Contracts (Certain Terms)
Schedule 3.8(c) Contracts (International Distributors)
Schedule 3.8(d) Agreements with Ten Largest Customers (Excluding AOL)
Schedule 3.8(e) Contracts (Government Contracts)
Schedule 3.8(f) Contracts (Consents)
Schedule 3.10 Tax Disclosure (General)
Schedule 3.10(g) Tax Disclosure (Tax Sharing Agreements)
Schedule 3.11(a) Employee Benefit Plans
Schedule 3.11(b) Unions; Effects Of Agreement
Schedule 3.12 Compliance With Laws; Permits
Schedule 3.13 Patents, Trademarks, Etc.
Schedule 3.14 Certain Rights Held By AOL Entities
Schedule 3.18 Real Estate
Schedule 5.1(d) Interim Conduct -- Specified Contracts
Schedule 5.1(e) Interim Conduct -- Employees
Schedule 5.1(h) Interim Conduct -- Material Transactions
Schedule 5.1(l) Interim Conduct -- Related Party Transactions
Schedule 5.13 Interim Conduct -- ANS Employment Matters
Schedule 7.3(f) Lease Guarantees
Schedule 10.1 ANS Excluded Assets
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Schedule 10.2 ANS Network Assets
Schedule 10.5 CompuServe Excluded Assets
Schedule 10.6 Excluded Liabilities
SCHEDULES OF WORLDCOM
Schedule 4.3 Legal Proceedings
Schedule 10.3(b) Pro Forma CompuServe Balance Sheet
Schedule 10.4 CompuServe Liabilities
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PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made and
entered into as of the 7th day of September, 1997, by and among AMERICA ONLINE,
INC., a Delaware corporation ("AOL"), ANS COMMUNICATIONS, INC., a Delaware
corporation and a wholly-owned subsidiary of AOL ("ANS"), and WORLDCOM, INC., a
Georgia corporation ("WorldCom"). ANS and AOL are sometimes referred to herein
as the "Selling Entities." All capitalized terms used in this Agreement and not
defined in the text hereof have the meanings set forth in Article X.
W I T N E S S E T H:
WHEREAS, WorldCom is a party to an Agreement and Plan of Merger (the
"CompuServe Agreement") of even date herewith, pursuant to which it has agreed
to acquire CompuServe Corporation, a Delaware corporation ("CompuServe"),
through a merger (the "Merger") with WorldCom Acquisition Company, L.L.C.
("WAC"), which is wholly owned by WorldCom;
WHEREAS, AOL is the record and beneficial owner of all of the issued
and outstanding common shares, par value $.01 per share, and preferred shares,
par value $.01 per share, of ANS (the "ANS Shares");
WHEREAS, the Boards of Directors of AOL, ANS and WorldCom each have
determined that it is in the best interests of their respective stockholders
that they enter into this Agreement, which provides for the acquisition by
WorldCom from AOL of all of the ANS Shares (the "ANS Transfer") and the
acquisition by AOL from CompuServe Incorporated, an Ohio corporation which is a
wholly-owned subsidiary of CompuServe ("CompuServe-Ohio"), of all the right,
title and interest of CompuServe and CompuServe-Ohio in and to the CompuServe
Assets and the CompuServe Online Services Business (the "CompuServe Transfer"),
and have authorized their respective officers to execute and deliver this
Agreement on their behalf;
WHEREAS, the Board of Directors of AOL has determined it to be in the best
interests of its stockholders to sell the ANS Shares to WorldCom, to acquire the
CompuServe Assets and the CompuServe Online Services Business and to enter into
the other transactions contemplated hereby, and has adopted resolutions
approving such matters;
WHEREAS, the Board of Directors of WorldCom has determined it to be in the
best interests of its shareholders to cause CompuServe to transfer the
CompuServe Assets and the CompuServe Online Services Business to AOL,
immediately following the acquisition of CompuServe by WorldCom, and has adopted
a resolution approving such transfers; and
WHEREAS, AOL, ANS and WorldCom 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
THE PURCHASE AND SALE
1.1 Purchase and Sale. Upon the terms and subject to the conditions set
forth in this Agreement, at the Closing (as defined in Section 1.2):
(a) AOL shall sell and deliver to WorldCom, or, if so directed by
WorldCom, to CompuServe, the ANS Shares free and clear of all Liens or Other
Encumbrances; and
(b) in exchange for the ANS Shares, WorldCom shall (i) deliver or
cause CompuServe to deliver the Cash Consideration described in Section
1.3(b)(i) to AOL and (ii) cause CompuServe-Ohio to transfer to AOL or its
designee or designees the CompuServe Assets and CompuServe Online Services
Business (subject to the CompuServe Liabilities), which AOL or such designee(s)
shall accept and assume.
The exchange of consideration described in this Section (collectively, the
"Purchase and Sale"), shall take place as more particularly described in Section
1.3.
1.2 The Closing. Subject to the satisfaction or waiver of the conditions
set forth in Article VII, the closing of the Purchase and Sale (the "Closing")
shall take place immediately following the closing of the Merger at the offices
of Bryan Cave LLP in Washington, D.C., at 10:00 a.m., local time, or at such
other time and place as the parties hereto may agree. The day on which the
Closing takes place is referred to herein as the "Closing Date." The Closing
shall be effective at the same time as the Effective Time referred to in the
CompuServe Agreement (which effective time under this Agreement is referred to
herein as the "Effective Time").
1.3 Exchange of Consideration.
(a) At the Closing, AOL shall deliver to WorldCom, or, if so directed
by WorldCom, to CompuServe, a certificate or certificates representing all of
the outstanding ANS Shares, duly endorsed or accompanied by a stock assignment
separate from certificates which shall have been duly executed in blank.
(b) In exchange for the transfer of the ANS Shares as provided herein:
(i) The following shall apply as to the cash consideration (the "Cash
Consideration"): WorldCom shall deliver or cause CompuServe to deliver to
AOL and/or its designee or designees One Hundred Seventy-Five Million
Dollars ($175,000,000) by wire transfer of immediately available funds at
the Closing, to an account or accounts designated at least two Business
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Days prior to the Closing Date by AOL by written notice to WorldCom,
subject to the following adjustments: (A) the adjustment with respect to
the AOL Unvested Stock Options as provided in Section 1.9(a), (B) the
adjustment with respect to the WorldCom (ANS) Stock Options as provided in
Section 1.9(b), (C) an adjustment in favor of AOL in the amount of Two
Million Five Hundred Thousand Dollars ($2,500,000), representing a
reimbursement of expenses incurred by AOL in connection with discussions,
negotiations and other actions concerning the previously-contemplated
transaction with CompuServe, and (D) an adjustment in favor of WorldCom in
the amount of Five Million Dollars ($5,000,000) relating to amounts to be
paid to certain employees of ANS as provided in Section 1.6(a), plus
customary additional employer direct costs incurred by ANS resulting from
such payments to employees such as the employer portion of FICA payments
(but not including withholding taxes);
(ii) WorldCom shall cause CompuServe, CompuServe-Ohio and other
appropriate CompuServe Entities to execute and deliver to AOL and/or its
designee or designees at the Closing a bill or bills of sale in
substantially the form attached hereto as Exhibit A (the "Bill of Sale")
and other appropriate instruments of transfer, pursuant to which CompuServe
shall sell, convey, assign and deliver to AOL and/or its designee or
designees all right, title and interest of CompuServe, CompuServe-Ohio and
other appropriate CompuServe Entities in and to the CompuServe Assets; and
(iii) WorldCom shall, and shall cause CompuServe, CompuServe-Ohio and
the other appropriate CompuServe Entities to, execute and deliver to AOL
and/or its designee or designees at the Closing, and AOL shall execute and
deliver to CompuServe, the appropriate CompuServe Entities and WorldCom at
the Closing, the Assignment and Assumption Agreement in substantially the
form attached hereto as Exhibit B (the "Assignment and Assumption
Agreement").
1.4 Delayed Assets and Liabilities.
(a) WorldCom shall use all reasonable efforts to secure all necessary
consents and approvals in order to transfer all of the CompuServe Assets on the
Closing Date as provided herein. However, to the extent that any such required
consent or waiver with respect to the transfer of a contract or other instrument
or obligation included in the CompuServe Assets has not been obtained on or
prior to the Closing Date, such contract or other instrument or obligation (a
"Delayed Asset") shall not be transferred hereunder if so determined by
WorldCom, and any related liability that constitutes a CompuServe Liability (a
"Delayed Liability"), shall not be assumed hereunder by AOL other than to the
extent provided herein unless and until such required consent or waiver has been
obtained. WorldCom shall advise AOL in writing, not later than the second
Business Day prior to the scheduled Closing Date, of any CompuServe Assets which
it anticipates will be Delayed Assets, and shall identify any related Delayed
Liabilities.
(b) If there are any Delayed Assets, WorldCom will, and will cause
CompuServe and the CompuServe Entities to, use all reasonable efforts to provide
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AOL with the intended benefits under or of any such Delayed Asset, and (to the
extent that AOL is so provided with the benefits thereof), AOL shall assume, pay
and perform any corresponding Delayed Liabilities.
