SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
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): October 15, 1996
THE McGRAW-HILL COMPANIES, INC.
______________________________________________________
(Exact Name of Registrant as specified in its charter)
New York 1-1023 13-1026995
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation or
organization)
1221 Avenue of the Americas, New York, New York, 10020
(Address of Principal Executive Offices) (Zip Code)
(212) 512-2000
(Registrant's telephone number, including area code)<PAGE>
2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 15, 1996, the Registrant, The McGraw-Hill
Companies, Inc., a New York corporation ("McGraw-Hill"),
acquired: (i) all of the outstanding shares of capital stock
of Times Mirror Higher Education Group, Inc., a Delaware
corporation ("TMHE"), from The Times Mirror Company, a Delaware
corporation ("Times Mirror"), and (ii) certain assets and
liabilities of Mosby-Year Book, Inc., a Missouri corporation
and a wholly-owned subsidiary of Times Mirror ("Mosby"),
relating to Mosby's college-level life and physical science
text publishing business.
The parties had originally entered into an Exchange
Agreement dated as of July 3, 1996, as amended by an Amendment
dated October 15, 1996 (collectively, the "Exchange
Agreement").
In exchange for acquiring the stock of TMHE and certain
college text assets and liabilities of Mosby (collectively, the
"Times Mirror College Business"), McGraw-Hill sold to Times
Mirror all of the outstanding shares of capital stock of its
subsidiary Shepard's/McGraw-Hill, Inc., a Delaware corporation
("Shepard's"). At the closing, McGraw-Hill also received a
cash payment from Times Mirror in the amount of $25,000,000,
less certain specified offsets. In addition, the Exchange
Agreement provides for a post-closing adjustment to the
purchase price which may result in the payment of cash by
either party to the other party.<PAGE>
3
The Times Mirror College Business is engaged in the
business of publishing textbooks and other materials and
products for the college education market. Shepard's is
engaged in the business of publishing legal citation materials.
Simultaneously with the closing under the Exchange
Agreement, McGraw-Hill sold the William C. Brown printing
facility in Dubuque, Iowa to Quebecor Printing (USA) Corp.
These printing operations were part of the Times Mirror College
Business. It is anticipated that Quebecor Printing (USA) Corp.
will continue the printing operations and will provide printing
services to McGraw-Hill.
The terms of the Exchange Agreement, including the
agreement with respect to the consideration, were arrived at
pursuant to arms-length negotiations between representatives of
McGraw-Hill, on the one hand, and representatives of Times
Mirror, on the other hand. The transaction was approved by the
McGraw-Hill Board of Directors on June 26, 1996.
No material relationship exists (i) between McGraw-Hill
and Times Mirror; (ii) between any of McGraw-Hill's subsidiary
corporations or affiliates, on the one hand, and Times Mirror
or any of Times Mirror's subsidiary corporations or affiliates,
on the other hand; or (iii) between Times Mirror and any
director or officer of McGraw-Hill, or any associate of any
McGraw-Hill director or officer.
A copy of the Exchange Agreement is attached hereto as
Exhibit 2 and is incorporated in this Form 8-K Report by
reference. The summary of the terms of the Exchange Agreement<PAGE>
4
contained in this Form 8-K Report is qualified in its entirety
by reference to such Exhibit.
McGraw-Hill agrees to furnish promptly to the Commission
at its request a copy of any of the exhibits or schedules to
the Exchange Agreement since such exhibits and schedules have
not been appended to the copy of the Exchange Agreement that is
attached to this Form 8-K Report.
A copy of the McGraw-Hill press releases dated July 3,
1996, and October 16, 1996 relating to the transaction covered
by this Report are attached hereto as Exhibit 99 and are
incorporated in this Form 8-K Report by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired;
(b) Pro Forma Financial Information.
The Registrant has submitted a written request to the
Commission for a waiver of the financial statement filing
requirement pursuant to Release No. 34-37802. <PAGE>
5
EXHIBITS
(2.1) Exchange Agreement dated as of July 3, 1996.
(2.2) Amendment to Exchange Agreement dated as of October
15, 1996.
(99.1) The McGraw-Hill Companies press release dated July 3,
1996.
(99.2) The McGraw-Hill Companies press release dated October
16, 1996.<PAGE>
6
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this Form 8-K
Report to be signed on its behalf by the undersigned hereunto
duly authorized.
THE McGRAW-HILL COMPANIES, INC.
By: /s/ Kenneth M. Vittor
Kenneth M. Vittor
Senior Vice President and
General Counsel
Date: October 29, 1996
CONFORMED COPY
EXCHANGE AGREEMENT
BY AND AMONG
THE TIMES MIRROR COMPANY,
MOSBY-YEAR BOOK, INC.
AND
THE McGRAW-HILL COMPANIES, INC.
dated as of
July 3, 1996<PAGE>
TABLE OF CONTENTS
RECITALS ..................................... 1
ARTICLE ONE DEFINITIONS.......................... 2
Section 1.01. Definitions.......................... 2
Section 1.02. Interpretation of this Agreement..... 9
ARTICLE TWO PURCHASE AND SALE.................... 10
Section 2.01. Purchase and Sale of the TMHE
Shares............................. 10
Section 2.02. Purchase and Sale of the Mosby
Assets and International Assets;
Assumption of the Mosby
Liabilities and International
Liabilities........................ 11
Section 2.03. Cash Payment......................... 12
Section 2.04. Purchase and Sale of the Shepard's
Shares............................. 12
Section 2.05. Employee Benefit and Employee
Matters and Tax Matters
Handled Separately................. 12
ARTICLE THREE CLOSING.............................. 12
Section 3.01. Closing.............................. 12
ARTICLE FOUR CONDITIONS TO CLOSING................ 16
Section 4.01. Conditions to All Parties'
Obligations........................ 16
Section 4.02. Conditions to McGraw-Hill's
Obligations........................ 16
Section 4.03. Conditions to Times Mirror's and
Mosby's Obligations................ 18
ARTICLE FIVE REPRESENTATIONS AND WARRANTIES OF
TIMES MIRROR AND MOSBY............. 20
Section 5.01. Organization and Authority
of Times Mirror.................... 20
Section 5.02. Organization and Authority of Mosby.. 20
Section 5.03. No Breach............................ 20
Section 5.04. Governmental Consents and Approvals.. 21
Section 5.05. Organization and Standing of
TMHE and its Subsidiaries.......... 21
Section 5.06. Capital Stock of TMHE................ 22
Section 5.07. Title to and Transfer of the TMHE
Shares............................. 22
Section 5.08. Equity Interests..................... 22
-i-<PAGE>
Section 5.09. Financial Statements................. 23
Section 5.10. Nonforeign Certification............. 25
Section 5.11. Taxes................................ 25
Section 5.12. Assets Other than Real Property...... 25
Section 5.13. Real Property........................ 26
Section 5.14. Intellectual Property................ 26
Section 5.15. Contracts............................ 28
Section 5.16. Litigation; Decrees.................. 31
Section 5.17. Employee and Related Matters; ERISA.. 31
Section 5.18. Absence of Changes or Events......... 33
Section 5.19. Compliance with Applicable Laws...... 34
Section 5.20. Employee and Labor Relations......... 35
Section 5.21. Securities Act of 1933; Sufficiency
of Information..................... 35
Section 5.22. International Assets................. 36
ARTICLE SIX REPRESENTATIONS AND WARRANTIES
OF McGRAW-HILL..................... 36
Section 6.01. Organization and Authority........... 36
Section 6.02. No Breach............................ 37
Section 6.03. Governmental Consents and Approvals.. 37
Section 6.04. Organization and Standing of
Shepard's.......................... 37
Section 6.05. Capital Stock of Shepard's........... 38
Section 6.06. Title to and Transfer of the
Shepard's Shares................... 38
Section 6.07. Equity Interests..................... 39
Section 6.08. Shepard's Financial Statements....... 39
Section 6.09. Nonforeign Certification............. 39
Section 6.10. Taxes................................ 39
Section 6.11. Assets Other than Real Property...... 39
Section 6.12. Real Property ....................... 40
Section 6.13. Intellectual Property................ 40
Section 6.14. Contracts............................ 41
Section 6.15. Litigation; Decrees.................. 44
Section 6.16. Employee and Related Matters; ERISA.. 44
Section 6.17. Absence of Changes or Events......... 46
Section 6.18. Compliance with Applicable Laws...... 46
Section 6.19. Employee and Labor Relations......... 47
Section 6.20. Securities Act of 1933;
Sufficiency of Information......... 48
Section 6.21. Certain Material Contracts........... 48
ARTICLE SEVEN COVENANTS OF TIMES MIRROR AND MOSBY.. 49
Section 7.01. June 30 and Closing Date
Financial Statements............... 49
Section 7.02. Access............................... 51
Section 7.03. Ordinary Conduct..................... 52
Section 7.04. Insurance............................ 55
Section 7.05. Resignations......................... 55
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Section 7.06. Non-Competition...................... 55
Section 7.07. Intercompany Accounts................ 57
Section 7.08. Confidentiality...................... 57
Section 7.09. No Additional Representations........ 57
Section 7.10. Performance of Obligations by
Times Mirror After Closing Date.... 58
Section 7.11. Name Change.......................... 58
Section 7.12. Grant of License..................... 58
Section 7.13. Purchase of Limited Partner
Interest........................... 59
ARTICLE EIGHT COVENANTS OF McGRAW-HILL............. 59
Section 8.01. June 30 and Closing Date
Financial Statements............... 59
Section 8.02. Access............................... 60
Section 8.03. Ordinary Conduct..................... 61
Section 8.04. Insurance............................ 63
Section 8.05. Resignations......................... 63
Section 8.06. Non-Competition...................... 63
Section 8.07. Intercompany Accounts................ 64
Section 8.08. Confidentiality...................... 65
Section 8.09. No Additional Representations........ 65
Section 8.10. Performance of Obligations by
McGraw-Hill After Closing Date..... 65
Section 8.11. Name Change.......................... 66
Section 8.12. Transitional Services................ 66
ARTICLE NINE MUTUAL COVENANTS..................... 66
Section 9.01. Post-Closing Adjustment.............. 66
Section 9.02. Use of Names......................... 69
Section 9.03. Cooperation.......................... 70
Section 9.04. Publicity............................ 70
Section 9.05. Antitrust Notification............... 70
Section 9.06. Records.............................. 71
Section 9.07. Further Assurances................... 73
Section 9.08. Provision of Audited Financials...... 73
ARTICLE TEN EMPLOYEE AND RELATED MATTERS WITH
RESPECT TO COLLEGE PUBLISHING
BUSINESS........................... 73
Section 10.01. Continuation of Employment........... 73
Section 10.02. Times Mirror's Benefit Plans and
Employee Related Liabilities....... 74
Section 10.03. McGraw-Hill's Benefit Plans.......... 75
Section 10.04. Severance Obligations................ 75
Section 10.05. Defined Contribution Plans........... 75
Section 10.06. Defined Benefit Plans................ 76
Section 10.07. Welfare Benefits..................... 77
Section 10.08. Modifications........................ 78
-iii-<PAGE>
Section 10.09. Mutual Cooperation................... 78
Section 10.10. Employee Benefits Indemnity.......... 78
Section 10.11. Third-Party Claims................... 79
ARTICLE TEN-A EMPLOYEE AND RELATED MATTERS WITH
RESPECT TO SHEPARD'S............... 79
Section 10A.01. Continuation of Employment........... 79
Section 10A.02. McGraw-Hill's Benefit Plans and
Employee Related Liabilities....... 80
Section 10A.03. Times Mirror's Benefit Plans......... 80
Section 10A.04. Severance Obligations................ 80
Section 10A.05. Defined Contribution Plans........... 81
Section 10A.06. Defined Benefit Plans................ 81
Section 10A.07. Welfare Benefits..................... 82
Section 10A.08. Modifications........................ 83
Section 10A.09. Mutual Cooperation................... 83
Section 10A.10. Employee Benefits Indemnity.......... 83
Section 10A.11. Third-Party Claims................... 84
ARTICLE ELEVEN INDEMNIFICATION...................... 84
Section 11.01. Tax Indemnification.................. 84
Section 11.02. Environmental Indemnification........ 84
Section 11.03. Indemnification by Times Mirror
and Mosby.......................... 86
Section 11.04. Indemnification by McGraw-Hill....... 86
Section 11.05. Exclusive Remedy..................... 87
Section 11.06. Losses Net of Insurance.............. 87
Section 11.07. Termination of Indemnification....... 87
Section 11.08. Procedures Relating to Indemnifi-
cation (Except Under Section
11.01)............................. 88
ARTICLE TWELVE TAX MATTERS RELATING TO THE TRANSFER
OF THE TMHE SHARES, ETC. .......... 89
Section 12.01. Section 338(h)(10) Election.......... 89
Section 12.02. Liability for Taxes; Preparation
of Returns......................... 90
Section 12.03. Tax Sharing Agreements............... 92
Section 12.04. Assistance and Cooperation........... 92
Section 12.05. Definitions.......................... 92
Section 12.06. Controversies........................ 94
ARTICLE TWELVE-A TAX MATTERS RELATING TO THE TRANSFER
OF THE SHEPARD'S SHARES............ 95
Section 12A.01. Section 338(h)(10) Election.......... 95
Section 12A.02. Liability for Taxes; Preparation
of Returns......................... 95
Section 12A.03. Tax Sharing Agreements............... 97
Section 12A.04. Assistance and Cooperation........... 97
-iv-<PAGE>
Section 12A.05. Definitions.......................... 97
Section 12A.06. Controversies........................ 98
ARTICLE THIRTEEN TERMINATION.......................... 99
Section 13.01. Events of Termination................ 99
Section 13.02. Return of Confidential Information... 99
Section 13.03. Effects of Termination............... 100
Section 13.04. Survival of Representations.......... 100
ARTICLE FOURTEEN MISCELLANEOUS........................ 101
Section 14.01. Expenses............................. 101
Section 14.02. Attorneys' Fees...................... 101
Section 14.03. Amendments........................... 101
Section 14.04. Assignment........................... 101
Section 14.05. No Third-Party Beneficiaries......... 101
Section 14.06. Notices.............................. 101
Section 14.07. Counterparts......................... 102
Section 14.08. Entire Agreement..................... 102
Section 14.09. Fees................................. 102
Section 14.10. Severability......................... 102
Section 14.11. Dispute Resolution; Equitable
Enforcement........................ 102
Section 14.12. No Consequential or Punitive
Damages............................ 105
-v-<PAGE>
TABLE OF SCHEDULES
Schedule 2.02(a)(i) Mosby Assets
Schedule 2.02(a)(ii) International Assets
Schedule 2.02(b) Assumed Liabilities
Schedule 4.02(a)(v) International Asset Transfers and
Related Accounting Adjustments
Schedule 5.03 Breach or Default
Schedule 5.08 Equity Interests
Schedule 5.09(a) TMHE Financial Statements
Schedule 5.09(b) Mosby Financial Statements
Schedule 5.09(c) International and Mosby Information
Schedule 5.09(d)-1 Pro Forma Balance Sheet of TMHE
Schedule 5.09(d)-2 Pro Forma Statement of Assets Conveyed
and Liabilities Assumed of Mosby's
College Text Business
Schedule 5.12 Liens
Schedule 5.13(a) TMHE Owned Property
Schedule 5.13(b) TMHE Leased Property
Schedule 5.14(a) College Publishing Business Trademarks
Schedule 5.14(b) Top 100 College Publishing Business
Publications
Schedule 5.14(c) Licenses
Schedule 5.14(d) Claims
Schedule 5.15(a) Employment, Independent Contractor and
Consulting Agreements
Schedule 5.15(b) Collective Bargaining Agreements
Schedule 5.15(c) Non-Competition Agreements
-vi-<PAGE>
Schedule 5.15(d) Agreements with Affiliates, Officers,
Directors or Employees
Schedule 5.15(e) Leases of TMHE Property
Schedule 5.15(f) Personal Property Leases
Schedule 5.15(g) Supply and Service Agreements
Schedule 5.15(h) Indebtedness
Schedule 5.15(i) Guarantees
Schedule 5.15(j) Partnerships and Joint Ventures
Schedule 5.15(k) College Publishing Business Author
Contracts
Schedule 5.15(l) Other Agreements
Schedule 5.16 Litigation; Decrees
Schedule 5.17(a) Employee Benefit Plans
Schedule 5.17(b) Noncompliance with ERISA
Schedule 5.17(c) Multiemployer Plan Liabilities
Schedule 5.17(e) Employee Welfare Benefit Plans
Schedule 5.18 Changes or Events
Schedule 5.20 Employee and Labor Relations
Schedule 5.22(a) Distribution Agreements
Schedule 5.22(b) Certain Translation Agreements
Schedule 6.02 Breach or Default
Schedule 6.08(a) Shepard's Financial Statements
Schedule 6.11 Liens
Schedule 6.12(a) Shepard's Owned Property
Schedule 6.12(b) Shepard's Leased Property
Schedule 6.13(a) Shepard's Trademarks
-vii-<PAGE>
Schedule 6.13(b) Top 25 Shepard's Publications
Schedule 6.13(c) Licenses
Schedule 6.13(d) Claims
Schedule 6.14(a) Employment, Independent Contractor and
Consulting Agreements
Schedule 6.14(b) Collective Bargaining Agreements
Schedule 6.14(c) Non-Competition Agreements
Schedule 6.14(d) Agreements with Affiliates, Officers,
Directors or Employees
Schedule 6.14(e) Leases of Shepard's Property
Schedule 6.14(f) Personal Property Leases
Schedule 6.14(g) Supply and Service Agreements
Schedule 6.14(h) Indebtedness
Schedule 6.14(i) Guarantees
Schedule 6.14(j) Partnerships and Joint Ventures
Schedule 6.14(k) Shepard's Author Contracts
Schedule 6.14(l) Other Agreements
Schedule 6.15 Litigation; Decrees
Schedule 6.16(a) Employee Benefit Plans
Schedule 6.16(b) Noncompliance with ERISA
Schedule 6.16(c) Multiemployer Plan Liabilities
Schedule 6.16(e) Employee Welfare Benefit Plan
Schedule 6.17 Changes or Events
Schedule 6.19 Employee and Labor Matters
Schedule 7.03 Exceptions to Ordinary Conduct
Schedule 7.04 Insurance
-viii-<PAGE>
Schedule 8.03 Exceptions to Ordinary Conduct
Schedule 8.04 Insurance
Schedule 9.01(a) Tax Reimbursement Rates
Schedule 9.01(b) Tax Reimbursement Rates
Schedule 10.01(a) List of Mosby's College Text Business
Employees
Schedule 10.04 McGraw-Hill Severance Obligations
Schedule 10A.01(a)-1 List of Shepard's Employees not
Transferred
Schedule 10A.04 Times Mirror Severance Obligations
-ix-<PAGE>
TABLE OF EXHIBITS
Exhibit A Form of Mosby Transition Services
Agreement
Exhibit B Form of TMIP Transition Services
Agreement
-x-<PAGE>
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (the "Agreement") is dated as
of July 3, 1996, by and among THE TIMES MIRROR COMPANY, a Dela-
ware corporation ("Times Mirror"), MOSBY-YEAR BOOK, INC., a
Missouri corporation and a wholly-owned subsidiary of Times
Mirror ("Mosby"), and The McGraw-Hill Companies, Inc., a New
York corporation ("McGraw-Hill").
RECITALS
A. Times Mirror Higher Education Group, Inc., a
Delaware corporation ("TMHE"), is engaged, through several di-
visions, in the business of publishing college textbooks and
other educational materials.
B. Times Mirror owns all of the outstanding common
stock, par value $1.00 per share (the "TMHE Shares"), of TMHE.
C. Mosby owns certain assets (as more fully de-
scribed herein, the "Mosby Assets") devoted solely and exclu-
sively to Mosby's college-level life and physical science text
publishing business ("Mosby's College Text Business").
D. On the terms and subject to the conditions set
forth herein (i) Times Mirror desires to sell to McGraw-Hill,
and McGraw-Hill desires to purchase, the TMHE Shares and (ii)
Mosby desires to sell, and McGraw-Hill desires to purchase, the
Mosby Assets and to assume certain liabilities (as more fully
described herein, the "Mosby Liabilities") of Mosby relating
solely and exclusively to Mosby's College Text Business.
E. Shepard's/McGraw-Hill, Inc., a Delaware corpora-
tion ("Shepard's"), is engaged in the business of publishing
legal citation materials.
F. McGraw-Hill owns all of the outstanding common
stock, $1.00 par value (the "Shepard's Shares"), of Shepard's.
G. On the terms and subject to the conditions set
forth herein, McGraw-Hill desires to sell to Times Mirror, and
Times Mirror desires to purchase, the Shepard's Shares.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and
of the representations, warranties and agreements set forth
below, the parties hereto agree as follows:<PAGE>
ARTICLE ONE
DEFINITIONS
As used in this Agreement, the following terms have
the meanings set forth below:
Section 1.01 Definitions.
"AGREEMENT" is defined in the Preamble.
"APPRAISER" is defined in Section 12.01(c)(ii).
"BROWN AND PROBUS PLANS" is defined in Section 10.05.
"BUSINESS DAY" means any day other than a Saturday,
Sunday, holiday or day on which financial institutions in the
State of New York are required or permitted by law to be
closed.
"CERCLA" is defined within the definition of "Envi-
ronmental Law" in this Section 1.01.
"CLOSING" is defined in Section 3.01.
"CLOSING DATE" is defined in Section 3.01.
"CODE" means the Internal Revenue Code of 1986, as
amended.
"COLLEGE PUBLISHING BUSINESS" means the higher educa-
tion publishing business consisting of TMHE and the TMHE Sub-
sidiaries, the Mosby Assets and the International Assets.
"COLLEGE PUBLISHING BUSINESS CLOSING DATE BALANCE
SHEET" is defined in Section 7.01(c).
"COLLEGE PUBLISHING BUSINESS CONFIDENTIALITY AGREE-
MENT" is defined in Section 7.03.
"COLLEGE PUBLISHING BUSINESS CONTRACTS" is defined in
Section 5.15.
"COLLEGE PUBLISHING BUSINESS COPYRIGHTS" is defined
in Section 5.14(b).
"COLLEGE PUBLISHING BUSINESS EMPLOYEE" means (i) all
persons actively employed on the Closing Date either by TMHE,
the TMHE Subsidiaries or by Mosby solely and exclusively in
connection with Mosby's College Text Business, and (ii) any
person not so actively employed but who is, as of the Closing
-2-<PAGE>
Date, with respect to either TMHE, the TMHE Subsidiaries or
Mosby's College Text Business, on any authorized leave of ab-
sence, on either short- or long-term disability leave, on
worker's compensation leave, or on vacation.
"COLLEGE PUBLISHING BUSINESS INTELLECTUAL PROPERTY"
is defined in Section 5.14(b).
"COLLEGE PUBLISHING BUSINESS PERSONNEL" means all
College Publishing Business Employees and College Publishing
Business Retirees.
"COLLEGE PUBLISHING BUSINESS PLANS" is defined in
Section 5.17(a).
"COLLEGE PUBLISHING BUSINESS POST-RETIREMENT PLAN"
means any plan, program, arrangement or agreement, whether for-
mal or informal, to provide post-retirement medical benefits to
former employees of TMHE or the TMHE Subsidiaries or Mosby
solely and exclusively in connection with Mosby's College Text
Business and their eligible beneficiaries that is maintained,
contributed to or required to be contributed to by Times Mir-
ror, TMHE or the TMHE Subsidiaries or Mosby.
"COLLEGE PUBLISHING BUSINESS RETIREES" means all per-
sons formerly employed by TMHE or the TMHE Subsidiaries or by
Mosby solely and exclusively in connection with Mosby's College
Text Business and their beneficiaries who are receiving or eli-
gible to receive post-retirement medical benefits under any
College Publishing Business Post-Retirement Plan as of the
Closing Date.
