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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 1, 1994
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HOUGHTON MIFFLIN COMPANY
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(Exact name of registrant as specified in charter)
Massachusetts 1-5406 04-1456030
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
222 Berkeley Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-351-5000
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N/A
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(Former name or former address, if changed since last report.)
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Item 2. Acquisition or Disposition of Assets.
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Houghton Mifflin Company (the "Company") completed the acquisition of
all outstanding equity securities of McDougal, Littell & Company (the "Acquired
Business") on March 1, 1994.
The Acquired Business is a publisher of textbooks and other educational
materials for the secondary school market headquartered in Evanston, Illinois.
The Acquired Business had revenues of approximately $60 million in 1993. The
aggregate purchase price was approximately $140 million in cash, including
approximately $10 million of indebtedness assumed and transaction costs
estimated at $2 million. Alfred L. McDougal will serve as a director of the
Company. The Company intends to continue to operate the existing properties of
the Acquired Business for purposes substantially identical to their present
purposes.
The Company's sources of capital to finance the foregoing acquisition are
approximately $40 million of cash and approximately $100 million from
borrowings under short-term credit facilities arranged through Morgan Guaranty
Trust Company and State Street Bank and Trust Company. The Company intends to
refinance all or part of such amount through the issuance of debt securities
pursuant to a currently effective shelf registration statement covering the
issuance of debt securities.
Item 7. Financial Statements, Pro Forma Financial Information and
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Exhibits.
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(a) Financial Statements of Businesses Acquired. At the time of the
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filing of this Form 8-K, it is impracticable for the Company to
provide the pro forma financial statements required by Rule
3-05(b) of Regulation S-X with respect to the acquisition of
McDougal, Littell & Company. Such required financial information
will be filed by amendment under cover of Form 8 not later than
May 15, 1994, in accordance with Item 7, paragraph (a)(4) of Form
8-K.
(b) Pro Forma Financial Information. At the time of the filing of
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this Form 8-K, it is impracticable for the Company to provide the
pro forma financial information required by Rule 11-01(c) of
Regulation S-X with respect to the acquisition of McDougal,
Littell & Company. Such required financial information will be
filed by amendment under cover of Form 8 not later than May 15,
1994, in accordance with Item 7, paragraph (b)(2) of Form 8-K.
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(c) Exhibits.
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2. Stock Purchase Agreement dated January 7, 1994 by and among
McDougal, Littell & Company, the stockholders listed on
Exhibit A thereto and Houghton Mifflin Company (filed
herewith).
23. Consent of Crowe, Chizek and Company (to be filed by
amendment).
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized this 16th day of March, 1994.
HOUGHTON MIFFLIN COMPANY
By: /s/ Stephen O. Jaeger
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Stephen O. Jaeger,
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Accounting and Financial
Officer)
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<TABLE>
<CAPTION>
Exhibit Index
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Exhibit Page
No. Exhibit Description No.
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<C> <S> <C>
2. Stock Purchase Agreement dated January 7, 1994 by and among McDougal,
Littell & Company, the stockholders listed on Exhibit A thereto and
Houghton Mifflin Company (filed herewith).
</TABLE>
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EXHIBIT 2
STOCK PURCHASE AGREEMENT
dated as of January 7, 1994
by and among
Certain of the Stockholders
of McDougal, Littell & Company,
McDougal, Littell & Company,
and Houghton Mifflin Company
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STOCK PURCHASE AGREEMENT
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THIS AGREEMENT is made and entered into as of this 7th day of January,
1994, by and among McDougal, Littell & Company, a Delaware corporation
("McDougal"), the stockholders of McDougal listed on Exhibit A hereto (the
"Stockholders"), and Houghton Mifflin Company, a Massachusetts corporation
("Purchaser").
The Stockholders desire to sell to Purchaser, and Purchaser desires to
purchase from the Stockholders, all of the issued and outstanding shares of
capital stock of McDougal beneficially owned by the Stockholders upon the terms
and subject to the conditions set forth in this Agreement.
In consideration of the foregoing and the respective representations,
warranties, covenants, agreements and conditions hereinafter set forth, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF STOCK
1.1 Stock to be Sold. Upon the terms and subject to the conditions
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contained herein, at the Closing (as hereinafter defined), each of the
Stockholders shall sell and transfer to Purchaser, and Purchaser shall purchase
and accept from each of the Stockholders, that number of shares of McDougal's
common stock, par value $.005 per share (the "Common Stock") set forth next to
each such Stockholder's name on Exhibit A.
1.2 Deliveries by Purchaser. Upon the terms and subject to the
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conditions contained herein and in consideration of, and in full payment for,
the aforesaid sale and transfer of the Common Stock from a Stockholder,
Purchaser shall deliver or cause to be delivered:
(a) to such Stockholder
(i) the sum set forth opposite the name of such
Stockholder on Exhibit A by wire transfer of immediately available funds,
and
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(ii) a copy of the Escrow Agreement in the form attached
hereto as Exhibit B (the "Escrow Agreement") duly executed by Purchaser;
and
(b) to the Escrow Agent (as defined in the Escrow Agreement)
the sum set forth opposite the name of such Stockholder designated on Exhibit
A to be delivered to the Escrow Agent by wire transfer of immediately
available funds, to be held by the Escrow Agent in accordance with the terms
of the Escrow Agreement.
1.3 Deliveries by the Stockholders. On the Closing Date, each of the
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Stockholders shall deliver, or cause to be delivered, to Purchaser the
following:
(a) Stock certificates evidencing all of the Common Stock
beneficially owned by such Stockholder on the date hereof, duly endorsed in
blank or accompanied by stock powers duly executed in blank, in proper form for
transfer and with any requisite stock transfer stamps attached;
(b) A copy of the Escrow Agreement, duly executed by such
Stockholder; and
(c) Such other instruments or documents as may be reasonably
necessary to carry out the transactions contemplated by this Agreement and to
comply with the terms hereof.
1.4 Closing. The closing of the transactions contemplated by this
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Agreement (the "Closing") shall occur at the offices of Skadden, Arps, Slate,
Meagher & Flom, One Beacon Street, Boston, Massachusetts, at 10:00 a.m. local
time on the third business day after the conditions specified in Articles VI and
VII hereof shall have been satisfied or waived, or at such other time and place
as may be agreed upon by the parties. The date of the Closing is sometimes
referred to herein as the "Closing Date."
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS AND McDougal
Each of the Stockholders and McDougal hereby, severally and not
jointly, represents and warrants to Purchaser as follows, it being understood
that with respect to the matters described in Sections 2.2, 2.4 and 2.5 each
Stockholder represents only as to itself:
2.1 Corporate Organization. McDougal is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Delaware and has the full corporate power and authority to own or lease its
properties and assets and to carry on its business as it is presently being
conducted. Except as set forth on Section 2.1 of the Disclosure Schedule,
McDougal is duly qualified or licensed to do business as a foreign corporation
and is in good standing in every jurisdiction where the character of its
properties owned or leased or the nature of its activities makes such
qualification or license necessary, except for such failures to be so qualified
or licensed as could not reasonably be expected in the aggregate to have a
Material Adverse Effect. The copies of the Certificate of Incorporation and By-
Laws of McDougal heretofore delivered to Purchaser are complete and correct
copies of such instruments as presently in effect.
2.2 Authorization. Each of the Stockholders and McDougal has the
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requisite power (corporate or otherwise), capacity and authority to enter into
this Agreement, the Escrow Agreement and any additional document or instrument
to be delivered hereunder on or prior to the Closing (the "Additional
Documents") and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance of this Agreement and the Additional
Documents and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of McDougal, and no
additional proceedings (corporate or otherwise) on the part of any of the
Stockholders or McDougal, are necessary to authorize the execution, delivery and
performance of this Agreement and the Additional Documents and the consummation
of the transactions contemplated hereby and thereby. This Agreement and the
Additional
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Documents have been duly executed and delivered and constitute valid and binding
obligations of each of the Stockholders and McDougal, enforceable against each
of the Stockholders and McDougal in accordance with their respective terms,
subject as to enforceability to bankruptcy and insolvency laws.
2.3 Capitalization. (a) The authorized capital stock of McDougal
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consists of 600,000 shares of Common Stock of which 269,861 shares are issued
and outstanding. All issued and outstanding shares of Common Stock of McDougal
are validly issued, fully paid and nonassessable and were not issued in
violation of any preemptive or similar right. The Common Stock is owned by the
stockholders of McDougal in the respective amounts set forth in Section
2.3(a)(i) of the Disclosure Schedule. As of the date of this Agreement, there
are also 17,650 stock appreciation rights ("SAR's") granted pursuant to
McDougal's stock appreciation rights plans. A complete and accurate list of all
SAR's, including the name of the holder, the grant date, the grant price and the
number of SAR's which will be vested upon completion of the transactions
contemplated hereby, is set forth in Section 2.3(a)(ii) of the Disclosure
Schedule.
(b) There are no securities outstanding which are convertible
into or exercisable or exchangeable for shares of capital stock of McDougal,
and there are no outstanding options, rights, contracts, warrants, sub-
scriptions, conversion rights or other agreements or commitments pursuant to
which McDougal may be required to purchase, redeem, issue or sell any shares
of capital stock or other securities of McDougal or in any way relating to the
issuance, voting or transfer of any capital stock or other securities of
McDougal other than McDougal's rights of first refusal, first offer and
repurchase contained in the Stockholder Agreements (as hereinafter defined).
2.4 Ownership of Common Stock. Each of the Stockholders has good and
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valid title to the number of shares of Common Stock shown opposite the name of
such Stockholder on Exhibit A, free and clear of any lien, charge, encumbrance,
security interest, claim or right of others of whatever nature (other than
McDougal's rights of first refusal, first offer and repurchase contained in the
Stockholder Agreements), and at the Closing, upon
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delivery of the purchase price therefor, each Stockholder will deliver, good,
valid and marketable title to all the Common Stock beneficially owned by such
Stockholder, free and clear of any lien, charge, encumbrance, security interest,
claim or right of others of whatever nature. Except as set forth in Section 2.4
of the Disclosure Schedule, no person or entity (other than a Stockholder with
respect to the number of shares of Common Stock set forth opposite the name of
such Stockholder on Exhibit A hereto) has any power or right, whether or not
shared with any other person or entity, to dispose of or direct the disposition
of any shares of Common Stock or vote or direct the voting of any shares of
Common Stock.
2.5 Noncontravention; Consents; Filings. Except for any required
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filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the "HSR Act"),
the execution, delivery and performance of this Agreement and the Additional
Documents and the consummation by the Stockholders and McDougal of the
transactions contemplated hereby and thereby and compliance by the Stockholders
and McDougal with any of the provisions hereof or thereof do not and will not
(a) conflict with or violate any provision of the Certificate of Incorporation
or By-Laws of McDougal, (b) require any filing with, or the permit,
authorization, consent or approval of, any court, arbitrator or arbitral
tribunal, administrative agency or commission or other governmental or
regulatory authority or agency (a "Governmental Entity"), other than any
filing, permit, authorization, consent or approval which is required solely
because of the legal or regulatory status of Purchaser, (c) conflict with or
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to, binding upon or enforceable against any of the Stockholders or
McDougal or any of their respective properties or assets, (d) constitute a
breach of any duty owed by any Stockholder or any person acting in a
representative or fiduciary capacity with respect to any Stockholder or any
person with any beneficial interest in any Stockholder or (e) except as set
forth on Section 2.5(e) of the Disclosure Schedule and except for such
violations, breaches and defaults as could not (i) create any lien, charge,
encumbrance, security interest, claim or right of others on or with respect to
any share of Common Stock to be purchased hereunder and (ii) reasonably be
expected in
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the aggregate to result in a Material Adverse Effect or materially diminish the
value of the transaction contemplated by this Agreement to Purchaser, result in
a violation or breach of, or constitute (with or without notice or lapse of
time or both) a default or give rise to any right of termination, amendment,
cancellation or acceleration under, or result in the creation or imposition of
any lien, charge, encumbrance, security interest, claim or right of others of
whatever nature upon any property or assets of any of the Stockholders or
McDougal under, any note, bond, mortgage, indenture, lease, license, contract,
agreement (including without limitation any Stockholder Agreement) or other
instrument or obligation to which any of the Stockholders or McDougal is a party
or by which any of the Stockholders, McDougal or any of their respective
properties or assets may be bound.
2.6 Financial Statements. McDougal has heretofore furnished to
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Purchaser financial statements of McDougal consisting of audited balance sheets
and related income, stockholders' equity and cash flow statements as at October
31 in each of the years and for the fiscal years ended 1989 through 1993
(collectively, the "Financial Statements"). McDougal's audited balance sheet
for the fiscal year ended October 31, 1993 is sometimes referred to hereafter as
the "Balance Sheet." All of the Financial Statements and the notes thereto
fairly present the financial condition and results of operations of McDougal as
of the dates indicated and for the periods ended, and the Financial Statements
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods reflected in the
Financial Statements.
2.7 No Undisclosed Liabilities. McDougal has no liability or
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obligation of any nature (absolute, accrued, contingent or otherwise) which is
of a character required by GAAP to be reflected or reserved against on the
Balance Sheet, which was not fully reflected on or reserved against in the
Balance Sheet and the reserves reflected in the Balance Sheet have been recorded
in accordance with GAAP.
2.8 Inventory. The amount of inventory reflected on the Balance
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Sheet represents the quantity of inventory which was of a quality and quantity
usable, salable and merchantable in the ordinary course of busi-
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ness as of the date of the Balance Sheet. Schedule 2.8(a) of the Disclosure
Schedule sets forth the list which is maintained by McDougal as its list of
inventory as of October 31, 1993 and McDougal's unit cost of the inventory. All
inventory is reflected on the Balance Sheet at the lower of cost or market value
after providing for obsolescence and LIFO reserve determined in the ordinary
course of business and consistent with past practice, and since the date of the
Balance Sheet McDougal has not written down the value of any of the Inventory,
nor, except as set forth on Schedule 2.8(b) of the Disclosure Schedule, has
there been any reduction or depletion of the Inventory except on account of
orders filled and samples delivered in the ordinary course of business and
normal obsolescence determined in the same manner as the obsolescence reserve
reflected on the Balance Sheet.