(c) Following the Closing, the parties shall cooperate in good faith in
order to secure any necessary consents or waivers for the transfer of any
Delayed Assets and Delayed Liabilities, or to enter into other arrangements
which will reflect as nearly as possible the respective benefits and obligations
that would have been in effect had the Delayed Assets and Delayed Liabilities
been transferred and assumed on the Closing Date. Any out-of-pocket expenses
reasonably incurred by the parties in taking the actions referred to in this
paragraph (c) shall be paid by WorldCom. At such time and on each occasion
after the Closing Date that a required consent or waiver shall be obtained with
respect to a Delayed Asset, such Delayed Asset shall forthwith be transferred
and assigned to AOL, and all related Delayed Liabilities shall be simultaneously
assumed by AOL hereunder, whereupon (i) such Delayed Asset shall constitute for
all purposes a CompuServe Asset acquired hereunder and (ii) such Delayed
Liabilities shall constitute for all purposes CompuServe Liabilities assumed
hereunder. Prior to any such transfer of Delayed Assets, WorldCom shall use all
reasonable efforts to preserve and maintain the value of such Delayed Assets in
all material respects, and shall pay all liabilities which become due in respect
of such Delayed Assets prior to the transfer thereof to AOL or its designee(s).
(d) On the earliest to occur of (i) one year following the Closing Date,
(ii) the date on which a Delayed Asset or Delayed Liability is transferred
hereunder and (iii) the time when the parties shall conclude that any Delayed
Asset or Delayed Liability will not be transferred for any reason, then WorldCom
shall, or shall cause a WorldCom Entity to, pay to AOL or its designee an amount
sufficient to compensate it for the loss incurred by it (net of the benefit
resulting from discharge of its obligation in respect of the related Delayed
Liability) resulting from such failure to transfer such Delayed Asset and
Delayed Liability, including interest on the amount of such loss from the
Closing Date to the date of payment, compounded daily, at the prime or base rate
of interest announced from time to time by NationsBank of Texas, N.A. For
purposes of this paragraph (d), the loss incurred by AOL or its designee shall
be deemed to be the excess, if any, of the value of the CompuServe Assets and
the CompuServe Online Services Business as of the Closing Date (after taking
into account the assumption of the CompuServe Liabilities) over the value of the
assets and rights actually transferred to AOL or its designee or designees
hereunder (after taking into account the CompuServe Excluded Assets). The
determination of such value shall take into account any decrease in the overall
value of the CompuServe Assets and the CompuServe Online Services Business which
may result from the absence of or delay in delivering such Delayed Assets, but
shall not otherwise take into account any indirect or consequential damages.
Such payment by WorldCom or a WorldCom Entity shall constitute the sole remedy
of AOL and its designees in respect of the delay in delivery or failure to
deliver the applicable Delayed Assets.
1.5 CompuServe Transitional Matters. In connection with, and in order to
facilitate the implementation of, the CompuServe Transfer, the following
transitional arrangements, requirements and adjustments shall be applicable (for
purposes of this Section 1.5, the term "CompuServe Online Services Business" for
the period of time prior to the Effective Time shall mean the business referred
to in Exhibit C hereto as "CSI"):
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(a) Employees. All employees of CompuServe-Ohio and other CompuServe
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Entities who are employed as such immediately prior to the Effective Time and
whose respective primary responsibilities are any of the following shall be
employed or offered employment, immediately after the Effective Time, by AOL or
its designee or designees: (i) general management of the CompuServe Online
Services Business, (ii) supporting and operating the CompuServe Online Service
Business and/or CompuServe's Sprynet business ("Sprynet") including but not
limited to content creation and hosting, (iii) general and administrative duties
in MIS, operations and billing, (iv) duties in other departments headed by the
Vice President, Technical Operations (except those primarily supporting the
electronic tax filing and rapid refund line of business), or (v) other general
and administrative duties relating to the provision of finance, administration
and legal support primarily to the CompuServe Online Services Business and/or
Sprynet. Employees whose primary responsibilities relate substantially equally
to the CompuServe Online Service Business and/or Sprynet, on the one hand, and
other CompuServe business activities, including but not limited to network
services but excluding Sprynet, on the other hand, shall be allocated employee-
by-employee substantially equally between AOL and/or its designee or designees,
on the one hand, and CompuServe and/or any one or more of the CompuServe
Entities, on the other hand, in accordance with the process set forth in the
immediately following subsection (c).
(b) Allocation of Facilities and Other Assets. CompuServe-Ohio shall
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transfer, or cause to be transferred by CompuServe or appropriate other
CompuServe Entities, to AOL and/or its designee or designees subject to Section
1.4, all as provided in Sections 1.3(b)(ii) and (iii), subject to related
CompuServe Liabilities, the Assets (which shall constitute CompuServe Assets)
identified in paragraphs 2, 3, 6 and 7 of that part of the memorandum attached
hereto as Exhibit C captioned "Cost Allocation and Inter-Company Service
Arrangements - CSI" and in Attachments 1 and 2 thereto. Without limiting the
generality of the foregoing, such allocation of assets shall include the
allocation of rights under and with respect to leases of real estate and/or
tangible assets and interests in such leased real property and tangible assets.
(c) Allocation Process. In making the allocations provided for in the
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immediately preceding paragraphs (a) and (b), each of AOL and WorldCom shall
have equal access to the CompuServe employees and Assets who and which are the
subjects of such allocations, including rights to conduct audits. If any
disagreement arises as to the allocation of any employee or Assets which cannot
be resolved by agreement within 10 days after either party gives notice to the
other that it disagrees with a proposed allocation, the dispute shall be
submitted to final and binding arbitration in accordance with the provisions of
this Section 1.5 and the Commercial Rules of the American Arbitration
Association before an arbitrator mutually satisfactory to AOL and WorldCom
selected by them within an additional 10 days after the giving of such notice
or, if they shall not agree on such selection, selected by an Arbiter chosen
under the procedures specified in paragraph (d)(ii) below. The decision of such
arbitrator shall be final and binding.
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(d) CompuServe Net Working Capital and Cash; Long-Term Liabilities.
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(i) Within 30 days after the Closing Date, AOL shall prepare and
deliver to WorldCom a consolidated balance sheet (the "COLS Closing Date
Balance Sheet") of the CompuServe Online Services Business, as transferred
to AOL or its designee(s) on the Closing Date, including the CompuServe
Assets and the CompuServe Liabilities, prepared on a basis consistent with
the pro forma balance sheet which is attached hereto as Attachment 1 to
Exhibit C (the "Pro Forma Balance Sheet"), which shall show, among other
things, net current assets and net current liabilities after taking into
account all transfers made on the Closing Date as contemplated by this
Agreement. AOL shall confer with WorldCom with respect to the preparation
of the COLS Closing Date Balance Sheet, and WorldCom shall have the right
to review all work papers and supporting documentation.
(ii) If WorldCom disputes the COLS Closing Date Balance Sheet
delivered by AOL, WorldCom shall deliver a "Notice of Dispute" to AOL not
more than thirty (30) days after the date WorldCom receives the COLS
Closing Date Balance Sheet. Upon receipt of a Notice of Dispute, AOL shall
promptly consult with WorldCom with respect to its specified points of
disagreement in an effort to resolve the dispute. If any such dispute
cannot be resolved by AOL and WorldCom within ten (10) days after AOL
receives the Notice of Dispute, AOL and WorldCom shall refer the dispute to
the Arbiter hereinafter referred to who shall serve as an arbitrator to
finally determine, as soon as practicable, all points of disagreement with
respect to the COLS Closing Date Balance Sheet. The Arbiter shall be a
partner in the New York office of Price Waterhouse chosen by mutual
agreement of the parties; provided that, if Price Waterhouse shall, at the
time, be serving as the independent public accountants of either WorldCom
or AOL or shall otherwise have a material relationship with either of them,
then the Arbiter shall be a partner at the New York office of KPMG Peat
Marwick chosen by mutual agreement of the parties and if KPMG Peat Marwick
shall have such a material relationship, a partner at another accounting
firm mutually satisfactory to WorldCom and AOL. The Arbiter shall apply
the terms of this Section and shall conduct the arbitration in New York
City at a location or locations to be determined by the Arbiter under such
procedures as the parties may agree or, failing such agreement, under the
Commercial Rules of the American Arbitration Association. The fees and
expenses of the arbitration and the Arbiter incurred in connection with the
arbitration of the COLS Closing Date Balance Sheet shall be allocated
between the parties by the Arbiter in proportion to the extent either party
did not prevail on items in dispute in the COLS Closing Date Balance Sheet,
provided that such fees and expenses shall not include, as long as a party
complies in all material respects with the procedures of this Section, the
other party's outside counsel or accounting fees. All determinations by
the Arbiter shall be final, conclusive and binding with respect to the COLS
Closing Date Balance Sheet and the allocation of arbitration fees and
expenses.