"COLLEGE PUBLISHING BUSINESS TAX LIABILITIES" is de-
fined in Section 12.05(a).
"COLLEGE PUBLISHING BUSINESS TRADEMARKS" is defined
in Section 5.14(a).
"COLLEGE PUBLISHING BUSINESS TRANSFERRED EMPLOYEES"
is defined in Section 10.01(a).
"CONFIDENTIAL OFFERING MEMORANDUM" is defined in Sec-
tion 8.09.
"CONSOLIDATED TAX RETURNS" is defined in Section
12.05(b).
"DAMAGES" is defined in Section 11.01.
"DOJ" is defined in Section 9.05.
-3-<PAGE>
"ENFORCEABILITY EXCEPTIONS" is defined in Section
5.01.
"ENVIRONMENTAL LAW" means any applicable statute,
regulation, rule, ordinance, code, license or order, of any
government agency, department, commission, board, bureau or
instrumentality of the United States, states and political
subdivisions thereof or any foreign jurisdiction, and all ap-
plicable judicial and administrative and regulatory decrees,
judgments and orders, relating to the environment, including,
without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. Sections
9601 et seq., as amended by the Superfund Amendments and Reau-
thorization Act of 1986; the Resource Conservation and Recovery
Act, 42 U.S.C. Sections 6901 et seq.; the Federal Water Pollu-
tion Control Act, 42 U.S.C. Sections 1251 et seq.; the National
Environmental Policy Act, 42 U.S.C. Sections 4321 et seq.; the
Refuse Act, 33 U.S.C. Sections 401 et seq.; the Federal Insec-
ticide, Fungicide and Rodenticide Act, 7 U.S.C. Sections 136 et
seq.; the Emergency Planning and Community Right to Know Act,
42 U.S.C. Sections 11001 et seq.; the Occupational Safety and
Health Act of 1970; the Hazardous Materials Transportation Act,
49 U.S.C. Sections 1801 et seq.; and the Toxic Substances Con-
trol Act, 15 U.S.C. Sections 2601 et seq. and other legal re-
quirements having similar subject matter.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"ERISA AFFILIATE" means any entity that is a member
of a controlled group for purposes of Section 4001(a)(14) of
ERISA.
"EXCLUDED ASSETS" is defined in Section 2.02(a)(ii).
"FTC" is defined in Section 9.05.
"GAAP" is defined in Section 5.09(a).
"HAZARDOUS MATERIAL" means any material, substance,
compound, solid, liquid or gas, or any radiation, emission or
release of energy in any form, whether naturally occurring,
man-made or the product of any process (1) which is or may un-
der certain conditions be toxic, harmful, hazardous or acutely
hazardous to public health, public safety or the environment,
(2) which is or may be defined or regulated as a "hazardous
waste", "hazardous substance", "toxic substance", pollutant or
contaminant under any Environmental Law, (3) the use, handling,
management, release, treatment, storage, transportation or dis-
posal of which is or may be regulated under any Environmental
-4-<PAGE>
Law. Hazardous Materials include but are not limited to asbes-
tos, polychlorinated biphenyls, mercury, lead, petroleum and
petroleum products and derivatives, urea formaldehyde foam in-
sulation, and radon and other radioactive materials.
"HSR ACT" is defined in Section 4.01(a).
"INCOME TAXES" is defined in Section 12.05(c).
"INTERNATIONAL ASSETS" is defined in Section 2.02(a).
"INTERNATIONAL LIABILITIES" is defined in Section
2.02(b).
"IRS" means the Internal Revenue Service.
"KNOWLEDGE OF MCGRAW-HILL" means the actual knowledge
of any of Robert J. Bahash, Executive Vice President and Chief
Financial Officer of McGraw-Hill; Wayne Greenberg, President of
Shepard's; Peter Jovanovich, President - Educational and Pro-
fessional Publishing Group of McGraw-Hill, Erwin S. Barbre,
Senior Vice President and General Manager, Shepard's Citations
Business Unit, Carol Bishop, Director of Human Resources of
Shepard's, and Robert De Bona, Vice President Human Resources -
Educational and Professional Publishing Group of McGraw-Hill.
"KNOWLEDGE OF TIMES MIRROR" means the actual knowl-
edge of any of E. Thomas Unterman, Senior Vice President and
Chief Financial Officer of Times Mirror; Patrick A. Clifford,
Senior Vice President of Times Mirror and Chairman and Chief
Executive Officer of Mosby; G. Franklin Lewis, Chairman and
Chief Executive Officer of TMHE; James H. Higby, Executive Vice
President and Chief Operating Officer of TMHE; Jeffrey Sund,
President and Chief Executive Officer of Richard D. Irwin;
Beverly Kolz, President and Chief Executive Officer of Wm. C.
Brown Publishers; Robert McLaughlin, Executive Vice President
and General Manager of Brown & Benchmark Publishers; James R.
Simpson, Senior Vice President - Human Resources of Times
Mirror; and Marc Bigelow, Vice President - Human Resources of
TMHE.
"LIENS" is defined in Section 5.07.
"LOSSES" means all damage, loss (including any dimi-
nution in the value of assets), liability and expense (includ-
ing, without limitation, reasonable expenses of investigation
and reasonable attorneys' fees and expenses in connection with
any action, suit or proceeding). For purposes of Section
11.02, Losses shall mean all claims, damages, losses (including
any diminution in the value of real properties), penalties,
-5-<PAGE>
fines, liabilities and expenses (including, without limitation,
fees incurred for the services of attorneys, consultants, engi-
neers, contractors, experts, laboratories and all costs in-
curred in connection with any investigation, cleanup, reme-
diation, removal, abatement, closure and monitoring, action,
suit or proceeding), resulting from a violation of any Environ-
mental Law.
"MCGRAW-HILL" is defined in the Preamble.
"MCGRAW-HILL DEFINED CONTRIBUTION PLANS" is defined
in Section 10A.05.
"MCGRAW-HILL PLANS" is defined in Section 6.16(a).
"MCGRAW-HILL RETIREMENT PLAN" is defined in Section
10A.06.
"MOSBY" is defined in the Preamble.
"MOSBY ASSETS" is defined in the Recitals and in Sec-
tion 2.02(a)(i).
"MOSBY LIABILITIES" is defined in the Recitals and in
Section 2.02(b).
"MOSBY STATEMENT" is defined in Section 5.09(b).
"MOSBY TRANSITION SERVICES AGREEMENT" means the Tran-
sition Services Agreement to be entered into by and between
Mosby and McGraw-Hill, substantially in the form attached here-
to as Exhibit A.
"MOSBY'S COLLEGE TEXT BUSINESS" is defined in the
Recitals.
"PERMITTED LIENS" means (i) mechanics', carriers',
workmen's, warehousemen's, repairmen's or other like liens
arising or incurred in the ordinary course of business, (ii)
liens arising under original purchase price conditional sales
contracts and equipment leases with third parties entered into
in the ordinary course of business, (iii) liens for Taxes and
other governmental charges which are not due and payable or
which may thereafter be paid without penalty, and (iv) other
imperfections of title, restrictions or encumbrances, if any,
which liens, imperfections of title, restrictions or encum-
brances do not materially impair the continued use and opera-
tion of the specific assets to which they relate.
-6-<PAGE>
"PRE-CLOSING TAX PERIOD" is defined in Section
12.05(a).
"RECORDS" is defined in Section 9.06(a).
"REPLACEMENT PLANS" is defined in Section 10A.03.
"RESTRICTED PERIOD" is defined in Section 7.06(a).
"SECURITIES ACT" is defined in Section 5.21.
"SHEPARD'S" is defined in the Recitals.
"SHEPARD'S BALANCE SHEET" is defined in Section 6.08.
"SHEPARD'S CLOSING DATE BALANCE SHEET" is defined in
Section 8.01(b).
"SHEPARD'S CONFIDENTIALITY AGREEMENT" is defined in
Section 7.08.
"SHEPARD'S CONTRACTS" is defined in Section 6.14.
"SHEPARD'S COPYRIGHTS" is defined in Section 6.13(b).
"SHEPARD'S ELECTIONS" is defined in Section
12A.01(a).
"SHEPARD'S EMPLOYEE" means (i) all persons actively
employed on the Closing Date by Shepard's, and (ii) any person
not so actively employed but who is, as of the Closing Date,
with respect to Shepard's, on any authorized leave of absence,
on either short or long-term disability leave, on worker's com-
pensation leave, or on vacation.
"SHEPARD'S INTELLECTUAL PROPERTY" is defined in Sec-
tion 6.13(b).
"SHEPARD'S LEASED PROPERTIES" is defined in Section
6.12(b).
"SHEPARD'S OWNED PROPERTIES" is defined in Section
6.12(a).
"SHEPARD'S PERSONNEL" means all Shepard's Employees
and Shepard's Retirees.
"SHEPARD'S POST-RETIREMENT PLAN" means any plan, pro-
gram, arrangement or agreement, whether formal or informal, to
provide post-retirement medical benefits to, among others,
-7-<PAGE>
former employees of Shepard's and their eligible beneficiaries
that is maintained, contributed to or required to be contrib-
uted to by McGraw-Hill or Shepard's.
"SHEPARD'S PROPERTIES" is defined in Section 6.12(b).
"SHEPARD'S RETIREES" means all persons formerly em-
ployed by Shepard's and their beneficiaries who are receiving
or eligible to receive post-retirement medical benefits under
any McGraw-Hill Post-Retirement Plan as of the Closing Date.
"SHEPARD'S SECTION 338 FORMS" is defined in Section
12A.01(b).
"SHEPARD'S SHARES" is defined in the Recitals.
"SHEPARD'S TAX LIABILITIES" is defined in Section
12A.05.
"SHEPARD'S TRADEMARKS" is defined in Section 6.13(a).
"SHEPARD'S TRANSFERRED EMPLOYEES" is defined in Sec-
tion 10A.01(a).
"STRADDLE PERIOD" is defined in Section 12.05(d).
"TAXES" means all federal, state, local and foreign
income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, envi-
ronmental, customs, duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, dis-
ability, real property, personal property, sales, use, trans-
fer, registration, value added, VAT, alternative or add-on min-
imum, estimated, or other tax of any kind whatsoever, including
any interest, penalty, or addition thereto.
"TAX AUDIT" is defined in Section 12.06
"TAX RETURN" is defined in Section 12.05(e).
"THIRD-PARTY CLAIM" is defined in Section 11.08.
"TIMES MIRROR" is defined in the Preamble.
"TM 401(K) PLAN" is defined in Section 10.05.
"TM PENSION PLAN" is defined in Section 10.06.
"TMHE" is defined in the Recitals.
-8-<PAGE>
"TMHE BALANCE SHEET" is defined in Section 5.09(a).
"TMHE ELECTIONS" is defined in Section 12.01(a).
"TMHE LEASED PROPERTIES" is defined in Section
5.13(b).
"TMHE OWNED PROPERTY" is defined in Section 5.13(a).
"TMHE PROPERTIES" is defined in Section 5.13(b).
"TMHE SHARES" is defined in Recitals.
"TMHE SUBSIDIARIES" is defined in Section 5.05.
"TMIP" means Times Mirror International Publishers-
U.S., Inc., a Delaware corporation.
"TMIP ENTITIES" means TMIP, its direct and indirect
subsidiaries and Times Mirror Singapore Pte. Ltd., a Singapore
corporation.
"TMIP TRANSITION SERVICES AGREEMENT" means the Tran-
sition Services Agreement to be entered into by and between
TMIP and McGraw-Hill, substantially in the form attached hereto
as Exhibit B.
"TOP 25 SHEPARD'S PUBLICATIONS" is defined in Section
6.13(b).
"TOP 100 COLLEGE PUBLISHING BUSINESS PUBLICATIONS" is
defined in Section 5.14(b).
"TRANSACTION-RELATED EXPENSES" means any expenses of
TMHE or Mosby or Shepard's incurred in connection with the con-
summation of the transactions contemplated hereby, including
performance bonuses and severance expenses of TMHE or Mosby or
Shepard's and employee benefits payable under any employee ben-
efit plans on or prior to the Closing Date and fees and ex-
penses of auditors, legal counsel and financial advisors to
TMHE or Mosby or Shepard's.
Section 1.02. Interpretation of this Agreement.
(a) Construction. Unless the context of this Agree-
ment clearly requires otherwise, references to the plural in-
clude the singular, the singular includes the plural, the part
includes the whole, "including" is not limiting, and "or" has
the inclusive meaning represented by the phrase "and/or." The
words "hereof," "herein," "hereby," "hereunder" and similar
-9-<PAGE>
terms in this Agreement refer to this Agreement as a whole (in-
cluding the Preamble, the Recitals, the Schedules and the Ex-
hibits) and not to any particular provision of this Agreement.
Article, section, exhibit, schedule, recital and preamble ref-
erences in this Agreement are to those portions of this Agree-
ment unless otherwise specified.
(b) Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the
State of New York applicable to agreements made and to be per-
formed entirely within such State.
(c) Headings, Exhibits and Schedules. The headings
contained in this Agreement, in any Exhibit or Schedule hereto
and in the Table of Contents to this Agreement, are for refer-
ence purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. Any capitalized terms
used in any Exhibit or Schedule but not otherwise defined
therein shall have the meaning as defined in this Agreement.
Any matter disclosed in one Schedule hereto shall be deemed
incorporated by reference into each other Schedule hereto and
disclosed in each such Schedule to the extent that the relevan-
cy of such matter to each such other Schedule is apparent from
the disclosure included on the Schedule.
(d) Representation By Counsel; Interpretation.
Times Mirror, Mosby and McGraw-Hill each acknowledge that each
party to this Agreement has been represented by counsel in con-
nection with this Agreement and the transactions contemplated
by this Agreement. Accordingly, any rule of law, including but
not limited to Section 1654 of the California Civil Code or any
comparable provision of New York law, or any legal decision
that would require interpretation of any claimed ambiguities in
this Agreement against the party that drafted it has no ap-
plication and is expressly waived. The provisions of this
Agreement shall be interpreted in a reasonable manner to effect
the intent of McGraw-Hill, Times Mirror and Mosby.
ARTICLE TWO
PURCHASE AND SALE
Section 2.01. Purchase and Sale of the TMHE Shares.
On the terms and subject to the conditions of this Agreement,
Times Mirror will sell, transfer and deliver, or cause to be
sold, transferred and delivered, to McGraw-Hill, and McGraw-
Hill will purchase from Times Mirror, free and clear of all
liens, claims, encumbrances, security interests, options,
charges and restrictions of any kind, the TMHE Shares.
-10-<PAGE>
Section 2.02. Purchase and Sale of the Mosby Assets
and International Assets; Assumption of the Mosby Liabilities
and International Liabilities.
(a) Purchase and Sale of the Mosby Assets and Inter-
national Assets.
(i) On the terms and subject to the conditions
of this Agreement, (A) Mosby shall sell, convey, transfer
and assign to McGraw-Hill (or one or more subsidiaries of
McGraw-Hill designated by McGraw-Hill), and McGraw-Hill
(or one or more subsidiaries of McGraw-Hill designated by
McGraw-Hill) will purchase from Mosby, all right, title
and interest in the Mosby Assets as of the Closing Date,
including, without limitation, those that are listed or
described on Schedule 2.02(a)(i), and (B) Times Mirror
shall cause the TMIP Entities to sell, convey, transfer
and assign to McGraw-Hill (or one or more subsidiaries of
McGraw-Hill designated by McGraw-Hill), and McGraw-Hill
(or one or more subsidiaries of McGraw-Hill designated by
McGraw-Hill) will purchase from the TMIP Entities, all
right, title and interest of the TMIP Entities as of the
Closing Date in the assets of the TMIP Entities listed or
described on Schedule 2.02(a)(ii) (the "International
Assets").
(ii) Notwithstanding anything herein to the
contrary, the Mosby Assets shall not include (A) any
technology, including software and hardware, used in the
development, production, publication or distribution of
electronic products or (B) any trademarks, trade names or
service marks or applications therefor registered or filed
in the name of or used by Mosby other than as set forth on
Schedule 5.14(a) (collectively, the "Excluded Assets").
(b) Assumption of the Mosby Liabilities and Interna-
tional Liabilities. McGraw-Hill shall assume as of the Closing
Date and shall pay, perform and discharge when due, and shall
indemnify Mosby against and hold Mosby harmless from, all of
the obligations and liabilities of any kind or nature, whether
absolute, contingent, known or unknown, disclosed or undis-
closed, accrued or otherwise of Mosby, relating solely and ex-
clusively to Mosby's College Text Business and the Mosby Assets
as of the Closing Date (the "Mosby Liabilities"), including,
without limitation, those listed or described on Schedule
2.02(b). McGraw-Hill shall assume as of the Closing Date and
shall pay, perform and discharge when due, and shall indemnify
the TMIP Entities against and hold the TMIP Entities harmless
from, the liabilities of the TMIP Entities listed or described
on Schedule 2.02(b) (the "International Liabilities"). This
-11-<PAGE>
assumption of the Mosby Liabilities and the International Li-
abilities shall not include liabilities arising in connection
with violations of any Environmental Law. Notwithstanding any-
thing in this paragraph to the contrary, McGraw-Hill shall not
assume any Tax liabilities of Mosby or any Tax liabilities re-
lating to the TMIP Entities.
Section 2.03. Cash Payment. In partial consider-
ation for the Shepard's Shares, Times Mirror shall pay to
McGraw-Hill $25 million, payable as set forth in Section
3.01(b)(i).
Section 2.04. Purchase and Sale of the Shepard's
Shares. On the terms and subject to the conditions of this
Agreement, McGraw-Hill will sell, transfer and deliver, or
cause to be sold, transferred and delivered, to Times Mirror,
and Times Mirror will purchase from McGraw-Hill, free and clear
of all liens, claims, encumbrances, security interests, op-
tions, charges and restrictions of any kind, the Shepard's
Shares.
Section 2.05. Employee Benefit and Employee Matters
and Tax Matters Handled Separately. The foregoing provisions
of this Article Two do not relate to, with respect to TMHE, the
TMHE Subsidiaries, Mosby or Shepard's, employee benefit and
employee matters, which are addressed in Articles 10 and 10-A.
Tax matters are further addressed in Articles 12 and 12-A.
ARTICLE THREE
CLOSING
Section 3.01. Closing. The closing (the "Closing")
of the purchase and sale of the Shepard's Shares, the TMHE
Shares, the Mosby Assets and the International Assets and the
assumption of the Mosby Liabilities and the International Li-
abilities shall be effective as of 12:01 a.m. on the first day
of the calendar month after the satisfaction or waiver of the
conditions to Closing set forth in Article 4. The date on
which the Closing shall be effective is hereinafter referred to
as the "Closing Date." The Closing shall be held at the of-
fices of Gibson, Dunn & Crutcher LLP, 200 Park Avenue, New
York, New York at 10:00 a.m. on the Closing Date or, if the
Closing Date is not a Business Day, on the Business Day next
succeeding the Closing Date.
(a) McGraw-Hill Deliveries at Closing. At the Clos-
ing, McGraw-Hill shall deliver to Times Mirror (acting on its
own behalf and as agent for Mosby and the TMIP Entities) (i)
certificates representing the Shepard's Shares, duly endorsed
-12-<PAGE>
in blank, or accompanied by stock powers duly endorsed in
blank, in proper form for transfer, (ii) instruments of assump-
tion in form and substance reasonably satisfactory to Times
Mirror, Mosby and their counsel evidencing and effecting the
assumption by McGraw-Hill of the Mosby Liabilities and the In-
ternational Liabilities, and (iii) such other documents as are
specifically required by this Agreement.
(b) Times Mirror Deliveries at Closing. At the
Closing, Times Mirror shall deliver or cause to be delivered to
McGraw-Hill (i) by wire transfer (to a bank account designated
at least two Business Days prior to the Closing Date in writing
by McGraw-Hill) immediately available funds in the amount set
forth in Section 2.03, (ii) certificates representing the TMHE
Shares, duly endorsed in blank, or accompanied by stock powers
duly endorsed in blank, in proper form for transfer, (iii) such
appropriately executed instruments of sale and assignment in
form and substance reasonably satisfactory to McGraw-Hill and
its counsel evidencing and effecting the sale and transfer to
McGraw-Hill (or one or more subsidiaries of McGraw-Hill desig-
nated by McGraw-Hill) of the International Assets (it being
understood that such instruments shall not require or permit
Times Mirror to make any additional representations, warranties
or covenants, expressed or implied, or disclaimers not con-
tained in this Agreement), and (iv) such other documents as are
specifically required by this Agreement.
(c) Mosby Deliveries at Closing. At the Closing,
Mosby shall deliver or cause to be delivered such appropriately
executed instruments of sale and assignment in form and sub-
stance reasonably satisfactory to McGraw-Hill and its counsel
evidencing and effecting the sale and transfer to McGraw-Hill
of the Mosby Assets (it being understood that such instruments
shall not require or permit Mosby to make any additional repre-
sentations, warranties or covenants, expressed or implied, or
disclaimers not contained in this Agreement), and such other
documents as are specifically required by this Agreement.
(d) Delivery of the Mosby Assets. The Mosby Assets
will be in the possession of Mosby on the Closing Date. Prior
to the Closing, (A) Mosby will provide McGraw-Hill with a
schedule setting forth in reasonable detail the location of all
of the tangible Mosby Assets that will be in the possession or
control of Mosby on the Closing Date, (B) Mosby will consult
with McGraw-Hill regarding the costs of transferring possession
of the Mosby Assets to McGraw-Hill or one or more of its desig-
nated subsidiaries and (C) Mosby and McGraw-Hill shall agree on
reasonable procedures to transfer possession of such Mosby As-
sets from Mosby to McGraw-Hill, as soon as practicable on or
-13-<PAGE>
after the Closing Date (except that those Mosby Assets neces-
sary or convenient for the performance of Mosby's obligations
under the Mosby Transition Services Agreement will be trans-
ferred as soon as practicable after the Termination Date
thereof (as defined therein)), it being understood that the
cost of transferring such Mosby Assets shall be borne by
McGraw-Hill.
(e) Delivery of the International Assets. The In-
ternational Assets will be in the possession or control of the
TMIP Entities on the Closing Date. Prior to the Closing, (A)
Times Mirror will provide McGraw-Hill with a schedule setting
forth in reasonable detail the location of all of the tangible
International Assets that will be in the possession or control
of the TMIP Entities on the Closing Date, (B) Times Mirror will
consult with McGraw-Hill regarding the costs of transferring
possession of the International Assets to McGraw-Hill or one or
more of its designated subsidiaries and (C) Times Mirror and
McGraw-Hill shall agree on reasonable procedures to transfer
possession of such International Assets from the TMIP Entities
to McGraw-Hill, as soon as practicable on or after the Closing
Date (except that those International Assets necessary or con-
venient for the performance of TMIP's obligations under the
TMIP Transition Services Agreement will be transferred as soon
as practicable after the Termination Date thereof (as defined
therein)), it being understood that the cost of transferring
such International Assets shall be borne by McGraw-Hill.
(f) Assignment of Contracts and Rights. Anything in
this Agreement to the contrary notwithstanding, this Agreement
shall not constitute an agreement to assign any of the Mosby
Assets, the International Assets or any asset of TMHE, the TMHE
Subsidiaries or Shepard's or any claim or right or any benefit
arising thereunder or resulting therefrom if an attempted as-
signment thereof, without the consent of a third party thereto,
would constitute a breach or other contravention thereof or in
any way adversely affect the rights of McGraw-Hill or Times
Mirror or any of their affiliates thereunder. McGraw-Hill and
Times Mirror will use reasonable efforts, and will cause their
affiliates to use reasonable efforts (but without any payment
of money by McGraw-Hill or Times Mirror or their affiliates) to
obtain the consent of the other parties to any such asset or
any claim or right or any benefit arising thereunder for the
assignment thereof as permitted hereby. If such consent is not
obtained, or if an attempted assignment thereof would be inef-
fective or would adversely affect the rights of the transferor
thereunder so that the transferee would not in fact receive all
such rights, the transferor and the transferee will cooperate
in a mutually agreeable arrangement under which the transferee
would obtain the benefits and assume the obligations thereunder
-14-<PAGE>
in accordance with this Agreement, including subcontracting,
sublicensing or subleasing to the transferee, or under which
the transferor would enforce for the benefit of the transferee,
with the transferee assuming the transferor's obligations, any
and all rights of the transferor against a third party thereto.