2.9 Interim Changes. Since the date of the Balance Sheet, McDougal
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has been operated only in the ordinary course of business consistent with past
practice, and McDougal has not:
(a) suffered any change, nor has there occurred or arisen any
event or condition which has had, or could reasonably be expected to have, a
Material Adverse Effect (as used in this Agreement, "Material Adverse
Effect" means a material adverse effect on the business, operations or
condition (financial or otherwise) of McDougal or results of operations over
a continued period of McDougal), except as set forth in Schedule 2.9(a) of
the Disclosure Schedule;
(b) made any capital expenditures which are more than $50,000
individually or $100,000 in the aggregate;
(c) entered into any new contract or amended in any material
respect any existing contract for the employment of any person by McDougal or
increased the compensation or benefits in any material respect of any employee
of McDougal, in each case, whose annual compensation exceeds $75,000, except
as set forth in Schedule 2.9(c) of the Disclosure Schedule;
(d) sold, assigned, transferred, conveyed, leased or otherwise
disposed of or agreed to sell,
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assign, transfer, convey, lease or otherwise dispose of any of its properties or
assets, except in the ordinary course of business and consistent with past
practice;
(e) suffered any damage, destruction or loss of property
material to McDougal, whether or not covered by insurance, except as set forth
on Schedule 2.9(e) of the Disclosure Schedule;
(f) except as set forth on Schedule 2.9(f) of the Disclosure
Schedule, increased the wages, salary, commission rates or other benefits
payable to or receivable by any director, officer or employee of McDougal,
other than regularly scheduled increases or increases and adjustments for
promotions in the ordinary course of business and consistent with past practice;
(g) employed or otherwise engaged any person, other than any
person who is employed in a sales, marketing or editorial function and whose
present and proposed annual compensation is less than $75,000;
(h) entered into any agreement, contract or commitment, other
than in the ordinary course of business, with respect to the manufacture of
any work or title, or any adaptation or version thereof, whether now in
process, under contract or in publication, which is in print or out-of-print,
of McDougal (collectively, the "Works") other than Works not owned by McDougal
which are identified in Schedule 2.9(h) of the Disclosure Schedule (the Works,
excluding such Works which are not owned by McDougal, being the "Owned
Works");
(i) except as set forth on Schedule 2.9 (i) of the Disclosure
Schedule, declared, paid or set aside for payment any dividend or other
distribution (whether in cash, stock or property or any combination thereof),
directly or indirectly in respect of McDougal's capital stock or other
securities other than cash distributions, not to exceed $85,000 in the
aggregate, made to participants in the ESOP (as defined in Section 5.10(b));
(j) except as set forth on Schedule 2.9(j) of the Disclosure
Schedule, purchased, redeemed, issued, sold, transferred or otherwise acquired
or disposed of any of its shares of capital stock or any evidence of
indebtedness or other securities;
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(k) made any material change in its accounting principles or
methods;
(l) disposed of or permitted to lapse any rights to the use of
any patent, trademark, trade name or copyright which is material to McDougal,
except for copyrights of nominal value;
(m) written down the value of any inventory (including write-
downs by reason of shrinkage or mark-down) or assets or written off as
uncollectible any notes or accounts receivable, nor suffered any change or
experienced any condition which would require any such write-down or write-
off, except for write-downs and write-offs in the ordinary course of business
and consistent with past practice which have not had, and could not
reasonably be expected in the aggregate to have, a Material Adverse Effect;
(n) except as set forth on Schedule 2.9(n) of the Disclosure
Schedule, paid, loaned or advanced any amount, other than advances to employees
for travel and entertainment expenses in the ordinary course of business and
consistent with past practice, to, or sold, transferred or leased any properties
or assets (real, personal or mixed, tangible or intangible), other than
properties or assets of nominal value, to any of its officers or directors or
any affiliate or associate of any of its officers or directors except for
directors' fees, and compensation to officers at rates not exceeding the rates
of compensation in effect as of October 31, 1993; or
(o) agreed, whether in writing or otherwise, to take any
action described in this Section 2.9.
2.10 Litigation.
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(a) Except as set forth on Section 2.10 of the Disclosure
Schedule, there is no action, suit or proceeding by or before any Governmental
Entity pending nor, to the best knowledge of the Stockholders or McDougal, is
any claim, action, suit, inquiry, proceeding or investigation pending or
threatened against or involving the Stockholders or McDougal, or affecting any
properties or assets of any of the Stockholders or McDougal, which, in any
such case, could reasonably be expected to (i)
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impair the ability of the Stockholders or McDougal to consummate the
transactions contemplated hereby or (ii) in the aggregate have a Material
Adverse Effect or diminish materially the value of the transactions
contemplated by this Agreement to Purchaser. None of the Stockholders or
McDougal is aware of any reasonable basis for any such claim, action, suit,
inquiry, proceeding or investigation. McDougal has not received any written
notification within the last three years of any asserted present or past failure
by McDougal to comply with such laws, rules or regulations, which failures could
reasonably be expected to have in the aggregate a Material Adverse Effect.
None of the Stockholders or McDougal is subject to any order, writ, injunction
or decree which could reasonably be expected to impair the ability of any of
the Stockholders or McDougal to consummate the transactions contemplated hereby
or have in the aggregate a Material Adverse Effect.
(b) Schedule 2.10(b) of the Disclosure Schedule sets forth a
true, complete and accurate summary in all material respects of the
performance rendered to the date hereof by BMR, Inc. ("BMR") under the
agreement, dated as of May 26, 1993 by and between BMR and McDougal, including
without limitation, all deliveries made by BMR and the quality of all products
delivered.
2.11 No Violation.
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(a) McDougal is not in violation or breach of, or in default
under (and no event has occurred which with notice or lapse of time or both
would constitute such a breach, violation or default or give rise to any
right of termination, amendment, cancellation or acceleration under) any term,
condition or provision of (i) the Certificate of Incorporation or By-Laws of
McDougal, (ii) any order, writ, injunction, decree, statute, rule or
regulation applicable to McDougal or any of its properties, assets or business
or (iii) any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which McDougal is a party or by
which McDougal or any of its properties or assets may be bound other than,
with respect to clauses (ii) and (iii), such violations, breaches or
defaults as could not (A) reasonably be expected to impair the ability of the
Stockholders or McDougal to consummate the transactions contemplated hereby or
(B) in
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the aggregate (I) have a Material Adverse Effect or (II) diminish materially the
value of McDougal.
(b) The Stockholders and McDougal have obtained all permits,
authorizations, consents or approvals and made all notifications and
applications to Governmental Entities required under applicable law to continue
the operations of McDougal which, if not obtained or made, could reasonably be
expected to (i) impair the ability of the Stockholders or McDougal to consummate
the transactions contemplated hereby or (ii) in the aggregate have a Material
Adverse Effect.
2.12 Title to Properties; Encumbrances. McDougal has good, valid
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and, in the case of real property, marketable title to all the properties and
assets which it purports to own (real, personal and mixed, tangible and
intangible), including, without limitation, all the properties and assets
reflected in the Balance Sheet (except for personal property sold since the date
of the Balance Sheet in the ordinary course of business and consistent with past
practice), with such exceptions as could not reasonably be expected to have in
the aggregate a Material Adverse Effect. Except as disclosed in Section 2.12
of the Disclosure Schedule or on the Balance Sheet, all properties and assets
reflected in the Balance Sheet are free and clear of all title defects or objec-
tions, liens, claims, charges, security interests or other encumbrances of any
nature whatsoever, except for (a) liens for current taxes not yet due and (b)
such defects, objections, liens, claims, charges, security interests and
encumbrances which in the aggregate could not reasonably be expected to (i)
interfere materially with the future conduct of the business of McDougal as
presently conducted or (ii) have in the aggregate a Material Adverse Effect.
The rights, properties and other assets presently owned, leased or licensed by
McDougal and described elsewhere in this Agreement include all rights,
properties and other assets necessary to permit McDougal to conduct its business
from and after the Closing Date in the same manner in all material respects as
such business is being conducted.
2.13 Production Materials; Plant and Equipment.
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(a) All existing materials needed in connection with the
continued production of the Owned Works are in good condition, with such
exceptions as could not reasonably be expected to have in the aggregate a Mate-
rial Adverse Effect.
(b) The plants, structures and equipment of McDougal are
structurally sound with no material defects and are in good operating
condition and repair and are adequate in all material respects for the uses to
which they are being put; and none of such plants, structures or equipment
are in need of maintenance or repairs except for ordinary, routine maintenance
and repairs which are not material in nature or cost. McDougal has not
received notification that it is in violation of any applicable building,
zoning, antipollution, health or other law, ordinance or regulation in
respect of its plants or structures or their operations, with such exceptions
as could not reasonably be expected to have in the aggregate a Material
Adverse Effect, and no such violation exists.
2.14 Intellectual Property.
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(a) McDougal owns, or is licensed or otherwise has the right
to use, all copyrights, trademarks, service marks, trade names, technology,
know-how and trade secrets (collectively, "Intellectual Property") material to
the conduct of the business of McDougal as heretofore conducted. No patent is
material to the conduct of the business of McDougal as heretofore conducted.
(b) Except as set forth in Section 2.14(b) of the Disclosure
Schedule:
(i) McDougal has the sole and exclusive right to use
the Intellectual Property, with such exceptions as could not reasonably
be expected to have in the aggregate a Material Adverse Effect, and the
consummation of the transactions contemplated hereby will not give rise
to any right of termination, amendment, renegotiation, cancellation or ac-
celeration with respect to any license or other agreement to use such
Intellectual Property
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which could reasonably be expected to have in the aggregate a Material
Adverse Effect;
(ii) each license (other than licenses to use computer
software in nonproduct applications) and other agreement with respect to
the use of any Intellectual Property is a valid, legally binding
obligation of McDougal and all other parties thereto, enforceable in
accordance with its terms (subject to bankruptcy and insolvency laws),
with such exceptions as could not reasonably be expected to have in the
aggregate a Material Adverse Effect, and McDougal is not in breach,
violation or default (and no event has occurred which with the giving of
notice or the passage of time or both would constitute such a breach,
violation or default or give rise to any right of termination,
amendment, renegotiation, cancellation or acceleration under any such
license or agreement) and none of the Stockholders and McDougal has
reason to believe that any other party to any such license or other
agreement is in breach, violation or default thereof, other than, in each
case, such breaches, violations and defaults as could not reasonably be
expected to have in the aggregate a Material Adverse Effect;
(iii) no claim has been asserted by any person to the
use of any such Intellectual Property or challenging or questioning the
validity or effectiveness of any such license or agreement, and, to the
best knowledge of the Stockholders and McDougal, there is no valid basis
for any such claim which could reasonably be expected to have in the
aggregate a Material Adverse Effect; and
(iv) the use of the Intellectual Property by McDougal
does not, to the best knowledge of the Stockholders and McDougal, in-
fringe on the rights of any person, with such exceptions as could not
reasonably be expected to have in the aggregate a Material Adverse
Effect.
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(c) McDougal has not been alleged in writing to have, nor, to
the best knowledge of the Stockholders and McDougal after reasonable inquiry
under the circumstances, has it, infringed upon any copyright, patent,
trademark, trade name or misappropriated or misused any invention, trade
secret or other proprietary information entitled to legal protection, with
such exceptions as could not reasonably be expected in the aggregate to have a
Material Adverse Effect. McDougal has not asserted any claim of infringement,
misappropriation or misuse within the past three years.
2.15 Leases. Section 2.15 of the Disclosure Schedule contains a
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summary, accurate in all material respects, of the terms described therein of
all leases pursuant to which McDougal leases real property or pursuant to which
McDougal leases personal property and which provide for lease payments in excess
of $10,000 during any 12-month period. Except as set forth in Section 2.15 of
the Disclosure Schedule, (a) all such leases are valid, binding and enforceable
against McDougal and, to the best knowledge of the Stockholders and McDougal,
any other party thereto in accordance with their terms, and are in full force
and effect, (b) there are no existing defaults by McDougal thereunder and (c)
McDougal is not in breach, violation or default (and no event which with the
giving of notice or the passage of time or both would constitute such a breach,
violation or default or give rise to any right of termination, amendment,
renegotiation, cancellation or acceleration) thereunder, with such exceptions
in the case of (a), (b) and (c) as could not reasonably be expected to have in
the aggregate a Material Adverse Effect.
2.16 Bank Accounts. Section 2.16 of the Disclosure Schedule sets
-------------
forth the names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which McDougal maintains safe
deposit boxes or accounts of any nature and the names of all persons authorized
to draw thereon, make withdrawals therefrom or have access thereto.
2.17 Taxes. Except as set forth on Section 2.17 of the Disclosure
-----
Schedule, McDougal has duly filed all tax reports and returns required to be
filed by it up to and including the date hereof, has maintained all required
records with respect to taxes and has duly paid
14
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all taxes and other charges shown as due thereon or claimed to be due from it by
federal, state, local or foreign taxing authorities (including, without limita-
tion, the property, income, franchise, license, sales, use, payroll, excise,
transfer, employment and withholding taxes, as well as interest, penalties or
additions attributable to or imposed with respect to such taxes); the reserves
for taxes reflected in the Balance Sheet are adequate under GAAP; and there are
no tax liens upon any property or assets of McDougal except liens for current
taxes not yet due. Except to the extent shown in Section 2.17 of the Disclosure
Schedule, no deficiencies have been proposed, asserted or assessed against
McDougal in writing and no issue has been raised by any taxing authority in any
examination which, by application of the same or similar principles, reasonably
could be expected to result in a proposed deficiency for any other period not so
examined. Further, except as set forth on Schedule 2.17 of the Disclosure
Schedule, no state of facts exists or has existed which would give rise to any
tax liability, other than liabilities which have been paid, have been accrued
for on Balance Sheet or have arisen in the ordinary course of business since the
date of the Balance Sheet. With respect to periods commencing after December
31, 1988, McDougal has not incurred any liability for taxes which is unpaid
other than in the ordinary and regular course of business. Except to the
extent set forth in Section 2.17 of the Disclosure Schedule, there are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any taxes or tax returns for any period. All income tax returns
for McDougal in respect of all years not barred by the statute of limitations
have heretofore been made available by McDougal to the Purchaser and such
returns are true, correct and complete in all material respects, and all such
returns are listed in Section 2.17 of the Disclosure Schedule. McDougal has
not, with regard to any assets or property held, acquired or to be acquired by
it, filed a consent to the application of Section 341(f)(2) of the Internal
Revenue Code of 1986, as amended (the "Code").
2.18 Contracts and Commitments.
-------------------------
(a) Section 2.18(a) of the Disclosure Schedule sets forth a
complete and accurate list of all:
15
<PAGE>
(i) royalty obligations relating to Works which have
generated revenue within McDougal's last two fiscal years or which are
reasonably anticipated to generate revenue in 1994 or 1995;
(ii) advances made with respect to or on account of
the Works which remain outstanding and which have not been written off;
(iii) adoption agreements relating to the Works with
state agencies, departments or administrations;
(iv) (A) editorial development agreements relating to
the Works which have involved or are reasonably anticipated to involve
commitments of over $75,000 and which have not been fully performed and
(B) distribution agreements relating to the Works which are currently
offered for sale by McDougal (to the extent the obligations under such
agreements are not reflected on the lists provided pursuant to Section
2.18(a)(i) and (ii));
(v) credit agreements, notes, indentures, security
agreements, pledges, guarantees of or agreements to acquire any such debt
obligation of others or similar documents relating to indebtedness for
borrowed money (including without limitation interest rate or currency
swaps, hedges or straddles or similar transactions) to which McDougal is
a party or by which any of its assets are bound, restricted or
encumbered;
(vi) all employment, consulting, severance or
termination agreements which require or may require McDougal to pay more
than $75,000 in base salary in the case of employment contracts in any 12-
month period;
(vii) all deeds, title documents, title reports or
similar documents related to any real property owned by McDougal;
16
<PAGE>
(viii) agreements by or among the Stockholders
relating to or affecting the acquisition, disposition or voting of the
Common Stock or other capital stock of McDougal (the "Stockholder
Agreements"); and
(ix) all textbook depository agreements.