(iii) In the event that, as of the Closing Date, (x) the
CompuServe Online Services Business shall have working capital, calculated
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as the excess, if any, of total current assets less total current
liabilities, as shown on the COLS Closing Date Balance Sheet prepared on a
basis consistent therewith ("Net Working Capital"), which is less than Five
Million Dollars ($5,000,000) and/or (y) the CompuServe Online Service
Business shall have actual cash on hand in an amount which is less than
Fifteen Million Dollars ($15,000,000), as reflected on the COLS Closing
Date Balance Sheet so prepared, then WorldCom or CompuServe shall pay to
AOL an amount equal to such shortfall in Net Working Capital or cash on
hand, as the case may be, if there shall be only one of such requirements
which shall not have been met, or the greater of the two shortfalls if both
of such requirements shall not have been met, by wire transfer of
immediately available funds not more than three Business Days after the
final determination thereof. If both such requirements shall have been
met, neither WorldCom nor CompuServe shall be required to make any such
payment to AOL, and in any case AOL shall not be required to make any
payment to WorldCom or CompuServe in respect of Net Working Capital or cash
on hand, whether or not there shall have been, as of the Closing Date, any
amount of Net Working Capital and/or cash on hand of the CompuServe Online
Services Business in excess of either or both of such requirements, as
reflected on the COLS Closing Date Balance Sheet or otherwise.
(iv) The CompuServe Liabilities assumed by AOL shall not include
any long-term liabilities (which, for purposes hereof, shall not include
operating leases), as of the Closing Date as reflected on the COLS Closing
Date Balance Sheet or otherwise. If, notwithstanding such prohibition, any
long-term liabilities are included with the CompuServe Online Services
Business, WorldCom shall assume and indemnify AOL and/or its designee or
designees from and against any and all Losses and Expenses which AOL and/or
its designee or designees may incur as a result of or in connection
therewith.
1.6 ANS Transitional Matters. Similarly, in order to facilitate the
implementation of the ANS Transfer, the following transitional arrangements,
requirements and adjustments shall be applicable:
(a) Employees. All employees of ANS or any ANS Entity who are
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employed as such immediately prior to the Effective Time shall continue to be
employed or offered employment by ANS or such ANS Entity immediately after the
Effective Time, all as more particularly provided in Section 5.13. At the
Closing, ANS has agreed to and shall pay retention bonuses to the employees
named on Schedule 1.6 for continued service during the period from the signing
of the AOL Agreement through the Closing.
(b) Retention of Assets; Exceptions. In accordance with the terms of
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Exhibit C hereto, ANS shall own and retain the ANS Assets, as reflected on the
ANS Closing Date Balance Sheet (as hereinafter defined), except that, for no
additional consideration other than the benefits to ANS and WorldCom under this
Agreement, (i) ANS shall grant to AOL a perpetual paid-up license to any network
management software and network software source code which it or any ANS Entity
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owns or has any interest in at the Effective Time and any modifications thereto
that shall have been theretofore developed internally or customized by ANS, and
ANS shall provide AOL with documentation for such software and access to key ANS
personnel for consulting services related to such software for a period of nine
months after the Effective Time on the basis of ANS's actual cost plus 10% and
(ii) ANS shall assign and transfer to AOL and/or its designee or designees all
of its rights with respect to leased equipment used for ANS's Web-caching
system, which license and leased equipment rights shall constitute ANS Excluded
Assets. Further, after the date hereof but prior to the Effective Time, ANS
shall sell and lease back equipment which it has previously purchased and such
leases shall continue to be held by ANS after the Effective Time, it being
understood and agreed that an amount equal to the amount of any deposits paid by
AOL in connection with the purchase by ANS of such equipment will be paid by ANS
or WorldCom to AOL prior to or at the Effective Time or settled in connection
with the settlement of inter-company accounts as provided in Section 2.2. At
the Effective Time, for no additional consideration other than the benefit to
AOL under this Agreement, AOL shall assign and transfer to ANS all of AOL's
rights under leases for modems leased to AOL for equipment operated by ANS, and
WorldCom and ANS shall assume and indemnify AOL from and against any and all
Losses and Expenses which AOL may incur after the Effective Time as a result of
or in connection therewith.
(c) ANS Net Working Capital and Cash; Long-Term Liabilities.
--------------------------------------------------------
(i) Within 30 days after the Closing Date, WorldCom or ANS shall
prepare and deliver to AOL a consolidated balance sheet of ANS and the ANS
Entities (the "ANS Closing Date Balance Sheet"), prepared on a basis
consistent with the June 30, 1997 balance sheet of ANS included in Schedule
3.5, which shall show, among other things, net current assets and net
current liabilities. WorldCom shall confer with AOL with respect to the
preparation of the ANS Closing Date Balance Sheet, and AOL shall have the
right to review all work papers and supporting documentation.
(ii) If AOL disputes the ANS Closing Date Balance Sheet delivered
by WorldCom or ANS, AOL shall deliver a "Notice of Dispute" to WorldCom not
more than thirty (30) days after the date AOL receives the ANS Closing Date
Balance Sheet. Upon receipt of a Notice of Dispute, WorldCom shall
promptly consult with AOL with respect to its specified points of
disagreement in an effort to resolve the dispute. If any such dispute
cannot be resolved by WorldCom and AOL within ten (10) days after WorldCom
receives the Notice of Dispute, WorldCom and AOL shall refer the dispute to
the Arbiter referred to in Section 1.5(d), who shall serve as an arbitrator
under the procedures specified in such Section and applying the terms of
such Section, to finally determine, as soon as practicable, all points of
disagreement with respect to the ANS Closing Date Balance Sheet. All
determinations by the Arbiter shall be final, conclusive and binding with
respect to the ANS Closing Date Balance Sheet and the allocation of
arbitration fees and expenses.
(iii) In the event that, as of the Closing Date, ANS shall have
negative working capital (that is, an excess of current liabilities over
current assets, as shown on the ANS Closing Date Balance Sheet, referred to
below as "Negative Working Capital"),
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calculated after and having given effect to the payment and settlement of
inter-company accounts as provided in Section 2.2, in excess of Thirty-Six
Million One Hundred Thousand Dollars ($36,100,000), then AOL shall pay to
WorldCom an amount equal to the amount by which ANS Negative Working
Capital exceeds Thirty-Six Million One Hundred Thousand Dollars
($36,100,000), by wire transfer of immediately available funds not more
than three Business Days after the final determination thereof. If ANS
Negative Working Capital shall be equal to or less than Thirty-Six Million
One Hundred Thousand Dollars ($36,100,000) or there shall be no Negative
Working Capital, AOL shall not be required to make any payment to WorldCom
in respect of Negative Working Capital.
(iv) ANS shall not have any long-term liabilities as of the
Closing Date (it being understood that for purposes hereof operating leases
shall not constitute long-term liabilities), as reflected on the ANS
Closing Date Balance Sheet or otherwise; provided that, notwithstanding
such prohibition, if it does have any such long-term liabilities at such
time, AOL shall assume and indemnify WorldCom and ANS from and against any
and all Losses and Expenses which they or either of them may incur as a
result of or in connection therewith.
1.7. Employee Severance Obligations.
(a) AOL shall reimburse WorldCom for all severance payments and other
expenses reasonably incurred by WorldCom, in accordance with its (or AOL's)
customary employment practices, in respect of any employees of ANS or any ANS
Entity whose employment is terminated for any reason within six months following
the Closing, up to an aggregate of $25,000,000 for all such payments under this
paragraph (a). In respect of any such employees whose employment is so
terminated within such six-month period, WorldCom shall provide them with cash
severance payments substantially equivalent to the payments they would have been
entitled to under the AOL severance policy, a copy of which is attached hereto
as Schedule 1.7(a), and they shall be entitled to participate in any other
severance benefits offered by WorldCom to its employees which correspond to
severance benefits offered to ANS employees by either AOL or ANS prior to the
Closing, and otherwise in accordance with the terms and limitations of such
WorldCom benefit programs.
(b) WorldCom shall reimburse AOL for all severance payments and other
expenses reasonably incurred by AOL, in accordance with its (or CompuServe's)
customary employment practices, in respect of any employees of CompuServe or any
CompuServe Entity who is a part of the CompuServe Online Services Business and
who is hired as a result of the transactions provided herein, whose employment
is terminated by AOL for any reason within six months following the Closing, up
to an aggregate of $25,000,000 for all such payments under this paragraph (b).
1.8 Allocation of Consideration. With respect to the allocation of the
consideration exchanged pursuant to the terms of this Agreement, the parties
agree to timely file all forms required under applicable Tax law including the
forms to be filed under Code (S)1060(e).
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1.9 Treatment of ANS and AOL Options. (a) At the Effective Time, WorldCom
shall cause each director, employee or consultant of ANS or any ANS Entity who
is a holder of a then-outstanding, unexercised and unvested AOL stock option
(the "AOL Unvested Stock Options") to receive, without any action on the part of
the holder thereof, options to purchase shares of WorldCom Common Stock
("WorldCom Stock Options") having the same terms and conditions as the AOL
Unvested Stock Options including such terms and conditions as may be
incorporated by reference into the agreements evidencing AOL Unvested Stock
Options pursuant to the AOL Stock Plans under which such AOL Unvested Stock
Options were granted, subject to adjustment as follows: (i) the Average Trading
Price for the AOL Common Stock shall be divided by the Average Trading Price for
the WorldCom Common Stock, and the result shall be the "Adjustment Factor"; (ii)
the exercise price applicable under each AOL Unvested Stock Option shall be
divided by the Adjustment Factor and (iii) the number of shares issuable upon
exercise shall be multiplied by the Adjustment Factor. To the extent that any of
the AOL Unvested Stock Options were incentive stock options within the meaning
of Section 422 of the Code, the WorldCom Stock Options shall also be incentive
stock options pursuant to and to the extent permitted by Section 424(a) of the
Code. WorldCom shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Common Stock of WorldCom for delivery upon the
exercise of WorldCom Stock Options after the Effective Time. Promptly after the
Effective Time, WorldCom shall file or cause to be filed all registration
statements on Form S-8 or other appropriate form as may be necessary in
connection with the purchase and sale of Common Stock of WorldCom contemplated
by such WorldCom Stock Options subsequent to the Effective Time. AOL shall pay
to WorldCom, through a reduction in the Cash Consideration, an amount equal to
50% of the Option Value of such AOL Unvested Stock Options. "Option Value"
means, for this purpose, the Average Trading Price for the WorldCom Common Stock
minus the option exercise price under the WorldCom Stock Options.