The transferor will pay promptly to the transferee when re-
ceived all monies received by the transferor after the Closing
Date under any of the such assets or any claim or right or any
benefit arising thereunder.
Provided that McGraw-Hill and its affiliates (includ-
ing Shepard's) use reasonable efforts to obtain such consents,
Times Mirror agrees that neither McGraw-Hill nor its affiliates
shall have any liability whatsoever arising out of or relating
to the failure to obtain any consents that may have been or may
be required in connection with the transactions contemplated by
this Agreement or because of the default, acceleration or ter-
mination of any asset of Shepard's as a result thereof, to the
extent such matters are disclosed on Schedule 6.02 or are not
material to Shepard's. Times Mirror further agrees that no
condition shall be deemed not to be satisfied as a result of
(i) the failure to obtain any such consent or as a result of
any such default, acceleration or termination or (ii) any law-
suit, action, claim, proceeding or investigation commenced or
threatened by or on behalf of any persons arising out of or
relating to the failure to obtain any such consent or any such
default, acceleration or termination, in each case to the
extent such matters are disclosed on Schedule 6.02 or are not
material to Shepard's.
Provided that Times Mirror and its affiliates (in-
cluding TMHE and Mosby) use reasonable efforts to obtain such
consents, McGraw-Hill agrees that neither Times Mirror nor its
affiliates shall have any liability whatsoever arising out of
or relating to the failure to obtain any consents that may have
been or may be required in connection with the transactions
contemplated by this Agreement or because of the default,
acceleration or termination of any asset included in the Col-
lege Publishing Business as a result thereof, to the extent
such matters are disclosed on Schedule 5.03 or are not material
to the College Publishing Business. McGraw-Hill further agrees
that no condition shall be deemed not to be satisfied as a
result of (i) the failure to obtain any such consent or as a
result of any such default, acceleration or termination or (ii)
any lawsuit, action, claim, proceeding or investigation com-
menced or threatened by or on behalf of any persons arising out
of or relating to the failure to obtain any such consent or any
such default, acceleration or termination, in each case to the
extent such matters are disclosed on Schedule 5.03 or are not
material to the College Publishing Business.
-15-<PAGE>
ARTICLE FOUR
CONDITIONS TO CLOSING
Section 4.01. Conditions to All Parties' Obliga-
tions. The respective obligations of parties hereto to consum-
mate the Closing shall be subject to the satisfaction (or
waiver by each party) as of the Closing of the following condi-
tions:
(a) HSR Act; Other Governmental Approvals. Any
waiting period applicable to the consummation of the transac-
tions contemplated hereby under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regula-
tions thereunder (the "HSR Act") shall have expired or have
been terminated, and any other governmental notice or approvals
necessary to consummate such transactions shall have been ei-
ther filed or received.
(b) No Order. No federal, state or foreign govern-
mental authority or other agency or commission or court of com-
petent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, injunction
or other order (whether temporary, preliminary or permanent)
which remains in effect, and which has the effect of making the
transactions contemplated hereby illegal or otherwise prohibit-
ing consummation of the transactions contemplated by this
Agreement.
(c) Government Litigation. No action or proceeding
shall have been commenced or threatened (as evidenced by a com-
munication between the person or an authorized representative
of the entity threatening such action and one of the parties
hereto) by any court, administrative agency or commission or
other governmental or regulatory agency or authority that seeks
to prevent, or impose material damages in connection with, the
transactions contemplated hereby.
Section 4.02. Conditions to McGraw-Hill's Obliga-
tions. (a) Subject to paragraph (b) of this Section 4.02, the
obligations of McGraw-Hill to consummate the Closing are sub-
ject to the satisfaction (or waiver by McGraw-Hill) as of the
Closing of the following conditions:
(i) Representations, Warranties and Covenants. The
representations and warranties of Times Mirror and Mosby made
in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and, except as spe-
cifically contemplated by this Agreement, on and as of the
Closing Date, as though made on and as of the Closing Date, and
Times Mirror and Mosby shall have performed or complied with,
-16-<PAGE>
or shall have caused to be performed or complied with, in all
material respects, all obligations and covenants required by
this Agreement to be performed or complied with by Times Mir-
ror, Mosby or any other affiliate of Times Mirror by the time
of the Closing; and McGraw-Hill shall have received from Times
Mirror and Mosby a certificate dated the Closing Date and
signed by an authorized officer of each of Times Mirror and
Mosby confirming the foregoing.
(ii) Certificate of Good Standing. McGraw-Hill shall
have received from Times Mirror and Mosby certificates issued
by the appropriate governmental authority of the jurisdiction
of incorporation or organization, as the case may be, of each
of Times Mirror, TMHE, Mosby and the corporations or other en-
tities set forth on Schedule 5.08, evidencing its good standing
in its respective jurisdiction of incorporation or organization
as of a date not more than ten days prior to the Closing Date.
(iii) Resolutions. McGraw-Hill shall have received
(1) from Times Mirror certified copies of resolutions duly
adopted by the Board of Directors of Times Mirror authorizing
the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby, and
(2) from Mosby certified copies of resolutions duly adopted by
the Board of Directors of Mosby authorizing the execution, de-
livery and performance of this Agreement and the consummation
of the transactions contemplated hereby, and all such resolu-
tions shall not have been revoked and shall remain in full
force and effect.
(iv) Instruments of Sale and Assignment. The TMIP
Entities shall have executed and delivered the instruments of
sale and assignment referred to in Section 3.01(b) and Mosby
shall have executed and delivered the instruments of sale and
assignment referred to in Section 3.01(c).
(v) Accounting Adjustments. Times Mirror shall have
caused the accounting adjustments described on Schedule
4.02(a)(v) to be made.
(vi) Transition Services Agreements. Mosby shall
have executed and delivered the Mosby Transition Services
Agreement and Times Mirror shall have caused TMIP to execute
and deliver the TMIP Transition Services Agreement.
(vii) Opinion of Counsel. McGraw-Hill shall have re-
ceived an opinion of Gibson, Dunn & Crutcher LLP as to (1) the
due authorization of this Agreement by Times Mirror and Mosby,
(2) the valid execution and delivery of this Agreement by Times
Mirror and Mosby and (3) the enforceability of this Agreement
-17-<PAGE>
against Times Mirror and Mosby, in each case subject to custom-
ary limitations and based upon certificates of public officials
and officers of Times Mirror and Mosby as to matters of fact.
(b) The language of Section 4.02(a) notwithstanding,
the condition to the obligations of McGraw-Hill to consummate
the Closing contained in Section 4.02(a)(i) shall be deemed
satisfied if Times Mirror and Mosby deliver to McGraw-Hill a
certificate dated the Closing Date and signed by an authorized
officer of each of Times Mirror and Mosby setting forth any
failure of the condition set forth in Section 4.02(a)(i) and
undertaking to indemnify McGraw-Hill with respect to any Losses
resulting from such failure as provided in Section 11.03; pro-
vided, however, that the foregoing shall not apply to any fail-
ure of such condition to be satisfied resulting from a breach
of Sections 5.09, 5.14, 5.15(b), (c), (j) and (l), 5.16(b),
5.18 or 5.22(a); and provided further that the indemnification
provided in this paragraph shall not be limited by the $10
million and $100 million thresholds contained in Section 11.03.
Section 4.03. Conditions to Times Mirror's and
Mosby's Obligations. (a) Subject to paragraph (b) of this
Section 4.03, the obligations of Times Mirror and Mosby to
consummate the Closing are subject to the satisfaction (or
waiver by Times Mirror and Mosby) as of the Closing of the fol-
lowing conditions:
(i) Representations, Warranties and Covenants. The
representations and warranties of McGraw-Hill made in this
Agreement shall be true and correct in all material respects as
of the date of this Agreement and, except as specifically con-
templated by this Agreement, on and as of the Closing Date as
though made on and as of the Closing Date, and McGraw-Hill
shall have performed or complied with, or shall have caused to
be performed or complied with, in all material respects, all
obligations and covenants required by this Agreement to be per-
formed or complied with by McGraw-Hill or any affiliate of
McGraw-Hill by the time of the Closing; and Times Mirror and
Mosby shall have received from McGraw-Hill a certificate dated
the Closing Date and signed by an authorized officer of McGraw-
Hill confirming the foregoing.
(ii) Certificate of Good Standing. Times Mirror and
Mosby shall have received from McGraw-Hill a certificate issued
by the appropriate governmental authority of the state of in-
corporation of each of McGraw-Hill and Shepard's, evidencing
its good standing in its respective state of incorporation as
of a date not more than ten days prior to the Closing Date.
-18-<PAGE>
(iii) Resolutions. Times Mirror and Mosby shall have
received from McGraw-Hill certified copies of resolutions duly
adopted by the Board of Directors of McGraw-Hill authorizing
the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby and
such resolutions shall not have been revoked and shall remain
in full force and effect.
(iv) Instruments of Assumption. McGraw-Hill shall
have executed and delivered the instruments of assumption of
the Mosby Liabilities and the International Liabilities.
(v) Release of Guaranties. Either (1) the guaranty
made by Times Mirror with respect to the $300,000 loan made to
W.C. Brown Communications, Inc. by the City of Dubuque, Iowa
under its Community Economic Betterment Account; and the guar-
anty made by Times Mirror with respect to the $300,000 loan
made to William C. Brown Communications, Inc. by the City of
Dubuque, Iowa under its Community Development Block Grant
Program, each shall have been released or (2) McGraw-Hill shall
have agreed to indemnify Times Mirror against any liability
arising under such guaranties.
(vi) Opinion of Counsel. Times Mirror shall have
received an opinion of Wachtell, Lipton, Rosen & Katz as to (1)
the due authorization of this Agreement by McGraw-Hill, (2) the
valid execution and delivery of this Agreement by McGraw-Hill
and (3) the enforceability of this Agreement against McGraw-
Hill, in each case subject to customary limitations and based
upon certificates of public officials and officers of McGraw-
Hill as to matters of fact.
(b) The language of Section 4.03(a) notwithstanding,
the condition to the obligations of Times Mirror and Mosby to
consummate the Closing contained in Section 4.03(a)(i) shall be
deemed satisfied if McGraw-Hill delivers to Times Mirror and
Mosby a certificate dated the Closing Date and signed by an
authorized officer of McGraw-Hill setting forth any failure of
the condition set forth in Section 4.03(a)(i) and undertaking
to indemnify Times Mirror and Mosby with respect to any Losses
resulting from such failure as provided in Section 11.04; pro-
vided, however, that the foregoing shall not apply to any fail-
ure of such condition to be satisfied resulting from a breach
of Sections 6.08, 6.13, 6.14(b), (c), (j) and (l), 6.15(b) or
6.17; and provided further that the indemnification provided in
this paragraph shall not be limited by the $10 million and $100
million thresholds contained in Section 11.04.
-19-<PAGE>
ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES OF TIMES MIRROR AND MOSBY
Times Mirror, as to Times Mirror and the College Pub-
lishing Business, and Mosby, with respect to Mosby's College
Text Business, represent and warrant to McGraw-Hill as follows:
Section 5.01. Organization and Authority of Times
Mirror. Times Mirror is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware. Times Mirror has all requisite corporate power and
authority to execute and deliver this Agreement and to consum-
mate the transactions contemplated hereby. All necessary cor-
porate action required to have been taken by or on behalf of
Times Mirror by applicable law or its charter documents has
been taken to authorize (a) the approval, execution and deliv-
ery on behalf of Times Mirror of this Agreement and (b) the
performance by Times Mirror of its obligations under this
Agreement and the consummation of the transactions contemplated
hereby. This Agreement constitutes a valid and binding agree-
ment of Times Mirror, enforceable against it in accordance with
its terms, except (i) as the same may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws of general
application relating to or affecting creditors' rights, includ-
ing, without limitation, the effect of statutory or other laws
regarding fraudulent conveyances and preferential transfers,
and (ii) for the limitations imposed by general principles of
equity (the foregoing exceptions set forth in clauses (i) and
(ii) being referred to as the "Enforceability Exceptions").
Section 5.02. Organization and Authority of Mosby.
Mosby is a corporation duly organized, validly existing and in
good standing under the laws of the State of Missouri. Mosby
has all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions con-
templated hereby. All necessary corporate action required to
have been taken by or on behalf of Mosby by applicable law or
its charter documents has been taken to authorize (a) the ap-
proval, execution and delivery on behalf of Mosby of this
Agreement and (b) the performance by Mosby of its obligations
under this Agreement and the consummation of the transactions
contemplated hereby. This Agreement constitutes a valid and
binding agreement of Mosby, enforceable against it in accor-
dance with its terms, except as the same may be limited by the
Enforceability Exceptions.
Section 5.03. No Breach. The execution and delivery
of this Agreement by Times Mirror and Mosby do not, and the
consummation of the transactions to which any of Times Mirror,
Mosby, TMHE or any other affiliate of Times Mirror is a party
-20-<PAGE>
contemplated hereby will not, (i) violate or conflict with the
Charter or Bylaws of Times Mirror, Mosby, TMHE or any such af-
filiate or (ii) except as set forth on Schedule 5.03 hereto,
constitute a material breach or default or give rise to any
lien, third-party right of termination, cancellation, material
modification or acceleration under any material agreement, un-
derstanding or undertaking to which Times Mirror, Mosby, TMHE
or any such affiliate is a party or by which any of them is
bound, or any material law, rule or regulation to which any of
them or any material portion of the assets of any of them is
subject.
Section 5.04. Governmental Consents and Approvals.
Neither the execution and delivery of this Agreement by Times
Mirror and Mosby nor the consummation of the transactions to
which any of Times Mirror, Mosby, TMHE or any other affiliate
of Times Mirror is a party contemplated hereby will require any
consent, approval, authorization or permit of, or filing with
or notification to, any governmental or regulatory authority,
except (i) for notification pursuant to, and expiration or ter-
mination of the waiting period under, the HSR Act and (ii)
where the failure to obtain such consent, approval, authoriza-
tion or permit, or to make such filing or notification, would
not prevent Times Mirror, Mosby, TMHE or any such affiliate
from performing its respective obligations under this Agreement
without having a material adverse effect on the business,
financial condition or results of operations of the College
Publishing Business, taken as a whole.
Section 5.05. Organization and Standing of TMHE and
its Subsidiaries. TMHE is a corporation duly organized and
validly existing under the laws of the State of Delaware. Each
of the subsidiaries of TMHE listed on Schedule 5.08 is duly
organized and validly existing under the laws of the jurisdic-
tion in which it is organized. (The entities referred to on
Schedule 5.08, other than Burr Ridge Parkway Limited Partner-
ship, are referred to herein as the "TMHE Subsidiaries.") Each
of TMHE and the TMHE Subsidiaries has all requisite corporate
power and authority and, to the Knowledge of Times Mirror, pos-
sesses all governmental franchises, licenses, permits, authori-
zations and approvals necessary to enable it to carry on its
business as presently conducted other than such franchises,
licenses, permits, authorizations and approvals the lack of
which would not have a material adverse effect on the business,
financial condition or results of operations of TMHE and the
TMHE Subsidiaries taken as a whole. Each of TMHE and the TMHE
Subsidiaries is duly qualified and in good standing to do busi-
ness in each jurisdiction in which the nature of its business
or the ownership, leasing or holding of its properties makes
such qualification necessary, except such jurisdictions where
-21-<PAGE>
the failure to be so qualified or in good standing would not
have a material adverse effect on the business, financial con-
dition or results of operations of TMHE or the TMHE Subsidiar-
ies taken as a whole. Times Mirror has made available to
McGraw-Hill true and complete copies of (i) the Certificate of
Incorporation, as amended to date, and the Bylaws, as in effect
on the date of this Agreement, of TMHE and (ii) the stock cer-
tificates and transfer records and the minute books of TMHE.
Section 5.06. Capital Stock of TMHE. The authorized
capital stock of TMHE consists of 1,000 shares of common stock,
par value $1.00 per share, of which 200 shares, constituting
the TMHE Shares, are duly authorized and validly issued and
outstanding, fully paid and nonassessable. Except for the TMHE
Shares, there are no shares of capital stock or other equity
securities of TMHE outstanding. The TMHE Shares have not been
issued in violation of, and none of the TMHE Shares is subject
to, any preemptive or subscription rights. There are no out-
standing warrants, options, "phantom" stock rights, agreements,
convertible or exchangeable securities or other commitments
(other than this Agreement) pursuant to which Times Mirror or
TMHE is or may become obligated to issue, sell, purchase, re-
turn or redeem any shares of capital stock or other securities
of TMHE, and no equity securities of TMHE are reserved for is-
suance for any purpose. Other than this Agreement, the TMHE
Shares are not subject to any voting trust agreement or other
contract, agreement, arrangement, commitment or understanding,
including any such agreement, arrangement, commitment or under-
standing restricting or otherwise relating to the voting, divi-
dend rights or disposition of the TMHE Shares.
Section 5.07. Title to and Transfer of the TMHE
Shares. Times Mirror is the record and beneficial owner of the
TMHE Shares and has good and marketable title thereto, free and
clear of any liens, claims, encumbrances, security interests,
options, charges and restrictions of any kind. Assuming
McGraw-Hill has the requisite power and authority to be the
lawful owner of the TMHE Shares, upon delivery to McGraw-Hill
at the Closing of certificates representing the TMHE Shares,
duly endorsed by Times Mirror for transfer to McGraw-Hill, and
the completion of the other deliveries at the Closing contem-
plated by Article 2, good and marketable title to the TMHE
Shares will pass to McGraw-Hill, free and clear of any mort-
gages, liens, claims, encumbrances, security interests, op-
tions, charges and restrictions of any kind ("Liens") other
than those arising from acts of McGraw-Hill or its affiliates.
Section 5.08. Equity Interests. Except as set forth
on Schedule 5.08, TMHE does not directly or indirectly own any
capital stock of or other equity interests in any corporation,
-22-<PAGE>
partnership or other entity. Except as set forth on Schedule
5.08, TMHE owns all of the equity interests in the TMHE Subsid-
iaries. The equity interests in the TMHE Subsidiaries have not
been issued in violation of, and none of such interests is sub-
ject to, any preemptive or subscription rights. There are no
outstanding warrants, options, "phantom" stock rights, agree-
ments, convertible or exchangeable securities or other commit-
ments (other than this Agreement) pursuant to which Times
Mirror or any affiliate thereof is or may become obligated to
issue, sell, purchase, return or redeem any shares of capital
stock or other securities of any TMHE Subsidiary, and no equity
securities of any TMHE Subsidiary are reserved for issuance for
any purpose. Other than this Agreement, the equity interests
in the TMHE Subsidiaries are not subject to any voting trust
agreement or other contract, agreement, arrangement, commitment
or understanding, including any such agreement, arrangement,
commitment or understanding restricting or otherwise relating
to the voting, dividend rights or disposition of the such in-
terests.
Section 5.09. Financial Statements.
(a) TMHE Financial Statements. The financial state-
ments set forth on Schedule 5.09(a), which consist of (i) the
audited consolidated balance sheet of TMHE and the notes there-
to as of December 31, 1995 and the audited consolidated state-
ments of operations, shareholder's equity and cash flows and
the notes thereto for the year then ended, audited by Ernst &
Young LLP, whose report thereon is included therewith, and (ii)
the unaudited condensed consolidated balance sheet of TMHE and
the notes thereto as of March 31, 1996 (the "TMHE Balance
Sheet") and the unaudited condensed consolidated statements of
operations, shareholder's equity and cash flows for the three-
month period then ended, were prepared in accordance with gen-
erally accepted accounting principles ("GAAP") and present
fairly, in all material respects, TMHE's consolidated financial
position and the consolidated results of its operations and
cash flows as of the dates thereof and for the periods covered
thereby. The TMHE Balance Sheet and the unaudited condensed
consolidated statements of operations, shareholder's equity and
cash flows referred to in clause (ii) above were prepared on a
basis consistent with the audited consolidated financial state-
ments of TMHE for the year ended December 31, 1995, except that
Times Mirror's intercompany account balance with TMHE as of
March 31, 1996 was contributed to the capital of TMHE, and
include all adjustments that management considers necessary for
a fair presentation of the results of operations for such
period.
-23-<PAGE>
(b) Mosby Statements. The statements set forth on
Schedule 5.09(b), which consist of the unaudited statement of
assets conveyed and liabilities assumed related to Mosby's Col-
lege Text Business as of March 31, 1996 (the "Mosby Statement")
and the unaudited statement of profit and loss for the three-
month period then ended, were prepared in accordance with the
assumptions set forth in the notes thereto and present fairly,
in all material respects, Mosby's College Text Business' assets
conveyed and liabilities assumed and the results of operations
related thereto as of the date thereof and for the period cov-
ered thereby.
(c) Additional Financial Information. The unaudited
financial information relating to the 1995 revenues and gross
margin of Mosby's College Text Business and the international
portion of the College Publishing Business set forth on Sched-
ule 5.09(c) was prepared in a manner consistent with the state-
ment of profit and loss referred to in Section 5.09(b) and is
accurate in all material respects.
(d) Pro Formas. The pro forma consolidated balance
sheet of TMHE and the pro forma statement of assets conveyed
and liabilities assumed related to Mosby's College Text Busi-
ness are set forth on Schedule 5.09(d)-1 and 5.09(d)-2, respec-
tively. As more fully described in the notes thereto:
(i) the pro forma consolidated balance sheet of
TMHE and the pro forma statement of assets conveyed and
liabilities assumed related to Mosby's College Text Busi-
ness include accounts receivable and reserves for doubtful
accounts and returns attributable to the international
sales of TMHE and of Mosby's College Text Business, as the
case may be, which accounts receivable and reserves are
reflected on the books of the TMIP Entities;
(ii) the pro forma consolidated balance sheet of
TMHE excludes the assets related to the manufacturing op-
erations located in Dubuque, Iowa; and
(iii) the pro forma consolidated balance sheet of
TMHE reflects the contribution by Times Mirror to the cap-
ital of TMHE of its intercompany advance balance with
Times Mirror, which is consistent with the treatment of
the intercompany advance balance in the financial state-
ments set forth in accordance with Schedule 5.09(a)(ii).
(e) Accruals. Neither TMHE nor Mosby, with respect
to Mosby's College Text Business, has made, on or after July 1,
-24-<PAGE>
1996, any accrual or provision for sales returns, inventory
obsolescence, bad debts, Taxes or other items, other than with
respect to the current period and consistent with past prac-
tice, except as referenced in the last paragraph of Section
9.01(a)(ii).
Section 5.10. Nonforeign Certification. Neither
Times Mirror nor Mosby is a "foreign person" within the meaning
of Section 1445 of the Code.
Section 5.11. Taxes. TMHE and the TMHE Subsidiaries
have filed or caused to be filed in a timely manner (within any
applicable extension periods) with the appropriate Tax author-
ity all material Tax returns, reports and forms they are re-
quired to have filed and have paid or provided for all material
Taxes they are required to have paid. There are no material
Tax liens or assessments against TMHE or the TMHE Subsidiaries
or any property or assets of TMHE or the TMHE Subsidiaries or
with respect to the Mosby Assets or the International Assets,
other than Permitted Liens.