(b) Except as set forth in Section 2.18(b) of the Disclosure
Schedule:
(i) McDougal does not have any contract which is
material to its business, operations or prospects;
(ii) no purchase contract of McDougal continues for a
period of more than 12 months or requires payment of more than $50,000 in
any 12-month period;
(iii) McDougal has no outstanding contract with (A)
officers, employees, agents, consultants, advisors, salespersons,
distributors or dealers which is not cancelable by it on notice of not
longer than 30 days or (B) sales representatives which is not cancelable
by it on notice of not longer than 90 days, and, in the case of both (A)
and (B) without liability, penalty or premium or that provides for the
payment of any bonus or commission based on sales or earnings;
(iv) McDougal has no employment agreement, or any other
agreement or Benefit Plan (as defined in Section 2.25) that contains any
severance or termination pay liability or obligation;
(v) McDougal has no employee to whom it is paying base
salary at the annual rate of more than $75,000 for services rendered;
(vi) McDougal is not restricted by any agreement from
carrying on its business in any material respect anywhere in
17
<PAGE>
the world (other than by geographic or use restrictions contained in
licenses relating to Intellectual Property);
(vii) McDougal does not have any outstanding loan to
any person, other than travel advances to employees for travel and
entertainment expenses in the ordinary course of business; and
(viii) McDougal does not have any power of attorney
outstanding or any obligation or liability (whether absolute, accrued,
contingent or otherwise), as surety, cosigner, endorser, comaker,
indemnitor or otherwise in respect of the obligation of any person, corpo-
ration, partnership, joint venture, association, organization or other
entity.
2.19 Customers and Suppliers. Sections 2.19(a) and (b),
-----------------------
respectively, of the Disclosure Schedule set forth (a) a list of the ten largest
customers of McDougal in terms of sales during the fiscal year ended October 31,
1993, showing the approximate total sales by McDougal to each such customer
during the fiscal year ended October 31, 1993; and (b) a list of the ten largest
suppliers of goods and materials to McDougal in terms of purchases during the
fiscal year ended October 31, 1993, showing the approximate total purchases by
McDougal from each supplier during the fiscal year ended October 31, 1993.
Except to the extent set forth in Section 2.19(c) of the Disclosure Schedule,
there has not been any adverse change in the business relationship of McDougal
with any customer or supplier named in Section 2.19(a) or 2.19(b) of the
Disclosure Schedule since November 1, 1993 which could reasonably be expected to
have in the aggregate a Material Adverse Effect.
2.20 Returns. The general returns policy of McDougal is as set forth
-------
in the McDougal K-12 School Catalogue 1994.
2.21 Insurance. Section 2.21 of the Disclosure Schedule contains an
---------
accurate list and description by type of all material policies of fire,
liability (including libel), workmen's compensation and other forms of
insurance, including, but not limited to, all group
18
<PAGE>
insurance programs in effect for McDougal employees, owned or held by McDougal.
All such policies are in full force and effect, all premiums with respect
thereto covering all periods up to and including the date hereof have been paid,
and no written notice of cancellation or termination has been received with
respect to any such policy. To the best knowledge of the Stockholders and
McDougal, (a) such policies are sufficient for compliance with all requirements
of law and of all agreements to which McDougal is a party, (b) are valid,
outstanding and enforceable policies, (c) provide insurance coverage for the
assets and operations of McDougal which, in the judgement of the management of
McDougal, is adequate in light of risks of McDougal's business as heretofore
conducted, (d) will remain in full force and effect through the respective dates
set forth in Section 2.21 of the Disclosure Schedule without the payment of
additional premiums and (e) will not in any way be affected by, or terminate or
lapse by reason of, the transactions contemplated by this Agreement. To the
best knowledge of Mr. McDougal, the President and the Chief Financial Officer of
McDougal, McDougal has not been refused any insurance with respect to its assets
or operations, nor has its coverage been limited, by any insurance carrier to
which it has applied for any such insurance or with which it has carried
insurance.
2.22 Labor Representation. None of the employees of McDougal is
--------------------
represented by a union in connection with his or her employment by McDougal.
2.23 Compliance With Law. Except as set forth in Section 2.23 of the
-------------------
Disclosure Schedule, the operations of McDougal have been conducted in
accordance with all applicable laws, regulations and other requirements of all
national governmental authorities, and of all states, municipalities and other
political subdivisions and agencies thereof, having jurisdiction over McDougal,
the failure to comply with which could reasonably be expected to have in the
aggregate a Material Adverse Effect.
2.24 Environmental Matters.
---------------------
(a) Except as set forth in Section 2.24(a) of the Disclosure
Schedule, McDougal is in compliance with all applicable Environmental Laws (as
de-
19
<PAGE>
fined below), with such exceptions as could not reasonably be expected to have
in the aggregate a Material Adverse Effect, which compliance includes, but is
not limited to, the possession by McDougal of all permits and other governmental
authorizations required under applicable Environmental Laws, and compliance
with the terms and conditions thereof. Except as set forth in Section 2.24(a)
of the Disclosure Schedule, neither any of the Stockholders nor McDougal has
received any communication (written or oral), whether from a governmental
authority, citizens group, employee or otherwise, that alleges that McDougal is
not in such compliance, and, to the best knowledge of the Stockholders and
McDougal there are no circumstances that may prevent or interfere with such
compliance in the future.
(b) Except as set forth in Section 2.24(b) of the Disclosure
Schedule, there is no Environmental Claim (as defined below) pending or, to the
best knowledge of the Stockholders and McDougal, threatened against McDougal, or
affecting any properties or assets of McDougal, or against any person or entity
whose liability for any Environmental Claim McDougal has or may have retained
or assumed either contractually or by operation of law.
(c) Except as set forth in Section 2.24(c) of the Disclosure
Schedule, with such exceptions as could not reasonably be expected to have in
the aggregate a Material Adverse Effect, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern (as defined below), that could reasonably be
expected to form the basis of any Environmental Claim against McDougal or
affecting any properties or assets of McDougal, or against any person or entity
whose liability for any Environmental Claim McDougal has or may have retained or
assumed either contractually or by operation of law.
(d) For the purposes of this Agreement, "Environmental Claim"
means any claim, action, cause of action, investigation or notice (written or
oral) by any person or entity alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natu-
20
<PAGE>
ral resources damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from (i) the presence, or release into the
environment, of any Material of Environmental Concern at any location, whether
or not owned or operated by McDougal or (ii) circumstances forming the basis of
any violation, or alleged violation, of any Environmental Law.
(e) For the purposes of this Agreement, "Environmental Laws"
means all federal, state, local and foreign laws and regulations relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata), including, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern.
(f) For the purpose of this Agreement, "Materials of
Environmental Concern" means chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products.
2.25 Benefit Plans; Compliance with ERISA.
------------------------------------
(a) Section 2.25(a) to the Disclosure Schedule sets forth a
true and complete list of each material bonus, deferred compensation,
incentive compensation, stock purchase, stock option, employment, severance
or termination pay, hospitalization or other medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement plan,
program, agreement or arrangement (other than those listed in Section 2.18(a)
of the Disclosure Schedule), and each other "employee benefit plan" (within
the meaning of Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder
("ERISA")), that is maintained or contributed to or was maintained or
contributed to at any time by McDougal or by any of its subsidiaries or
divisions, or by any trade or business, whether or not incorporated, which
together with McDougal would be deemed a "single employer" within the meaning
of Section 4001 of ERISA (an "ERISA Affiliate"), within the last six
21
<PAGE>
years, for the benefit of any employee, former employee, consultant, officer, or
director of McDougal or any ERISA Affiliate (a "Benefit Plan"). Except as set
forth in Section 5.8 hereof and in Section 2.25(a) of the Disclosure Schedule,
McDougal has no commitment, whether formal or informal and whether legally
binding or not, to create any additional Benefit Plan which could result in a
material liability to McDougal.
(b) Except as set forth on Section 2.25(b) of the Disclosure
Schedule, no Benefit Plan is a "multiemployer plan," as such term is defined in
Section (3)(37) of ERISA; no Benefit Plan is subject to Section 412 of the Code
or Title IV of ERISA; each of the Benefit Plans is, and has always been,
operated in all material respects in accordance with the requirements of all
applicable laws, and all persons who participate in the operation of such
Benefit Plans and all Benefit Plan "fiduciaries" (within the meaning of Section
3(21) of ERISA) have always acted substantially in accordance with the
provisions of all applicable law (except with respect to fiduciary duties in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby); each of the Benefit
Plans intended to be "qualified" within the meaning of Section 401(a) of the
Code has received a favorable determination letter from the Internal Revenue
Service to the effect that it is so qualified and to the best knowledge of the
Stockholders and McDougal no event or circumstance exists or has occurred that
would adversely affect such qualification; no Benefit Plan has an accumulated
or waived funding deficiency within the meaning of Section 412 of the Code;
within the past six years no "reportable event," as such term is defined in
Section 4043(b) of ERISA, has occurred with respect to any Benefit Plan and not
been waived; and no condition exists that presents a material risk to McDougal
or any ERISA Affiliate of incurring a liability to or on account of a Benefit
Plan pursuant to Title IV of ERISA.
(c) Full payment has been made, or will be made in accordance
with section 404(a)(6) of the Code, of all amounts which McDougal or any ERISA
Affiliate is required to pay under the terms of each of the Benefit Plans as
of the last day of the most recent plan year thereof ended prior to the date
of this Agreement, and all such amounts properly accrued through the Closing
22
<PAGE>
Date with respect to the current plan year thereof will be paid by McDougal on
or prior to the Closing Date or will be properly reflected in accordance with
GAAP on the financial statements of McDougal.
(d) No Benefit Plan provides benefits, including, without
limitation, death or medical benefits (whether or not insured), with respect
to current or former employees of McDougal or any ERISA Affiliates for periods
extending beyond their retirement or other termination of service for which
McDougal is or could be liable (other than (i) coverage mandated by applicable
law, (ii) death benefits or retirement benefits under any "employee pension
plan," as that term is defined in Section 3(2) of ERISA, (iii) deferred
compensation benefits accrued as liabilities on the books of McDougal or an
ERISA Affiliate, (iv) benefits the full cost of which is borne by the current
or former employee (or his beneficiary) for which McDougal is or could be
liable), (v) severance or (vi) disability). No amounts payable under the
Benefit Plans will fail to be deductible for federal income tax purposes by
virtue of section 280G of the Code.
(e) With respect to each Benefit Plan that is funded wholly or
partially through an insurance policy, there will be no material liability of
McDougal or an ERISA Affiliate, as of the Closing Date, under any such insurance
policy or ancillary agreement with respect to such insurance policy in the
nature of a retroactive rate adjustment, loss sharing arrangement or other
actual or contingent liability arising wholly or partially out of events
occurring prior to the Closing Date, for which McDougal is or could be liable.
(f) Except as set forth on Schedule 2.25(f) of the Disclosure
Schedule, there has been no prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code) with respect to any Benefit
Plan; McDougal has not incurred any material liability for any excise tax
arising under Section 4972 or 4980B of the Code and no fact or event exists that
could reasonably give rise to any such liability with respect to the filing of
reports with respect to any Benefit Plan; there are no pending, threatened or
anticipated claims (other than routine claims for benefits) by, on behalf of or
against any of the Benefit Plans, or any
23
<PAGE>
trusts related thereto or any trustee or administrator thereof, and no material
litigation or administrative or other proceeding (including, without limitation,
any litigation or proceeding under Title IV of ERISA) has occurred or, to the
best knowledge of the Stockholders and McDougal, is threatened involving any
Benefit Plan or any trusts related thereto or any trustee or administrator
thereof.
(g) Except as set forth in Section 2.25(g) of the Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or officer of McDougal or
any of its subsidiaries to severance pay, unemployment compensation or any other
similar payment, except as expressly provided in this Agreement, (ii) accelerate
the time of payment or vesting or increase the amount of compensation due any
such employee or officer, (iii) result in any employment-related expenses or
liabilities the full cost of which will not be paid by McDougal, or (iv)
assuming that Purchaser's representation in Section 3.4 is true, result in any
prohibited transaction described in Section 406 of ERISA or Section 4975 of the
Code for which an exemption is not available.
(h) No employee, officer or director of McDougal will be
entitled to receive any compensation, remuneration or financial benefit of any
kind resulting from this Agreement or the transactions contemplated hereby
other than the purchase price of any Common Stock in which such person has a
beneficial interest and the amounts payable to such person in respect of the
termination of SAR's under McDougal's Stock Appreciation Rights Plan.
2.26 Brokers and Finders. None of the Stockholders, McDougal, its
-------------------
officers, directors and employees has employed any broker or finder or incurred
any liability for any investment banking, brokerage fees, commissions or
finders' fees in connection with the transactions contemplated by this
Agreement.
2.27 Personnel.
---------
(a) Section 2.27(a) of the Disclosure Schedule sets forth a true
and complete list of:
24
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(i) the names and current salaries of all directors
and elected and appointed officers of McDougal, and the family
relationships, if any, among such persons; and
(ii) the compensation rates for wage and salaried
employees of McDougal.
(b) Section 2.27(b) of the Disclosure Schedule sets forth a
summary of McDougal's policy concerning pay raises for officers and other
employees of McDougal.
2.28 Insider Interests. Except as set forth in Section 2.28 of the
-----------------
Disclosure Schedule, no officer or director of McDougal has any material
interest in any property, real or personal, tangible or intangible, including
without limitation, Intellectual Property used in or pertaining to the business
of McDougal.
2.29 Subsidiaries. McDougal does not presently own a majority
------------
equity interest or have a contractual right to control, directly or indirectly,
any other corporation, partnership, business trust, association or other
business entity.
2.30 Disclosure. To the best knowledge of the Stockholders and
----------
McDougal after reasonable inquiry under the circumstances, no representation or
warranty made by McDougal or any of the Stockholders in this Agreement and no
statement contained in any document (including, without limitation, Financial
Statements and the Disclosure Schedule) or certificate furnished or to be
furnished by McDougal or the Stockholders to the Purchaser or any of its
representatives pursuant to the provisions hereof or in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make such
representation, warranty, statement or certificate not misleading in any
material respect.
25
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents to the Stockholders as follows:
3.1 Corporate Organization. Purchaser is a corporation duly
----------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts.
3.2 Authorization. Purchaser has the requisite corporate power and
-------------
authority to enter into this Agreement and the Additional Documents and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Additional Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by the Board of Directors of Purchaser, and no other corporate
proceedings on the part of Purchaser or its stockholders are necessary to
authorize the execution, delivery and performance of this Agreement and the
Additional Documents and the consummation of the transactions contemplated
hereby and thereby. This Agreement and the Additional Documents have been duly
executed and delivered and constitute the valid and binding obligations of
Purchaser, enforceable against Purchaser in accordance with their respective
terms.
3.3 Noncontravention; Consents; Filings. Except for any required
-----------------------------------
filings under the HSR Act, the execution, delivery and performance of this
Agreement and the Additional Documents by Purchaser and the consummation by
Purchaser of the transactions contemplated hereby or thereby and compliance by
Purchaser with any of the provisions hereof or thereof does not and will not (a)
conflict with or violate any provision of the Articles of Organization or By-
Laws of Purchaser, (b) require any filing with, or permit, authorization,
consent or approval of, any Governmental Entity or (c) conflict with or violate
any order, writ, injunction, decree, statute, rule or regulation applicable to,
binding upon or enforceable against Purchaser or any of its properties or
assets, except, in the case of clause (c), for such conflicts or violations
which would not materially impair
26
<PAGE>
the ability of Purchaser to consummate the transactions contemplated hereby and
thereby.
3.4 Disqualified Persons. Purchaser is neither a "disqualified
--------------------
person" (within the meaning of Section 4975 of the Code) nor a "party in
interest" (within the meaning of Section 3(14) of ERISA) with respect to the
Plan (as defined in Section 5.10(a)).