(b) At the Effective Time, WorldCom shall cause the persons listed on
Schedule 1.9 to receive, in exchange for the then-outstanding and unexercised
options to acquire ANS shares which are listed on such Schedule, options to
purchase shares of WorldCom Common Stock ("WorldCom (ANS) Stock Options") in
exchange for such unexercised options, having the terms specified on such
Schedule and otherwise in accordance with the terms applicable to stock options
offered to other WorldCom employees under the WorldCom, Inc. 1997 Stock Option
Plan, subject to adjustment as follows: (i) the value of a share of ANS stock,
which is agreed to be $41.6410, shall be divided by the Average Trading Price
for the WorldCom Common Stock, and the result shall be the "Adjustment Factor";
(ii) the exercise price applicable under each ANS stock option shall be divided
by the Adjustment Factor and (iii) the number of shares issuable upon exercise
shall be multiplied by the Adjustment Factor. To the extent that any such AOL
stock options were incentive stock options within the meaning of Section 422 of
the Code, the WorldCom Stock Options shall also be incentive stock options
pursuant to and to the extent permitted by Section 424(a) of the Code. WorldCom
shall take all corporate action necessary to reserve for issuance a sufficient
number of shares of Common Stock of WorldCom for delivery upon the exercise of
WorldCom (ANS) Stock Options after the Effective Time. Promptly after the
Effective Time, WorldCom shall file or cause to be filed all registration
statements on Form S-8 or other appropriate form as may be necessary in
connection with the purchase and sale of
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Common Stock of WorldCom contemplated by such WorldCom (ANS) Stock Options
subsequent to the Effective Time. In consideration for the issuance of such
WorldCom (ANS) Stock Options, AOL shall pay to WorldCom, through a reduction in
the Cash Consideration, an amount equal to 25% of the Option Value of such
WorldCom (ANS) Stock Options. "Option Value" means, for this purpose, the
Average Trading Price of the WorldCom Common Stock minus the option exercise
price under the WorldCom (ANS) Stock Options.
1.10 Treatment of CompuServe Options. AOL shall determine the extent to
which, and the terms on which, it may make stock options available to employees
of the CompuServe Online Services Business who are employed by AOL, whether in
exchange for existing options issued by CompuServe or otherwise, and WorldCom
shall have no liability in respect thereof. All severance and other obligations
relating to employees of the CompuServe Online Services Business (whether or not
AOL chooses to offer them employment) shall be a part of the CompuServe
Liabilities, subject to the provisions of Section 1.7.
1.11 Adjustment Based on Material Adverse Change. If, as of the Closing,
there shall have been a Material Adverse Change with respect to the CompuServe
Online Services Business, then WorldCom shall, or shall cause a WorldCom Entity
to, pay to AOL or its designee(s), promptly following the Closing Date, an
amount sufficient to compensate it for the loss incurred by it resulting from
such Material Adverse Change. For purposes of this Section 1.11, the loss
incurred by AOL or its designee(s) shall be deemed to be the excess, if any, of
the value that the CompuServe Assets and the CompuServe Online Services Business
would have had as of the Closing Date over the value thereof after taking into
account such Material Adverse Change (and after taking into account, in each
case, any effect on the CompuServe Liabilities to be assumed by AOL or its
designee or designees as provided herein). The determination of such value after
taking into account such Material Adverse Change shall take into account any
decrease in the overall value of the CompuServe Assets and the CompuServe Online
Services Business resulting from such Material Adverse Change, but shall not
otherwise take into account any indirect or consequential damages. Such payment
by WorldCom or a WorldCom Entity shall constitute the sole remedy of AOL and its
designees in respect of the applicable Material Adverse Change referred to in
this Section 1.11.
ARTICLE II
ASSET TRANSFER; SETTLEMENT OF INTERCOMPANY ACCOUNTS
2.1 Transfer of Assets. AOL and ANS agree that, prior to the Closing, any
ANS Network Assets, including without limitation modems, owned by or in the
possession of AOL or any AOL Entity (including shared Assets as shown on
Schedule 2.1) will be transferred and contributed for no additional
consideration to ANS in accordance with the provisions of Section 1.6; provided,
however, that such shared Assets shall not include (x) Assets held under any AOL
employee benefit plans, such as life insurance policies and deferred
compensation plans for the benefit of ANS or ANS Entity employees (provided AOL
shall remain responsible for providing any payments or other benefits accrued,
earned or vested thereunder as of the Closing), or (y) any other AOL insurance
policy (except, in the case of clauses (x) and (y), any pre-paid benefits or
coverage under insurance policies which inure to ANS or employees of ANS or any
ANS
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Entities and coverage with respect to such policies for accrued or past claims
or losses). In connection with such transfers, AOL agrees to use all reasonable
efforts to obtain any required consents, approvals or waivers. Subject to the
provisions of Section 7.2(b), to the extent that any such ANS Network Assets
have not been so contributed to ANS prior to or at the Closing, AOL shall, and
shall cause the other AOL Entities to, use all reasonable efforts, including
acting after the Closing and to the maximum extent permitted by law as ANS's
agent, effectuate such transfer and contribution to ANS as soon as practicable
after the Closing for no additional consideration.
2.2 Intercompany Accounts. Immediately prior to the Closing, AOL and each
AOL Entity shall pay all amounts they then owe to ANS or any ANS Entity
(including all amounts owed to ANS pursuant to any Tax sharing agreement), and
ANS and each ANS Entity shall pay all amounts they then owe to AOL or any AOL
Entity (with offsetting amounts to be offset so that only a single net payment
shall be made between any two such parties). To the extent that any such amounts
have not been paid prior to or at the Closing, the obligor shall, as soon as
practicable following the Closing, pay all such unpaid amounts together with
interest thereon, compounded daily, at the prime or base rate of interest
announced from time to time by NationsBank of Texas, N.A. Except as set forth on
Schedule 2.2, there are no amounts owing from ANS or any ANS Entity to AOL or
any AOL Entity, or from AOL or any AOL Entity to ANS or any ANS Entity. If ANS
or an ANS Entity shall owe any such amounts to AOL or an AOL Entity at the
Closing, WorldCom shall cause the necessary funds to be advanced to ANS or such
ANS Entity to provide for such repayment as provided in this Section.
2.3 Release of Claims. (a) Except as set forth in Schedule 2.3(a) or as
provided in Section 1.5 (including Exhibit C referred to therein), immediately
prior to the Effective Time, AOL, for itself and on behalf of each of the AOL
Entities, releases and forever discharges ANS from any and all claims, demands,
proceedings, causes of action, orders, obligations, contracts, agreements,
debts, and liabilities whatsoever, that AOL or any AOL Entity now has, has ever
had, or may hereafter have against ANS arising prior to the Effective Time or on
account of or arising out of any matter, cause, or event occurring immediately
prior to the Effective Time, including, but not limited to, any rights to
indemnification, contribution or reimbursement from ANS, and whether or not
relating to claims pending prior to, on, or asserted after, the Effective Time.
Further, AOL and each of the AOL 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 ANS based upon any matter purported to be released hereby.
(b) Effective as of the Effective Time, WorldCom, for itself and on behalf
of each of the WorldCom Entities (including ANS after the Closing), releases and
forever discharges AOL from any and all claims, demands, proceedings, causes of
action, orders, obligations, contracts, agreements, debts, and liabilities
whatsoever, that WorldCom or any WorldCom Entity now has, has ever had, or may
hereafter have against AOL arising prior to the Effective Time or on account of
or arising out of any matter, cause, or event described on Schedule 2.3(b),
except for any of the foregoing which is based on a Third Party Claim; provided,
that this paragraph shall not be deemed to limit or affect the rights of
WorldCom in respect of any Third Party Claim
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pursuant to Section 5.2. Further, WorldCom and each of the WorldCom 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 AOL based upon any
matter purported to be released hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES REGARDING AOL AND ANS
AOL and ANS, jointly and severally, hereby make the following
representations and warranties to WorldCom:
3.1 Organization, Existence and Good Standing. AOL is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. ANS is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Each of ANS and
the ANS Entities 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. Each of ANS and the ANS Entities
has all necessary corporate power and authority to own, lease and operate its
properties and to conduct its business as currently conducted. Each of ANS and
the ANS Entities is duly qualified to do business as a foreign corporation 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. AOL has made available to WorldCom
complete and correct copies of its, ANS's and each ANS Entity's Certificate of
Incorporation (or equivalent charter document) and Bylaws, in each case as
amended to the date of this Agreement.