Section 5.12. Assets Other than Real Property. TMHE
and the TMHE Subsidiaries have good title to all assets re-
flected on the TMHE Balance Sheet or thereafter acquired, ex-
cept for inventory and assets having a fair market value not
exceeding $20,000 sold or otherwise disposed of since the date
of the TMHE Balance Sheet in the ordinary course of business
consistent with past practice, and Mosby has good title to all
the assets included in the Mosby Assets reflected on the Mosby
Statement or thereafter acquired, except for inventory that may
be sold or otherwise disposed of after the date of the Mosby
Statement in the ordinary course of business consistent with
past practice, in each case free and clear of all Liens, except
(a) such as are disclosed on Schedule 5.12 and (b) Permitted
Liens. The TMIP Entities have good title to the International
Assets, except for inventory sold or otherwise disposed of
since the date hereof in the ordinary course of business
consistent with past practice, free and clear of all Liens,
except (a) such as are disclosed on Schedule 5.12 and (b) Per-
mitted Liens.
This Section 5.12 does not relate to real property or
interests in real property, which is the subject of Section
5.13, or to College Publishing Business Intellectual Property,
which is the subject of Section 5.14.
-25-<PAGE>
Section 5.13. Real Property.
(a) Owned Property. Schedule 5.13(a) sets forth a
complete list of all real property and interests in real prop-
erty owned in fee by TMHE or the TMHE Subsidiaries ("TMHE Owned
Properties").
(b) Leased Property. Schedule 5.13(b) sets forth a
complete list of all real property and interests in real prop-
erty leased by TMHE or the TMHE Subsidiaries ("TMHE Leased
Properties," and together with the TMHE Owned Properties, "TMHE
Properties") and identifies any leases relating thereto.
(c) Title to Real Property. TMHE or the TMHE Sub-
sidiaries have (i) good and marketable fee title to all TMHE
Owned Property and (ii) good and marketable title to the lease-
hold estates in all TMHE Leased Property, in each case free and
clear of all mortgages, liens, security interests, easements,
covenants, rights-of-way and other similar restrictions of any
nature whatsoever, except (A) Permitted Liens, (B) easements,
covenants, rights-of-way and other similar restrictions of
record, and (C) (x) zoning, building and other similar restric-
tions, (y) Liens that have been placed by any developer, land-
lord or other third party on property over which TMHE or the
TMHE Subsidiaries have easement rights or on any TMHE Leased
Property and subordination or similar agreements relating
thereto and (z) unrecorded easements, covenants, rights-of-way
or other similar restrictions, none of which items set forth in
clauses (x), (y) and (z) above materially impairs the continued
use in TMHE's business and operation of the property to which
they relate. The TMHE Properties are the only real property
interests included in the College Publishing Business.
Section 5.14. Intellectual Property.
(a) Trademarks. Schedule 5.14(a) sets forth a true
and complete list of all registered United States and foreign
trademarks, trade names, service marks and applications there-
for (collectively, "College Publishing Business Trademarks"),
(i) that are registered or filed in the name of TMHE or the
TMHE Subsidiaries or (ii) that are registered or filed in the
name of Mosby and are used solely and exclusively in Mosby's
College Text Business or (iii) that are used solely and exclu-
sively in connection with the International Assets. Schedule
5.14(a) contains a list of all federal and foreign jurisdic-
tions in which such trademarks are registered or applied for
and all registration and application numbers. All of the Col-
lege Publishing Business Trademarks are owned by College Pub-
lishing Business free and clear of all Liens.
-26-<PAGE>
(b) Copyrights. Schedule 5.14(b) sets forth (i) a
true and complete list of the United States and foreign copy-
rights with respect to the top 25 publications (based on rev-
enue for the year ended December 31, 1995) of each of the three
principal divisions of TMHE and (ii) a true and complete list
of the United States and foreign copyrights with respect to the
top 25 publications (based on revenue for the year ended Decem-
ber 31, 1995) of Mosby's College Text Business (together, the
"Top 100 College Publishing Business Publications"). TMHE
owns, free and clear of all Liens, the copyrights to or other-
wise has all rights sufficient to produce, reproduce, publish,
distribute and sell all of the publications of TMHE and Mosby
owns, free and clear of all Liens, the copyrights to or other-
wise has all rights sufficient to produce, reproduce, publish,
distribute and sell all of the publications included in the
Mosby Assets (collectively, the "College Publishing Business
Copyrights," and with College Publishing Business Trademarks,
"College Publishing Business Intellectual Property"), except
where any failures to own such College Publishing Business
Copyrights or to otherwise have such rights, taken in the ag-
gregate, would not have a material adverse effect on the busi-
ness, financial condition or results of operations of the divi-
sion of TMHE or Mosby's College Text Business to which they
relate.
(c) Licenses. Except as disclosed on Schedule
5.14(c), none of TMHE, Times Mirror, Mosby or any of the TMIP
Entities has licensed exclusively to any third party the right
to use or exploit any of the Top 100 College Publishing Busi-
ness Publications in any jurisdiction.
(d) Claims. Except as set forth on Schedule
5.14(d), no claims are pending or, to the Knowledge of Times
Mirror, threatened in writing against the College Publishing
Business by any person with respect to the ownership, validity,
enforceability or use of any College Publishing Business Trade-
mark listed on Schedule 5.14(a), the "Wm. C. Brown" and "Brown
& Benchmark" trademarks or any of the College Publishing Busi-
ness Copyrights or otherwise challenging or questioning the
validity or effectiveness of any such College Publishing Busi-
ness Trademark or College Publishing Business Copyright except
for any such claims that, taken in the aggregate, would not
have a material adverse effect on the business, financial con-
dition or results of operations of the division of TMHE or
Mosby's College Text Business to which they relate. Except as
set forth on Schedule 5.14(d), no claims are pending or, to the
Knowledge of Times Mirror, threatened in writing against TMHE
or the TMHE Subsidiaries or any of the TMIP Entities, with re-
spect to the International Assets and International Liabili-
ties, or Mosby, with respect to Mosby's College Text Business,
by any person in which such person alleges that any activities
-27-<PAGE>
or conduct of business of the College Publishing Business,
infringes upon the intellectual property rights of any third
party or that any product packaging infringes upon a propri-
etary packaging design of any third party except for any such
claims that, taken in the aggregate, would not have a material
adverse effect on the business, financial condition or results
of operations of the division of TMHE or Mosby's College Text
Business to which they relate.
(e) Neither Times Mirror nor any affiliate of Times
Mirror (other than TMHE or Mosby) owns any patents, technology
or copyrights used solely and exclusively in the creation or
publication of the works of the College Publishing Business,
other than any such item being conveyed to McGraw-Hill hereun-
der.
Section 5.15. Contracts. Schedules 5.15(a) through
5.15(l) set forth a true and complete list of each of the fol-
lowing types of contracts to which TMHE or any of the TMHE Sub-
sidiaries or Mosby, with respect to Mosby's College Text Busi-
ness, or the TMIP Entities, with respect to the International
Assets and International Liabilities, is a party ("College Pub-
lishing Business Contracts"):
(a) Employment, Independent Contractor and Consult-
ing Agreements. (i) Any employment agreement, employment con-
tract or any agreement or contract providing for the payment of
any severance compensation to any College Publishing Business
Employee or for the provision, vesting and/or acceleration of
any employee benefits following a change of ownership or con-
trol of TMHE or Mosby (other than any enhanced benefits de-
scribed in Sections 10.02, 10.04 or 10.05 hereof) and (ii) any
independent contractor or consulting agreement (except those
described in Section 5.15(k)) and (iii) that has an aggregate
liability after the Closing Date in excess of $100,000 and is
not terminable by notice of less than 60 calendar days for a
cost of less than $100,000;
(b) Collective Bargaining Agreement. Any employee
collective bargaining agreement or other contract with any la-
bor union;
(c) Non-Competition Agreements. Any covenant or
agreement that restricts the ability of TMHE, any of the TMHE
Subsidiaries, Mosby (with respect to Mosby's College Text Busi-
ness) or any of the TMIP Entities (with respect to the Interna-
tional Assets) to compete in any line of business in any place
in the world;
-28-<PAGE>
(d) Agreements with Affiliates, Officers, Directors
or Employees. Any agreement or contract between TMHE or any of
the TMHE Subsidiaries or Mosby, with respect to Mosby's College
Text Business, or the TMIP Entities, with respect to the Inter-
national Assets and International Liabilities, on the one hand,
and Times Mirror or any affiliate of Times Mirror, any officer,
director or employee of TMHE or any of the TMHE Subsidiaries,
Mosby, or any of the TMIP Entities, on the other hand (other
than contracts that will terminate at or prior to the Closing
and employment agreements covered by paragraph (a) above);
(e) Leases of TMHE Property. Any lease or similar
agreement under which TMHE or any TMHE Subsidiary is a lessor
or sublessor of, or makes available for use by any third party,
any TMHE Property;
(f) Personal Property Leases. Any lease or similar
agreement under which (i) TMHE, any of the TMHE Subsidiaries,
Mosby (with respect to Mosby's College Text Business) or any of
the TMIP Entities (with respect to the International Assets),
is lessee of, or holds or uses, any machinery, equipment, ve-
hicle or other tangible personal property owned by a third
party or (ii) the College Publishing Business is a lessor or
sublessor of, or makes available for use by any third party,
any tangible personal property owned or leased by the College
Publishing Business, in any such case which has an aggregate
liability after the Closing Date in excess of $150,000 and is
not terminable by notice of less than 60 calendar days for a
cost of less than $150,000;
(g) Supply and Service Agreements. (i) Any con-
tinuing agreement or contract for the future purchase by the
College Publishing Business of materials, supplies or equipment
(other than purchase contracts and orders for inventory in the
ordinary course of business consistent with past practice) or
(ii) any advertising agreement or arrangement (including any
advertising agreements or arrangements to which any of Times
Mirror or the College Publishing Business is a party and that
is applicable to the College Publishing Business), in any such
case which has an aggregate liability after the Closing Date in
excess of $150,000 and is not terminable by notice of less than
60 calendar days for a cost of less than $150,000;
(h) Indebtedness. Any agreement or contract under
which TMHE, any of the TMHE Subsidiaries, Mosby, with respect
to the Mosby Liabilities, or any of the TMIP Entities, with
respect to the International Liabilities, has borrowed or
loaned any money or issued any note, bond, indenture or other
evidence of indebtedness or directly or indirectly guaranteed
indebtedness, liabilities or obligations of others (other than
-29-<PAGE>
endorsements for the purpose of collection in the ordinary
course of business), or any other note, bond, indenture or
other evidence of indebtedness;
(i) Guarantees. Any agreement or contract under
which any other person has directly or indirectly guaranteed
indebtedness, liabilities or obligations of TMHE, the TMHE Sub-
sidiaries, Mosby (with respect to Mosby's College Text Busi-
ness) and the TMIP Entities (with respect to the International
Assets) (other than endorsements for the purpose of collection
in the ordinary course of business);
(j) Partnerships and Joint Ventures. Any partner-
ship agreement or other joint venture agreement to which TMHE,
any of the TMHE Subsidiaries, Mosby (with respect to Mosby's
College Text Business) or any of the TMIP Entities (with re-
spect to the International Assets), is a party;
(k) College Publishing Business Author Contracts.
Any agreement or contract under which the College Publishing
Business is obligated to pay royalties to any person in connec-
tion with the reproduction, publication or distribution of any
works; and
(l) Other Agreements. Any other agreement, con-
tract, lease, license, commitment or instrument to which TMHE,
any of the TMHE Subsidiaries, Mosby (with respect to Mosby's
College Text Business) or any of the TMIP Entities (with re-
spect to the International Assets), is a party or by or to
which TMHE or any of its assets or its business or, in the case
of Mosby, any of the Mosby Assets or Mosby's College Text Busi-
ness, or any of the International Assets is bound or subject
which in any case has an aggregate liability after the Closing
Date in excess of $200,000 and is not terminable by notice of
less than 60 calendar days for a cost of less than $200,000
(other than purchase contracts and orders for inventory in the
ordinary course of business consistent with past practice).
Except as disclosed on Schedule 2.02(a)(i), Schedule 5.15 or
the other schedules hereto, TMHE, the TMHE Subsidiaries, Mosby
(with respect to Mosby's College Text Business) and the TMIP
Entities (with respect to the International Assets), have per-
formed all material obligations required to be performed by
them to date under the College Publishing Business Contracts
and are not in breach or default in any material respect there-
under and, to the Knowledge of Times Mirror, no other party to
any of the College Publishing Business Contracts is in breach
or default in any material respect thereunder.
-30-<PAGE>
Section 5.16. Litigation; Decrees. (a) Schedule
5.16 sets forth a list, as of the date of this Agreement, of
all pending, and, to the Knowledge of Times Mirror, threatened
lawsuits or claims (other than lawsuits or claims related to
Taxes with respect to which Times Mirror is obligated to indem-
nify McGraw-Hill pursuant to Section 11.01) with respect to
which Times Mirror or any of its affiliates has contacted in
writing the defendant or has been contacted in writing by the
claimant or by counsel for the claimant by or against (a) TMHE
or any of its properties, assets, operations or businesses or
(b) Mosby and that relate to Mosby's College Text Business, or
(c) the TMIP Entities and that relate to the International
Assets, and, in the case of clauses (a), (b) and (c) which (i)
involve a claim by or against the College Publishing Business,
as applicable, of more than $250,000, (ii) seek any injunctive
relief or (iii) relate to the transactions contemplated by this
Agreement. Except as disclosed on Schedule 5.16, none of TMHE,
the TMHE Subsidiaries or Mosby, with respect to Mosby's College
Text Business, or the TMIP Entities, with respect to the Inter-
national Assets, is subject to any judgment, order or decree of
any court, administrative agency or commission or other govern-
mental authority or instrumentality, domestic or foreign, ap-
plicable to the College Publishing Business which is material
to the College Publishing Business taken as a whole.
(b) There is no lawsuit or claim pending against
Times Mirror, TMHE, Mosby (with respect to the Mosby Assets) or
the TMIP Entities (with respect to the International Assets)
that (i) with respect to the College Publishing Business, could
reasonably be expected to result in liability in excess of
$10,000,000; (ii) seeks injunctive relief that, if granted,
could reasonably be expected to have a material adverse effect
on the College Publishing Business or (iii) relates primarily
to the transactions contemplated hereby.
Section 5.17. Employee and Related Matters; ERISA.
(a) Schedule 5.17(a) sets forth each employee pen-
sion, retirement, profit sharing, stock bonus, stock option,
stock purchase, incentive, deferred compensation, hospitaliza-
tion, medical, dental, vision, life insurance, accidental death
and dismemberment insurance, business travel insurance, cafete-
ria and flexible spending, sick pay, disability, severance,
golden parachute or other plan, fund, program, policy, contract
or arrangement (including any contracts or agreements with cer-
tain employees of the College Publishing Business that relate
to the transactions contemplated by this Agreement) providing
employee benefits that is maintained, contributed to or re-
quired to be contributed to by Times Mirror or any of its affi-
liates in which any College Publishing Business Personnel has
participated or under which any College Publishing Business
-31-<PAGE>
Personnel has accrued and remains entitled to any benefits (the
"College Publishing Business Plans"). Times Mirror has made
available to McGraw-Hill true, complete and correct copies of
(i) each College Publishing Business Plan (or, in the case of
any unwritten Times Mirror Plans, descriptions thereof), (ii)
the most recent annual report on Form 5500 filed with the IRS
with respect to each College Publishing Business Plan (if any
such report was required), (iii) the most recent summary plan
description for each College Publishing Business Plan for which
such a summary plan description is required, (iv) each trust
agreement and group annuity contract relating to any College
Publishing Business Plan, and (v) all other material documents
relating to the College Publishing Business Plans. Neither
TMHE, Mosby nor any corporation or trade or business (whether
or not incorporated) which would be treated as its ERISA Affi-
liate is liable for any amount under Title IV of ERISA (except
for premiums to the Pension Benefit Guaranty Corporation aris-
ing in the ordinary course) and no fact or event exists which
could reasonably give rise to such liability. Except as dis-
closed on Schedule 5.17(a), no College Publishing Business Per-
sonnel is entitled to any benefit under any College Publishing
Business Plan by reason of the transactions contemplated here-
by, including, but not limited to, severance, stay-pay or re-
tention bonuses, nor any acceleration, vesting, distribution or
increase in benefits or obligations to fund benefits, and no
College Publishing Business Plan includes any common stock or
other security issued by Times Mirror or any ERISA Affiliate of
TMHE among its assets.
(b) Compliance with ERISA and the Code. None of
Times Mirror, TMHE, any TMHE Subsidiary, any of the College
Publishing Business Plans or any trust created thereunder, or
any trustee or administrator thereof, has engaged in a trans-
action in connection with which TMHE or any TMHE Subsidiary
would be subject to either a material liability or civil pen-
alty assessed pursuant to Sections 409, 502(i) or 502(l) of
ERISA or a material Tax imposed pursuant to Section 4971, 4972,
4974, 4975, 4976 or 4980B of the Code. Except as described on
Schedule 5.17(b), each of the College Publishing Business Plans
has been operated and administered in all material respects in
accordance with its terms and applicable laws, including, but
not limited to, ERISA and the Code. Except as disclosed on
Schedule 5.17(b), each College Publishing Business Plan in-
tended to be a qualified plan under Code Section 401 has re-
ceived a favorable determination letter to that effect (a copy
of which has been delivered to McGraw-Hill) covering all of the
provisions applicable to tax qualified plans introduced by the
Tax Reform Act of 1986 and nothing has occurred since the issu-
ance of such letter that would adversely affect the Tax quali-
fication of any such College Publishing Business Plan. There
-32-<PAGE>
are no pending or, to the Knowledge of College Publishing Busi-
ness, threatened claims by or on behalf of any of the College
Publishing Business Plans by any employee, former employee or
beneficiary covered under any such College Publishing Business
Plan or otherwise involving any such College Publishing Busi-
ness Plan (other than individual claims for benefits arising in
the ordinary course).
(c) Multiemployer Plan Liabilities. Except as dis-
closed on Schedule 5.17(c), none of Times Mirror, TMHE, any
TMHE Subsidiary or any ERISA Affiliate of TMHE is, or has been
within the last six years, obligated to contribute, on behalf
of any current or former employee of TMHE or any TMHE Subsidi-
ary, to a multiemployer plan (as defined in Section 3(37) of
ERISA) and no such ERISA Affiliate of TMHE is liable or rea-
sonably expected to be liable for any withdrawal liability un-
der Section 4201 of ERISA.
(d) Accumulated Funding Deficiencies; Liens. None
of the College Publishing Business Plans or any trust estab-
lished thereunder has any accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recent
fiscal year of each of the College Publishing Business Plans.
No contribution failure has occurred with respect to any Col-
lege Publishing Business Plan sufficient to give rise to a lien
under Section 302(f) of ERISA.
(e) Employee Welfare Benefit Plans. With respect to
any College Publishing Business Plan that is an employee wel-
fare benefit plan, except as disclosed on Schedule 5.17(e), (i)
no such College Publishing Business Plan is funded through a
welfare benefits fund, as such term is defined in Section
419(e) of the Code and (ii) each such College Publishing Busi-
ness Plan that is a group health plan, as such term is defined
in Section 5000(b)(1) of the Code, complies with the applicable
requirements of Section 4980B(f) of the Code.
Section 5.18. Absence of Changes or Events. Except
as set forth on Schedule 5.18, since the date of the TMHE Bal-
ance Sheet and the Mosby Statement, there has not been a mate-
rial adverse change in the business, financial condition or
results of operations of the College Publishing Business, taken
as a whole, other than changes relating to the economy in gen-
eral or the College Publishing Business industry in general and
not specifically relating to the College Publishing Business.
Except for the accounting adjustments contemplated by Schedule
4.02(a)(v) and Section 5.09(d) and except as disclosed on
Schedule 5.18, since the date of the TMHE Balance Sheet and the
Mosby Statement, Times Mirror has caused the College Publishing
-33-<PAGE>
Business to be conducted in the ordinary course, and none of
Times Mirror, TMHE, any of the TMHE Subsidiaries, Mosby (with
respect to Mosby's College Text Business) or any of the TMIP
Entities (with respect to the International Assets) has taken
any action that, if taken after the date of this Agreement,
would constitute a breach of any of the covenants set forth in
Article 7.
Section 5.19. Compliance with Applicable Laws. Ex-
cept as previously disclosed by Times Mirror to McGraw-Hill in
writing:
(a) General. To the Knowledge of Times Mirror,
TMHE, the TMHE Subsidiaries, Mosby (with respect to Mosby's
College Text Business) and the TMIP Entities (with respect to
the International Assets and the International Liabilities) are
in compliance with all applicable statutes, laws, ordinances,
rules, orders and regulations of any governmental authority or
instrumentality, domestic or foreign, except for any such inci-
dents of noncompliance that in the aggregate would not have a
material adverse effect on the business, financial condition or
results of operation of the College Publishing Business, taken
as a whole. This Section 5.19 does not relate to matters with
respect to Taxes or any other taxes. This Section 5.19(a) does
not relate to environmental matters, which are the subject of
Sections 5.19(b), 5.19(c) and 5.19(d).
(b) Hazardous Materials.
(i) Except in compliance with the Environmental
Laws, there are no Hazardous Materials present at, upon, under,
over or within TMHE Properties or which have been released or
transported to or from TMHE Properties, or disposed of off-
site.
(ii) No actions have been taken, are in the process
of being taken, or have been threatened, which could subject
the TMHE Properties or business, the Mosby College Text Busi-
ness or the International Assets to claims or liens under any
Environmental Laws.
(c) Notices of Certain Environmental Matters. No
notice, notification, demand, request for information, cita-
tion, summons, decree, complaint or order has been issued or
filed, no penalty has been assessed and no investigation or
review is pending or threatened by any governmental authority,
foreign, federal, state or local, in connection with the
present or past business or properties of TMHE, the TMHE Sub-
sidiaries, the Mosby College Text Business or the International
-34-<PAGE>
Assets with respect to any alleged violation or liability under
any Environmental Law.
(d) Environmental Permits. Times Mirror has all the
necessary permits under the Environmental Laws necessary to
operate TMHE Properties and business in accordance with the
Environmental Laws and has at all times complied with all such
permits. Mosby has at all times operated the Mosby College
Text Business in accordance with the Environmental Laws and
TMIP has at all times operated its business connected with the
International Assets in accordance with the Environmental Laws.
Section 5.20. Employee and Labor Relations. Except
as set forth on Schedule 5.20, (a) there is no labor strike,
dispute, or work stoppage or lockout pending or, to the Knowl-
edge of Times Mirror, threatened against or affecting TMHE, any
of the TMHE Subsidiaries, Mosby (with respect to Mosby's Col-
lege Text Business) or any of the TMIP Entities (with respect
to the International Assets); (b) to the Knowledge of Times
Mirror, no union organizing campaign is in progress with re-
spect to the employees of TMHE, any of the TMHE Subsidiaries,
Mosby (with respect to Mosby's College Text Business) or any of
the TMIP Entities (with respect to the International Assets);
(c) there is no unfair labor practice charge or complaint
against TMHE, any of the TMHE Subsidiaries, Mosby (with respect
to Mosby's College Text Business) or any of the TMIP Entities
(with respect to the International Assets), pending or, to the
Knowledge of Times Mirror, threatened before the National Labor
Relations Board; (d) there is no pending or, to the Knowledge
of Times Mirror, threatened grievance that would have a mate-
rial adverse effect on the business, financial condition or
results of operations of TMHE, any of the TMHE Subsidiaries,
Mosby (with respect to Mosby's College Text Business) or any of
the TMIP Entities (with respect to the International Assets),
taken as a whole; and (e) no charges with respect to or relat-
ing to TMHE, any of the TMHE Subsidiaries, Mosby (with respect
to Mosby's College Text Business) or any of the TMIP Entities
(with respect to the International Assets), are pending before
the Equal Employment Opportunity Commission or any state agency
responsible for the prevention of unlawful employment practices
as to which there is a reasonable likelihood of adverse deter-
mination, other than those which, if so determined, would not
have a material adverse effect on the business, financial con-
dition and results of operations of the College Publishing
Business, taken as a whole.