ARTICLE IV
CERTAIN COVENANTS PENDING THE CLOSING
4.1 Interim Conduct of Business.
---------------------------
(a) From the date hereof through the Closing, McDougal shall,
and the Stockholders shall use their best efforts to cause McDougal to,
operate as a going concern in the ordinary course of its business, consistent
with past practice in all material respects, and McDougal shall, and the
Stockholders shall use their best efforts to cause McDougal to, use all
reasonable efforts to preserve in all material respects its business
organization intact and maintain in all material respects its existing
relations with its customers, suppliers and others having business dealings
with it. The Stockholders and McDougal shall not, and the Stockholders shall
use their best efforts to cause McDougal not to, take any action which would
make any representation or warranty of the Stockholders or McDougal contained
in this Agreement to be or become untrue, incorrect or misleading in any
material respect as of the date when made or as of the Closing Date.
(b) Without limiting the generality of the foregoing, except as
otherwise specifically agreed in writing by Purchaser, from and after the date
hereof to and including the Closing Date, the Stockholders and McDougal covenant
and agree that McDougal will not, and that the Stockholders will cause McDougal
not to:
(i) make expenditures for capital equipment which are
more than $50,000 individually or $100,000 in the aggregate;
(ii) take or omit to take any action where such action
or omission would
27
<PAGE>
cause a violation or breach of, or a default (or any event which with the
giving of notice or the passage of time or both would constitute such a
violation, breach or default or give rise to any right of termination,
amendment, renegotiation, cancellation or acceleration) under, any contract
or commitment to which McDougal is a party, where such violations, breaches
or defaults (including such other events) could reasonably be expected in
the aggregate to have a Material Adverse Effect;
(iii) increase the wages, salary, commission rates or
other benefits payable to or receivable by any director, officer or
employee of McDougal, other than for regularly scheduled increases or
increases and adjustments in connection with promotions in the ordinary
course of business and consistent with past practice;
(iv) enter into or amend any existing contract for the
employment of any person by McDougal, or increase the compensation or
benefits of any employee of McDougal whose annual compensation exceeds
$75,000 (except regularly scheduled increases consistent with past
practice in all material respects);
(v) add any persons as participants in any Benefit
Plan or increase the benefits of any participant in any Benefit Plan
(except for persons who become participants in the ordinary course and
increases in the ordinary course under the terms of such Benefit Plan as
it currently exists or to comply with any applicable law or regulation);
(vi) enter into any or amend any agreement, contract or
commitment, where such agreements, contracts, commitments or amendments are
material in the aggregate to McDougal, other than in the ordinary course of
business and consistent with past practice;
(vii) employ or otherwise engage any person, other
than any person em-
28
<PAGE>
ployed in a sales, marketing or editorial function and whose proposed
annual base compensation is less than $75,000 and excluding temporary
hires;
(viii) enter into, modify, make, renew, extend or
otherwise alter any lease, license, credit agreement, note or other
similar agreement (including without limitation any interest rate or
currency swap, hedge, collar or straddle or similar transaction) or
instrument to which McDougal is a party or incur or otherwise become
liable with respect to any indebtedness, other than trade payables
incurred in the ordinary course of business and consistent with past
practice in all material respects;
(ix) enter into any contract or agreement with respect
to the acquisition of assets (real, personal or mixed, tangible or
intangible, including, without limitation, capital stock or other equity
interests in, or evidences of the indebtedness of, any other corporation,
partnership or entity) which are material to McDougal, other than
acquisitions of inventory, equipment and production materials in the
ordinary course of business and consistent with past practice in all
material respects;
(x) sell or dispose of any property or assets other than
inventory in the ordinary course of business and sales on commercially
reasonable terms of assets having an aggregate market value of less than
$100,000;
(xi) fail to maintain all property of McDougal in
customary repair, order and condition consistent with McDougal's current
maintenance policies in all material respects, reasonable wear and tear
excepted;
(xii) discontinue or permit to lapse any policies of
insurance described in Section 2.21 in full force and effect nor take any
action that would cause any such policy to
29
<PAGE>
terminate or be terminable prior to the expiration of its stated term,
with such exceptions as would not reasonably be expected to have a Material
Adverse Effect;
(xiii) except as required by applicable law, make or
change any material Tax election of McDougal, change any annual Tax
accounting period of McDougal, adopt or change any Tax accounting method
of McDougal, file any Return relating to McDougal in a manner that is
materially inconsistent with past practice, file any amended Return
relating to McDougal, enter into any closing agreement relating to
material Taxes of McDougal, settle any material Taxing Authority Claim
(as defined in Section 8.3(c)) or assessment relating to McDougal,
surrender any right to claim a refund of Taxes relating to McDougal,
consent to any extensions or waivers of the limitations period applicable
to any Taxing Authority Claim or assessment relating to McDougal, or
enter into a Tax sharing agreement or similar arrangement with respect to
McDougal.
(xiv) except as set forth in Section 4.1 of the
Disclosure Schedule, purchase, redeem or otherwise acquire, directly or
indirectly, any of McDougal's capital stock or give notice of any
intention to exercise any right to repurchase or otherwise acquire any of
McDougal's capital stock, SAR's or other debt or equity securities
(including without limitation any such purchase, redemption, acquisition
or notice in accordance with the terms of McDougal's Certificate of
Incorporation or By-Laws or any Stockholder Agreement);
(xv) issue or sell, or issue any rights to purchase or
subscribe for, or subdivide or otherwise change, any shares of McDougal's
capital stock, SAR's or similar rights;
(xvi) declare or pay any dividends on or make other
distributions (whether in cash, stock or property or any
30
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combination thereof), directly or indirectly, in respect of McDougal's
capital stock;
(xvii) amend McDougal's Certificate of Incorporation
or By-Laws; or
(xviii) take any corporate or other action in
furtherance of any of the foregoing.
4.2 Access to Information.
---------------------
(a) From the date hereof through the Closing Date, McDougal
shall, and the Stockholders shall use their best efforts to cause McDougal to,
(i) afford to Purchaser and its representatives such access during normal
business hours to the premises, properties, books, contracts and records of
McDougal and (ii) furnish promptly to Purchaser and its representatives such
additional financial and operating data and other information concerning the
business, properties and personnel of McDougal as Purchaser may from time to
time reasonably request.
(b) Purchaser's investigation of McDougal may include, at its
option and cost, an assessment performed prior to the Closing Date of (i) the
presence of any materials of environmental concern at or on McDougal's
facilities, (ii) McDougal's compliance with the environmental laws or (iii)
any potential liability of McDougal arising under the environmental laws or
relating to any materials of environmental concern (the "Environmental
Assessment"). To facilitate the conduct of the Environmental Assessment, the
Stockholders and McDougal agree to provide the Purchaser with complete access
to McDougal owned or leased properties and facilities (with the consent of the
lessor of any leased properties and facilities), to allow upon reasonable
notice sampling or testing at reasonable times and in a reasonable manner, to
the extent that an environmental engineer employed by Purchaser reasonably
concludes, based upon an inspection of McDougal's facilities and review of the
relevant reports and other information, including the lack thereof, available
to such engineer, that sampling or testing is advisable, to provide copies of
all documents relevant to the Environmental Assessment and to ensure the
cooperation of McDougal's management and em-
31
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ployees in Purchaser's conduct of the Environmental Assessment. The
Stockholders and McDougal shall be entitled to receive copies of any reports
concerning the results of the Environmental Assessment, and Purchaser shall use
reasonable efforts to require inclusion in any such report of a statement
expressly permitting McDougal to make unrestricted use of such report and all
information contained therein (unless Purchaser is required to pay an
additional amount for the inclusion of such statement), in which case Purchaser
will give the Stockholders the option to pay such additional amount.
(c) No investigation by, or furnishing of information to,
Purchaser shall affect the right of Purchaser to rely on the representations,
warranties, covenants and agreements of the Stockholders set forth herein.
Unless otherwise required by law, Purchaser will hold any such information
which is nonpublic in confidence until the earlier of such time as such
information otherwise becomes publicly available through no wrongful act of
Purchaser or the Closing Date, and in the event of termination of this
Agreement for any reason, Purchaser shall promptly return all nonpublic
documents obtained in connection with the transactions contemplated hereby
without retaining any copy thereof.
4.3 No Solicitation or Sale of Common Stock. The Stockholders and
---------------------------------------
McDougal will not, nor will the Stockholders authorize or permit McDougal or any
of its directors, officers, employees or representatives to, at any time prior
to the Closing, directly or indirectly, either solicit inquiries or proposals
concerning any acquisition of all or substantially all of the assets or any
shares of the capital stock or other securities of McDougal or any other
business combination involving McDougal or furnish or cause to be furnished any
information concerning the business, properties or assets of McDougal to any
person or entity in connection with any such inquiry or proposal. None of the
Stockholders or their respective successors and assigns will, at any time prior
to the Closing, other than by operation of law, encumber, sell, transfer or
otherwise dispose of any of the shares of Common Stock to McDougal (including
without limitation pursuant to the terms of any of the Stockholder Agreements)
or to any other person or entity, other than pursuant to the terms of this
Agreement.
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4.4 Repayment of Indebtedness; Satisfaction of SAR Liabilities.
----------------------------------------------------------
Prior to or simultaneously with the Closing, McDougal shall take such action so
as to cause, (a) all outstanding indebtedness (including all guarantees of
indebtedness of others) of McDougal for borrowed money, other than trade
payables incurred in the ordinary course of business and consistent with past
practice, to have been repaid, retired or otherwise cancelled and to no longer
be outstanding and McDougal to have no further liability or obligation in
respect of or relating to the repayment, retirement or cancellation of such
indebtedness, (b) all obligations of McDougal under any currency or interest
rate swap, hedge, collar or straddle or similar transaction to be terminated and
McDougal to have no further liability or obligation in respect of or relating to
such termination and (c) all amounts due or becoming due to holders of SAR's
upon the Closing as a result of the transactions contemplated by this Agreement
to have been paid, satisfied or otherwise extinguished, and from and after the
Closing, McDougal to have no obligation or liability with respect thereto.
4.5 Board of Directors. Immediately prior to the Closing, each
------------------
member of the Board of Directors of McDougal so requested by the Purchaser shall
have delivered to the Purchaser a written resignation from such Board of
Directors effective as of the Closing Date.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Consents and Approvals. Each of Purchaser, the Stockholders and
----------------------
McDougal shall, and the Stockholders shall cause McDougal to, (a) take all
reasonable actions necessary to comply promptly with all legal and regulatory
requirements which may be imposed on any of them with respect to the
transactions contemplated by this Agreement (which actions shall include,
without limitation, furnishing all information required under the HSR Act and in
connection with approvals of or filings with any other Governmental Entity) and
will promptly cooperate with and furnish information to each other in connection
with any such requirements imposed on any of them in connection with the
transactions contemplated hereby and (b) take all reasonable actions necessary
to
33
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obtain (and shall cooperate with each other in obtaining) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity or other public or private third party, required to be obtained by
Purchaser, the Stockholders or McDougal in connection with the transactions
contemplated hereby.
5.2 Further Assurances. Subject to the terms and conditions of this
------------------
Agreement, Purchaser, the Stockholders and McDougal shall, and the Stockholders
shall use their best efforts to cause McDougal to, use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement. From time to time after the
Closing, and at the request of any party hereto and without further
consideration, any other party shall execute and deliver to the requesting
party such documents, which shall contain reasonable representations and
warranties regarding the authority of such persons to execute, deliver and
perform such documents and the enforceability thereof, and take such other
action (but without incurring any material financial obligation) as the
requesting party may reasonably request in order to consummate more effectively
the transactions contemplated hereby.
5.3 Sales and Transfer Taxes. All sales and transfer taxes
------------------------
(including without limitation all stock transfer taxes, if any) incurred in
connection with the transactions contemplated hereby will be borne by the
Stockholders.
5.4 Noncompetition.
--------------
(a) Mr. McDougal (the "Individual Stockholder") acknowledges that
(i) the business in which McDougal is engaged is intensely competitive and that
his employment by McDougal has required and continues to require that he has had
and continues to have access to and knowledge of confidential information of
McDougal, including, but not limited to, certain confidential plans of McDougal
for the creation, acquisition or disposition of products, expansion plans,
product development plans, product pricing information, financial status and
plans, customer information, personnel information and trade secrets, which are
of vital importance to the success of
34
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McDougal's business and not generally known in the educational publishing
industry (the "Confidential Information"); (ii) the direct or indirect
disclosure of any Confidential Information to existing or potential competitors
of McDougal would place McDougal at a competitive disadvantage and would tend to
have a Material Adverse Effect; and (iii) by his training, experience and exper-
tise, their services to McDougal are special and unique.
(b) Accordingly, the Individual Stockholder hereby covenants and
agrees that he shall not for a period of two years from the date hereof engage,
directly or indirectly, through a corporation or subsidiary, individually or
in partnership or in conjunction with any other person or persons, firm or
corporation, as principal, agent, stockholder (except by ownership of shares
constituting less than 1% of the capital stock of a corporation registered under
the Securities Exchange Act of 1934, as amended), employee or in any manner
whatsoever as the foregoing may be applicable, in competition with the business
of McDougal as conducted on the date hereof, with such exceptions regarding
activities for nonprofit organizations as may be mutually agreed between the
Individual Stockholder and Purchaser, Purchaser's agreement not to be
unreasonably withheld.
(c) For a period of two years from the date hereof, the
Individual Stockholder will not, except in connection with the performance of
the Individual Stockholder's employment or in furtherance of the business of
McDougal, or as a director of Purchaser communicate, divulge or disclose to
any other person not a director, officer, employee or affiliate of, or not
engaged to render services to or for, McDougal or use for his own benefit or
purposes to the detriment of McDougal or Purchaser any Confidential
Information of or relating to McDougal.
(d) For a period of two years from the date hereof, the
Individual Stockholder agrees not to solicit any customer of McDougal which
was a customer of McDougal during the Individual Stockholder's employment or
any prospective customer with respect to whom or which a bid, proposal, or
sales offer or substantial preparation with a view to making a bid, proposal
or offer was made during the six months preceding the date of termination of
the Individual Stockholder's employment with
35
<PAGE>
McDougal, other than solicitations for products and services which do not
compete with products or services sold by McDougal or Purchaser. The Individual
Stockholder further agrees that he will not, for a period of two years from the
date hereof, directly or indirectly, induce or solicit any employee of McDougal
to leave the employ of McDougal.
(e) The geographic region of the covenant not to compete set
forth in Section 5.4(b) above shall extend throughout the United States.
(f) The Individual Stockholder, McDougal and Purchaser agree
that due to the uniqueness of each Individual Stockholder's skills and
abilities and the uniqueness and confidential nature of the information the
Individual Stockholder possesses, the covenants set forth in this Section 5.4
are reasonable and necessary for the protection of the business and goodwill
of McDougal. The Individual Stockholder also acknowledges that any violation
of the covenants contained herein will cause immeasurable and irreparable
damage to McDougal and Purchaser.
5.5 Board Representation. Purchaser covenants and agrees, as soon as
--------------------
practicable following the Closing, to use all reasonable efforts to cause Mr.
McDougal to be nominated and elected to the Board of Directors of Purchaser.
5.6 Future Operations. It is the Purchaser's present intent that the
-----------------
business and operations of McDougal, including editorial, sales and marketing
functions, shall remain in the greater Chicago area and that the McDougal name
will become part of the imprint of Purchaser for publications for secondary
schools, consistent with and subject to the future operational and competitive
needs of Purchaser.
5.7 Medical Benefits. Purchaser shall reimburse the Individual
----------------
Stockholder for the amount paid by him to purchase health insurance for himself
and his present spouse for the remainder of the Individual Stockholder's life or
the life of such spouse, whichever is longer, providing benefits equal to those
provided under the medical benefits plan available to senior executives of
Purchaser, to the extent such amount exceeds the costs that would have been
incurred by Pur-
36
<PAGE>
chaser if it had permitted the Individual Stockholder and such spouse to
participate in the medical benefits plan available to senior executives of
Purchaser.