3.2 ANS Capital Stock Ownership of ANS Entities; Investments. ANS's
authorized and issued capital stock is as shown on Schedule 3.2(a). All shares
shown on such Schedule as owned by AOL have been duly authorized and validly
issued, are owned by and registered in the name of AOL, free and clear of all
Liens and Other Encumbrances except as shown on Schedule 3.2(b) (all of which
Liens or Other Encumbrances shown on such Schedule shall be released and
discharged at or prior to the Closing), and are fully paid and non-assessable.
Other than the rights created pursuant to this Agreement and except as shown on
Schedule 3.2(c), there are no options, warrants, debt securities or other
agreements, instruments or securities outstanding which are convertible into, or
which grant the holder thereof or any other person the right to acquire, any
securities of ANS.
3.3 Ownership of ANS Entities' Capital Stock; Investments. (a) ANS owns
(directly or through one or more ANS Entities as set forth on Schedule
--------
3.3(a)(i), 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 ANS Entities as set forth on Schedule 3.3(a)(i), all of which
------------------
shares or other securities or interests are duly authorized, validly issued and
outstanding, fully paid and non-
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assessable, and free and clear of all Liens or Other Encumbrances except as
shown on Schedule 3.3(a)(ii) (all of which Liens or Other Encumbrances shown on
such Schedule shall be released and discharged at or prior to the Closing). As
of the date of this Agreement, except as set forth on Schedule 3.3(a)(ii), there
-------------------
are no preemptive rights, options, warrants or similar rights granted by ANS or
any ANS Entity in respect of shares of capital stock or other securities of or
interests in the ANS Entities or any agreements to which ANS or any ANS Entity
is a party providing for the issuance or sale by ANS or any ANS Entity of
capital stock or other securities of or interests in any ANS Entity. Except as
set forth on Schedule 3.3(a)(iii), there are no outstanding debt securities,
agreements or interests of any ANS Entity, or, other instruments issued by or to
which ANS, or any ANS Entity or, to the knowledge of AOL or ANS, any other
Person is a party, entitling the holders thereof or parties thereto to vote or
to direct or otherwise restrict the vote of the holders of the capital stock or
other securities of or interests in any ANS Entity or which are convertible into
or exchangeable for capital stock or other securities of or interests in any ANS
Entity. Except as set forth on Schedule 3.3(a)(iii), no capital stock or other
securities of or interests in any ANS 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 of or interests in any
ANS Entity.
(b) Except for the ANS Entities or as set forth on Schedule 3.3(b),
---------------
ANS and the ANS Entities do not own, beneficially or otherwise, any shares of
capital stock or other securities of 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) Each of the Selling Entities has full corporate power and authority to
execute, deliver and perform its obligations under this Agreement and all other
agreements and documents executed and delivered, or to be executed and
delivered, by it pursuant to this Agreement. Each of the Selling Entities has
taken all action required by its respective Certificate of Incorporation and
Bylaws to authorize the execution, delivery and performance of this Agreement
and all other agreements and documents executed and delivered, or to be executed
and delivered, by it pursuant to this Agreement and the consummation of the
transactions contemplated hereby and thereby, and the approval of the
stockholders of AOL is not required in connection therewith. The execution and
delivery of this Agreement by the Selling Entities do not and (except for
consents and waivers listed on Schedule 3.4(a), all of which will be received
prior to the Closing) the consummation of the transactions contemplated by this
Agreement by the Selling Entities will not (i) conflict with or violate any
provisions of their respective Certificates of Incorporation or Bylaws, or (ii)
constitute a breach of or default under or result in the creation of any lien,
charge or other encumbrance or Tax on or against any assets, rights or property
of AOL, ANS or any ANS Entity or give rise, with or without notice or lapse of
time, to any third-party right of termination, cancellation, material
modification or acceleration (other than under any AOL or ANS stock plan or
agreement described on Schedule 3.11) under any note, bond, mortgage, pledge,
lien, lease, agreement, license, commitment or instrument applicable to AOL, ANS
or any ANS Entity or to which AOL, ANS or any ANS Entity is a party
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or by which AOL, ANS or any ANS Entity is bound, or conflict with or violate any
restrictions of any kind to which any of them is subject, which breach, default,
lien, charge, 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 the Selling Entities from performing their
respective 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, 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 either of the Selling
Entities from performing their respective obligations hereunder in any material
respect. The execution and delivery of this Agreement have been approved by the
Board of Directors of each of the Selling Entities. This Agreement has been duly
executed and delivered by each of the Selling Entities and, assuming this
Agreement constitutes a valid and binding obligation of WorldCom, enforceable
against it in accordance with its terms, constitutes a valid and binding
obligation of each of the Selling Entities, enforceable against each of the
Selling Entities 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 the Selling Entities or any AOL Entity in connection with the
execution and delivery of this Agreement by the Selling Entities or the
consummation by the Selling Entities of the transactions contemplated by this
Agreement, except for (i) the filing of a pre-merger notification and report
form by AOL 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 and the transactions contemplated by this
Agreement, 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
either of the Selling Entities 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 Financial Information. Attached hereto as Schedule 3.5 are true,
complete and correct copies of (i) the unaudited consolidated balance sheet of
ANS as of June 30, 1997 (the "Balance Sheet") and the related statements of
income and cash flows (or the equivalent) for the fiscal year then ended
(collectively, the "Financial Statements") and (ii) the unaudited consolidated
balance sheet of ANS as of June 30, 1996 and the related statements of income
and cash flows (or the equivalent) for the fiscal year ended June 30, 1996
(together with the Financial Statements, the "ANS Financial Statements"). Each
of the ANS Financial Statements (including in all cases the notes thereto, if
any) presents fairly in all material respects the financial position, results of
operations and cash flows of ANS, including all applicable ANS Entities and the
ANS Network Services Business as of the times and for the periods referred to
therein, and such ANS Financial Statements (including all reserves included
therein) have been prepared in accordance with GAAP, consistently applied.
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3.6 Subsequent Events. Except as set forth on Schedule 3.6, neither ANS nor
any ANS Entity has, from the date of the Balance Sheet to the date hereof:
(a) Suffered any Material Adverse Change;
(b) Discharged or satisfied any Material lien or encumbrance, or paid,
satisfied or incurred any Material obligation or liability (absolute, accrued,
contingent or otherwise) other than (i) liabilities shown or reflected on the
Balance Sheet or (ii) liabilities incurred since the date of the 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;
(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance, any of the assets, tangible or intangible, which are Material to
the business, operations, properties, assets, liabilities or condition
(financial or otherwise) or prospects of ANS, the ANS Entities or the ANS
Network Services Business;
(e) Sold or transferred any of the ANS Network Assets Material to ANS or
the ANS Network Services Business 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 ANS, the ANS Entities or the ANS Network Services Business;
(f) Granted any general or uniform increase in the rates of pay of
employees or any increase in compensation payable or to become payable to any
director, officer or employee, consultant or agent of ANS, the ANS Entities or
the ANS Network Services Business (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 agent (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) Made any capital commitment which, when added to all other capital
commitments made on behalf of ANS, the ANS Entities or the ANS Network Services
Business since the date of the Balance Sheet, exceeds $25,000,000 in the
aggregate;
(i) Taken any action to (i) amend its Certificate of Incorporation or
Bylaws; (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 AOL's wholly owned subsidiaries to AOL or another of
AOL's wholly owned subsidiaries; or (iii) except as shown on Schedule 3.6(i),
issue, sell, transfer, pledge, dispose of or encumber, or redeem, purchase or
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otherwise acquire, directly or indirectly, 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
ANS or any ANS Entity;
(j) Adopted a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of ANS;
(k) 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
(l) Entered into any agreement, contract, commitment or arrangement to
take any of the actions contemplated in the foregoing clauses (b) through (k),
or authorized, recommended, proposed or announced an intention to take any such
action.
3.7 Legal Proceedings. Except as listed on Schedule 3.7, there is no suit,
claim, proceeding or investigation pending, or to the knowledge of either
Selling Entity, threatened against ANS, any of the ANS Entities or the ANS
Network Services Business or affecting the consummation of the transactions
contemplated by this Agreement which, if resolved adversely to ANS, any of the
ANS Entities or the ANS Network Services Business, would have a Material Adverse
Effect or which could prevent or materially delay the consummation of the
transactions contemplated by this Agreement. There are no Material judgments,
decrees, injunctions or orders of any Governmental Entity or arbitrator against
ANS or any of the ANS Entities or the ANS Network Services Business.
3.8 Contracts
(a) The Selling Entities have made available to WorldCom true and complete
copies of all outstanding Contracts Material to ANS. Except as otherwise
disclosed on Schedule 3.8(a), all of such Contracts are valid, binding and
enforceable in accordance with their terms (assuming the other parties thereto
are bound, as to which no Selling Entity 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), none
of AOL, ANS or any ANS Entity is, and to the knowledge of AOL, no other party to
such Contracts 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 AOL, ANS or any ANS Entity within 30 days without penalty,
there are no Contracts to which ANS is a party or by which ANS or any ANS Entity
is bound that: (i) contain 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 ANS or any ANS Entity
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upon or following the transactions contemplated by this Agreement, which
termination or adverse action would have a Material Adverse Effect; or (ii)
purport to limit ANS or any ANS Entity from providing any service in any
jurisdiction, whether under the ANS name, any ANS Entity name or WorldCom name
or otherwise (except under the name of AOL or any AOL Entity), or grant any
exclusive geographic, segment or other rights to any third-party, except where
the existence of which limitation or grant would not, after the Closing, have a
Material Adverse Effect.