Section 5.21. Securities Act of 1933; Sufficiency of
Information. The Shepard's Shares purchased by Times Mirror
pursuant to this Agreement are being acquired for investment
only and not with a view to any public distribution thereof,
-35-<PAGE>
and Times Mirror will not offer to sell or otherwise dispose of
the Shepard's Shares so acquired by it in violation of any of
the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). Times Mirror confirms that it
is an accredited investor within the meaning of Rule 501(a)
under the Securities Act. Times Mirror has been afforded ac-
cess to such financial and non-financial information material
of Shepard's, its business and the Shepard's Shares, and has
been afforded an opportunity to ask questions and receive an-
swers concerning the terms and conditions of the purchase and
sale of the Shepard's Shares and to obtain information nec-
essary to verify the accuracy of the financial and non-finan-
cial information furnished to it by McGraw-Hill.
Section 5.22. International Assets.
(a) Distribution Agreements. Except as set forth on
Schedule 5.22(a), the International Assets do not include, and
neither TMIP nor any TMIP Entity is a party to, nor is any In-
ternational Asset affected by, any exclusive distribution
agreement or arrangement having a term exceeding one year,
whether written or oral, with any entity or individual other
than a TMIP Entity. With respect to any such distribution
agreement or arrangement, whether written or oral, Schedule
5.22(a) sets forth the term thereof, the territory and the
works covered thereby.
(b) Translation Agreements. Except as set forth on
Schedule 5.22(b), each translation agreement relating to the
College Publishing Business grants translation rights with re-
spect to one edition only of the work subject to such agree-
ment.
ARTICLE SIX
REPRESENTATIONS AND WARRANTIES OF McGRAW-HILL
McGraw-Hill hereby represents and warrants to Times
Mirror and Mosby as follows:
Section 6.01. Organization and Authority. McGraw-
Hill is a corporation duly organized, validly existing and in
good standing under the laws of the state of New York. McGraw-
Hill has all requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby. All necessary corporate action required
to have been taken by or on behalf of McGraw-Hill by applicable
law or its charter documents has been taken to authorize (i)
the approval, execution and delivery on behalf of McGraw-Hill
of this Agreement and (ii) the performance by McGraw-Hill of
-36-<PAGE>
its obligations under this Agreement and the consummation of
the transactions contemplated hereby. This Agreement consti-
tutes a valid and binding agreement of McGraw-Hill, enforceable
against McGraw-Hill in accordance with its terms, except as the
same may be limited by the Enforceability Exceptions.
Section 6.02. No Breach. The execution and delivery
of this Agreement by McGraw-Hill do not, and the consummation
of the transactions contemplated hereby by McGraw-Hill or Shep-
ard's will not, (i) violate or conflict with the Charter or
Bylaws of McGraw-Hill or Shepard's or (ii) constitute a mate-
rial breach or default or (iii) except as set forth on Schedule
6.02 hereto, give rise to any Lien, third-party right of termi-
nation, cancellation, material modification or acceleration
under any material agreement, understanding or undertaking to
which McGraw-Hill or Shepard's is a party or by which either of
them is bound, or any material law, rule or regulation to which
either of them or any material portion of the assets of either
of them is subject.
Section 6.03. Governmental Consents and Approvals.
Neither the execution and delivery of this Agreement by McGraw-
Hill nor the consummation of the transactions to which McGraw-
Hill or Shepard's is a party contemplated hereby will require
any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory author-
ity, except (i) for notification pursuant to, and expiration or
termination of the waiting period under HSR Act and (ii) where
the failure to obtain such consent, approval, authorization or
permit, or to make such filing or notification, would not pre-
vent McGraw-Hill or Shepard's from performing its obligations
under this Agreement without having a material adverse effect
on the business, financial condition or results of operations
of Shepard's.
Section 6.04. Organization and Standing of
Shepard's. Shepard's is a corporation duly organized and val-
idly existing under the laws of the State of Delaware.
Shepard's has all requisite corporate power and authority and,
to the Knowledge of McGraw-Hill, possesses all governmental
franchises, licenses, permits, authorizations and approvals
necessary to enable it to carry on its business as presently
conducted other than such franchises, licenses, permits, autho-
rizations and approvals the lack of which would not have a ma-
terial adverse effect on the business, financial condition or
results of operations of Shepard's. Shepard's is duly quali-
fied and in good standing to do business in each jurisdiction
in which the nature of its business or the ownership, leasing
-37-<PAGE>
or holding of its properties makes such qualification neces-
sary, except such jurisdictions where the failure be so quali-
fied or in good standing would not have a material adverse ef-
fect on the business, financial condition or results of opera-
tions of Shepard's. McGraw-Hill has made available to Times
Mirror true and complete copies of (i) the Certificate of In-
corporation and the Bylaws, as in effect on the date of this
Agreement, of Shepard's and (ii) the stock certificates and
transfer records and the minute book of Shepard's.
Section 6.05. Capital Stock of Shepard's. The au-
thorized capital stock of Shepard's consists of 1,000 shares of
common stock, par value $1.00 per share, of which 1,000 shares,
constituting the Shepard's Shares, are duly authorized and val-
idly issued and outstanding, fully paid and nonassessable. Ex-
cept for the Shepard's Shares, there are no shares of capital
stock or other equity securities of Shepard's outstanding. The
Shepard's Shares have not been issued in violation of, and none
of the Shepard's Shares is subject to, any preemptive or sub-
scription rights. There are no outstanding warrants, options,
"phantom" stock rights, agreements, convertible or exchangeable
securities or other commitments (other than this Agreement)
pursuant to which McGraw-Hill or Shepard's is or may become
obligated to issue, sell, purchase, return or redeem any shares
of capital stock or other securities of Shepard's, and no eq-
uity securities of Shepard's are reserved for issuance for any
purpose. Other than this Agreement, the Shepard's Shares are
not subject to any voting trust agreement or other contract,
agreement, arrangement, commitment or understanding, including
any such agreement, arrangement, commitment or understanding
restricting or otherwise relating to the voting, dividend
rights or disposition of the Shepard's Shares.
Section 6.06. Title to and Transfer of the Shepard's
Shares. McGraw-Hill is the record and beneficial owner of the
Shepard's Shares and has good and marketable title thereto,
free and clear of any Liens. Assuming Times Mirror has the
requisite power and authority to be the lawful owner of the
Shepard's Shares, upon delivery to Times Mirror at the Closing
of certificates representing the Shepard's Shares, duly en-
dorsed by McGraw-Hill for transfer to Times Mirror, and the
completion of the other deliveries at the Closing contemplated
by Article 2, good and marketable title to the Shepard's Shares
will pass to Times Mirror, free and clear of any liens, claims,
encumbrances, security interests, options, charges and restric-
tions of any kind other than those arising from acts of Times
Mirror or its affiliates.
-38-<PAGE>
Section 6.07. Equity Interests. Shepard's does not
directly or indirectly own any capital stock of or other equity
in any corporation, partnership or other entity.
Section 6.08. Shepard's Financial Statements. (a)
The financial statements set forth on Schedule 6.08, which con-
sist of (i) the unaudited balance sheet of Shepard's and the
notes thereto as of December 31, 1995 and the unaudited state-
ment of operations and the notes thereto for the year then
ended, and (ii) the unaudited condensed balance sheet of Shepa-
rd's and the notes thereto as of March 31, 1996 (the "Shepard's
Balance Sheet") and the unaudited condensed statement of opera-
tions for the three-month period then ended, were prepared in
accordance with GAAP, and present fairly, in all material re-
spects, Shepard's financial position and the results of its
operations as of the date thereof and for the periods covered
thereby. Shepard's Balance Sheet and the unaudited condensed
statements of operations referred to in clause (ii) above were
prepared on a basis consistent with the financial statements of
Shepard's for the year ended December 31, 1995, and include all
adjustments that management considers necessary for a fair pre-
sentation of the results of operations for such period.
(b) Accruals. Shepard's has not made, on or after
July 1, 1996, any accrual or provision for sales returns, in-
ventory obsolescence, bad debts, Taxes or other items, other
than with respect to the current period and consistent with
past practice.
Section 6.09. Nonforeign Certification. McGraw-Hill
is not a "foreign person" within the meaning of Section 1445 of
the Code.
Section 6.10. Taxes. Shepard's has filed or caused
to be filed in a timely manner (within any applicable extension
periods) with the appropriate Tax authority all material Tax
returns, reports and forms it is required to have filed and has
paid or provided for all material Taxes it is required to have
paid. There are no material Tax liens or assessments against
Shepard's or any property or assets of Shepard's, other than
Permitted Liens.
Section 6.11. Assets Other than Real Property.
Shepard's has good title to all assets reflected on the Shep-
ard's Balance Sheet or thereafter acquired, except for inven-
tory and assets having a fair market value not exceeding
$20,000 sold or otherwise disposed of since the date of the
Shepard's Balance Sheet in the ordinary course of business con-
sistent with past practice, free and clear of all Liens, except
-39-<PAGE>
(a) such as are disclosed on Schedule 6.11 and (b) Permitted
Liens.
This Section 6.11 does not relate to real property or
interests in real property, which is the subject of Section
6.12, or to Shepard's Intellectual Property, which is the sub-
ject of Section 6.13.
Section 6.12. Real Property.
(a) Owned Property. Schedule 6.12(a) sets forth a
complete list of all real property and interests in real prop-
erty owned in fee by Shepard's ("Shepard's Owned Properties").
(b) Leased Property. Schedule 6.12(b) sets forth a
complete list of all real property and interests in real prop-
erty leased by Shepard's ("Shepard's Leased Properties," and
together with the Shepard's Owned Properties, "Shepard's Prop-
erties") and identifies any leases relating thereto.
(c) Title to Real Property. Shepard's has (i) good
and marketable fee title to all Shepard's Owned Property and
(ii) good and marketable title to the leasehold estates in all
Leased Property, in each case free and clear of all Liens,
except (A) Permitted Liens, (B) easements, covenants, rights-
of-way and other similar restrictions of record, and (C) (x)
zoning, building and other similar restrictions, (y) Liens that
have been placed by any developer, landlord or other third
party on property over which Shepard's has easement rights or
on any Shepard's Leased Property and subordination or similar
agreements relating thereto and (z) unrecorded easements, cov-
enants, rights-of-way or other similar restrictions, none of
which items set forth in clauses (x), (y) and (z) above materi-
ally impairs the continued use in Shepard's business and opera-
tion of the property to which they relate.
Section 6.13. Intellectual Property.
(a) Trademarks. Schedule 6.13(a) sets forth a true
and complete list of all registered United States and foreign
trademarks, trade names, service marks and applications there-
for (collectively, "Shepard's Trademarks"), that are registered
or filed in the name of Shepard's. Schedule 6.13(a) contains a
list of all federal and foreign jurisdictions in which such
trademarks are registered or applied for and all registration
and application numbers. Except as set forth on Schedule
6.13(a), all of the Shepard's Trademarks are owned by Shepard's
free and clear of all Liens.
-40-<PAGE>
(b) Copyrights. Schedule 6.13(b) sets forth a true
and complete list of the United States and foreign copyrights
with respect to the top 25 publications (based on revenue for
the year ended December 31, 1995) of Shepard's (the "Top 25
Shepard's Publications"). Shepard's owns, free and clear of
all Liens, the copyrights to or otherwise has all rights suf-
ficient to produce, reproduce, publish, distribute and sell all
of the publications of Shepard's (collectively, the "Shepard's
Copyrights," and with Shepard's Trademarks, "Shepard's Intel-
lectual Property"), and Shepard's citation databases, except
where any failures to own such Shepard's Copyrights or to
otherwise have such rights, taken in the aggregate, would not
have a material adverse effect on the business, financial
condition or results of operations of Shepard's.
(c) Licenses. Except as disclosed on Schedule
6.13(c), neither Shepard's nor McGraw-Hill has licensed exclu-
sively to any third party the right to use or exploit any of
the Top 25 Shepard's Publications in any jurisdiction.
(d) Claims. Except as set forth on Schedule
6.13(d), no claims are pending or, to the Knowledge of McGraw-
Hill, threatened in writing against Shepard's by any person
with respect to the ownership, validity, enforceability or use
of any Shepard's Trademark listed on Schedule 6.13(a) or any of
Shepard's Copyrights or otherwise challenging or questioning
the validity or effectiveness of any such Shepard's Trademark
or Shepard's Copyrights except for any such claims that, taken
in the aggregate, would not have a material adverse effect on
the business, financial condition or results of operations of
Shepard's. Except as set forth on Schedule 6.13(d), no claims
are pending or, to the Knowledge of McGraw-Hill, threatened in
writing against Shepard's by any person in which such person
alleges that any activities or conduct of business of Shepard's
infringes upon the intellectual property rights of any third
party or that any product packaging infringes upon a proprie-
tary packaging design of any third party except for any such
claims that, taken in the aggregate, would not have a material
adverse effect on the business, financial condition or results
of operations of Shepard's, taken as a whole.
(e) Neither McGraw-Hill nor any affiliate of McGraw-
Hill (other than Shepard's) owns any patents, technology or
copyrights used solely and exclusively in the creation or pub-
lication of Shepard's citation products.
Section 6.14. Contracts. Schedules 6.14(a) through
6.14(l) set forth a true and complete list of each of the fol-
lowing types of contracts to which Shepard's is a party
("Shepard's Contracts"):
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(a) Employment, Independent Contractor and Consult-
ing Agreements. (i) Any employment agreement, employment con-
tract or any agreement or contract providing for the payment of
any severance compensation to any Shepard's Employee or for the
provision, and/or acceleration of any employee benefits follow-
ing a change of ownership or control of Shepard's (other than
any enhanced benefits described in Section 10A.02, 10A.04 or
10A.05 hereof) and (ii) any independent contractor or consult-
ing agreement (except those described in Section 6.14(k)) and
(iii) that has an aggregate liability after the Closing Date in
excess of $100,000 and is not terminable by notice of less than
60 calendar days for a cost of less than $100,000;
(b) Collective Bargaining Agreements. Any employee
collective bargaining agreement or other contract with any la-
bor union;
(c) Non-Competition Agreements. Any covenant or
agreement that restricts the ability of Shepard's to compete in
any line of business in any place in the world;
(d) Agreements with Affiliates, Officers, Directors
or Employees. Any agreement or contract between Shepard's, on
the one hand, and McGraw-Hill or any affiliate of McGraw-Hill,
or any officer, director or employee of Shepard's, on the other
hand (other than Contracts that will terminate at or prior to
the Closing and employment agreements covered by paragraph (a)
above);
(e) Leases of Shepard's Property. Any lease or sim-
ilar agreement under which Shepard's is a lessor or sublessor
of, or makes available for use by any third party, any
Shepard's Property;
(f) Personal Property Leases. Any lease or similar
agreement under which (i) Shepard's is lessee of, or holds or
uses, any machinery, equipment, vehicle or other tangible per-
sonal property owned by a third party or (ii) Shepard's is a
lessor or sublessor of, or makes available for use by any third
party, any tangible personal property owned or leased by
Shepard's, in any such case which has an aggregate liability
after the Closing Date in excess of $150,000 and is not termi-
nable by notice of less than 60 calendar days for a cost of
less than $150,000;
(g) Supply and Service Agreements. (i) Any con-
tinuing agreement or contract for the future purchase by
Shepard's of materials, supplies or equipment (other than pur-
chase contracts and orders for inventory in the ordinary course
-42-<PAGE>
of business consistent with past practice) or (ii) any adver-
tising agreement or arrangement (including any advertising
agreements or arrangements to which any of McGraw-Hill or
Shepard's is a party and that is applicable to Shepard's), in
any such case which has an aggregate liability after the Clos-
ing Date in excess of $150,000 and is not terminable by notice
of less than 60 calendar days for a cost of less than $150,000;
(h) Indebtedness. Any agreement or contract under
which Shepard's has borrowed or loaned any money or issued any
note, bond, indenture or other evidence of indebtedness or di-
rectly or indirectly guaranteed indebtedness, liabilities or
obligations of others (other than endorsements for the purpose
of collection in the ordinary course of business), or any other
note, bond, indenture or other evidence of indebtedness;
(i) Guarantees. Any agreement or contract under
which any other person has directly or indirectly guaranteed
indebtedness, liabilities or obligations of Shepard's (other
than endorsements for the purpose of collection in the ordinary
course of business);
(j) Partnerships and Joint Ventures. Any partner-
ship agreement or other joint venture agreement to which
Shepard's is a party;
(k) Shepard's Author Contracts. Any agreement or
contract under which Shepard's is obligated to pay royalties to
any person in connection with the reproduction, publication or
distribution of any works; and
(l) Other Agreements. Any other agreement, con-
tract, lease, license, commitment or instrument to which
Shepard's is a party or by or to which Shepard's or any of its
assets or its business is bound or subject which in any case
has an aggregate liability after the Closing Date in excess of
$200,000 and is not terminable by notice of less than 60 calen-
dar days for a cost of less than $200,000 (other than purchase
contracts and orders for inventory in the ordinary course of
business consistent with past practice).
Except as disclosed on Schedule 6.14 or the other schedules
hereto, Shepard's has performed all material obligations re-
quired to be performed by it to date under the Contracts and it
is not in breach or default in any material respect thereunder
and, to the Knowledge of McGraw-Hill, no other party to any of
the Shepard's Contracts is in breach or default in any material
respect thereunder.
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Section 6.15. Litigation; Decrees. (a) Schedule
6.15 sets forth a list, as of the date of this Agreement, of
all pending, and to the Knowledge of McGraw-Hill, threatened
lawsuits or claims (other than lawsuits or claims related to
Taxes with respect to which McGraw-Hill is obligated to indem-
nify Times Mirror pursuant to Section 11.01) with respect to
which McGraw-Hill or any of its affiliates has contacted in
writing the defendant or has been contacted in writing by the
claimant or by counsel for the claimant by or against Shepard's
or any of its properties, assets, operations or businesses and
which (i) involve a claim by or against Shepard's of more than
$250,000, (ii) seek any injunctive relief or (iii) relate to
the transactions contemplated by this Agreement. Except as
disclosed on Schedule 6.15, Shepard's is not subject to any
judgment, order or decree of any court, administrative agency
or commission or other governmental authority or instrumental-
ity, domestic or foreign, applicable to Shepard's which is ma-
terial to the business of Shepard's taken as a whole.
(b) There is no lawsuit or claim pending against
McGraw-Hill or Shepard's that (i) with respect to Shepard's,
could reasonably be expected to result in liability in excess
of $10,000,000; (ii) seeks injunctive relief that, if granted,
could reasonably be expected to have a material adverse effect
on the business of Shepard's or (iii) relates primarily to the
transactions contemplated hereby.
Section 6.16. Employee and Related Matters; ERISA.
(a) Schedule 6.16(a) sets forth each employee pen-
sion, retirement, profit sharing, stock bonus, stock option,
stock purchase, incentive, deferred compensation, hospitaliza-
tion, medical, dental, vision, life insurance, accidental death
and dismemberment insurance, business travel insurance, cafete-
ria and flexible spending, sick pay, disability, severance,
golden parachute or other plan, fund, program, policy, contract
or arrangement (including any contracts or agreements with cer-
tain employees of Shepard's that relate to the transactions
contemplated by this Agreement) providing employee benefits
that is maintained, contributed to or required to be contrib-
uted to by McGraw-Hill or any of its affiliates in which any
Shepard's Personnel has participated or under which any Shep-
ard's Personnel has accrued and remains entitled to any ben-
efits (the "McGraw-Hill Plans"). McGraw-Hill has made avail-
able to Times Mirror true, complete and correct copies of (i)
each McGraw-Hill Plan (or, in the case of any unwritten McGraw-
Hill Plans, descriptions thereof), (ii) the most recent annual
report on Form 5500 filed with the IRS with respect to each
McGraw-Hill Plan (if any such report was required), (iii) the
most recent summary plan description for each McGraw-Hill Plan
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for which such a summary plan description is required, and (iv)
all other material documents relating to the McGraw-Hill Plans.
As soon as practicable after the signing of this Agreement,
McGraw-Hill shall provide to Times Mirror a true complete and
accurate copy of each trust agreement and group annuity con-
tract relating to any McGraw-Hill Plan. Neither Shepard's nor
any corporation or trade or business (whether or not incor-
porated) which would be treated as its ERISA Affiliate is li-
able for any amount under Title IV of ERISA (except for premi-
ums to the Pension Benefit Guaranty Corporation arising in the
ordinary course) and no fact or event exists which could rea-
sonably give rise to such liability. Except as disclosed on
Schedule 6.16(a), no Shepard's Personnel is entitled to any
benefit under any McGraw-Hill Plan by reason of the transac-
tions contemplated hereby, including, but not limited to, sev-
erance, stay-pay or retention bonuses, nor any acceleration,
vesting, distribution or increase in benefits or obligations to
fund benefits, and no McGraw-Hill Plan includes any common
stock or other security issued by McGraw-Hill or any ERISA Af-
filiate of Shepard's among its assets.
(b) Compliance with ERISA and the Code. None of
McGraw-Hill, Shepard's, any of the McGraw-Hill Plans or any
trust created thereunder, or any trustee or administrator
thereof, has engaged in a transaction in connection with which
Shepard's would be subject to either a material liability or
civil penalty assessed pursuant to Section 409, 502(i) or
502(l) of ERISA or a material Tax imposed pursuant to Section
4971, 4972, 4974, 4975, 4976 or 4980B of the Code. Except as
described on Schedule 6.16(b), each of the McGraw-Hill Plans
has been operated and administered in all material respects in
accordance with its terms and applicable laws, including, but
not limited to, ERISA and the Code. Except as disclosed on
Schedule 6.16(b), each McGraw-Hill Plan intended to be a
qualified plan under Code Section 401 has received a favorable
determination letter to that effect (a copy of which has been
delivered to Times Mirror) covering all of the provisions ap-
plicable to tax qualified plans introduced by the Tax Reform
Act of 1986 and nothing has occurred since the issuance of such
letter that would adversely affect the Tax qualification of any
such McGraw-Hill Plan. There are no pending or, to the
Knowledge of McGraw-Hill, threatened claims by or on behalf of
any of the McGraw-Hill Plans, by any employee, former employee
or beneficiary covered under any such Plan, or otherwise
involving any such McGraw-Hill Plan (other than individual
claims for benefits arising in the ordinary course).
(c) Multiemployer Plan Liabilities. Except as dis-
closed on Schedule 6.16(c) none of McGraw-Hill, Shepard's or
any ERISA Affiliate of Shepard's is, or has been within the
-45-<PAGE>
last six years, obligated to contribute, on behalf of any cur-
rent or former employee of Shepard's, to a multiemployer plan
(as defined in Section 3(37) of ERISA) and no such ERISA Af-
filiate of Shepard's is liable or reasonably expected to be
liable for any withdrawal liability under Section 4201 of
ERISA.
(d) Accumulated Funding Deficiencies; Liens. None
of the McGraw-Hill Plans or any trust established thereunder
has any accumulated funding deficiency (as defined in Section
302 of ERISA and Section 412 of the Code), whether or not
waived, as of the last day of the most recent fiscal year of
each of the McGraw-Hill Plans. No contribution failure has
occurred with respect to any McGraw-Hill Plan sufficient to
give rise to a lien under Section 302(f) of ERISA.
(e) Employee, Welfare Benefit Plans. With respect
to any Plan that is an employee welfare benefit plan, except as
disclosed on Schedule 6.16(e), (i) no such McGraw-Hill Plan is
funded through a welfare benefits fund, as such term is defined
in Section 419(e) of the Code and (ii) each such McGraw-Hill
Plan that is a group health plan, as such term is defined in
Section 5000(b)(1) of the Code, complies with the applicable
requirements of Section 4980B(f) of the Code.