5.8 Severance Policy. It is the intention of Purchaser that, from
----------------
and after the Closing until December 31, 1994, employees of McDougal as of the
Closing Date who are terminated (other than for cause or nonperformance) will
receive severance or termination benefits which are substantially the same as
those provided to former employees of Purchaser who were terminated in
connection with the restructuring of Purchaser's School Division in 1993.
5.9 Offer to Other Stockholders. Mr. McDougal shall use his
---------------------------
reasonable efforts to cause each stockholder of McDougal who is not a party
hereto to sell, and Purchaser covenants and agrees that, on or prior to the
Closing, it will offer to purchase, all the capital stock of McDougal
beneficially owned by such stockholder to Purchaser upon the same economic terms
as those provided herein.
5.10 Employee Savings and Stock Ownership Plan Matters. In
-------------------------------------------------
connection with the transactions contemplated by this Agreement, the parties
noted below agree to take (or cause to be taken) the following actions with
respect to the McDougal Employee Savings and Stock Ownership Plan (the "Plan";
all capitalized terms used in this Section 5.10 and not defined in this
Agreement shall have the meanings ascribed to them in the Plan):
(a) Before the Closing, McDougal shall contribute to the Plan in
accordance with Section 4(c) of the Plan in cash a Matching Contribution for
each Participant for the portion of the Plan Year beginning May 1, 1993 that
occurs before the Closing Date in an amount equal to 50% (and no greater
percentage) of the Elective Contribution made on the Participant's behalf during
such portion of the Plan Year (to the extent such Elective Contributions do not
exceed 6% of the Participant's Compensation). McDougal shall notify the Trustee
that such Matching Contributions shall be used to make payments with respect to
the Acquisition Loan, in accordance with Section 5(c) of the Plan, and such
payments shall be made effective immediately before the Closing.
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<PAGE>
(b) McDougal and Cole Taylor Bank, as the Independent Plan
Trustee of the Plan (the "Independent Plan Trustee") shall take (or cause to
be taken) such actions as are necessary or appropriate (1) to amend the Plan
(and, to the extent necessary, the McDougal, Littell & Company Employee
Savings and Stock Ownership Trust Agreement), effective immediately prior to
the Closing, to provide that (i) any distributions of a Participant's Capital
Accumulation under the employee stock ownership plan portion of the Plan (in
this Section 5.10, the "ESOP") upon termination of the ESOP (including,
without limitation, a termination in connection with the sale of the McDougal
common stock) may, at the election of the Participant (or beneficiary), be
made in shares of common stock of Purchaser to be acquired by the Independent
Plan Trustee of the Plan on the open market, (ii) upon termination of the
ESOP, all outstanding indebtedness of the ESOP attributable to Financed Shares
then held in the Loan Suspense Account shall be immediately repaid by the
Independent Plan Trustee with the proceeds from the sale of such Financed
Shares, with any excess proceeds being allocated to the accounts of
Participants in proportion to their relative Compensation for the then-current
Plan Year, and (iii) in connection with any such termination of the ESOP, to
the extent permitted by law, to provide each Participant with the opportunity
to receive a complete distribution of his or her account balance (net of
applicable withholding) as soon as practicable and, at the Participant's
election, to transfer such account balance to Purchaser's Employees' Savings
and Thrift Plan, in accordance with the terms of such plan, or to an
individual retirement account, and (2) effective as of the Closing, to
terminate the ESOP. Wherever this Section 5.10(b) refers to the "Independent
Plan Trustee", if at any relevant time the Independent Plan Trustee shall no
longer be serving as Trustee of the Plan, the term "Independent Plan Trustee"
shall be deemed to refer to the then-acting Trustee of the Plan.
(c) Upon the Closing, the Independent Plan Trustee shall
immediately use that portion of the sums set forth on Exhibit A hereto which
is attributable to Financed Shares then held in the Loan Suspense Account to
repay (or upon the request of Purchaser shall make appropriate arrangements
for the immediate use of such portion for the repayment of) the principal
amount of and
38
<PAGE>
accrued interest on all outstanding indebtedness of the ESOP with respect to
such Financed Shares.
5.11 Performance Bonds. Purchaser will use its reasonable best
-----------------
efforts to cause Mr. McDougal to be relieved from any personal liability to
Midwest Indemnity Corp. in respect of state adoption performance bonds out-
standing on the date hereof in an amount not in excess of $49,000, which
reasonable best efforts shall include, without limitation, offering to
substitute Purchaser for Mr. McDougal as the obligor thereunder.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
All obligations of Purchaser to consummate the transactions
contemplated by this Agreement are subject to the satisfaction or waiver, at or
prior to the Closing, of the following conditions:
6.1 Performance of Obligations; Representations and Warranties.
-----------------------------------------------------------
(a) Each and every Stockholder and McDougal shall have
performed and observed all obligations and covenants contained herein to be
performed or observed by such Stockholder or McDougal at or prior to the
Closing; provided, however, that this condition shall be satisfied as
-------- -------
to covenants contained in Sections 4.2, 5.1 and 5.2 by performance and
observance in all material respects.
(b) The representations and warranties of the Stockholders and
McDougal contained in the first and last sentences of Section 2.1, and in
Sections 2.2, 2.3, 2.4 and 2.5 hereof shall have been on the date hereof and
shall be as of the Closing Date, as if made on and as of the date hereof and
thereof, true and accurate.
(c) All representations and warranties of the Stockholders and
McDougal other than those described in Section 6.1(b) hereof shall have been on
the date hereof and shall be as of the Closing Date, as if made on and as of the
date hereof and thereof, true and accurate, except for such breaches or
inaccuracies as shall not in the aggregate have had a Material Adverse Effect,
and
39
<PAGE>
could not reasonably be expected to have a Material Adverse Effect, it being
understood and agreed that in determining whether inaccuracies or breaches of
representations and warranties shall in the aggregate have had a Material
Adverse Effect or could reasonably be expected to have a Material Adverse
Effect, no consideration shall be given to any materiality, Material Adverse
Effect or monetary qualification, exception or limitation in any such individual
representation or warranty.
(d) Purchaser shall have received a certificate executed by
each of the Stockholders and the President of McDougal with respect to the
satisfaction of the conditions set forth in Sections 6.1(a) and (b) hereof and
from Mr. McDougal, and the President and the Chief Financial Officer of
McDougal with respect to the condition set forth in Section 6.1 (c) hereof.
6.2 No Injunction. There shall be no effective temporary
-------------
restraining order, preliminary or permanent injunction or other order issued by
any Governmental Entity which would prevent the consummation of the trans-
actions contemplated by this Agreement or materially diminish the value of
McDougal.
6.3 Regulatory Approvals. All authorizations, approvals, consents
--------------------
and waivers of any Governmental Entities required to consummate the transactions
contemplated by this Agreement shall have been obtained and shall not be
terminated, suspended or withdrawn as of the Closing Date. Any applicable
waiting periods under the HSR Act with respect to the transactions contemplated
by this Agreement shall have expired or been terminated.
6.4 Trusts.
------
(a) Purchaser shall have received an opinion of counsel
reasonably satisfactory to Purchaser for those Stockholders which are not
natural persons other than the Plan (the "Trusts"), in form and substance
reasonably satisfactory to Purchaser, to the effect that each of this
Agreement and the Additional Documents to be delivered by each of the Trusts
has been duly authorized, executed and delivered by, and constitutes the
valid, binding and enforceable obligation of, each of such Trusts.
40
<PAGE>
(b) Purchaser shall have received written assurances of Mr.
McDougal reasonably satisfactory to Purchaser that Escrow Amounts
distributable for the account of the Trusts, when distributed pursuant to
Section 3 of the Escrow Agreement, shall be delivered to a separate escrow
account or accounts, for which the Trustees of the Trusts shall serve as
escrow agents, with investment authority over the assets of such separate
escrow account or accounts, to be held in such separate escrow account or
accounts until November 23, 1997, and that the amounts held in such escrow
account or accounts shall be available to satisfy the indemnification
obligations of the Trusts hereunder.
6.5 Tax Certification. Purchaser shall have received a certificate
-----------------
from each Stockholder to the effect that such Stockholder is not a "foreign
person" as defined in Section 1445 of the Code.
ARTICLE VII
CONDITIONS PRECEDENT TO THE STOCKHOLDERS' OBLIGATIONS
All obligations of each of the Stockholders to consummate the
transactions contemplated by this Agreement are subject to the satisfaction or
waiver at or prior to the Closing of the following conditions:
7.1 Performance of Obligations; Representations and Warranties.
-----------------------------------------------------------
Purchaser shall have performed and observed (a) the covenant set forth in
Section 5.9 and(b) in all material respects all other obligations and covenants
contained herein to be performed or observed by Purchaser at or prior to the
Closing and the representations and warranties of Purchaser contained herein
shall have been on the date hereof and shall be as of the Closing Date, as if
made on and as of the date hereof and thereof, true and accurate in all material
respects, and the Stockholders shall have received a certificate executed by a
duly authorized officer of Purchaser to that effect.
7.2 No Injunction. There shall be no effective temporary
-------------
restraining order, preliminary or permanent injunction or order issued by an
Governmental Entity which would prevent the consummation of the transactions
contemplated by this Agreement by such Stockholder.
41
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7.3 Regulatory Approvals. All authorizations, approvals, consents
--------------------
and waivers of any Governmental Entities required to permit such Stockholder to
consummate the transactions contemplated by this Agreement shall have been
obtained and shall not be terminated, suspended or withdrawn as of the Closing
Date. All applicable waiting periods under the HSR Act with respect to the
transactions contemplated hereby shall have expired or been terminated.
ARTICLE VIII
SURVIVAL AND INDEMNIFICATION
8.1 Survival.
--------
(a) All representations, warranties, covenants and agreements
contained in Sections 2.2, 2.3 (other than the third sentence thereof), 2.4 and
2.5(a), (b), (c) and (d) of this Agreement shall survive until the expiration of
the applicable statute of limitations.
(b) The representations and warranties set forth in Sections
2.25 of this Agreement shall survive the Closing for two years.
(c) All other representations and warranties set forth in this
Agreement shall not survive the Closing.
8.2 Indemnification.
---------------
(a) After the Closing, each of the Stockholders, severally and
not jointly, agrees to indemnify and hold harmless Purchaser and its
subsidiaries and affiliates and their respective officers, directors,
employees and agents, and, from and after the Closing, McDougal (collectively,
"Purchaser's Indemnified Persons"), against and in respect of any payments,
demands, claims, suits, judgments, liabilities, losses, costs, damages or
expenses (including, without limitation, reasonable expenses of investigating
and reasonable attorneys' or consultants' fees) ("Damages") incurred or
sustained by any of them as a result of any breach by the Stockholders or
McDougal of the surviving representations and warranties contained herein.
42
<PAGE>
(b) No party shall be entitled to make any claim for
indemnification under Section 8.2(a) hereof on account of any representation,
warranty, covenant or agreement after the date on which the same ceases to
survive pursuant to Section 8.1 hereof; provided, however, that if prior to
-------- -------
such date the Indemnifying Party (as hereinafter defined) shall have received
written notification of a claim for indemnity from an Indemnified Party (as
hereinafter defined), which notice shall specify in reasonable detail the
facts and circumstances which form the basis for such claim such claim, if
diligently pursued, shall continue as a basis for indemnity until it is
finally resolved. Purchaser's Indemnified Persons shall not make any claim for
indemnification under this Section 8.2, other than with respect to breaches of
representations and warranties described in Section 6.1(b), or under Section
8.3 unless the total amount of Damages sustained by Purchaser's Indemnified
Persons in the aggregate shall equal $500,000, including the amount of such
claim, and Purchaser's Indemnified Persons shall be entitled to be indemnified
only with respect to the excess of all Damages sustained by Purchaser's
Indemnified Persons over $500,000. The indemnification obligation of the Plan
is not an obligation of the trustee of the Plan and the assets of the trustee
of the Plan shall not be available to satisfy such obligation.
(c) Each of the Stockholders shall indemnify and hold harmless
Purchaser's Indemnified Persons from and against such Stockholder's Applicable
Percentage (as defined in the Escrow Agreement) of any Damage sustained by any
of them arising from or relating to any claim, suit, arbitration or other
proceeding commenced within two years following the Closing Date by or on
behalf of any present or former employee of McDougal or participant in any
Benefit Plan in connection with the transactions contemplated by this Agreement,
including any claim or allegation arising from any purchase of shares of Common
Stock by McDougal on or prior to the Closing but excluding claims based upon the
purchase of shares of Common Stock from the ESOP pursuant to this Agreement.
Mr. McDougal, and no other stockholder, shall indemnify and hold harmless
Purchaser's Indemnified Persons in respect of 50% of the amount of any Damage
arising out of a claim that the authorization, execution and delivery of this
Agreement constituted a breach of fiduciary duty of the ESOP Trustee as a result
of the
43
<PAGE>
purchase price paid by Purchaser for shares of Common Stock pursuant to this
Agreement; provided, however, that the indemnification obligation of Mr.
-------- -------
McDougal in respect of such Damages shall not exceed $1,500,000.
(d) Each of the Stockholders shall indemnify and hold harmless
Purchaser's Indemnified Persons from and against such Stockholder's Applicable
Percentage of all Damages incurred or sustained by any of them arising out of or
based upon any claim that the use by McDougal of any copyrighted material
infringes the rights of the holder of the copyright (an "Intellectual Property
Claim"). The obligation of each Stockholder to indemnify and hold harmless
Purchaser and McDougal pursuant to this Section 8.2(d) shall be limited as
follows:
(i) the Stockholders shall not be obligated to indemnify and
hold harmless Purchaser's Indemnified Persons from and against Damages with
respect to an Intellectual Property Claim that is based upon the use of any
material in any revised Work revised after the Closing Date;
(ii) the Stockholders shall not be obligated to indemnify and hold
harmless Purchaser's Indemnified Persons from and against Damages with respect
to an Intellectual Property Claim that is based upon Work which (x) was not
being actively offered for sale by McDougal on the date hereof or on the Closing
Date or (y) McDougal may be obligated pursuant to an unexpired adoption con-
tract to sell or deliver; and
(iii) the Stockholders shall not be obligated to indemnify and hold
harmless Purchaser and McDougal for Damages with respect to an Intellectual
Property Claim that is asserted on or after the second anniversary of the
Closing Date.
Solely for purposes of this Section 8.2(d), the term "Damages" shall not include
the commercially reasonably cost of procuring a license or assignment of rights
which is sufficiently broad to permit the continued use of the copyrighted
material in a manner consistent with the use made by McDougal of the material
which is the subject of such license or assignment on or prior to the Closing
Date, it being understood that Purchaser will attempt in
44
<PAGE>
good faith to acquire a license or assignment of such rights on commercially
reasonable terms.
(e) Each of the Stockholders shall indemnify and hold harmless
Purchaser's Indemnified Persons from and against such Stockholder's Applicable
Percentage of all Damages sustained by any of them as a result of any knowing or
intentional misstatement of any representation or warranty contained in this
Agreement to the extent that Purchaser shall prove by a preponderance of the
evidence that a Stockholder had actual knowledge of such misstatement, it being
understood and agreed that no implication shall be drawn as to such knowledge
from the status of any Stockholder as an officer of McDougal or, in the case of
Mr. McDougal, a principal stockholder of McDougal.