(c) The Selling Entities have made available to WorldCom true and complete
copies of all agreements to which ANS or any ANS Entity is a party which are
material to the relationship of ANS or any ANS Entity with international
distributors, including those certain license and distributorship agreements
with international distributors into which the ANS or an ANS Entity or, to the
knowledge of AOL, any 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 no Selling Entity 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 AOL, no party to any International
Distribution Agreement is in material violation of the terms and provisions of
any such agreement, except for violations which would not have a Material
Adverse Effect.
(d) The Selling Entities and ANS Entities have made available to WorldCom
true and complete copies of the 10 largest (based upon annualized revenue as
estimated by AOL or ANS) contracts and agreements with customers of the network
services business of the ANS Network Services Business, which are identified on
Schedule 3.8(d). To the knowledge of AOL, each Network Services Agreement is
valid, binding and enforceable in accordance with its terms (assuming the other
parties thereto are bound, as to which AOL has no 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 AOL, 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 ANS or any
other ANS Entity and a Governmental Entity which is to be performed by or
through ANS or an ANS Entity and which accounted for at least 3% of the network
services revenues during the 12-month period ended June 30, 1997 (the
"Government Contracts"), true and complete copies of which have been made
available to WorldCom. To the knowledge of AOL, 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) and except as would not result
in a Material Adverse Effect, 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
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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 transaction contemplated
hereby, except any such as would not materially delay or impede such
consummation.
3.9 Accounts Receivable. Since the date of the Balance Sheet, neither AOL
nor ANS nor any other ANS Entity has materially changed any principle or
practice with respect to the recordation of accounts receivable of ANS, any ANS
Entity or the ANS Network Services Business or the calculation of reserves
therefor, or any material collection, discount or write-off policy or procedure
related thereto, except as required by GAAP or statutory accounting principles.
3.10 Taxes. Except as disclosed in Schedule 3.10:
(a) All federal, state, local and foreign Tax Returns required to be filed
by or on behalf of each of ANS and the ANS Entities 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 timely file,
request extension or 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 each of ANS and
the ANS Entities have been paid in full or adequately reserved in accordance
with GAAP on the ANS Financial Statements, 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
assessments (and no written notice of any such audit or inquiry has been
received) with respect to ANS or any other ANS 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 ANS or any ANS Entity that would be Material to ANS or
any ANS Entity;
(e) Neither ANS nor any ANS Entity has made any payment(s) since January 1,
1995, is obligated to make any payment(s) or is a party to any agreement that
could obligate it to make any payment(s) after the Closing that 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 ANS nor any ANS 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 ANS nor any ANS Entity
is a party to a tax sharing, tax indemnity or similar agreement (whether or not
in writing);
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(h) There are no Material Liens or Other Encumbrances with respect to Taxes
upon any of the assets or properties of ANS or any of the ANS Entities, other
than with respect to Taxes not yet due and payable;
(i) Neither ANS nor any ANS 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 AOL; and
(j) ANS is and will be as of the Closing Date a member of AOL's selling
consolidated group as defined in Treasury Regulation 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 the meaning of Treasury Regulation 1.338(h)(10)-1(c)(1).
3.11 Employee Benefit Plans; Employment Matters.
(a) Except as set forth on Schedule 3.11(a), and except as would not
have a Material Adverse Effect, neither AOL, nor ANS nor any ANS 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 or
director of ANS or any ANS Entity: (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 Employee Retirement Income Security Act of 1974, as amended ("ERISA"); or
(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. 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 "ANS 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, the Code, and the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (and any
similar statute of a state or other jurisdiction, domestic or foreign, if
applicable). With respect to each ANS Benefit Plan, AOL and ANS have made
available to WorldCom the following (to the extent they exist with respect to
such ANS 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
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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 AOL, ANS or any other AOL Entity (i) has resulted in a
"prohibited transaction" (as defined in ERISA) with respect to the ANS 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 ANS or any ANS Entity
pursuant to any provision of the Code or ERISA or any other applicable law. No
ANS 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 a lien on the property of
AOL, ANS or any AOL Entity under the provisions of Title IV of ERISA (other than
one or more liens that are disclosed in Schedule 3.11(a) or would not have a
Material Adverse Effect). Neither AOL, ANS nor any AOL 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 in which
ANS employees participate. AOL, ANS and each AOL Entity has made all
contributions or payments required under the terms of or in connection with all
ANS Benefit Plans or has properly reserved for such amounts on the Balance Sheet
except for amounts that would not be material. Except as disclosed on Schedule
3.11(a) no ANS Benefit Plan provides health and hospitalization or other medical
or life insurance benefits to terminated or retired employees or agents (other
than benefits mandated by applicable law). Neither AOL, ANS nor any other AOL
Entity has, with respect to any ANS employees, any obligation or commitment
(formal or informal) to create any new benefit plan or program in which
employees of ANS or any ANS Entities may participate, or to amend any existing
ANS Benefit Plan to increase the benefits thereunder. AOL, ANS and each AOL
Entity is in compliance with all requirements applicable to any retirement or
other employee benefit plan maintained for its non-United States ANS 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 Balance Sheet.
(b) Except as set forth on Schedule 3.11(b) or Schedule 5.13, neither
AOL, ANS nor any AOL Entity is a party to any oral or written (i) union, guild
or collective bargaining agreement which covers its employees in the United
States (nor is AOL or AOL aware of any union organizing activity currently being
conducted in respect to any of AOL's, ANS's or any ANS Entity's employees), (ii)
agreement with any officer or employee 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 $1,000,000
for all such officers and employees 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, to the extent that
any of the matters referred to in this paragraph (b) would affect ANS or any of
the ANS Entities.
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(c) None of the companies with which ANS 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.
(d) Each ANS Benefit Plan to which ANS is a party, other than the ANS
stock option plan, as it may apply to the participation of the ANS Employees,
may be amended or terminated by ANS or WorldCom on or at any time after the
Closing Date.
3.12 Compliance with Laws; Permits.
(a) Except as disclosed on Schedule 3.12, neither ANS nor any ANS Entity
(acting in connection with the ANS Network Services Business) 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 from any Governmental Entity of any
pending investigation or violation by ANS or any ANS Entity of, non-compliance
by ANS or any ANS Entity with or alleged liability of ANS or any ANS Entity
under, any such law, regulation, ordinance, judgment, decree or order has been
received by AOL, ANS or any ANS Entity, which, if it were determined that a
violation had occurred, would have a Material Adverse Effect.
(b) ANS and each ANS Entity possesses all Material Governmental
Authorizations necessary to enable it to conduct its business, including the ANS
Network Services 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. ANS and each
ANS 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 AOL nor ANS nor any ANS Entity has received any
notice or other communication from any Governmental Entity asserting (a) any
violation of or failure of ANS or any ANS Entity 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 held by ANS nor any ANS Entity, except where any such
violation, failure to comply, revocation, withdrawal, suspension, cancellation,
termination or modification would not have a Material Adverse Effect.
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3.13 Patents, Trademarks, Etc.
(a) Except as disclosed on Schedule 3.13 hereto, ANS and the ANS Entities
own, or will own prior to the Closing, free and clear of all Liens or Other
Encumbrances, or have, or will have prior to the Closing, the right to use,
sell, license or dispose of or otherwise has rights to use, such patents,
copyrights, trademarks, service marks, and applications and registrations
therefor, and trade names, trade secrets, customer lists, proprietary technology
processes and formulae, source code, object code, know-how, inventions, other
confidential and proprietary information, and other intellectual property rights
as are necessary to permit ANS and the ANS Entities to carry on the ANS Network
Services Business as currently conducted, 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 (the "ANS Rights"). Schedule 3.13 sets forth all
registered patents, copyrights, trademarks and service marks included in the ANS
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 AOL nor
any of the AOL Entities has licensed or granted to anyone the right to use the
name "ANS" or any other name associated with or used by AOL or any of the AOL
Entities in connection with the ANS Network Services Business. Except as set
forth on Schedule 3.13, none of AOL, ANS or any of the AOL Entities (i) has
licensed or granted to anyone rights of any nature to use any ANS Rights that
would limit the exercise of such ANS Rights by ANS or any ANS Entity against
such licensee or grantee if such licensee or grantee were to use the property
protected by such ANS Rights in competition with ANS or any ANS Entity or that
would limit or prevent ANS or any ANS Entity from using, selling, licensing or
disposing of ANS Rights in any market or geographic region, including in direct
competition with any licensee of such ANS Rights in such geographic region; (ii)
is obligated or pays royalties, fees or other payments to anyone for use of any
single ANS Right exceeding $2,000,000 in the aggregate; and (iii) has received
notice from any third party or otherwise has knowledge that any of ANS Rights or
any services or products marketed or sold by ANS or any AOL Entity in connection
with the ANS Network Services Business violates any intellectual property right
of a third party, except for such violations as would not have a Material
Adverse Effect. To the knowledge of either Selling Entity, there exists no
infringement by any third party of any ANS Rights that would have a Material
Adverse Effect and there is no pending or, to the knowledge of either Selling
Entity, threatened claim or litigation against AOL, ANS or any AOL Entity
contesting its use of any of ANS Rights, asserting the misuse of any of ANS
Rights, or asserting the infringement or other violation of any rights of a
third party, nor, to the knowledge of either Selling Entity 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, to AOL's knowledge, independent contractors of AOL, ANS or AOL Entity within
the scope of their employment or retention, as the case may be, and related to
the ANS Network Services Business 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, ANS or an AOL Entity, except where the
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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 ANS Rights, the alteration, impairment or extinguishing of which
would have a Material Adverse Effect. Following the consummation of the
transactions contemplated hereby, ANS and each ANS Entity will own, free and
clear of all Liens or Other Encumbrances, or have the exclusive right to use,
sell, license or dispose of or otherwise will have sufficient rights to use, ANS
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.