Section 6.17. Absence of Changes or Events. Except
as set forth on Schedule 6.17, since the date of Shepard's Bal-
ance Sheet, there has not been a material adverse change in the
business, financial condition or results of operations of
Shepard's, other than changes relating to the economy in gen-
eral or the legal citations business in general and not speci-
fically relating to Shepard's. Except as disclosed on Schedule
6.17, since the date of the Shepard's Balance Sheet, McGraw-
Hill has caused the business of Shepard's to be conducted in
the ordinary course, and neither of McGraw-Hill nor Shepard's
has taken any action that, if taken after the date of this
Agreement, would constitute a breach of any of the covenants
set forth in Article 7.
Section 6.18. Compliance with Applicable Laws. Ex-
cept as previously disclosed by McGraw-Hill to Times Mirror in
writing:
(a) General. To the Knowledge of McGraw-Hill,
Shepard's is in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations of any governmental
authority or instrumentality, domestic or foreign, except for
any such incidents of noncompliance that in the aggregate would
not have a material adverse effect on the business, financial
condition or results of operation of Shepard's, taken as a
-46-<PAGE>
whole. This Section 6.18 does not relate to matters with re-
spect to Taxes or any other taxes. This Section 6.18(a) does
not relate to environmental matters, which are the subject of
Sections 6.18(b), 6.18(c) and 6.18(d).
(b) Hazardous Materials.
(i) Except in compliance with the Environmental
Laws, there are no Hazardous Materials present at, upon, under,
over or within Shepard's Properties or which have been released
or transported to or from Shepard's Properties, or disposed of
off-site.
(ii) No actions have been taken, are in the process
of being taken, or have been threatened, which could subject
the Shepard's Properties or business to claims or liens under
any Environmental Laws.
(c) Notices of Certain Environmental Matters. No
notice, notification, demand, request for information, cita-
tion, summons, decree, complaint or order has been issued or
filed, no penalty has been assessed and no investigation or
review is pending or threatened by any governmental authority,
foreign, federal, state or local, in connection with the
present or past business or properties of Shepard's with re-
spect to any alleged violation of or liability under any Envi-
ronmental Law.
(d) Environmental Permits. McGraw-Hill has all the
necessary permits under the Environmental Laws necessary to
operate Shepard's Properties or business in accordance with the
Environmental Laws and has at all times complied with all such
permits. McGraw-Hill has at all times operated Shepard's in
accordance with the Environmental Laws.
Section 6.19. Employee and Labor Relations. Except
as set forth on Schedule 6.19, (a) there is no labor strike,
dispute, or work stoppage or lockout pending or, to the Knowl-
edge of McGraw-Hill, threatened against or affecting Shepard's;
(b) to the Knowledge of McGraw-Hill, no union organizing cam-
paign is in progress with respect to the employees of
Shepard's; (c) there is no unfair labor practice charge or com-
plaint against Shepard's, pending or, to the Knowledge of
McGraw-Hill, threatened before the National Labor Relations
Board; (d) there is no pending or, to the Knowledge of McGraw-
Hill, threatened grievance that would have a material adverse
effect on the business, financial condition or results of op-
erations of Shepard's, taken as a whole; and (e) no charges
with respect to or relating to Shepard's, are pending before
the Equal Employment Opportunity Commission or any state agency
-47-<PAGE>
responsible for the prevention of unlawful employment practices
as to which there is a reasonable likelihood of adverse deter-
mination, other than those which, if so determined, would not
have a material adverse effect on the business, financial con-
dition and results of operations of Shepard's, taken as a
whole.
Section 6.20. Securities Act of 1933; Sufficiency of
Information. The TMHE Shares purchased by McGraw-Hill pursuant
to this Agreement are being acquired for investment only and
not with a view to any public distribution thereof, and McGraw-
Hill will not offer to sell or otherwise dispose of the TMHE
Shares so acquired by it in violation of any of the registra-
tion requirements of the Securities Act. McGraw-Hill confirms
that it is an accredited investor within the meaning of Rule
501(a) under the Securities Act. McGraw-Hill has been afforded
access to such financial and non-financial information material
of TMHE, its business and the TMHE Shares, of the TMHE Subsid-
iaries and their businesses, of Mosby and Mosby's College Text
Business, and of the TMIP Entities and the International Assets
and International Liabilities, and has been afforded an op-
portunity to ask questions and receive answers concerning the
terms and conditions of the purchase and sale of the College
Publishing Business and to obtain information necessary to ver-
ify the accuracy of the financial and non-financial information
furnished to it by Times Mirror and Mosby.
Section 6.21. Certain Material Contracts. (a) With
respect to any Lien, third-party right of termination, cancel-
lation, material modification or acceleration (collectively,
"Contractual Change") arising under any of the contracts set
forth on Schedule 6.02 (the "Certain Contracts") as a result of
the execution and delivery of this Agreement, or the consumma-
tion of the transactions contemplated hereby, by McGraw-Hill or
Shepard's or any failure to obtain consent required under the
Certain Contracts to the terms of the transactions contemplated
by this Agreement, or the initial subsequent assignment of any
of the Certain Contracts to any person, no such Contractual
Change or such failure to obtain consent (i) will have a mate-
rial adverse effect on the business, financial condition or
results of operations of Shepard's (a "Material Adverse Effect
on Shepard's") other than resulting from (x) the loss of rev-
enue associated with such contract or (y) the loss of the gen-
eral reputational or general strategic benefit derived from
association with the other party to such contract, (ii) will
result in the loss or abridgement of, or any Lien upon, any of
Shepard's Intellectual Property, (iii) will trigger any perfor-
mance or payment obligation on the part of Shepard's or (iv)
will in any way restrict, limit or constrain Shepard's ability
to deal with third parties from and after the Closing Date or
-48-<PAGE>
otherwise conduct the business of Shepard's substantially as it
is conducted as of the date hereof, other than (A) in the case
of clauses (ii), (iii) or (iv), any loss, abridgement, Lien,
obligation, restriction, limitation or constraint that would
not have a Material Adverse Effect on Shepard's, or (B) in the
case of clauses (i), (ii), (iii) or (iv), and with respect to a
failure to obtain consent, any monetary damages or equitable
remedies arising from the application of customary contract law
rather than contractual provisions expressly imposing specific
remedies.
(b) Any information, data, services or products ac-
quired or used by Shepard's in producing, publishing and dis-
tributing its products which is provided pursuant to any of the
Certain Contracts can be obtained from alternative sources in a
manner that would not have a Material Adverse Effect on
Shepard's.
(c) There are no contracts, agreements, understand-
ings or undertakings of Shepard's which would restrict the
ability of Shepard's to use any of Shepard's Intellectual Prop-
erty or citation information databases in connection with the
sale, marketing or distribution of the products of any person,
including Shepard's, in any medium now or hereafter invented,
except for restrictions that do not have a Material Adverse
Effect on Shepard's.
(d) There are no joint product development agree-
ments or agreements providing for any rights of first refusal
or similar rights with respect to development of new products
on an exclusive basis, except for any such agreements or rights
of first refusal or similar rights that do not have a Material
Adverse Effect on Shepard's.
ARTICLE SEVEN
COVENANTS OF TIMES MIRROR AND MOSBY
Times Mirror and Mosby covenant and agree as follows:
Section 7.01. June 30 and Closing Date Financial
Statements.
(a) June 30 Financial Statements. As soon as prac-
ticable and in any event not later than August 31, 1996, Times
Mirror shall deliver to McGraw-Hill (i) the unaudited condensed
consolidated balance sheet of TMHE and the notes thereto as of
June 30, 1996 and the unaudited condensed consolidated state-
ments of operations, shareholder's equity and cash flows for
the six-month period ended June 30, 1996, (ii) the unaudited
-49-<PAGE>
statement of assets conveyed and liabilities assumed related to
Mosby's College Text Business as of June 30, 1996 and the unau-
dited condensed statement of profit and loss for the six-month
period then ended and (iii) the unaudited statement of assets
conveyed and liabilities assumed related to the International
Assets and International Liabilities, by legal entity, as of
June 30, 1996 and the unaudited statement of revenues and gross
margin for the six-month period then ended. The financial
statements of TMHE referred to in clause (i) of the previous
sentence shall be prepared in accordance with GAAP, applied in
a manner consistent with that applied in the preparation of the
financial statements set forth on Schedule 5.09(a)(ii) and
shall present fairly, in all material respects, TMHE's
consolidated financial position and the consolidated results of
its operations, shareholder's equity and cash flows as of the
date thereof and for the period covered thereby. The statement
of assets conveyed and liabilities assumed referred to in
clauses (ii) and (iii) of the first sentence of this paragraph
shall be prepared in accordance with the assumptions set forth
in the notes thereto and shall present fairly, in all material
respects, such assets and liabilities and the results of opera-
tions or revenues and gross margin, as applicable, related
thereto as of the date thereof and for the period covered
thereby. The statements described in this Section 7.01(a)
shall be accompanied by a certificate of the Chief Financial
Officer of TMHE and Mosby, respectively, confirming preparation
of such statements as described above.
(b) Closing Date Income and Profit and Loss State-
ments. As soon as practicable and in any event not later than
45 days after the Closing Date, Times Mirror shall deliver to
McGraw-Hill (i) the unaudited condensed consolidated statement
of income of TMHE (the "TMHE Income Statement"), (ii) the unau-
dited condensed statement of profit and loss of Mosby's College
Text Business (the "Mosby P & L Statement"), each for the pe-
riod from July 1, 1996 to the Closing Date, (iii) the unaudited
statement of assets conveyed and liabilities assumed related to
the International Assets and International Liabilities, by
legal entity, as of the Closing Date and the unaudited state-
ment of revenues and gross margin for the period from July 1,
1996 to the Closing Date, and (iv) the unaudited statement of
balances and activity related to the intercompany accounts of
TMHE and of Mosby, with respect to Mosby's College Text Busi-
ness, with Times Mirror for the period from July 1, 1996 to the
Closing Date. The TMHE Income Statement and the Mosby P & L
Statement shall be prepared in a manner consistent with that
applied in the preparation of the statements provided pursuant
to Section 7.01(a)(i) and Section 7.01(a)(ii), respectively,
and, except for the items discussed in Section 5.09(d), shall
-50-<PAGE>
present fairly, in all material respects, the results of opera-
tions of TMHE or of Mosby's College Text Business, as the case
may be, for the period covered thereby. The statements de-
scribed in this Section 7.01(b) shall be accompanied by a cer-
tificate of the Chief Financial Officer of TMHE and Mosby,
respectively, confirming that the statements have been prepared
as described above.
(c) Closing Date Balance Sheet. As soon as practi-
cable and in any event not later than 45 days after the Closing
Date, Times Mirror shall deliver to McGraw-Hill an unaudited
balance sheet for each of (1) TMHE and the TMHE Subsidiaries
consolidated, (2) the Mosby Assets and the Mosby Liabilities
and (3) the International Assets and International Liabilities,
by legal entity, as of the Closing Date (the "College Publish-
ing Business Closing Date Balance Sheets"). The College Pub-
lishing Business Closing Date Balance Sheets (i) shall be pre-
pared in accordance with the assumptions set forth in the notes
thereto and, with respect to TMHE and the TMHE Subsidiaries, in
accordance with GAAP and on a basis consistent with the Decem-
ber 31, 1995 balance sheet of TMHE included in Schedule
5.09(a), (ii) shall reflect the accounting adjustments de-
scribed in Section 5.09(d) and (iii) shall not reflect any pur-
chase accounting adjustments attributable to the transactions
provided for in this Agreement. The balance sheets described
in this Section 7.01(c) shall be accompanied by a certificate
of the Chief Financial Officer of TMHE and Mosby, respectively,
confirming that the balance sheets have been prepared as de-
scribed above.
(d) The financial information provided pursuant to
this Section 7.01 shall include the manufacturing operations of
TMHE located in Dubuque, Iowa.
Section 7.02. Access. Prior to the Closing, Times
Mirror and Mosby and their officers, directors, employees, ad-
visors, representatives and authorized agents will, and Times
Mirror will cause TMHE and the TMIP Entities and their offic-
ers, directors, employees, advisors, representatives and autho-
rized agents to, provide McGraw-Hill and its representatives,
employees, counsel and accountants during scheduled appoint-
ments approved by Times Mirror (which approval shall not be
unreasonably withheld) occurring during normal business hours
and in a manner not unreasonably disruptive to the conduct of
the College Publishing Business or any of Times Mirror's,
TMHE's, the TMIP Entities' or Mosby's officers, directors, em-
ployees, advisors, representatives or authorized agents, access
to the personnel, properties, books and records of TMHE, of
Mosby relating to Mosby's College Text Business and to the TMIP
Entities relating to the International Assets and International
-51-<PAGE>
Liabilities, including, without limitation, (i) access to Col-
lege Publishing Business Employees for the purpose of pre-
enrolling such College Publishing Business Employees in any
employee benefit or welfare plans of McGraw-Hill, (ii) access
for purposes of conducting a preliminary environmental assess-
ment and any additional boring and sampling or other environ-
mental assessment work as McGraw-Hill may deem appropriate and
(iii) access for purposes of conducting preliminary facilities
reviews; provided, however, that all information and documen-
tation made available to McGraw-Hill pursuant to the terms of
this Section 7.02 shall be subject to the terms of the Confi-
dentiality Agreement dated June 19, 1996 between McGraw-Hill
and Times Mirror (the "College Publishing Business Confiden-
tiality Agreement").
Section 7.03. Ordinary Conduct. Except as contem-
plated by this Agreement or set forth on Schedule 7.03, from
the date of this Agreement to the Closing Date, Times Mirror
and Mosby shall cause the College Publishing Business to be
conducted in the ordinary course in substantially the same man-
ner as presently conducted and will make all reasonable efforts
substantially consistent with past practices to preserve the
relationships with authors, customers, suppliers and others
with whom the College Publishing Business deals. Except as con-
templated by this Agreement, Times Mirror will not permit TMHE
or the TMHE Subsidiaries to do any of the following, Mosby will
not take any action described in paragraphs (d)-(i) and (k)-(p)
with respect to Mosby's College Text Business, and Times Mirror
will not permit any of the TMIP Entities to take any action
described in paragraphs (d)-(i) and (k)-(p) with respect to the
International Assets and International Liabilities, without the
prior written consent of McGraw-Hill:
(a) Charter. Amend its Charter or By-laws;
(b) Dividends. Declare or pay any non-cash
dividend or make any other non-cash distributions to Times
Mirror, whether or not upon or in respect of any shares of
its capital stock;
(c) Capital Stock. Redeem or otherwise acquire
any shares of its capital stock or issue any capital stock
or any option, warrant or right relating thereto or any
securities convertible into or exchangeable for any shares
of its capital stock;
(d) Employee Matters. Adopt or amend in any
material respect any Plan or collective bargaining agree-
ment, except as required by law;
-52-<PAGE>
(e) Compensation. (i) Grant to any executive
officer or employee any increase in compensation or ben-
efits or any rights to receive severance payments or other
benefits upon a termination of employment or a change of
ownership or control of the employer, except (A) as may be
required under the express terms of existing written
agreements, (B) in the ordinary course of business consis-
tent with past practice; provided that the exception set
forth in this clause (B) shall not apply to enhanced sev-
erance benefits, or (C) any increases, payments or ben-
efits for which Times Mirror shall be solely obligated,
(ii) enter into any employment agreement or amend any ex-
isting employment agreement, or (iii) terminate any execu-
tive officer or employee other than in the ordinary course
of business consistent with past practice;
(f) Indebtedness. Incur or assume any liabili-
ties, obligations or indebtedness for borrowed money or
guarantee any such liabilities, obligations or indebt-
edness, other than any indebtedness owing to Times Mirror
or any other person incurred in the ordinary course of
business consistent with past practice; provided that in
no event shall TMHE or the TMHE Subsidiaries, or Mosby,
with respect to Mosby's College Text Business, or the TMIP
Entities, with respect to the International Liabilities,
incur, assume or guarantee any long-term indebtedness for
borrowed money;
(g) Encumbrances. Permit, allow or suffer any
of its assets to be subjected to any Lien, other than Per-
mitted Liens;
(h) Cancellation of Indebtedness. Except as
provided in Section 7.07, cancel any indebtedness owing to
TMHE, any of the TMHE Subsidiaries, Mosby (with respect to
Mosby's College Text Business) or any of the TMIP Entities
(with respect to the International Assets), or waive any
claims or rights, other than cancellations or waivers in
the ordinary course of business that individually cover
indebtedness, claims or rights having a value of less than
$50,000 and, in the aggregate, cover indebtedness, claims
or rights having a value of less than $250,000;
(i) Related Party Transactions. Except for (i)
dividends or distributions not prohibited under clause (b)
above, (ii) indebtedness not prohibited by clause (f)
above and (iii) intercompany transactions in the ordinary
course of business and consistent with past practice, pay,
loan or advance any amount to, or sell, transfer or lease
-53-<PAGE>
any of its assets to, or enter into any agreement or ar-
rangement with Times Mirror or any affiliate of Times Mir-
ror that would continue in effect after the Closing;
(j) Accounting Polices. Make any change in any
method of accounting or accounting practice or policy
other than those required by GAAP;
(k) Reorganizations. Acquire or agree to ac-
quire by merging or consolidating with, or by purchasing
the stock of, or a substantial portion of the assets of,
or by any other manner, any business or any corporation,
partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire
any assets (other than inventory);
(l) Capital Expenditures. Make or incur any
capital expenditures other than those made or incurred in
accordance with Times Mirror's fiscal year 1996 capital
expenditure budget with respect to the College Publishing
Business heretofore disclosed to McGraw-Hill;
(m) Asset Dispositions. Sell, lease or other-
wise dispose of, or agree to sell, lease or otherwise dis-
pose of, any of its assets, except for sales of inventory
in the ordinary course of business and except for sales,
leases or dispositions of assets that, in the aggregate,
have a fair value of less than $500,000;
(n) Material Agreements. Enter into (i) any
agreement, whether or not in the ordinary course of busi-
ness, that calls for payments in excess of $500,000 and
will not be fully performed within 12 months, (ii) any au-
thor contract calling for advances or pre-publication
costs in excess of $500,000, (iii) any royalty guarantees
or (iv) the proposed agreement between Richard B. Irwin
and Pennsylvania State University;
(o) Accruals. Make any accrual or provision
for sales returns, inventory obsolescence, bad debts,
Taxes or other items, other than with respect to the
period from July 1 to Closing and consistent with past
practices, except as referenced in the last paragraph of
Section 9.01(a)(ii); or
(p) Commitments. Agree, whether in writing or
otherwise, to do any of the foregoing.
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Section 7.04. Insurance. Times Mirror shall keep,
or cause to be kept, all insurance policies presently main-
tained relating to TMHE, the TMHE Subsidiaries and their prop-
erties, to Mosby, with respect to Mosby's College Text Business
or the Mosby Assets, and to the TMIP Entities, with respect to
the International Assets, or suitable replacements therefor, in
full force and effect through the close of business on the
Closing Date. Schedule 7.04 sets forth all the insurance poli-
cies presently owned and maintained by TMHE or the TMHE Sub-
sidiaries. Any and all additional insurance policies presently
maintained relating to TMHE or the TMHE Subsidiaries and their
properties or Mosby's College Text Business and the Mosby As-
sets or the International Assets are maintained by Times Mirror
or Mosby. Neither McGraw-Hill nor TMHE will have any rights
under any such insurance policies from and after the Closing
Date with the exception of such policies that do not name Times
Mirror or any of its other subsidiaries as named insureds.
Section 7.05. Resignations. On the Closing Date,
Times Mirror shall cause to be delivered to McGraw-Hill duly
signed resignations, effective immediately after the Closing
Date, of all members of the Boards of Directors of TMHE or of
the TMHE Subsidiaries and shall take such other action as is
necessary to accomplish the foregoing.
Section 7.06. Non-Competition. Times Mirror cov-
enants and agrees that, if the Closing shall occur,
(a) for a period of thirty-six (36) months following
the Closing Date (the "Restricted Period"), Times Mirror and
its affiliates will not, directly or indirectly, anywhere in
the world, (1) engage in any business or activity which com-
petes with or is substantially similar to (i) the business of
TMHE and the TMHE Subsidiaries in any media (except the health
management seminar business of Irwin Professional Publishing),
or (ii) the Mosby College Text Business in any media; or (iii)
otherwise in the college textbook market in any media in the
disciplines published by TMHE, the TMHE Subsidiaries, or the
Mosby College Text Business except for those works within such
disciplines which are not sold primarily for the core college
level, such as those works currently published by the Mosby
medical/nursing division, e.g., the text entitled Human Anatomy
& Physiology by Elaine N. Marieb (the businesses referred to in
clauses (i), (ii) and (iii) being referred to in this Section
7.06 as the "Competing Business"); or (2) become the beneficial
owner of more than 5% of the common stock (or analogous equity
interest) of any company or other organization that derives
more than 5% of its consolidated revenue from the Competing
Business; provided, however, that the foregoing restrictions
shall not apply to (1) the business of publishing educational
-55-<PAGE>
textbooks and related supplementary materials which are prima-
rily marketed to (i) nurses and nursing students, dentists and
dentistry students, veterinarians and veterinary medicine stu-
dents, nutritionists, dieticians and physicians and medical
students, including, but not limited to, textbooks and related
supplementary materials in the basic medical sciences of anat-
omy, physiology, biochemistry, microbiology, pathology, pharma-
cology, neurosciences and other pre-med and/or graduate level
basic science texts, (ii) participants in the allied health and
related disciplines, (iii) participants in the vocational nurs-
ing, nursing assistance and home care fields, (iv) consumers
and participants in the consumer health market, (v) partici-
pants in the first aid, safety, cardiopulmonary resuscitation
and other emergency services, and (vi) participants in
swimming, diving and lifeguarding activities; and (2) any
business conducted by Times Mirror or any Times Mirror
affiliate in the newspaper, magazine, legal publishing,
aviation related publishing and training business;
(b) during the Restricted Period, Times Mirror and
its Affiliates shall not solicit the employment of any manage-
rial, marketing, editorial or sales employee of Times Mirror or
any of its affiliates who becomes an employee of McGraw-Hill or
any of its affiliates in connection with the transactions con-
templated by this Agreement;
(c) during the Restricted Period, Times Mirror and
its Affiliates shall not take any action for the purpose of
interfering with the relationship, insofar as it relates to the
Competing Business, between McGraw-Hill (or any affiliates of
McGraw-Hill) and any author, customer or supplier of McGraw-
Hill (or any affiliate of McGraw-Hill); and
(d) until the tenth anniversary of the Closing, nei-
ther Times Mirror nor any of its affiliates shall use the name
"Mosby" in the Competing Business.
Times Mirror agrees that the covenant not to compete set forth
in paragraph (a) above is reasonable with respect to its dura-
tion, geographical area and scope. Notwithstanding any other
provision of this Agreement, if any of the provisions of this
Section 7.06 or the application of any provision of this Sec-
tion 7.06 to any jurisdiction or time period shall be held in-
valid or unenforceable, the remaining portion of the provisions
of this Section 7.06 or the application of such portion thereof
as is held invalid or unenforceable to jurisdictions or time
periods other than those as to which it is held invalid or un-
enforceable, shall not be affected thereby. It is the intent
-56-<PAGE>
and agreement of Times Mirror and McGraw-Hill that the provi-
sions of this Section 7.06 be given maximum force, effect and
application permissible under applicable law.
Section 7.07. Intercompany Accounts. Immediately
prior to the Closing, Times Mirror will cause all intercompany
accounts between TMHE or any of the TMHE Subsidiaries, on the
one side, and Times Mirror or any of its subsidiaries or af-
filiates (other than TMHE and the TMHE Subsidiaries), on the
other side, to be contributed to capital (in the case of inter-
company payables on the books of TMHE, its subsidiaries or
Mosby) or eliminated (in the case of intercompany receivables
on the books of TMHE, its subsidiaries or Mosby). Neither the
Mosby Assets nor the International Assets will include any
account receivable from Times Mirror or any of its affiliates,
and neither the Mosby Liabilities nor the International Lia-
bilities will include any account payable to Times Mirror or
any of its affiliates. The foregoing shall not apply to trade
accounts receivable on the books of TMHE and Mosby due from the
TMIP Entities.