(f) The total liability of any Stockholder under this Section
8.2, other than for breaches of representations and warranties described in
Section 6.1(b), and under Section 8.3 shall not exceed the amount of the
Escrow Amount (as defined in the Escrow Agreement) initially allocable to such
Stockholder. From and after the Closing Date, the Stockholders shall have no
right to any contribution or indemnity from McDougal in respect of any breach
of the representations, warranties, covenants or other obligations of the
Stockholders or McDougal contained in this Agreement.
(g) An indemnified party under this Section 8.2 or any successor
thereto (the "Indemnified Party") shall give prompt written notice to an
indemnifying party (the "Indemnifying Party") of any Damages in respect of
which such Indemnifying Party has a duty to provide indemnity to such
Indemnified Party under this Section 8.2, except that any delay or failure so to
notify the Indemnifying Party shall relieve the Indemnifying Party of its
obligations hereunder only to the extent the Indemnifying Party is prejudiced by
reason of such delay or failure.
(h) If a third party asserts a claim against any party for
Damages (a "Third Party Claim"), the Indemnifying Party shall assume the
defense thereof, including without limitation the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of all
expenses. The Indemnified Party shall
45
<PAGE>
have the right to employ separate counsel in such Third Party Claim and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnified Party unless there are actual or
potential conflicts of interest between the Indemnified Party and the
Indemnifying Party or if there are defenses available to the Indemnified Party
which are not available to the Indemnifying Party, in which case the fees and
expenses of such counsel shall be paid by the Indemnifying Party; provided,
--------
however, that the Indemnifying Party shall be responsible for the fees and
- -------
expenses of only one such counsel in respect of a Third Party Claim for all
Indemnified Parties. In the event that the Indemnifying Party fails to assume
the defense thereof within a reasonable time under the circumstances after
notice of any Third Party Claim, the Indemnified Party shall have the right to
undertake the defense, compromise or settlement of such Third Party Claim for
the account of the Indemnifying Party, subject to the right of the Indemnifying
Party to assume the defense of such Third Party Claim with counsel reasonably
satisfactory to the Indemnified Party at any time prior to the settlement,
compromise or final determination thereof. Anything in this Section 8.2(f) to
the contrary notwithstanding, the Indemnifying Party shall not, without the
Indemnified Party's prior written consent, such consent not to be unreasonably
withheld, settle or compromise any Third Party Claim or consent to the entry of
any judgment with respect to any Third Party Claim except that, the Indem-
nifying Party may, without the Indemnified Party's prior written consent, settle
or compromise any such Third Party Claim or consent to entry of any judgment
with respect to any Third Party Claim which requires solely that money damages
be paid by the Indemnifying Party and which includes as an unconditional term
thereof the release by the claimant or the plaintiff of the Indemnified Party
from all liability in respect of such Third Party Claim. In the event that the
Indemnifying Party shall have assumed the defense of any Third Party Claim, the
Indemnified Party shall not, without the Indemnifying Party's prior written
consent, such consent not to be unreasonably withheld, settle or compromise any
such Third Party Claim.
(i) With respect to any claim for Damages other than a
Third Party Claim, the Indemnifying Party shall have 30 days from receipt of
notice from the Indem-
46
<PAGE>
nified Party of such claim within which to respond thereto. If the
Indemnifying Party does not respond within such 30-day period, the Indemnifying
Party shall be deemed to have accepted responsibility to make payment and shall
have no further right to contest the validity of such claim. If the
Indemnifying Party notifies the Indemnified Party within such 30-day period that
it rejects such claim in whole or in part, the Indemnified Party shall be free
to pursue such remedies as may be available to the Indemnified Party under
applicable law. The Indemnified Party shall, upon receipt of a written request
therefor from the Indemnifying Party, provide the Indemnifying Party with such
access to books and records within the control of the Indemnified Party as the
Indemnifying Party shall reasonably request in order to defend a Third Party
Claim as to which indemnification is being sought and the Indemnifying Party has
assumed the defense, or any claim by an Indemnified Party as to which
indemnification is sought.
8.3 Tax Indemnification and Other Tax Matters.
-----------------------------------------
(a) Each of the Stockholders hereby covenants and agrees to indemnify
and hold harmless Purchaser's Indemnified Persons, from and against such
Stockholder's Applicable Percentage of (1) all Taxes of McDougal for any tax
period for which a return was legally required to be filed before October 31,
1993 ("Pre-Closing Periods") (taking into account filing extensions granted in
response to timely and proper applications) and (2) reasonable costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) incurred by Purchaser's Indemnified Persons with respect to the
imposition of such Taxes.
(b)(i) Notwithstanding anything in this Agreement to the contrary,
if a written notice of deficiency, proposed adjustment, assessment, audit,
examination, or other claim with respect to McDougal shall be delivered or sent
to Purchaser or McDougal, or a suit or dispute commenced or initiated against
McDougal, by any Taxing Authority with respect to which Purchaser is entitled to
indemnification from the Stockholders pursuant to Section 8.3(a) (a "Taxing
Authority Claim"), Purchaser shall promptly notify Mr. McDougal in writing of
the Taxing Authority Claim, which notice shall apprise the Stockholders in
reasonable detail of the nature of the Taxing
47
<PAGE>
Authority Claim, (the "Notice") and shall furnish a copy thereof to the
Stockholders.
(ii) The Stockholders may, upon timely notice to the Purchaser (which
notice will be timely if made within 30 days of the date upon which the
Stockholders receive notice of a Taxing Authority Claim), assume and control the
defense of any Taxing Authority Claim involving for any tax period for which a
return was legally required to be filed before October 31, 1993 (taking into
account filing extensions granted in response to timely and proper applications)
and for which the Stockholders are required to indemnify the Purchaser pursuant
to Section 8.3(a), at their own cost and expense and with their own counsel. If
the Stockholders elect to assume and control the defense of any such Taxing
Authority Claim, the Stockholders shall keep Purchaser informed of all material
developments and events relating to such Taxing Authority Claim, and Purchaser
shall have the right to participate, at its own cost and expense, in (but not to
control) the defense of such Taxing Authority Claim; provided, however, (1) the
-------- -------
Stockholders shall not have the right to settle or compromise such Taxing Au-
thority Claim without the prior written consent of Purchaser which consent
shall not be unreasonably withheld unless the Purchaser in good faith determines
that such settlement or compromise would materially increase the Tax liability
of Purchaser's Indemnified Persons, unless the Stockholders are liable to
Purchaser's Indemnified Persons under Section 8.3(a) for such increase (if Pur-
chaser withholds consent to a settlement or compromise, the Stockholders shall
not be liable for the excess, if any, of the final settlement of the Claim over
the settlement amount rejected by Purchaser); (2) Purchaser may settle or
compromise such Taxing Authority Claim without the consent of the Stockholders
provided that Purchaser expressly releases in writing the Stockholders from any
obligation under Section 8.3(a) with respect to such Taxing Authority Claim and
Taxing Authority Claims in future periods created by such settlement or
compromise; and (3) if the Stockholders shall not so elect to assume and control
the defense of such Taxing Authority Claim, Purchaser shall control the defense
of such Taxing Authority Claim. Notwithstanding anything herein to the
contrary, Purchaser may settle, without first giving notice to the Stockholders
or Mr. McDougal, obtaining their consent or giving the Stockholders the
opportunity
48
<PAGE>
to control the negotiation, any sales or use tax liability for any jurisdiction
for any pre-Closing period if the liability is less than .3% of the annual sales
of McDougal in that jurisdiction for that same period; provided, however, that
--------- -------
to the extent reasonably practicable Purchaser will keep the Stockholders
reasonably informed with respect to the progress of any such negotiations and
will act in good faith with respect thereto in order to minimize the
indemnification obligations of the Stockholders in respect of Pre-Closing
Periods to the extent such actions are not inconsistent with reasonable busi-
ness practices. If the liability is greater than .3% of the relevant annual
sales amount, the otherwise applicable provisions of this Section 8.3 shall
apply.
(iii) Purchaser shall control the defense of any Taxing Authority
Claim for which the Stockholders are not required to indemnify the Purchaser
pursuant to Section 8.3(a).
(iv) Purchaser shall make or cause to be made all payments to the
relevant Taxing Authority to settle, compromise or dispose of Taxing Authority
Claims covered by this Section 8.3(b), and the Stockholders shall indemnify
Purchaser to the extent required by Section 8.3(a) by transferring at least two
business days after receipt of proof of payment by Purchaser to such Taxing
Authority immediately available funds to an account designated by Purchaser.
With respect to the settlement, compromise or disposition of any Taxing
Authority Claim which Purchaser exclusively controls pursuant to this Section
8.3(b), Purchaser shall provide the Stockholders with a statement calculating in
reasonable detail the Stockholders' indemnification obligation pursuant to
Section 8.3(a) at least 10 business days prior to the proposed payment by Pur-
chaser of such Taxing Authority Claim. In the event Purchaser and the
Stockholders cannot agree as to their respective amounts of liability, the
Stockholders shall pay the amount they have in good faith determined to be their
liability, which amount shall be finally determined in accordance with the
dispute resolution method described in Section 8.3(c).
(v) Purchaser will not file amended returns for pre-Closing periods
in respect of McDougal, unless required by law, including, without limitation,
required amendments to state income tax returns to reflect federal
49
<PAGE>
income tax audit adjustments, without either obtaining the consent of Mr.
McDougal or releasing in writing the Stockholders from additional liability, if
any, which might result from the filing of such amended return
(c) Disputes relating to any amount to be paid pursuant to Section
8.3 and any other matters which any provision of Section 8.3 specifically
provides are to be resolved pursuant to the method set forth in this Section
8.3(c) shall be resolved by submission to an independent accounting firm of
national reputation mutually acceptable to Purchaser and the Stockholders,
which shall, within 30 business days after such submission, make its
determination which shall be binding, final and conclusive on the Stockholders
and Purchaser. Payment shall be made within 10 days of the resolution of such
dispute. The fees and disbursements incurred in resolving such dispute shall be
borne equally by Purchaser and the Stockholders.
(d) The Stockholders, McDougal and Purchaser shall cooperate fully as
and to the extent reasonably requested by the other party in connection with the
preparation and filing of any Return, and any claim, audit, litigation or other
proceeding, with respect to Taxes of McDougal. McDougal shall retain and (upon
the Stockholders' reasonable request) provide the Stockholders with copies (or
originals if required) of records and information which are reasonably relevant
to any Return, claim, audit, litigation or other proceeding with respect to any
Tax liability of McDougal for any tax period for which a return was legally
required to be filed before October 31, 1993 (taking into account filing
extensions granted in response to timely and proper applications).
(e) If an adjustment is made to any Tax Return relating to the Pre-
Closing Period for which the Stockholders are required to indemnify Purchaser
and McDougal hereunder (whether such adjustment is a result of or in settlement
of any audit, other administrative proceeding or judicial proceeding or the
filing of an amended return to reflect the consequences of any determination
made in connection with any such audit or proceeding or otherwise) and there is
a correlative offsetting adjustment applicable to Purchaser's Indemnified
Persons for any taxable period for which a return is required to be filed after
October 31, 1993 (taking into account filing exten-
50
<PAGE>
sions granted in response to timely and proper applications, the "Post-Closing
Period")), which makes allowable any deduction, amortization, exclusion from
income or other allowance (a "Tax Benefit") which would not, but for such item,
be allowable, then any payment by Seller to Purchaser or its Affiliates shall be
an amount equal to (x) the amount otherwise due but for this Section 8.3 minus
(y) the Tax Benefit multiplied (i) by the maximum combined federal and state
corporate tax rate in effect at the time such Tax Benefit becomes allowable or
(ii) in the case of a credit, by 100 percent. If any indemnification
obligation of the Stockholders under this Agreement arises in respect of an
item which is deductible or amortizable by the Purchaser or its Affiliates
(including McDougal), then any payment by Seller to Purchaser or its Affiliates
shall be an amount equal to (x) the amount otherwise due but for this Section
8.3 minus (y) the Tax Benefit multiplied (i) by the maximum combined federal and
state corporate tax rate in effect at the time such Tax Benefit becomes
allowable or (ii) in the case of a credit, by 100 percent.
(f) For so long as the Stockholders may be required to indemnify
Purchaser's Indemnified Persons pursuant to this Section 8.3:
(i) Purchaser shall reasonably promptly following receipt of a
request therefor from the Stockholders furnish to the Stockholders tax
exemption certificates in Purchaser's possession for customers of Purchaser
who have also been customers of McDougal and as to whom the Stockholders do not
have such a certificate.
(ii) In the event that no tax exemption certificate is available for
a customer of McDougal located in a jurisdiction where sales taxes may be
applicable or if such tax exemption certificate is not sufficient to eliminate
McDougal's obligation to collect sales tax with respect to such customer, prior
to the Closing McDougal may send to any such customer a written request, in form
and substance reasonably satisfactory to Purchaser, that such customer furnish a
tax exemption certificate or, in the case of a customer who has purchased
products of McDougal since January 1, 1993, remit to McDougal the sales tax due
in respect of such purchases.
51
<PAGE>
(iii) In the event that any such customer does not furnish McDougal
with a tax exemption certificate or remit the sales tax due, the Stockholders
may send to such customer, in the name and on behalf of the Stockholders, a
single additional written request, in form and substance reasonably satisfactory
to Purchaser, to furnish such certificate or remit such taxes.
(iv) In connection with the defense of a Taxing Authority Claim with
respect to sales taxes the Stockholders may communicate in the name of the
former stockholders of McDougal as is reasonably necessary with customers of
McDougal for the Pre-Closing Periods. Any such communication shall be reviewed
in advance by, and shall be reasonably satisfactory to, Purchaser.
(g) For the purposes of this Section 8.3 and Section 4.1(b), the
following terms have the following meanings:
"Tax" (and with correlative meaning, "Taxes" and "Taxable") means any
net income, alternative or add-on, ad valorem, transfer, withholding, franchise,
profits, license, payroll, employment, excise, severance, stamp, occupation,
premium, property, land value increment, environmental or windfall profit tax,
custom, duty or other tax, governmental fee or other like assessment or charge
of any kind whatsoever imposed on McDougal and together with any interest or any
penalty, addition to Tax or additional amount imposed with respect to any of the
foregoing Taxes by any U.S. Federal, state, local or foreign governmental
authority (a "Taxing Authority") responsible for the imposition of any such Tax.
"Return" means any tax return, statement, report or form (including
estimated tax returns and reports and information returns and reports) required
to be filed with any Taxing Authority with respect to Taxes.
8.4 Confidentiality. The parties hereto agree to cooperate in such a
---------------
manner as to preserve in full the confidentiality of all confidential business
records and the attorney-client privilege and work-product immunity. In
connection therewith, each party hereto agrees that:
(a) it will use all reasonable efforts, in any action, suit or
proceeding in which it has assumed
52
<PAGE>
or participated in the defense, to avoid production of confidential business
records; and
(b) all communication between any party hereto and counsel
responsible for, or participating in, the defense of any action, suit or
proceeding shall, to the extent possible, be made so as to preserve any appli-
cable attorney-client privilege or work-product immunity.
8.5 Remedies Cumulative. Except as otherwise provided herein, the
-------------------
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any other
remedies against any other party hereto; provided, however, that, from and after
-------- -------
the Closing, the indemnification provided in Section 8.2 shall be the sole
contractual remedy of the parties hereto with respect to any breach of the
representations and warranties contained herein.