3.14 No Assets Held by AOL or AOL Entities. Except as set forth on Schedule
3.14, except for ANS Excluded Assets and except for assets held by AOL Entities
which are to be used by such entities pursuant to the Transition Services
Agreement in accordance with the terms thereof (none of which is Material to ANS
or the ANS Entities, including the ANS Network Services Business), immediately
after the Closing, (a) neither AOL nor any AOL Entity will hold or possess any
assets or rights (including contractual rights, patents, copyrights, trademarks,
service marks, and applications and registrations therefor, and trade names,
trade secrets, customer lists, proprietary technology processes and formulae,
source code, object code, know-how, inventions, other confidential and
proprietary information, and other intellectual property rights, but excluding
the technical knowledge, expertise and other know-how developed by AOL and the
AOL Entities in the course of their business prior to the Closing) principally
used in or necessary for the business of ANS or the ANS Entities, including the
ANS Network Services Business (all of which, prior to the Closing, will be
transferred and contributed to ANS in accordance with Section 2.1), and (b)
except as expressly provided herein, neither AOL nor any AOL Entity will be a
party to any contract, intellectual property license, lease, agreement or other
binding arrangement (including any intercompany contract, arrangement or
agreement with ANS or an ANS Entity) necessary to the business of ANS or an ANS
Entity.
3.15 Labor Matters. Neither ANS nor any ANS Entity nor AOL (in connection
with the ANS Network Services Business) is the subject of any proceeding (a)
asserting that AOL, ANS or any ANS Entity has committed an unfair labor practice
or (b) seeking to compel AOL, ANS or any ANS Entity to bargain with a labor
union or labor organization, and there are no pending or, to the knowledge of
either Selling Entity, threatened, nor has there been for the past five years
any, labor strike, dispute, walkout, work stoppage, slow-down or lockout
involving ANS or any ANS Entity or (in connection with the ANS Network Services
Business) any AOL Entity, except in each case as would not have a Material
Adverse Effect.
3.16 Insurance. AOL and/or ANS and/or each ANS Entity 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 AOL, and 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 ANS
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and each ANS Entity and the ANS Network Services Business or any properties
owned, occupied or controlled by ANS or AOL or any ANS Entity (in connection
with the conduct of the ANS Network Services Business), except for failures to
obtain or maintain as would not have a Material Adverse Effect.
3.17 Commissions and Fees. There are no valid claims for brokerage
commissions, investment bankers' fees or finder's or similar fees in connection
with the transactions contemplated by this Agreement which may be now or
hereafter asserted against WorldCom or ANS or any ANS Entity resulting from any
action taken by AOL, ANS, any ANS Entity or their stockholders, directors,
officers, employees or agents.
3.18 Real Property. ANS and the ANS Entities own no real estate except as
shown on Schedule 3.18. The real estate occupied by ANS and the ANS Entities is
held under leases, which ANS lease obligations are guaranteed by AOL, each as
described on such Schedule, each of which is in full force and effect in
accordance with its terms, and each of AOL, ANS and the ANS Entities are in
compliance in all material respects with their respective obligations
thereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES REGARDING WORLDCOM
WorldCom hereby makes the following representations and warranties to AOL
and ANS:
4.1 Organization, Existence and Good Standing. WorldCom is a corporation
duly organized and validly existing 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. WorldCom is duly
qualified to do business as a foreign corporation 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.
4.2 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 and all other agreements and
documents executed and delivered, or to be executed and delivered, by it
pursuant to this 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 and such related agreements and 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 and such other agreements do not and the consummation of the
transactions contemplated by this Agreement and such other agreements will not
(i) conflict with or violate any provisions of the Second Amended and
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Restated Articles of Incorporation or Bylaws of WorldCom, (ii) constitute a
breach of or default under or result in the creation of any lien, charge or
other encumbrance 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 to which WorldCom is a party
or by which WorldCom is bound, or conflict with or violate any restrictions of
any kind to which it is subject, which breach, default, lien, charge,
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 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
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 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
and the transactions contemplated hereby have been approved by the Board of
Directors of WorldCom. This Agreement has been duly executed and delivered by
WorldCom and, assuming this Agreement constitutes the valid and binding
obligations of AOL and ANS enforceable against them in accordance with its
terms, constitutes 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 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 such reports under the Exchange Act as may
be required in connection with this Agreement and the transactions contemplated
by this Agreement, 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
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.
4.3 Legal Proceedings. There is no suit, claim, proceeding or investigation
pending or, to the knowledge of WorldCom, threatened against WorldCom or any
WorldCom Entity, CompuServe, CompuServe-Ohio or any other CompuServe Entity
affecting the consummation of the transactions contemplated hereby which, if
resolved adversely to any of them, would have a Material Adverse Effect with
respect to WorldCom or the CompuServe Online Services Business, or which could
prevent or materially delay the consummation of the transactions contemplated by
this Agreement. Except as set forth on Schedule 4.3, there are no Material
judgments, decrees, injunctions or orders of any Governmental Entity or
arbitrator against
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WorldCom or any WorldCom Entity, CompuServe, CompuServe-Ohio or any other
CompuServe Entity.
4.4 No Vote Required. No vote of the holders of any class or series of
WorldCom capital stock is necessary to approve this Agreement or the
consummation of the transactions contemplated hereby.
4.5 Investment Representation. WorldCom acknowledges that the transfer of
the ANS Shares by AOL hereunder will not be registered under the Securities Act
of 1933, as amended, or under any state securities laws, that the ANS Shares
will be transferred in a private placement transaction exempt from the
registration requirements under such Act, and that the ANS Shares may not be
further transferred by WorldCom except pursuant to an effective registration
under such Act or in a transaction exempt from such registration requirements.
WorldCom is acquiring the ANS Shares hereunder for its own account, for
investment and not with the intention of distributing the ANS Shares.
4.6 CompuServe Agreement. The CompuServe Agreement has been duly authorized
by all necessary corporate action of WorldCom and has been duly executed and
delivered by WorldCom on the date of this Agreement, in the form which has been
delivered to AOL. The CompuServe Agreement is the valid and binding obligation
of WorldCom enforceable against WorldCom in accordance with its terms.
4.7 Title to CompuServe Assets. On the Closing Date, WorldCom will transfer
to AOL or its designee(s) good title to the CompuServe Assets and the CompuServe
Online Services Business (except as provided in Section 1.4 in respect of
Delayed Assets, if any), free and clear of any Lien or Other Encumbrances which
would have a Material Adverse Effect with respect to the CompuServe Online
Services Business.
4.8 Representations Relating to CompuServe Assets. Subject to the
limitations hereinafter referred to, each of the representations, warranties and
covenants of Block, Block Group and CompuServe set forth in the CompuServe
Agreement (including related definitions, except for the definitions of
"Material", "Material Adverse Change" and "Material Adverse Effect", which shall
have the meanings given in this Agreement), to the extent, but only to the
extent, that they relate, directly or indirectly, to the CompuServe Assets, the
CompuServe Liabilities or the CompuServe Online Service Business, or to the
transfer to WorldCom pursuant to the CompuServe Agreement of any of the
foregoing, or relating to Block, Block Group or CompuServe to the extent they
may affect any of the items mentioned above in this Section 4.8, are
incorporated herein by this reference and shall be deemed, for purposes of this
Agreement, to be representations, warranties and covenants made by WorldCom to
and for the benefit of AOL and its designee or designees.
4.9 CompuServe Power and Authority; Non-Contravention; Filings and
Consents. As of the Closing Date, each of CompuServe and the applicable
CompuServe Entities will have full corporate power and authority to transfer the
CompuServe Assets as contemplated by this Agreement and will have taken all
action required by its governing documents or otherwise to
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duly and validly authorize such transfers and the consummation of the other
transactions contemplated hereby. Such transfers and such other transactions, in
respect of CompuServe or any such CompuServe Entity, will not (i) conflict with
or violate any provisions of its governing documents, 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 of its assets, rights or property or give
rise, with or without notice or lapse of time (other than under any CompuServe
Stock Plans as contemplated by the CompuServe Agreement), 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 it, or to which it is a party or by which it or any of
its assets is bound, or conflict with or violate any restrictions of any kind to
which it is subject, which conflict, violation, breach, default, Lien or Other
Encumbrance, Tax, termination, cancellation, modification or acceleration would
have a Material Adverse Effect with respect to the CompuServe Online Services
Business or which would prevent or materially delay the consummation of the
transactions contemplated by this Agreement or otherwise prevent WorldCom from
causing CompuServe and such CompuServe Entities to perform the transactions
contemplated hereby in any Material respect, or (iii) 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 with respect to the CompuServe Online Services Business or which
would prevent or materially delay the consummation of the transactions
contemplated by this Agreement or otherwise prevent WorldCom from causing
CompuServe and such CompuServe Entities to perform the transactions contemplated
hereby in any Material respect.