Section 7.08. Confidentiality. Times Mirror ac-
knowledges that the information being provided to it by McGraw-
Hill is subject to the terms of a confidentiality agreement
dated June 19, 1996 between McGraw-Hill and Times Mirror (the
"Shepard's Confidentiality Agreement"), the terms of which are
incorporated herein by reference. Effective upon, and only
upon, the Closing, the Shepard's Confidentiality Agreement will
terminate only with respect to information relating solely to
Shepard's, and Times Mirror acknowledges that any and all other
information provided to it by McGraw-Hill or its representa-
tives concerning any other subsidiary of McGraw-Hill or any
other operations of McGraw-Hill shall remain subject to the
terms and conditions of the Shepard's Confidentiality Agreement
after the Closing Date.
Section 7.09. No Additional Representations. Times
Mirror acknowledges that none of McGraw-Hill, Shepard's or any
other person has made any representation or warranty, expressed
or implied, as to the accuracy or completeness of any informa-
tion regarding Shepard's except as expressly set forth in this
Agreement or the schedules hereto, and none of McGraw-Hill,
Shepard's or any other person will have or be subject to any
liability or indemnification obligation to Times Mirror or any
other person resulting from the distribution to Times Mirror,
or Times Mirror's use of, any such information, including,
without limitation, any information, document, or material made
available to Times Mirror in certain "data rooms," management
presentations or in any other form in expectation of the trans-
actions contemplated by this Agreement.
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Section 7.10. Performance of Obligations by Times
Mirror After Closing Date. On and after the Closing Date,
Times Mirror shall, or shall cause Shepard's to, duly, promptly
and faithfully pay, perform and discharge when due, subject to
any available defenses and rights of set-off, all obligations
and liabilities of whatever kind and nature, primary or second-
ary, direct or indirect, absolute or contingent, known or un-
known, whether or not accrued, whether arising before, on or
after the Closing Date, of Shepard's, including, without lim-
itation, any such obligation or liabilities contained in each
of the Shepard's Contracts or any agreement, lease, license,
permit, plan or commitment binding on Shepard's or any of its
assets that, because it fails to meet the relevant threshold
amount or term, is not included within the definition of
Shepard's Contracts, or any plan, fund, program, policy, con-
tract or arrangement described in Section 6.16, but not re-
quired to be set forth on Schedule 6.16(a); provided, however,
that the foregoing shall not apply to any obligation or lia-
bility that McGraw-Hill agrees to bear under this Agreement.
Section 7.11. Name Change. Times Mirror shall take
all measures necessary to cause Shepard's to change the name of
Shepard's to remove the word "McGraw-Hill" therefrom effective
immediately after the Closing.
Section 7.12. Grant of License. At the Closing,
Mosby shall grant to McGraw-Hill a perpetual, royalty-free
license to all technology and related documentation in the
possession or control of Mosby and existing as of the Closing
necessary to run the software included in such technology and
to develop, produce, publish, license, sell, or distribute any
works included in the Mosby Assets (including revisions to the
works included in the Mosby Assets) containing said technology.
McGraw-Hill's rights under the license granted pursuant to this
Section 7.12 shall be limited to the development, production,
publication licensing, sale and distribution of the works
referred to in this Section 7.12. As part of the license
arrangement during the period of the Mosby Transition Services
Agreement, Mosby will provide reasonable support with respect
to the software in order to enable McGraw-Hill to continue
publishing the effected works.
In the event that the technology licensed hereunder
includes third-party software or technology for which Mosby is
obligated to pay a royalty, McGraw-Hill shall, to the extent it
does not obtain its own third-party license, be responsible for
the payment of royalties due such third party with respect to
the sale of works referred to in this Section.
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Section 7.13. Purchase of Limited Partner Interest.
(a) At the election of McGraw-Hill, Times Mirror shall pur-
chase the limited partner interest owned as of the Closing by
TMHE in Burr Ridge Parkway Limited Partnership (the "Partner-
ship Interest"), for $7.5 million. Such election may be exer-
cised by McGraw-Hill by giving written notice to Times Mirror
on or after January 1, 1998 and on or before January 31, 1998.
If such election is made, a closing shall take place on the
fifth Business Day after notice is given to Times Mirror, at
which (i) McGraw-Hill will convey, or cause to be conveyed, to
Times Mirror the Partnership Interest, free and clear of all
Liens and (ii) Times Mirror will pay $7.5 million to McGraw-
Hill in immediately available funds.
(b) In the event that the sale to Times Mirror of
the Partnership Interest pursuant to paragraph (a) of this Sec-
tion 7.13 takes place, Times Mirror will pay to McGraw-Hill at
the closing of such purchase an amount equal to the net present
value (at such time), computed at a discount rate of 7%, of the
excess of the amount payable (based upon a rate of $28.25 per
square foot) under the lease between Burr Ridge Parkway Limited
Partnership, as lessor, and TMHE, as lessee, over the amount
that would be payable thereunder assuming a rate of $14.50 per
square foot, for the period beginning January 1, 1998 and
extending for the term of such lease.
ARTICLE EIGHT
COVENANTS OF McGRAW-HILL
Section 8.01. June 30 and Closing Date Financial
Statements.
(a) June 30 Financial Statements. As soon as prac-
ticable and in any event not later than August 31, 1996,
McGraw-Hill shall deliver to Times Mirror (i) the unaudited
condensed balance sheet of Shepard's and the notes thereto as
of June 30, 1996 and the unaudited condensed statements of op-
erations for the six-month period ended June 30, 1996. The
financial statements of Shepard's referred to in this paragraph
shall be prepared in accordance with GAAP, applied in a manner
consistent with that applied in the preparation of the finan-
cial statements set forth on Schedule 6.08 and shall present
fairly, in all material respects, the financial position and
the results of operations of Shepard's as of the date thereof
and for the period covered thereby. The statements described
in this paragraph shall be accompanied by a certificate of the
Chief Financial Officer of Shepard's confirming preparation of
such statements as described above.
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(b) Closing Date Income Statement. As soon as prac-
ticable and in any event not later than 45 days after the
Closing Date, McGraw-Hill shall deliver to Times Mirror (i) the
unaudited condensed statement of income of Shepard's (the
"Shepard's Income Statement") for the period from July 1, 1996
to the Closing Date and (ii) the unaudited statement of bal-
ances and activity related to the intercompany accounts of
Shepard's with McGraw-Hill for the period from July 1, 1996 to
the Closing Date. Shepard's Income Statement shall be prepared
in a manner consistent with that applied in the preparation of
the statements provided pursuant to Section 8.01(a) and shall
present fairly, in all material respects, the results of opera-
tions of Shepard's for the period covered thereby. The state-
ments described in this Section 8.01(b) shall be accompanied by
a certificate of the Chief Financial officer of Shepard's con-
firming that the statements have been prepared as described
above.
(c) Closing Date Balance Sheet. As soon as practi-
cable and in any event not later than 45 days after the Closing
Date, McGraw-Hill shall deliver to Times Mirror an unaudited
balance sheet for Shepard's as of the Closing Date (the "Shep-
ard's Closing Date Balance Sheet"). The Shepard's Closing Date
Balance Sheet (i) shall be prepared in accordance with GAAP and
on a basis consistent with the December 31, 1995 balance sheet
of Shepard's included in Schedule 6.08 and (ii) shall not re-
flect any purchase accounting adjustments attributable to the
transactions provided for in this Agreement. The balance sheet
described in this Section 8.01(c) shall be accompanied by a
certificate of the Chief Financial Officer of Shepard's con-
firming that the balance sheet has been prepared as described
above.
Section 8.02. Access. Prior to the Closing, McGraw-
Hill and its officers, directors, employees, advisors, repre-
sentatives and authorized agents will, and McGraw-Hill will
cause Shepard's and its officers, directors, employees, advi-
sors, representatives and authorized agents to, provide Times
Mirror and its representatives, employees, counsel and accoun-
tants during scheduled appointments approved by McGraw-Hill
(which approval shall not be unreasonably withheld) occurring
during normal business hours and in a manner not unreasonably
disruptive to the conduct of the business of Shepard's or any
of the officers, directors, employees, advisors, representa-
tives or authorized agents of McGraw-Hill or Shepard's, access
to the personnel, properties, books and records of Shepard's,
including, without limitation, (i) access to Shepard's Employ-
ees for the purpose of pre-enrolling such Shepard's Employees
in any employee benefit or welfare plans of Times Mirror, (ii)
access for purposes of conducting a preliminary environmental
-60-<PAGE>
assessment and any additional boring and sampling or other en-
vironmental assessment work as Times Mirror may deem appropri-
ate and (iii) access for purposes of conducting preliminary
facilities reviews; provided, however, that all information and
documentation made available to Times Mirror pursuant to the
terms of this Section 8.02 shall be subject to the terms of the
Shepard's Confidentiality Agreement. Access afforded to Times
Mirror under this Section 8.02 shall also be afforded, subject
to the same restrictions, to Reed Elsevier Inc.
Section 8.03. Ordinary Conduct. Except as contem-
plated by this Agreement or set forth on Schedule 8.03, from
the date of this Agreement to the Closing Date, McGraw-Hill
will cause the business of Shepard's to be conducted in the
ordinary course in substantially the same manner as presently
conducted and will make all reasonable efforts substantially
consistent with past practices to preserve their relationships
with customers, suppliers and others with whom Shepard's deals.
Except as contemplated by this Agreement, McGraw-Hill will not
permit Shepard's to do any of the following without the prior
written consent of Times Mirror:
(a) Charter. Amend its Charter or By-laws;
(b) Dividends. Declare or pay any non-cash
dividend or make any other non-cash distributions to
McGraw-Hill, whether or not upon or in respect of any
shares of its capital stock;
(c) Capital Stock. Redeem or otherwise acquire
any shares of its capital stock or issue any capital stock
or any option, warrant or right thereto or any securities
convertible into or exchangeable for any of its capital
stock;
(d) Employee Matters. Adopt or amend in any
material respect any Shepard's Plan or collective bargain-
ing agreement, except as required by law;
(e) Compensation. (i) Grant to any executive
officer or employee any increase in compensation or ben-
efits or any rights to receive severance payments or other
benefits upon a termination of employment or a change of
ownership or control of the employer, except (A) as may be
required under the express terms of existing written
agreements, (B) in the ordinary course of business consis-
tent with past practice or (C) any increases, payments or
benefits for which McGraw-Hill shall be solely obligated,
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(ii) enter into any employment agreement or amend any ex-
isting employment agreement, or (iii) terminate any execu-
tive officer or employee other than in the ordinary course
of business consistent with past practice;
(f) Indebtedness. Incur or assume any liabili-
ties, obligations or indebtedness for borrowed money or
guarantee any such liabilities, obligations or indebt-
edness, other than any indebtedness owing to McGraw-Hill
or any other person incurred in the ordinary course of
business consistent with past practice; provided that in
no event shall Shepard's incur, assume or guarantee any
long-term indebtedness for borrowed money;
(g) Encumbrances. Permit, allow or suffer any
of its assets to be subjected to any Lien, other than
Permitted Liens;
(h) Cancellation of Indebtedness. Except as
provided in Section 8.07, cancel any indebtedness owing to
Shepard's or waive any claims or rights, other than
cancellations or waivers in the ordinary course of
business that individually cover indebtedness, claims or
rights having a value of less than $50,000 and, in the
aggregate, cover indebtedness, claims or rights having a
value of less than $250,000;
(i) Related Party Transactions. Except for (i)
dividends or distributions not prohibited under clause (b)
above, (ii) indebtedness not prohibited by clause (f)
above and (iii) intercompany transactions in the ordinary
course of business and consistent with past practice, pay,
loan or advance any amount to, or sell, transfer or lease
any of its assets to, or enter into any agreement or ar-
rangement with McGraw-Hill or any affiliate of McGraw-Hill
that would continue in effect after the Closing;
(j) Accounting Polices. Make any change in any
method of accounting or accounting practice or policy
other than those required by GAAP;
(k) Reorganizations. Acquire or agree to ac-
quire by merging or consolidating with, or by purchasing
the stock of, or a substantial portion of the assets of,
or by any other manner, any business or any corporation,
partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire
any assets (other than inventory);
-62-<PAGE>
(l) Capital Expenditures. Make or incur any
capital expenditures other than those made or incurred in
accordance with McGraw-Hill's fiscal year 1996 capital
expenditure budget with respect to Shepard's heretofore
disclosed to Times Mirror;
(m) Asset Dispositions. Sell, lease or other-
wise dispose of, or agree to sell, lease or otherwise dis-
pose of, any of its assets, except for sales of inventory
in the ordinary course of business and except for sales,
leases or dispositions of assets that, in the aggregate,
have a fair value of less than $500,000;
(n) Material Agreements. Enter into any agree-
ments, whether or not in the ordinary course of business,
that calls for payments in excess of $500,000 and will not
be fully performed within 12 months;
(o) Accruals. Make any accrual or provision
for sales returns, inventory obsolescence, bad debts,
Taxes or other items, other than with respect to the
period from July 1 to Closing and consistent with past
practices; or
(p) Commitments. Agree, whether in writing or
otherwise, to do any of the foregoing.
Section 8.04. Insurance. McGraw-Hill shall keep, or
cause to be kept, all insurance policies presently maintained
relating to Shepard's and its properties or suitable replace-
ments therefor in full force and effect through the close of
business on the Closing Date. Schedule 8.04 sets forth all the
insurance policies presently owned and maintained by Shepard's.
Any and all additional insurance policies presently maintained
relating to Shepard's and its properties are maintained by
McGraw-Hill. Neither McGraw-Hill nor Shepard's will have any
rights under any such insurance policies from and after the
Closing Date with the exception of such policies that do not
name McGraw-Hill or any of its other subsidiaries as named in-
sureds.
Section 8.05. Resignations. On the Closing Date,
McGraw-Hill shall cause to be delivered to Times Mirror duly
signed resignations, effective immediately after the Closing
Date, of all members of the Board of Directors of Shepard's and
shall take such other action as is necessary to accomplish the
foregoing.
Section 8.06. Non-Competition. McGraw-Hill cov-
enants and agrees that, if the Closing shall occur,
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(a) during the Restricted Period, McGraw-Hill and
its affiliates will not, directly or indirectly, anywhere in
the world, (1) engage in any business or activity which com-
petes with or is substantially similar to the legal citations
business of Shepard's (such business being referred to in this
Section 8.06 as the "Competing Business"); or (2) become the
beneficial owner of more than 5% of the common stock (or analo-
gous equity interest) of any company or other organization that
derives more than 5% of its consolidated revenue from the Com-
peting Business;
(b) during the Restricted Period, McGraw-Hill and
its Affiliates shall not solicit the employment of any manage-
rial, marketing, editorial or sales employee of McGraw-Hill or
any of its affiliates who becomes an employee of Times Mirror
or any of its affiliates in connection with the transactions
contemplated by this Agreement; and
(c) during the Restricted Period, McGraw-Hill and
its Affiliates shall not take any action for the purpose of
interfering with the relationship, insofar as it relates to the
Competing Business, between Times Mirror (or any affiliates of
Times Mirror) and any author, customer or supplier of Times
Mirror (or any affiliate of Times Mirror).
McGraw-Hill agrees that the covenant not to compete set forth
in paragraph (a) above is reasonable with respect to its dura-
tion, geographical area and scope. Notwithstanding any other
provision of this Agreement, if any of the provisions of this
Section 8.06 or the application of any provision of this Sec-
tion 8.06 to any jurisdiction or time period shall be held in-
valid or unenforceable, the remaining portion of the provisions
of this Section 8.06 or the application of such portion thereof
as is held invalid or unenforceable to jurisdictions or time
periods other than those as to which it is held invalid or un-
enforceable, shall not be affected thereby. It is the intent
and agreement of Times Mirror and McGraw-Hill that the provi-
sions of this Section 8.06 be given maximum force, effect and
application permissible under applicable law.
Section 8.07. Intercompany Accounts. Immediately
prior to the Closing, McGraw-Hill will cause all intercompany
accounts between Shepard's, on the one side, and McGraw-Hill or
any of its subsidiaries or affiliates (other than Shepard's),
on the other side, to be contributed to capital (in the case of
intercompany payables on the books of Shepard's) or eliminated
(in the case of intercompany receivables on the books of
Shepard's). The assets of Shepard's will not include any
account receivable from McGraw-Hill or any of its affiliates,
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and the liabilities of Shepard's will not include any account
payable to McGraw-Hill or any of its affiliates.
Section 8.08. Confidentiality. McGraw-Hill acknowl-
edges that the information being provided to it by Times Mirror
is subject to the terms of the College Publishing Business Con-
fidentiality Agreement, the terms of which are incorporated
herein by reference. Effective upon, and only upon, the Clos-
ing, the College Publishing Business Confidentiality Agreement
will terminate only with respect to information relating solely
to TMHE, the Mosby Assets and the Mosby Liabilities and the
International Assets and International Liabilities, and McGraw-
Hill acknowledges that any and all other information provided
to it by Times Mirror, Mosby or TMIP, or Times Mirror's or
Mosby's or TMIP's representatives concerning Mosby or any of
the TMIP Entities (other than information relating solely to
the Mosby Assets, the Mosby Liabilities, the International As-
sets and the International Liabilities), any other subsidiary
of Times Mirror or any other operations of Times Mirror shall
remain subject to the terms and conditions of the College Pub-
lishing Business Confidentiality Agreement after the Closing
Date.
Section 8.09. No Additional Representations.
McGraw-Hill acknowledges that none of Times Mirror, TMHE, Mosby
or any other person has made any representation or warranty,
expressed or implied, as to the accuracy or completeness of any
information regarding the College Publishing Business except as
expressly set forth in this Agreement or the schedules hereto,
and none of Times Mirror, TMHE, Mosby or any other person will
have or be subject to any liability or indemnification obliga-
tion to McGraw-Hill or any other person resulting from the dis-
tribution to McGraw-Hill, or McGraw-Hill's use of, any such
information, including, without limitation, the Confidential
Offering Memorandum prepared by Morgan Stanley & Co. Incorpo-
rated dated April 1996 (the "Confidential Offering Memorandum")
(except as provided in Section 5.09(c)) and any information,
document, or material made available to McGraw-Hill in certain
"data rooms," management presentations or in any other form in
expectation of the transactions contemplated by this Agreement.
Section 8.10. Performance of Obligations by McGraw-
Hill After Closing Date. On and after the Closing Date,
McGraw-Hill shall, or shall cause TMHE to, duly, promptly and
faithfully pay, perform and discharge when due, subject to any
available defenses and rights of set-off, (i) all obligations
and liabilities of whatever kind and nature, primary or second-
ary, direct or indirect, absolute or contingent, known or un-
known, whether or not accrued, whether arising before, on or
after the Closing Date, of TMHE, including, without limitation,
-65-<PAGE>
any such obligation or liabilities contained in each of the
College Publishing Business Contracts or any agreement, lease,
license, permit, plan or commitment binding on TMHE or any of
its assets that, because it fails to meet the relevant thresh-
old amount or term, is not included within the definition of
Contracts, or any plan, fund, program, policy, contract or
arrangement described in Section 5.17, but not required to be
set forth on Schedule 5.17(a); provided, however, that the
foregoing shall not apply to any obligation or liability that
Times Mirror or Mosby agrees to bear under this Agreement; and
(ii) all of the Mosby Liabilities and the International Lia-
bilities.
Section 8.11. Name Change. McGraw-Hill shall take
all measures necessary to cause TMHE to change the name of TMHE
to remove the words "Times Mirror" therefrom effective imme-
diately after the Closing.
Section 8.12. Transitional Services. At the
Closing, McGraw-Hill and Shepard's shall enter into a mutually
satisfactory agreement providing for services needed to effect
an orderly transition of ownership of Shepard's.
ARTICLE NINE
MUTUAL COVENANTS
Each of Times Mirror and McGraw-Hill covenants and
agrees as follows:
Section 9.01. Post-Closing Adjustment. (a) Within
five days after delivery by Times Mirror of the TMHE Income
Statement and the Mosby P & L Statement pursuant to Section
7.01(b),
(i) if the sum of (1)(A) the income before income
taxes of TMHE shown on the TMHE Income Statement plus (B) the
income before income taxes of Mosby's College Text Business
shown on the Mosby P & L Statement plus (C) Transaction-Related
Expenses of TMHE or Mosby (to the extent such were recorded as
expenses on the TMHE Income Statement or Mosby P & L Statement)
plus (D) $3.6 million minus the sum of (2)(A) the net change in
the intercompany account balance (without taking into account
any charges representing Transaction-Related Expenses to such
balance or any charge relating to income taxes) on the books of
TMHE with Times Mirror for the period from July 1, 1996 to the
Closing Date plus (B) the net change in the intercompany ac-
count balance (if any) (without taking into account any charges
representing Transaction-Related Expenses to such balance or
any charge relating to income taxes) reflected in the records
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of Mosby, with respect to Mosby's College Text Business, with
Times Mirror for the period from July 1, 1996 to the Closing
Date plus (C) income taxes on the amount in clause (1)(A), (B)
and (C) using a federal rate of 35% and the rates, as
appropriate, for the States of California, Illinois and
Connecticut set forth in Schedule 9.01(a) (net of federal bene-
fit) plus (D) $1.7 million is greater than zero, Times Mirror
shall pay to McGraw-Hill, in immediately available funds, the
amount equal to such difference; and
(ii) if the sum of (1)(A) the income before income
taxes of TMHE shown on the TMHE Income Statement plus (B) the
income before income taxes of Mosby's College Text Business
shown on the Mosby P & L Statement plus (C) Transaction-Related
Expenses of TMHE or Mosby (to the extent such were recorded as
expenses on the TMHE Income Statement or Mosby P & L Statement)
plus (D) $3.6 million minus the sum of (2)(A) the net change in
the intercompany account balance (without taking into account
any charges representing Transaction-Related Expenses to such
balance or any charge relating to income taxes) on the books of
TMHE with Times Mirror for the period from July 1, 1996 to the
Closing Date plus (B) the net change in the intercompany ac-
count balance (if any) (without taking into account any charges
representing Transaction-Related Expenses to such balance or
any charge relating to income taxes) reflected in the records
of Mosby, with respect to Mosby's College Text Business, with
Times Mirror for the period from July 1, 1996 to the Closing
Date plus (C) income taxes on the amount in clause (1)(A), (B)
and (C) using a federal rate of 35% and the rates, as
appropriate, for the States of California, Illinois and
Connecticut set forth in Schedule 9.01(a) (net of federal
benefit) plus (D) $1.7 million is less than zero, McGraw-Hill
shall pay to Times Mirror, in immediately available funds, the
amount equal to such difference.
For purposes of the calculations in this Section
9.01(a), intercompany payables to Times Mirror on the books of
TMHE and Mosby, with respect to Mosby's College Text Business,
shall be positive amounts and intercompany receivables on the
books of TMHE and the records of Mosby, with respect to Mosby's
College Text Business, shall be negative amounts, and any cash
distributions from TMHE or Mosby, with respect to Mosby's
College Text Business, shall be recorded in the intercompany
account of TMHE or Mosby, as the case may be, as intercompany
receivables. From the period from July 1, 1996 to Closing, no
advances to or distributions from TMHE or Mosby, with respect
to Mosby's College Text Business, shall be made other than from
or to Times Mirror.
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The accrual of additional reserves for bad debt or
sales returns with respect to TMIP accounts receivable trans-
ferred to TMHE or Mosby's College Text Business pursuant to
Schedule 4.02(a)(v) plus additional reserves for bad debts or
sales returns on the books of TMHE relating to International
Direct Sales as defined in Schedule 4.02(a)(v) shall not be
taken into account in the calculation of income before taxes or
reflected in the intercompany accounts.