ARTICLE IX
TERMINATION PRIOR TO CLOSING
9.1 Termination of Agreement. This Agreement and the transactions
------------------------
contemplated hereby may be terminated:
(a) prior to the Closing Date, by mutual written consent of the
Stockholders and Purchaser;
(b) Upon written notice by Purchaser to the Stockholders at any
time prior to the Closing Date in the event that:
(i) any representation or warranty described in
Section 6.1(b) of this Agreement proves to have been incorrect or
misleading when made or shall become incorrect or misleading and is
either incurable or not cured within 10 business days of written notice
from Purchaser to the Individual Stockholder;
(ii) any representation warranty described in Section
6.1(c) of this Agreement proves to have been incorrect or misleading when
made or shall become incorrect or
53
<PAGE>
misleading and is either incurable or not cured within 10 business days of
written notice from Purchaser to the Individual Stockholder, and in the
aggregate such representations and warranties have had a Material Adverse
Effect, or could reasonably be expected either to have a Material Adverse
Effect, as determined in accordance with the provisions of such Section
6.1(c); or
(iii) any of the Stockholders or McDougal has failed
to perform and observe (A) in all material respects the covenants and
agreements set forth in Sections 4.2, 5.1 and 5.2 or (B) any of the other
covenants or agreements in this Agreement.
(c) Upon written notice by all of the Stockholders (or a
representative or representatives thereof acting on behalf of all of the
Stockholders pursuant to an agreement among the Stockholders) to Purchaser at
any time prior to the Closing Date in the event that (i) any representation or
warranty made by Purchaser in this Agreement proves to have been materially
incorrect or misleading when made or (ii) Purchaser has materially failed to
perform and observe any of the covenants and agreements in this Agreement; and
(d) Upon written notice to the other parties by the
Stockholders or Purchaser, if the Closing has not occurred on or before April
1, 1994 and this Agreement has not previously been terminated; provided,
--------
however, that the right to terminate the Agreement under this Section 9.1(d)
- -------
shall not be available to Purchaser where the failure of Purchaser to fulfill
any obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before such date; and provided, further,
-------- -------
that the right to terminate this Agreement under this Section 9.1(d) shall not
be available to the Stockholders where the failure of any of the Stockholders
or McDougal to fulfill any obligation under this Agreement has been the cause
of, or resulted in, the failure of the Closing to occur on or before such date.
9.2 Effect of Termination. In the event this Agreement is terminated
---------------------
pursuant to Section 9.1 hereof,
54
<PAGE>
this Agreement shall become wholly void and of no force or effect, without any
liability or further obligation on the part of the Stockholders, McDougal or
Purchaser, except for liabilities arising from a breach of the covenants and
agreements contained in this Agreement prior to or as a result of termination
not in accordance with Section 9.1 hereof and except that the provisions and
obligations set forth in this Section 9.2 and in Sections 10.3(c), 10.4 and 10.8
hereof shall survive such termination.
ARTICLE X
GENERAL PROVISIONS
10.1 Amendment and Waiver. No amendment of any provision of this
--------------------
Agreement shall in any event be effective unless the same shall be in writing
and signed by the parties hereto. Any failure of any party to comply with any
obligation, agreement or condition hereunder may only be waived in writing by
the other parties, but such waiver shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No failure by any party to
take any action with respect to any breach of this Agreement or default by any
other party shall constitute a waiver of such party's right to enforce any
provision hereof or to take any such action.
10.2 Notices. All notices, requests and other communications
-------
hereunder shall be in writing and shall be deemed given if delivered personally,
telecopied (if confirmed) or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to the Stockholders:
(b) If to McDougal:
With a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019-6188
55
<PAGE>
Attention: Martin Lipton, Esq.
Telecopy No: (212) 403-2000
(c) If to Purchaser:
Houghton Mifflin Company
222 Berkeley Street
Boston, Massachusetts 02116-3764
Attention: Paul D. Weaver, Esq.
Telecopy No.: (617) 351-1125
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Beacon Street
Boston, Massachusetts 02108
Attention: Louis A. Goodman, Esq.
Telecopy No.: (617) 573-4822
10.3 Entire Agreement; Assignment; Governing Law. This Agreement and
-------------------------------------------
the documents referred to herein:
(a) constitute the entire agreement, and supersede all other
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof, except that clause (ii) of the sixth
paragraph of the confidentiality agreement dated September 29, 1993 between
McDougal and Purchaser shall continue in full force and effect in accordance
with the terms of such confidentiality agreement and shall survive the execution
and delivery or termination of this Agreement until the Closing;
(b) shall not be assigned by any party (by operation of law or
otherwise) without the prior written consent of the other parties, except that
Purchaser may assign this Agreement to any person controlled by Purchaser
without the consent of any other party, provided that Purchaser shall remain
liable for the performance of all obligations of Purchaser hereunder; and
(c) shall be governed by and be construed in accordance with
the laws of the State of New York,
56
<PAGE>
without giving effect to the principles of conflicts of laws thereof.
10.4 Remedies. The Stockholders and McDougal hereby acknowledge and
--------
agree that money damages would not be a sufficient remedy for, and Purchaser
would be irreparably harmed by, any breach by any of them of this Agreement and
that Purchaser shall be entitled to specific performance and injunctive relief,
without payment of bond or security, as remedies for any such breach. Such
remedies shall not be deemed to be the exclusive remedies for a breach of this
Agreement by the Stockholders or McDougal but shall be in addition to all other
remedies available to Purchaser at law or equity.
10.5 Parties in Interest. This Agreement shall be binding upon and
-------------------
inure solely to the benefit of each party hereto and, subject to Section 10.3(b)
hereof, their respective successors (including without limitation executors and
administrators) and assigns, and nothing in this Agreement, express and implied,
is intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
10.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
10.7 Headings. The section and other headings contained in this
--------
Agreement and the Disclosure Schedule are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement or the
Disclosure Schedule, respectively.
10.8 Expenses. Except as otherwise provided herein, all costs and
--------
expenses (including without limitation all legal and accounting fees) relating
to this Agreement, the negotiations preceding this Agreement and the
transactions contemplated by this Agreement shall be paid by the party incurring
such costs and expenses; provided, however, the costs and expenses set forth on
-------- -------
Section 10.8 of the Disclosure Schedule shall be paid by McDougal.
10.9 Severability. If any term, provision, covenant or restriction
------------
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
10.10 Disclosure Schedule. Matters disclosed on any Schedule of the
-------------------
Disclosure Schedule shall be deemed to be disclosed under all Sections of the
Disclosure Schedule. None of the matters disclosed on the Disclosure Schedule
shall affect the rights of Purchaser pursuant to Section 8.3 or paragraphs (c),
(d) or (e) of Section 8.2.
57
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed under seal by their respective officers thereunto duly authorized as
of the date first written above.
HOUGHTON MIFFLIN COMPANY
By /s/ Paul D. Weaver
-----------------------------
Name:
Title:
MCDOUGAL, LITTELL & COMPANY
By
-----------------------------
Name:
Title:
-----------------------------
Alfred L. McDougal
-----------------------------
Nancy Lauter
-----------------------------
Julia McGee
-----------------------------
Richard Wild
-----------------------------
Rita Schaefer
STEPHEN MCDOUGAL TRUST
By
-----------------------------
Nancy Lauter
Trustee
By
-----------------------------
Philip Melchert
Trustee
58
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed under seal by their respective officers thereunto duly authorized as
of the date first written above.
HOUGHTON MIFFLIN COMPANY
By
-----------------------------
Name:
Title:
MCDOUGAL, LITTELL & COMPANY
By /s/ Alfred L. McDougal
-----------------------------
Name:
Title:
/s/ Alfred L. McDougal
-----------------------------
Alfred L. McDougal
/s/ Nancy Lauter
-----------------------------
Nancy Lauter
/s/ Julia McGee
-----------------------------
Julia McGee
/s/ Richard Wild
-----------------------------
Richard Wild
/s/ Rita Schaefer
-----------------------------
Rita Schaefer
STEPHEN MCDOUGAL TRUST
By /s/ Nancy Lauter
-----------------------------
Nancy Lauter
Trustee
By /s/ Philip Melchert
-----------------------------
Philip Melchert
Trustee
59
<PAGE>
THOMAS MCDOUGAL TRUST
By /s/ Nancy Lauter
-----------------------------
Nancy Lauter
Trustee
By /s/ Philip Melchert
-----------------------------
Philip Melchert
Trustee
ALM BARBARA FAMILY TRUST
By /s/ Barbara Zinje
-----------------------------
Barbara Zinje
Trustee
By /s/ Philip Melchert
-----------------------------
Philip Melchert
Trustee
ALM CHARITABLE ANNUITY TRUST 12
By /s/ Nancy Lauter
-----------------------------
Nancy Lauter
Trustee
By /s/ Philip Melchert
-----------------------------
Philip Melchert
Trustee
ALM CHARITABLE ANNUITY TRUST 4
By /s/ Nancy Lauter
-----------------------------
Nancy Lauter
Trustee
By /s/ Philip Melchert
-----------------------------
Philip Melchert
Trustee
60
<PAGE>
ALM CHARITABLE ANNUITY TRUST 8
By /s/ Nancy Lauter
-----------------------------
Nancy Lauter
Trustee
By /s/ Philip Melchert
-----------------------------
Philip Melchert
Trustee
ALM ANNUITY TRUST 6
By /s/ Nancy Lauter
-----------------------------
Nancy Lauter
Trustee
By /s/ Philip Melchert
-----------------------------
Philip Melchert
Trustee
ALM ANNUITY TRUST 8
By /s/ Nancy Lauter
-----------------------------
Nancy Lauter
Trustee
By /s/ Philip Melchert
-----------------------------
Philip Melchert
Trustee
ALM ANNUITY TRUST 10
By /s/ Nancy Lauter
-----------------------------
Nancy Lauter
Trustee
By /s/ Philip Melchert
-----------------------------
Philip Melchert
Trustee
61
<PAGE>
ALM ANNUITY TRUST 12
By /s/ Nancy Lauter
-----------------------------
Nancy Lauter
Trustee
By /s/ Philip Melchert
-----------------------------
Philip Melchert
Trustee
ALM DISCRETIONARY
TRUST FOR STEPHEN
By /s/ Nancy Lauter
-----------------------------
Nancy Lauter
Trustee
By /s/ Philip Melchert
-----------------------------
Philip Melchert
Trustee
ALM DISCRETIONARY
TRUST FOR THOMAS
By /s/ Nancy Lauter
-----------------------------
Nancy Lauter
Trustee
By /s/ Philip Melchert
-----------------------------
Philip Melchert
Trustee
MCDOUGAL, LITTELL & COMPANY
EMPLOYEE SAVINGS AND STOCK
OWNERSHIP PLAN
By Cole Taylor Bank, not
individually, but as Trustee
under the McDougal, Littell &
Company Employee Savings and
Stock Ownership Plan
By /s/ John G. Hommel
-----------------------------
Name: John G. Hommel
Title: Vice President &
Senior Trust Officer
62
<PAGE>
EXHIBIT A
To Escrow Agreement Among Houghton Mifflin Company,
the Stockholders Named Below and McDougal, Littell & Company
<TABLE>
<CAPTION>
Shares of
Stockholder Stock Owned Applicable Percentage
- -------------------------- ----------- ---------------------
<S> <C> <C>
Alfred McDougal 113,548 42.24%
ESOP 85,020 31.63%
Stephen McDougal Trust 8,400 3.12%
Thomas McDougal Trust 8,400 3.12%
ALM Charitable
Annuity Trust 12 8,334 3.10%
ALM Charitable
Annuity Trust 4 8,333 3.10%
ALM Charitable
Annuity Trust 8 8,333 3.10%
ALM Annuity Trust 6 5,000 1.86%
ALM Annuity Trust 8 5,000 1.86%
ALM Annuity Trust 10 5,000 1.86%
ALM Annuity Trust 12 5,000 1.86%
ALM Barbara Family Trust 2,400 .89%
ALM Discretionary
Trust for Stephen 1,380 .51%
ALM Discretionary
Trust for Thomas 1,380 .51%
Julia McGee 1,000 .37%
Richard Wild 1,000 .37%
Nancy Lauter 800 .30%
Rita Schaefer 500 .19%
</TABLE>
<PAGE>
Exhibit B
---------
ESCROW AGREEMENT
THIS ESCROW AGREEMENT, made this __ day of __________, 1994, by and
among Houghton Mifflin Company, a Massachusetts corporation ("Purchaser"), the
stockholders of Papyrus Company, a Delaware corporation ("Papyrus"), listed on
Exhibit A hereto (the "Stockholders") and [ ](the "Escrow Agent").
Purchaser, Papyrus and the Stockholders have entered into a Stock
Purchase Agreement, dated as of January 7, 1994 (the "Stock Purchase
Agreement"), providing for the purchase by Purchaser of all the outstanding
capital stock of Papyrus beneficially owned by the Stockholders (the "Shares").
The closing pursuant to the Stock Purchase Agreement (the "Closing" or
the "Closing Date") is occurring concurrently with the execution and delivery
of this Escrow Agreement.
Concurrently with the Closing, Purchaser is required to deliver to
Escrow Agent the sum of $10,000,000 (as the same may be increased or decreased
from time to time hereunder, the "Escrow Amount") in immediately available funds
pursuant to Section 1.2(b) of the Stock Purchase Agreement, which shall be held
by Escrow Agent in an escrow account pending release thereof in accordance with
the terms hereof, for the purpose of securing to Purchaser the obligations of
the Stockholders under the Stock Purchase Agreement.
The Stockholders desire to appoint the Representative (as defined
below) as their representative hereunder to receive notice of, determine, accept
service of process, contest, settle and arbitrate all claims of Purchaser
against the Escrow Amount.
The parties hereto desire that Escrow Agent serve as escrow agent to
hold the Escrow Amount and Escrow Agent is willing to do so, all upon the terms
and conditions hereinafter set forth.
<PAGE>
In consideration of the foregoing and of the mutual agreements and
covenants set forth herein and in the Stock Purchase Agreement, the parties
hereto hereby agree as follows:
1. Escrow; Stockholders; Appointment of Representative.
---------------------------------------------------
1.1 Concurrently with the Closing, Purchaser will deliver to Escrow
Agent the Escrow Amount which shall be allocated to the account of each
Stockholder listed on Exhibit A hereto whose Shares are purchased at the Closing
(each, a "Selling Stockholder") in accordance with such Stockholder's respective
percentage of the Shares purchased at the Closing (such percentage with respect
to each Stockholder being the "Applicable Percentage"), which the Escrow Agent
hereby agrees to accept and to hold as escrow agent in accordance with the terms
of this Escrow Agreement.
1.2 (a) Exhibit A hereto sets forth certain information concerning
each of the Stockholders, including the following: (i) name and (ii)
percentage of Papyrus capital stock owned. Each of the Stockholders, severally
as to such Stockholder, represents and warrants that this information is true
and correct as of the date hereof.
(b) Each of the Stockholders hereby appoints Mr. Alfred L.
McDougal (the "Representative") to act as the representative of each of them
hereunder to receive notice of, determine, accept service of process, contest,
settle and arbitrate all claims of Purchaser against the Escrow Amount.
2. Escrow Amount; Investment; Interest.
-----------------------------------
2.1 Simultaneously with the execution and delivery of this Escrow
Agreement, Purchaser is delivering to the Escrow Agent $10,000,000 in
immediately available funds pursuant to Section 1.2(b) of the Stock Purchase
Agreement, the receipt of which is hereby acknowledged by the Escrow Agent.