ARTICLE V
COVENANTS
5.1 Interim Conduct of ANS and each ANS Entity and the ANS Network Services
Business. AOL and ANS covenant to use all reasonable efforts to ensure, and to
cause each ANS Entity to use all reasonable efforts to ensure that, except (1)
as contemplated by this Agreement or (2) with the prior written consent of
WorldCom ,which will not unreasonably be withheld, after the date hereof and
until the earlier of the termination of this Agreement pursuant to Article VIII
and the Closing Date:
(a) Subject to the other provisions of this Section 5.1, the business
of ANS, the ANS Entities and the ANS Network Services Business, including
investment practices and policies, will be conducted only in the ordinary course
of business consistent with past practice, and AOL, ANS and the ANS Entities
will use all reasonable efforts to preserve the ANS Network Services Business
and maintain in all material respects its existing relations with its customers,
suppliers, employees, creditors and business partners, in each case taking into
account the existence and announcement of the transactions referred to herein;
(b) AOL (with respect to the ANS Network Services Business), ANS and
each ANS Entity will continue to make capital expenditures, maintain, upgrade
and expand their facilities relating to, and otherwise operate in all material
respects, the ANS Network Services Business in accordance with the budget and
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plan of ANS for the fiscal year ending June 30, 1998, a copy of which has been
delivered to WorldCom prior to the date hereof (the "Budget");
(c) Neither AOL, ANS nor any ANS Entity will permit there to be,
directly or indirectly, any split, combination or reclassification of the
outstanding shares of capital stock of ANS or interest in or securities of any
ANS Entity;
(d) Neither AOL, in connection with the ANS Network Services Business,
nor ANS nor any ANS Entity will: (i) amend the Certificate of Incorporation or
Bylaws of ANS or any ANS Entity; (ii) declare, set aside or pay any dividend or
other distribution with respect to the capital stock of ANS or interest in or
securities of any ANS Entity payable in cash, stock, securities or property;
(iii) issue, sell, transfer, 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 ANS or interest in or securities of any ANS Entity; (iv) transfer,
lease, license, sell, mortgage, pledge, dispose of, or encumber any Assets in an
amount in any instance or series of related instances exceeding $1,000,000
(measured in terms of net book value) in the aggregate except pursuant to the
existing terms of the contracts entered into prior to the date hereof and set
forth on Schedule 5.1(d); or (v) redeem, purchase or otherwise acquire, directly
or indirectly, any of the capital stock of ANS or interest in or securities of
any ANS Entity, except in connection with securities issued as compensation to
ANS employees, as described on Schedule 5.1(d);
(e) Except as shown on Schedule 5.1(e), neither AOL, in connection with the
ANS Network Services Business, nor ANS nor any ANS Entity will: (i) hire or
terminate any employees and consultants except in the ordinary course of
business consistent with past practice; (ii) grant any increase in the
compensation or bonus payable or to become payable to any director, officer or
employee except in the ordinary course of business and consistent with past
practice; (iii) 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 AOL or ANS Benefit Plan except in the ordinary course of business and
consistent with past practice; (iv) 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 except in the ordinary
course of business and consistent with past practice; (v) make any additional
contributions to any grantor trust created by AOL or any AOL Entity to provide
funding for non-tax-qualified employee benefits or compensation except as
required by the terms of any grantor trust of AOL existing on the date hereof;
or (vi) provide any new severance program to or increase the benefits under any
existing severance program;
(f) Except as would not be Material, and except for releases of
guarantees by AOL in favor of ANS which are shown on Schedule 7.3(f) hereto,
neither AOL, in connection with the ANS Network Services Business, nor ANS nor
any ANS Entity will in any respect modify, amend or terminate any of its
Contracts, or waive, release or assign any rights or claims thereto or
thereunder;
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(g) Except as would not be Material, neither AOL, in connection with
the ANS Network Services Business, nor ANS nor any ANS Entity will permit any
insurance policy naming either of them as a beneficiary or a loss payable payee
to be canceled or terminated;
(h) Except as set forth on Schedule 5.1(h), neither AOL, in connection
with the ANS Network Services Business, nor ANS nor any ANS Entity will, except
as provided in the Budget, (i) incur or assume any debt; (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other Person except an ANS
Entity in an amount exceeding $1,000,000; (iii) make any loans, advances or
capital contributions to, or investments in, any other Person (other than a
wholly-owned ANS 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) enter into any
financial commitments (including any capital expenditure or asset purchase),
except in the ordinary course of business and consistent with past practice; (v)
other than in the ordinary course and consistent with past practice, enter into
any contract granting any third-party geographic or Material market or
programming or content exclusivity; or (vi) enter into any contract that is not
terminable without penalty on or prior to December 31, 2000 except in the
ordinary course of business consistent with past practice;
(i) Except as would not be Material, neither AOL, in connection with
the ANS Network Services Business, nor ANS nor any ANS Entity will change any of
its Tax or accounting 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) unless required by GAAP or
applicable law and unless notice thereof is given to WorldCom promptly
thereafter;
(j) Except as expressly provided in this Agreement, neither AOL (in
connection with the ANS Network Services Business), nor ANS nor any ANS 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
Balance Sheet in an amount not in excess of that in the Balance Sheet; (ii)
incurred in the ordinary course of business since the date of the Balance Sheet
in a manner consistent with past practice; (iii) which are legally required to
be paid, discharged or satisfied and are in accordance with the terms in
existence as of the date of this Agreement; or (iv) out of insurance proceeds;
(k) Neither AOL, in connection with the ANS Network Services Business,
nor ANS nor any ANS Entity will adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of ANS or any ANS Entity;
(l) Except as contemplated by this Agreement, neither AOL, in connection
with the ANS Network Services Business, nor ANS nor any ANS Entity will engage
in any transaction, or enter into any agreement, arrangement, or understanding
with, directly or indirectly, any Related Party, other than those existing as of
the date hereof which are listed on Schedule 5.1(l)
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hereof and except for arm's-length transactions in the ordinary course of
business consistent with past practice;
(m) Except as would not be Material or as contemplated by Article VI
hereof, neither AOL, in connection with the ANS Network Services Business, nor
ANS nor any ANS Entity will make any Tax election;
(n) Neither AOL, in connection with the ANS Network Services Business,
nor ANS nor any ANS Entity will settle any litigation, other proceeding or
arbitration requiring a payment in excess of $250,000 individually or $1,000,000
in the aggregate or involving any Material limitation on the future actions of
ANS or any ANS Entity or the surrender or compromise of any of their Material
rights;
(o) Neither AOL nor any of the AOL Entities will take any action which
would be prohibited, following Closing, under Section 2 of the Noncompetition
and Nonsolicitation Agreement, the form of which appears as Exhibit E, provided
that the foregoing shall not prohibit the continued ownership and operation of
ANS by AOL as contemplated by this Agreement;
(p) Neither AOL, in connection with the ANS Network Services Business, nor
ANS nor any ANS Entity will increase or establish 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;
(q) Neither AOL nor ANS nor any ANS 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
(r) Neither AOL nor ANS nor any ANS Entity will act, or fail or omit to
act, so as to cause any Material Adverse Change.
5.2 Indemnification.
(a) Indemnification by AOL. AOL hereby agrees to indemnify, defend and hold
harmless WorldCom and the WorldCom Entities and, after the Closing Date, ANS and
the ANS Entities, each of their respective designees, successors-in-interest and
assigns, and each of their respective past and current directors, officers,
employees, consultants, representatives and agents (the "WorldCom Indemnified
Parties"), from and against any and all Losses and Expenses to the extent such
Losses and Expenses are based on, arise out of or relate to, directly or
indirectly (i) the conduct of the business and affairs of AOL or any claim,
action or proceeding brought by or on behalf of Persons who are or were or
become holders of the capital stock of AOL or ANS at or prior to the Effective
Time, which claim, action or proceeding 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 or any of the transactions contemplated
hereby was wrongful, illegal or constituted a
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breach of duty; (ii) the ownership and operation of the CompuServe Assets and
the CompuServe Online Services Business from and after the Closing, and any
breach by AOL or any AOL Entity of its obligations under the Assignment and
Assumption Agreement; (iii) the CompuServe Liabilities; (iv) any breach of the
representations, warranties and covenants set forth in Sections 3.1, 3.2, 3.4,
3.14, 3.17, 5.6 or 5.10; or (v) any breach of any other representations,
warranties, covenants or agreements of AOL or ANS or any ANS Entity herein,
without regard to any qualification as to materiality stated herein (including
any reference to material, Material, Material Adverse Change or Material Adverse
Effect), if and to the extent that the aggregate of all Losses and Expenses
related to or arising out of all breaches (other than with respect to an
intentional breach of any such representation, warranty, covenant or agreement,
as to which no dollar threshold shall apply) described in this clause (v)