2.2 Subject to the provisions of this Escrow Agreement, the
Escrow Agent will invest and reinvest the Escrow Amount from time to time in
short-term obligations of the U.S. government or in certificates of deposit
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<PAGE>
issued by a bank or trust company having combined capital and surplus of at
least $500,000,000 or in such other manner as the parties hereto may agree.
Any interest earned on or in respect of the Escrow Amount shall be paid to the
Representative quarterly for distribution to the Selling Stockholders.
3. Delivery of Escrow Amount by Escrow Agent.
-----------------------------------------
Escrow Agent shall hold the Escrow Amount in escrow until authorized
hereunder to deliver the same or any portion thereof, as follows:
3.1 On the first anniversary of the Closing Date (the "First
Distribution Date"), Escrow Agent shall release to the Representative a portion
of the Escrow Amount equal to the lesser of (i) $5,000,000 or (ii) the Escrow
Amount less the sum of any Reserve (as defined below) in respect of Claims (as
defined below) made prior to the First Distribution Date, free and clear of any
interest of Purchaser therein, and the Representative shall distribute such
amount to the Selling Stockholders (or to such persons as directed by the
Selling Stockholders) in accordance with their respective Applicable
Percentages. On the second anniversary of the Closing Date (the "Second
Distribution Date"), Escrow Agent shall release to the Representative the
Escrow Amount less the amount of any Reserve, free and clear of any interest
of Purchaser therein, and the Representative shall distribute such amount to
the Selling Stockholders (or to such persons as directed by the Selling Stock-
holders) in accordance with their respective Applicable Percentages. If no
Reserve exists on the Second Distribution Date, this Escrow Agreement shall
terminate at the time of such delivery, unless terminated earlier pursuant to
Section 3.3 hereof.
3.2 At any time prior to the Second Distribution Date, Purchaser may
give notice to Escrow Agent and the Representative of a claim which it is
entitled to make (a "Claim") under the Stock Purchase Agreement. Notice of a
Claim given to Escrow Agent and the Representative pursuant to this Section 3.2
shall set forth in reasonable detail the factual basis of the Claim and the
amount thereof (or if not then determinable by Purchaser, a reasonable good
faith estimate of the amount thereof). Upon receipt of any such notice of a
Claim, Escrow Agent
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shall set aside a portion of the Escrow Amount equal to the amount set forth
in such notice (including any and all portions set aside pursuant to all other
such notices previously delivered by Purchaser with respect to all other
pending Claims, the "Reserve") until there is a Determination (as defined
below) of all of such Claims.
3.3 Promptly after any determination (each, a "Determination") of a
Claim in favor of Purchaser in accordance with the provisions of Article IV
hereof and receipt of notice thereof (which notice shall be accompanied by a
copy of any agreement, judgment, order or decree referred to therein), Escrow
Agent shall deliver to Purchaser free and clear of any interest of the Stock-
holders a portion of the Escrow Amount equal to the amount of such Claim
payable to Purchaser.
3.4 If any Claim is asserted as contemplated by Section 3.2 hereof
that does not result in a Determination prior to the Second Distribution Date,
promptly after the Determination of all of such Claims and the delivery to
Purchaser of any portion of the Escrow Amount in respect thereof in accordance
with Section 3.3 hereof, Escrow Agent shall release to the Representative the
remaining Escrow Amount free and clear of any interest of Purchaser therein,
whereupon this Escrow Agreement shall terminate and the Representative shall
distribute such portion of the Escrow Amount to the Selling Stockholders (or
such persons as directed by the Selling Stockholders) in accordance with their
respective Applicable Percentages, whereupon this Escrow Agreement shall
terminate.
4. Determination of Claims; Settlement of Disputes.
-----------------------------------------------
4.1 The Determination of a Claim asserted hereunder pursuant to
Section 3.2 hereof shall be made as follows:
(a) The Claim shall be deemed to have resulted in a
Determination in favor of Purchaser on the 30th day after Purchaser gives
Escrow Agent and the Representative notice of such Claim pursuant to Section
3.2 hereof, unless prior thereto Escrow Agent has received notice from the
Representative (with a copy to Purchaser) that the Representative disputes
such Claim.
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<PAGE>
(b) If a Claim asserted hereunder is disputed by the
Representative in the manner provided in Section 4.1(a) hereof, the
Determination of such Claim shall be made in accordance with the provisions
for the settlement of disputes contained in Section 4.2 hereof and shall be
evidenced by the documentation referred to in such Section.
4.2 Any dispute which may arise under this Escrow Agreement with
respect to (i) any Claim asserted by Purchaser as contemplated by Section 3.2
hereof, (ii) the delivery, ownership or right of possession of the Escrow Amount
or any portion thereof, (iii) the facts upon which Escrow Agent's determinations
are based, (iv) the duties of Escrow Agent hereunder and (v) any other questions
arising under this Escrow Agreement, shall be settled either by mutual agreement
of the parties to such dispute (evidenced by appropriate instructions in writing
to Escrow Agent signed by Purchaser and the Representative) or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal therefrom having been perfected).
Escrow Agent shall be under no duty to institute or defend any such proceeding,
and none of the costs and expenses of such proceedings shall be borne by Escrow
Agent. If the terms of a settlement of a dispute hereunder increase the duties
or liabilities of Escrow Agent and Escrow Agent has not participated in such
settlement so as to be bound thereby, then such settlement shall be effective
as to Escrow Agent in respect of such increase in its duties or liabilities
only upon Escrow Agent's written assent thereto. Prior to the settlement of
any dispute as provided in this Section 4.2, Escrow Agent is authorized and
directed to retain in its possession, without liability to any party hereto,
that portion of the Reserve that is the subject of or involved in the dispute.
5. Liability and Authority of Representative.
-----------------------------------------
5.1 The Representative shall receive notice of, determine, accept
service of process, contest, settle or arbitrate all claims of Purchaser made
pursuant to Article VIII of the Stock Purchase Agreement and this Escrow
Agreement on behalf of all Stockholders. The Representative shall not be
personally liable to the Stockholders for any action taken or omitted to be
taken
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<PAGE>
by him in good faith and believed by him to be authorized by this Escrow
Agreement or within the rights or powers conferred upon him hereunder, nor for
action taken or omitted to be taken by him in good faith and in accordance
with advice of counsel (which counsel may be of the Representative's own
choosing), and shall not be personally liable to the Stockholders for any
mistake of fact or error of judgment or for any act or omission of any kind
unless caused by his own willful misconduct, gross negligence or bad faith.
5.2 The Representative shall have authority to employ legal counsel
to assist him in defense or settlement of any Claim of Purchaser upon the
Escrow Amount and the reasonable expenses of employing such counsel shall be
advanced to the Representative by the Escrow Agent from the Escrow Amount upon
written notice from the Representative to the Escrow Agent and Purchaser,
provided that the Representative shall reimburse the Escrow Agent for any such
advance to the extent that such Claim is ultimately resolved in favor of
Purchaser, in which event the cost of employing such counsel shall be borne by
all of the Selling Stockholders in accordance with their Applicable
Percentages. The Representative shall have a second security interest in the
Escrow Amount (junior only to Purchaser's interest therein and thereto) to
secure the obligation of each Selling Stockholder to bear such expenses.
5.3 In the event of the death or permanent disability of the
Representative, or his resignation as Representative, a successor Representative
shall be elected by a majority vote of the Selling Stockholders, with each such
Stockholder (or his or her successors or assigns) to be given a vote equal to
the number of votes represented by the Applicable Percentage of such Stock-
holder. Each successor Representative shall have all of the power, authority,
rights and privileges conferred by this Agreement upon the original
Representative, and the term "Representative" as used herein shall be deemed to
include successor Representatives.
6. General Provisions.
------------------
6.1 This Escrow Agreement shall become effective as of the Closing
Date pursuant to the Stock
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<PAGE>
Purchase Agreement and shall continue in force until the final distribution of
the Escrow Amount, or until terminated by order of a court of competent
jurisdiction.
6.2 Escrow Agent shall be entitled to reasonable compensation for
its services hereunder and shall be reimbursed for all reasonable expenses,
disbursements and advancements incurred or made by it in performance of its
services hereunder, which will be paid from the Escrow Amount.
6.3 The Selling Stockholders shall bear all federal, state and local
taxes based upon or measured by net or gross income arising from the Escrow
Amount and shall provide Escrow Agent with sufficient information so that Escrow
Agent can comply with reporting obligations imposed under any laws relating to
such taxes.
6.4 The obligations of Escrow Agent under this Escrow Agreement are
subject to the following terms and conditions:
(a) Escrow Agent is not a party to and is not bound by any
agreement other than as expressly set forth in this Escrow Agreement.
(b) Escrow Agent acts hereunder as a depository only and is not
responsible for or liable in any manner whatsoever for the sufficiency,
correctness, genuineness or validity of any funds, documents or other materials
deposited with it. Purchaser, the Representative and each of the Stockholders
agree to and hereby do waive any suit, claim, demand or cause of action of any
kind which they may have or may assert against Escrow Agent arising out of or
relating to the execution or performance by Escrow Agent of this Escrow
Agreement, unless such suit, claim, demand or cause of action is based upon the
willful misconduct, gross negligence or bad faith of Escrow Agent. To the
extent that Escrow Agent delivers any funds or documents in accordance with the
instructions described in this Escrow Agreement, Purchaser and the
Representative further agree to indemnify Escrow Agent against and from any and
all claims, demands, costs, liabilities and expenses, including counsel fees,
which may be asserted against it or to which it may be exposed or which it may
incur by reason of its execution or performance of this Escrow Agreement
7
<PAGE>
unless arising from Escrow Agent's willful misconduct, gross negligence or bad
faith. Escrow Agent shall not be required to defend any legal proceeding which
may be instituted against it with respect to the subject matter of this Escrow
Agreement unless it is requested to do so by one of the parties hereto and is
indemnified by such requesting party to Escrow Agent's satisfaction against
the cost and expenses (including reasonable attorney's fees) of such defense,
unless arising from Escrow Agent's willful misconduct, gross negligence or bad
faith. Escrow Agent shall not be required to institute legal proceedings of
any kind. Escrow Agent shall not be required to perform any acts which violate
any law or applicable rules of any governmental agency.
(c) Escrow Agent shall not have any responsibility for the
genuineness or validity of any notice, evidence or other document or item
delivered to it, and Escrow Agent shall be entitled to rely upon and shall be
protected in acting upon any written notice, waiver, consent, receipt or other
evidence or paper document which Escrow Agent reasonably believes to be genuine
and to be signed by the proper person.
(d) Escrow Agent shall not be liable for any error of judgment
or for any acts done or steps taken or omitted or admitted by it or for any
mistake of facts or law or for anything which Escrow Agent may do or refrain
from doing in connection herewith except for Escrow Agent's own willful
misconduct, gross negligence or bad faith.
(e) As to any legal questions arising in connection with the
administration of this Escrow Agreement, Escrow Agent may rely absolutely upon
the opinions given to it by its counsel and shall be free of liability for
acting in reliance on such opinions.
6.5 Escrow Agent agrees that Purchaser and the Representative may, by
mutual agreement at any time, remove Escrow Agent as escrow agent hereunder, and
substitute another therefor. In such event Escrow Agent shall, upon receipt of
written notice of such removal, account for and deliver to such substituted
escrow agent the Escrow Amount and Escrow Agent shall thereafter be discharged
of all liability hereunder.
8
<PAGE>
6.6 Any notices, requests, demands and other communications required
or permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered by hand, telecopied (if confirmed) or mailed, certified or
registered mail (return receipt requested) with postage prepaid:
If to Purchaser, to:
Houghton Mifflin Company
222 Berkeley Street
Boston, Massachusetts 02116-3764
(617) 351-5000 (telephone)
(617) 351-1125 (telecopier)
Attention: Paul D. Weaver, Esq.
or to such other person or address as Purchaser shall furnish to the
other parties hereto in writing
(with a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Beacon Street
Boston, Massachusetts 02108
(617) 573-4800 (telephone)
(617) 573-4822 (telecopier)
Attention: Louis A. Goodman, Esq.)
If to the Representative, to:
[ ]
[ ]
[ ]
(with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019-6188
(212) 403-1000 (telephone)
(212) 403-2000 (telecopier)
Attention: Martin Lipton, Esq.)
9
<PAGE>
If to Escrow Agent, to:
[ ]
[ ]
[ ]
or to such other address of which a party notifies the other parties
thereto in writing pursuant to the terms hereof.
6.7 This Escrow Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Escrow Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties, except by
operation of law and except that (a) Purchaser may assign its rights, but not
its obligations, under this Agreement to any subsidiary of Purchaser and (b) any
Stockholder may assign his, her or its rights to receive distributions under
this Agreement to any person without the consent of Purchaser or any other
Stockholder.
6.8 This Escrow Agreement shall be governed by, and interpreted
under, the laws of the Commonwealth of Massachusetts applicable to contracts
made and to be performed therein without regard to conflicts of law principles.
6.9 This Escrow Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
[Remainder of page intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be executed under seal as of the day and year first above written.
HOUGHTON MIFFLIN COMPANY
By
-----------------------------
Name:
Title:
-----------------------------
Alfred L. McDougal
-----------------------------
Nancy Lauter
-----------------------------
Julia McGee
-----------------------------
Richard Wild
-----------------------------
Rita Schaefer
STEPHEN MCDOUGAL TRUST
By
-----------------------------
Nancy Lauter
Trustee
By
-----------------------------
Philip Melchert
Trustee
THOMAS MCDOUGAL TRUST
By
-----------------------------
Nancy Lauter
Trustee
By
-----------------------------
Philip Melchert
Trustee
11
<PAGE>
ALM BARBARA FAMILY TRUST
By
-----------------------------
Barbara Zinje
Trustee
By
-----------------------------
Philip Melchert
Trustee
ALM CHARITABLE ANNUITY TRUST 12
By
-----------------------------
Nancy Lauter
Trustee
By
-----------------------------
Philip Melchert
Trustee
ALM CHARITABLE ANNUITY TRUST 4
By
-----------------------------
Nancy Lauter
Trustee
By
-----------------------------
Philip Melchert
Trustee
ALM CHARITABLE ANNUITY TRUST 8
By
-----------------------------
Nancy Lauter
Trustee
By
-----------------------------
Philip Melchert
Trustee
12
<PAGE>
ALM ANNUITY TRUST 6
By
-----------------------------
Nancy Lauter
Trustee
By
-----------------------------
Philip Melchert
Trustee
ALM ANNUITY TRUST 8
By
-----------------------------
Nancy Lauter
Trustee
By
-----------------------------
Philip Melchert
Trustee
ALM ANNUITY TRUST 10
By
-----------------------------
Nancy Lauter
Trustee
By
-----------------------------
Philip Melchert
Trustee
ALM ANNUITY TRUST 12
By
-----------------------------
Nancy Lauter
Trustee
By
-----------------------------
Philip Melchert
Trustee
13
<PAGE>
ALM DISCRETIONARY
TRUST FOR STEPHEN
By
-----------------------------
Nancy Lauter
Trustee
By
-----------------------------
Philip Melchert
Trustee
ALM DISCRETIONARY
TRUST FOR THOMAS
By
-----------------------------
Nancy Lauter
Trustee
By
-----------------------------
Philip Melchert
Trustee
MCDOUGAL, LITTELL & COMPANY
EMPLOYEE SAVINGS AND STOCK
OWNERSHIP PLAN
By Cole Taylor Bank, as Trustee
under the McDougal, Littell &
Company Employee Savings and
Stock Ownership Plan
By
-----------------------------
Name:
Title:
[ESCROW AGENT]
By:
----------------------------
Name:
Title:
14