Furthermore, the credit to the intercompany account
of TMHE and Mosby's College Text Business with Times Mirror on
account of the transfer of the statutory receivables from Times
Mirror to TMHE and Mosby's College Text Business shall not be
taken into account in computing the net change in the
intercompany account balance of TMHE and Mosby's College Text
Business with Times Mirror.
(a) Within five days after delivery by McGraw-Hill
of the Shepard's Income Statement pursuant to Section 8.01(b),
(i) if the sum of (1)(A) the income before income
taxes of Shepard's shown on the Shepard's Income Statement plus
(B) Transaction-Related Expenses of Shepard's (to the extent
such were recorded as expenses on the Shepard's Income State-
ment) minus the sum of (2)(A) the net change in the intercom-
pany account balance (without taking into account any charges
representing Transaction-Related Expenses to such balance or
any charge relating to income taxes) on the books of Shepard's
with McGraw-Hill for the period from July 1, 1996 to the Clos-
ing Date plus (B) income taxes on the amount in clause (1) us-
ing a federal rate of 35% and the rates, as appropriate, for
the States of California, Colorado and Michigan, set forth in
Schedule 9.01(b) (net of federal benefit) is greater than zero,
McGraw-Hill shall pay to Times Mirror, in immediately available
funds, the amount equal to such difference; and
(ii) if the sum of (1)(A) the income before income
taxes of Shepard's shown on the Shepard's Income Statement plus
(B) Transaction-Related Expenses of Shepard's (to the extent
such were recorded as expenses on the Shepard's Income State-
ment) minus the sum of (2)(A) the net change in the intercom-
pany account balance (without taking into account any charges
representing Transaction-Related Expenses to such balance or
any charge relating to income taxes) on the books of Shepard's
with McGraw-Hill for the period from July 1, 1996 to the Clos-
ing Date plus (B) income taxes on the amount in clause (1) us-
ing a federal rate of 35% and the rates, as appropriate, for
the States of California, Colorado and Michigan set forth in
Schedule 9.01(b) (net of federal benefit) is less than zero,
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Times Mirror shall pay to McGraw-Hill, in immediately available
funds, the amount equal to such difference.
For purposes of the calculations in this Section
9.01(b), intercompany payables to McGraw-Hill on the books of
Shepard's shall be positive amounts and intercompany
receivables on the books of Shepard's shall be negative
amounts, and any cash distributions from Shepard's shall be
recorded in the intercompany account of Shepard's as
intercompany receivables. From the period from July 1, 1996 to
Closing, no advances to or distributions from Shepard's shall
be made other than from or to McGraw-Hill.
(c) Any net amount owed to Times Mirror or McGraw-
Hill under Section 9.01 shall be deemed an adjustment to the
amount paid under Section 2.03.
(d) All calculations under this Section 9.01 shall
(i) be made prior to the transactions contemplated by Sections
7.07 and 8.07 and (ii) shall give no effect to any action that
constitutes a breach of this Agreement.
Section 9.02. Use of Names.
(a) Mosby grants to McGraw-Hill and TMHE the right
to leave Mosby's name on the inventory included in the Mosby
Assets in the form it appears thereon on the Closing Date, and
to continue to use such name with respect to each publication
included within the Mosby Assets until all inventory of such
publication existing on the Closing Date has been sold; pro-
vided, however, that the Mosby name shall not be used on any
subsequent revision of such publication. Nothing in this Sec-
tion 9.02 shall be construed to grant to McGraw-Hill or TMHE
any rights whatsoever in Mosby's name.
(b) Times Mirror grants to McGraw-Hill and TMHE the
right to use Times Mirror's name on the inventory included in
the College Publishing Business in the form it appears thereon
on the Closing Date, and to continue to use such name with re-
spect to each publication included within the College Publish-
ing Business until all inventory of such publication existing
on the Closing Date has been sold; provided, however, that the
Times Mirror name shall not be used on any subsequent revision
of such publication. Nothing in this Section 9.02 shall be
construed to grant to McGraw-Hill or TMHE any rights whatsoever
in Times Mirror's name.
(c) McGraw-Hill grants to Times Mirror and Shepard's
the right to use McGraw-Hill's name on the inventory included
in the assets of Shepard's in the form it appears thereon on
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the Closing Date, and to continue to use such name with respect
to each publication included within the assets of Shepard's
until all inventory of such publication existing on the Closing
Date has been sold; provided, however, that the McGraw-Hill
name shall not be used on any subsequent revision of such pub-
lication. Nothing in this Section 9.02 shall be construed to
grant to Times Mirror or Shepard's any rights whatsoever in
McGraw-Hill's name.
Section 9.03. Cooperation. McGraw-Hill, Times Mir-
ror and Mosby shall cooperate with each other and shall cause
their respective officers, employees, affiliates, agents, audi-
tors and representatives to cooperate with each other after the
Closing to ensure (i) the orderly transfer of TMHE, the Mosby
Assets, the Mosby Liabilities, the International Assets and the
International Liabilities from Times Mirror, Mosby or the TMIP
Entities, as the case may be, to McGraw-Hill (or one or more
subsidiaries of McGraw-Hill) designated by McGraw-Hill and (ii)
the orderly transfer of Shepard's from McGraw-Hill to Times
Mirror, and to minimize any disruption to the respective busi-
nesses of Mosby, TMHE or Shepard's that might result from the
transactions contemplated hereby. No party shall be required
by this Section 9.03 to take any action that would unreasonably
interfere with the conduct of its business.
Section 9.04. Publicity. Times Mirror and McGraw-
Hill agree that, from the date of this Agreement through the
Closing Date, no public release or announcement concerning the
transactions contemplated hereby shall be issued by either
party without the prior consent of the other party (which con-
sent shall not be unreasonably withheld), except as such re-
lease or announcement may be required by law or the rules or
regulations of any United States or foreign securities ex-
change, in which case the party required to make the release or
announcement shall allow the other party reasonable time to
comment on such release or announcement in advance of such is-
suance. Following the Closing, Times Mirror and McGraw-Hill
shall consult with each other with respect to the preparation
of any filing with the Securities and Exchange Commission that
describes or reflects the transactions provided for in this
Agreement, through and including the Form 10-Q (if any) and
Form 10-K (unless the Closing occurs after December 31, 1996)
covering the period in which the Closing occurs.
Section 9.05. Antitrust Notification. Each of Times
Mirror and McGraw-Hill will as promptly as practicable, but in
no event later than ten Business Days following the execution
and delivery of this Agreement, file with the United States
Federal Trade Commission (the "FTC") and the United States De-
partment of Justice ("DOJ") the notification and report form,
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if any, required for the transactions contemplated hereby and
any supplemental information requested in connection therewith
pursuant to the HSR Act. Any such notification and report form
and supplemental information will be in substantial compliance
with the requirements of the HSR Act. Each of McGraw-Hill and
Times Mirror shall furnish to the other such necessary informa-
tion and reasonable assistance as the other may request in con-
nection with its preparation of any filing or submission which
is necessary under the HSR Act. Times Mirror and McGraw-Hill
shall keep each other apprised of the status of any communica-
tions with, and inquiries or requests for additional informa-
tion from, the FTC and the DOJ and shall comply promptly with
any such inquiry or request. Each of Times Mirror and McGraw-
Hill will use its best efforts to obtain any clearance required
under the HSR Act for the consummation of the transactions con-
templated hereby; provided, however, that nothing herein shall
require (i) McGraw-Hill or any of its subsidiaries to divest or
hold separate any portion of its assets, the assets of TMHE,
the Mosby Assets or the International Assets or (ii) Times Mir-
ror or any of its subsidiaries to divest or hold separate any
portion of its assets or the assets of Shepard's.
Section 9.06. Records.
(a) On the Closing Date, Times Mirror and Mosby
shall deliver or cause to be delivered to McGraw-Hill all orig-
inal agreements, documents, books, records and files (collec-
tively, "Records"), in the possession of Times Mirror, Mosby or
the TMIP Entities relating to the business and operations of
TMHE or the TMHE Subsidiaries, to the extent not then in the
possession of TMHE, or relating solely and exclusively to
Mosby's College Text Business, the International Assets or the
International Liabilities subject to the following exceptions:
(i) Mosby may retain Records until the Termination
Date of the Mosby Transition Services Agreement (as such
term is defined therein) and each of the TMIP Entities may
retain Records until the Termination Date of the TMIP
Transition Services Agreement (as such term is defined
therein), in each case to the extent necessary or conve-
nient for the performance of its respective obligations
thereunder;
(ii) McGraw-Hill recognizes that certain Records may
contain incidental information relating to TMHE or Mosby's
College Text Business or may relate primarily to subsid-
iaries or divisions of Times Mirror other than TMHE or
businesses of TMHE previously sold, and that Times Mirror
or Mosby, as the case may be, may retain such Records and
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shall provide copies of the relevant portions thereof to
McGraw-Hill;
(iii) Times Mirror may retain all Records prepared in
connection with the sale of the TMHE Shares and the Mosby
Assets, including bids received from other parties and
analyses relating to TMHE and Mosby's College Text Busi-
ness; and
(iv) Times Mirror may retain any Tax returns, reports
or forms, and McGraw-Hill shall be provided with copies of
such returns, reports or forms only to the extent that
they relate to TMHE's or the TMHE Subsidiaries' separate
returns or separate Tax liability.
(b) On the Closing Date, McGraw-Hill shall deliver
or cause to be delivered to Times Mirror all Records in the
possession of McGraw-Hill relating to the business and opera-
tions of Shepard's to the extent not then in the possession of
Shepard's, subject to the following exceptions:
(i) Times Mirror recognizes that certain
Records may contain incidental information relating
to Shepard's or may relate primarily to subsidiaries
or divisions of McGraw-Hill other than Shepard's or
businesses of Shepard's previously sold, and that
McGraw-Hill may retain such Records and shall provide
copies of the relevant portions thereof to Times Mir-
ror;
(ii) McGraw-Hill may retain all Records prepared
in connection with the sale of the Shepard's Shares,
including analyses relating to the business of
Shepard's; and
(iii) McGraw-Hill may retain any Tax returns,
reports or forms, and Times Mirror shall be provided
with copies of such returns, reports or forms only to
the extent that they relate to the separate returns
or separate Tax liability of Shepard's.
(c) After the Closing, upon reasonable written no-
tice, McGraw-Hill, Times Mirror and Mosby agree to furnish or
cause to be furnished to each other and their representatives,
employees, counsel and accountants access, during normal busi-
ness hours, to such information (including Records pertinent to
Shepard's, TMHE, the TMHE Subsidiaries, Mosby's College Text
Business, the International Assets and the International Li-
abilities) and assistance relating to Shepard's, TMHE, the TMHE
Subsidiaries, Mosby's College Text Business, the International
-72-<PAGE>
Assets and the International Liabilities as is reasonably nec-
essary for financial reporting and accounting matters, the
preparation and filing of any Tax returns, reports or forms or
the defense of any Tax Claim or assessment; provided, however,
that such access does not unreasonably disrupt the normal op-
erations of Times Mirror, McGraw-Hill, Shepard's, TMHE or
Mosby.
Section 9.07. Further Assurances. From time to
time, as and when requested by either party hereto, the other
party shall execute and deliver, or cause to be executed and
delivered, all such documents and instruments and shall take,
or cause to be taken, all such further or other actions as such
other party may reasonably deem necessary or desirable to con-
summate the transactions contemplated by this Agreement.
Section 9.08. Provision of Audited Financials.
McGraw-Hill shall furnish to Times Mirror, at McGraw-Hill's
expense, audited financial statements of Shepard's that, in the
reasonable judgment of Ernst & Young, are required to be filed
by Times Mirror with the Securities and Exchange Commission in
connection with the transactions contemplated hereby. Times
Mirror shall furnish to McGraw-Hill, at Times Mirror's expense,
audited financials of the College Publishing Business that, in
the reasonable judgment of Ernst & Young, are required to be
filed by McGraw-Hill with the Securities and Exchange Commis-
sion in connection with the transactions contemplated hereby.
ARTICLE TEN
EMPLOYEE AND RELATED MATTERS
WITH RESPECT TO COLLEGE
PUBLISHING BUSINESS
Section 10.01. Continuation of Employment.
(a) Offers of Employment. Schedule 10.01(a) con-
tains a complete and accurate list of each Mosby's College Text
Business Employee who will be employed by McGraw-Hill on the
Closing Date. Except as otherwise provided herein, on or after
the Closing Date, McGraw-Hill shall offer employment to (or
cause TMHE to offer employment to or to continue to employ) all
College Publishing Business Employees who are actively employed
immediately prior to the Closing Date by TMHE, a TMHE Subsid-
iary or Mosby, subject to the terms and conditions set forth in
this Article 10. In addition, each College Publishing Business
Employee who is on an authorized leave of absence, short- or
long-term disability leave, worker's compensation leave or va-
cation leave as of the Closing Date shall be offered employment
with McGraw-Hill or TMHE following the expiration of the leave
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of absence to the extent that Times Mirror, TMHE or a TMHE Sub-
sidiary was obligated to offer employment to such employees
upon their return to work following such leave, subject to the
terms and conditions set forth in this Article 10. All persons
who are offered employment in accordance with the terms of this
Section 10.01(a) and who are employed by TMHE, a TMHE Subsid-
iary or McGraw-Hill on or after the Closing Date are collec-
tively referred to herein as the "College Publishing Business
Transferred Employees." Notwithstanding anything contained
herein to the contrary, on and after the Closing Date, McGraw-
Hill and TMHE shall have no obligation to employ Mr. G.
Franklin Lewis and any employee of Mosby's College Text Busi-
ness who is not listed on Schedule 10.01(a) and Times Mirror
shall retain all responsibility for any obligations with re-
spect to such employees who are not College Publishing Business
Transferred Employees, including the obligation to pay sever-
ance. For a period of one year following the Closing Date,
McGraw-Hill shall not offer employment to any College Publish-
ing Business Employee who is not employed by McGraw-Hill as of
the Closing Date. In addition, nothing contained in this Ar-
ticle 10 shall be construed to prevent, limit or restrict in
any way McGraw-Hill's right to terminate any College Publishing
Business Transferred Employee following the Closing Date.
(b) WARN Act and Other Matters. McGraw-Hill shall
be fully responsible for any liability arising under the Worker
Adjustment and Retraining Notification Act arising in connec-
tion with the termination of the employment of any College Pub-
lishing Business Transferred Employee on or after the Closing
Date.
Section 10.02. Times Mirror's Benefit Plans and Em-
ployee Related Liabilities. Times Mirror agrees to continue,
or cause one or more of its affiliates to continue, coverage of
College Publishing Business Personnel under the College Pub-
lishing Business Plans in accordance with their terms up to the
Closing Date. As of the Closing Date, each College Publishing
Business Transferred Employee shall cease to be covered by each
of the College Publishing Business Plans. Except with respect
to the liabilities under the College Publishing Business Plans
that are expressly assumed by McGraw-Hill under this Article
10, Times Mirror (and not TMHE or the TMHE Subsidiaries) shall
remain obligated for all benefits and benefit entitlements un-
der the College Publishing Business Plans which were earned or
accrued by College Publishing Business Transferred Employees
and College Publishing Business Retirees prior to the Closing
Date and for all employment or employment related liabilities
or claims relating to facts or events that occurred prior to
the Closing Date.
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Section 10.03. McGraw-Hill's Benefit Plans. On the
Closing Date, each College Publishing Business Transferred Em-
ployee shall be covered by the employee benefit plans of
McGraw-Hill applicable to similarly situated employees of
McGraw-Hill. For purposes of McGraw-Hill's employee benefit
plans, McGraw-Hill shall credit each College Publishing Busi-
ness Transferred Employee with full credit for employment with
Times Mirror, TMHE and Mosby prior to the Closing Date for pur-
poses of eligibility and vesting under McGraw-Hill plans; pro-
vided, however, that in no event shall McGraw-Hill be obligated
to grant credit for service to any College Publishing Business
Transferred Employee for purposes of benefit accrual under any
McGraw-Hill plan (including, but not limited to, any defined
benefit pension plan sponsored, maintained or contributed to by
McGraw-Hill). Nothing contained in this Article Ten shall ob-
ligate or commit McGraw-Hill to continue any of its benefit
plans after the Closing Date or to maintain in effect any such
plan or any level or type of benefits.
Section 10.04. Severance Obligations. McGraw-Hill
shall assume (or cause TMHE to assume) responsibility for the
obligations which become payable on or after the Closing Date
to the College Publishing Business Transferred Employees pursu-
ant to the individual severance agreements or severance plans
which are described in Schedule 10.04, other than (i) those
obligations set forth in Schedule 10.04 that are designated as
retention or stay-pay, performance bonuses, enhanced profit-
sharing contributions and (ii) any agreement or arrangement
covering Mr. G. Franklin Lewis, which will remain obligations
of Times Mirror. On or before the Closing Date, Times Mirror
shall pay to each College Publishing Business Transferred Em-
ployee all retention or stay-pay and performance bonuses pay-
able, including those payable under the plans or agreements de-
scribed in Schedule 10.04, to the extent determinable, or as
soon as practicable after the Closing Date with respect to
amounts that are not determinable as of the Closing Date. In
addition, on or before the Closing Date, TMHE shall make the
enhanced profit-sharing contribution to the Wm. C. Brown
Company Publishers Employees' Profit Sharing Retirement and Tax
Deferred Investment Plan contemplated in Schedule 10.04. Such
contribution shall be considered a Transaction-Related Expense.
Section 10.05. Defined Contribution Plans. On or
prior to the Closing Date, Times Mirror shall cause TMHE to
transfer the sponsorship of the Wm. C. Brown Company Publishers
Employees' Profit Sharing Retirement and Tax Deferred Invest-
ment Plan and the Probus Publishing Company 401(k) Savings and
Investment Plan (the "Brown and Probus Plans") to Times Mirror
and, on or prior to the Closing Date, Times Mirror shall assume
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unconditionally from TMHE the sponsorship of the Brown and Pro-
bus Plans, including, without limitation, the obligation to pay
all benefits contemplated by such Brown and Probus Plans and
all obligations with respect to administration, reporting and
disclosure. As of the Closing Date, Times Mirror shall cause
the interests of all College Publishing Business Transferred
Employees in the Brown and Probus Plans and the Times Mirror
Savings Plus Plan (the "TM 401(k) Plan") to become fully vested
and nonforfeitable. As soon as practicable following the Clos-
ing Date, Times Mirror shall cause the Brown and Probus Plans
and the TM 401(k) Plan to distribute all or a portion of the
account balances of each College Publishing Business Trans-
ferred Employee who so elects in accordance with the terms of
such plans. Subject to the provisions of the applicable
McGraw-Hill plan and Times Mirror's provision of evidence rea-
sonably satisfactory to McGraw-Hill that the Brown and Probus
Plans and the TM 401(k) Plan are qualified under Section 401(a)
of the Code, McGraw-Hill shall permit the defined contribution
plan applicable to each College Publishing Business Transferred
Employee to accept an "eligible rollover contribution" (within
the meaning of Section 401(a)(31) of the Code) in cash of all
or a portion of the account balance distributed to such College
Publishing Business Transferred Employee under the Brown and
Probus Plans or the TM 401(k) Plan, as the case may be; pro-
vided, however, that nothing contained herein shall obligate
McGraw-Hill to accept rollovers in the form of Times Mirror
stock. Any amounts rolled over to McGraw-Hill's defined con-
tribution plan as contemplated in this Section 10.05 shall be
held and administered in all respects in accordance with the
provisions of such McGraw-Hill plan as in effect from time to
time.
Section 10.06. Defined Benefit Plans. As of the
Closing Date, the College Publishing Business Transferred Em-
ployees shall cease to accrue benefits under the Times Mirror
Pension Plan (the "TM Pension Plan") and TMHE shall cease to be
a participating employer thereunder. Times Mirror shall take,
or cause to be taken, all action as may be necessary (i) to
effect such cessation of participation and (ii) to cause the
College Publishing Business Transferred Employees' benefits
under the TM Pension Plan to become fully vested as of the
Closing Date. No assets or liabilities with respect to the
College Publishing Business Transferred Employees shall be
transferred as a result of this Agreement from the TM Pension
Plan to any plan or arrangement established or maintained by
McGraw-Hill for the benefit of the College Publishing Business
Transferred Employees. As of the Closing Date, eligible Col-
lege Publishing Business Transferred Employees who were covered
by the TM Pension Plan immediately prior to the Closing Date
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shall be eligible to participate in a McGraw-Hill defined ben-
efit pension plan and shall receive credit for purposes of eli-
gibility and vesting (but not for benefit accrual) under such
plan for all service with Times Mirror, TMHE, the TMHE Subsi-
diaries and Mosby prior to the Closing Date. McGraw-Hill and
Times Mirror shall provide each other with such records and
information as may be necessary or appropriate to carry out
their obligations under this Section 10.06 or for purposes of
the administration of McGraw-Hill's defined benefit plan.
Section 10.07. Welfare Benefits.
(a) Times Mirror agrees to continue coverage of Col-
lege Publishing Business Personnel under the Times Mirror Group
Benefit Plan and other Plans which are welfare benefit plans up
to the Closing Date and to provide benefits to or reimburse
covered College Publishing Business Personnel for eligible
health care and other eligible welfare benefit expenses and
services incurred up to the Closing Date in accordance with the
terms of such Plan.
(b) In connection with McGraw-Hill's obligation to
provide welfare benefits to the eligible College Publishing
Business Transferred Employees under its plans pursuant to Sec-
tion 10.03, McGraw-Hill shall cause each McGraw-Hill group
health plan to waive any pre-existing condition exclusions
thereunder with respect to the College Publishing Business
Transferred Employees to the extent that such employees are
enrolled in the applicable group health plan of Times Mirror as
of the Closing Date. Notwithstanding any other provision
herein to the contrary, Times Mirror will retain all of its
obligations to provide post-retirement medical coverage to (i)
College Publishing Business Transferred Employees who, as of
the Closing Date, (a) have been credited with at least ten
consecutive years of service after attaining age 40 under the
applicable College Publishing Business Post-Retirement Plan,
(b) have attained at least age 60 and (c) are otherwise eli-
gible for such benefits under the terms of the applicable Col-
lege Publishing Business Post-Retirement Plan in effect as of
the Closing Date, and (ii) College Publishing Business Retirees
with respect to expenses and services incurred by such indi-
viduals on or after the Closing Date in accordance with the
terms of the applicable College Publishing Business Post-
Retirement Plan as in effect from time to time with respect to
similarly situated retirees or employees of Times Mirror; pro-
vided, however, that in order for any College Publishing Busi-
ness Transferred Employee to be eligible to participate in any
College Publishing Business Post-Retirement Plan, such employee
must expressly elect to participate therein as of his retire-
ment date with McGraw-Hill.
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(c) With respect to any welfare benefit plans main-
tained at the TMHE level, McGraw-Hill and Times Mirror agree to
negotiate mutually beneficial transitional arrangements with
respect to the benefits provided thereunder, which arrangements
may result in terminating such plans as of the Closing Date or
providing for the continuation of such plans following the
Closing Date by TMHE for eligible College Publishing Business
Transferred Employees.
(d) For purposes of this Section 10.07, an expense
or service is deemed to be incurred when the medical services
are performed, or, with respect to welfare benefits other than
medical or dental benefits, when the event giving rise to such
expense or service occurs.
Section 10.08. Modifications. None of Times Mirror,
TMHE, the TMHE Subsidiaries or Mosby will change the employment
status of any College Publishing Business Employee so as to
promise employment for any specified term of employment.
Section 10.09. Mutual Cooperation. McGraw-Hill and
Times Mirror agree, in a complete, diligent and timely manner,
to exchange such employee census, actuarial or other data as
shall be reasonably necessary to calculate benefits under any
plan and to take any and all actions as shall be reasonably
necessary or advisable to effect the provisions of this Article
10.
Section 10.10. Employee Benefits Indemnity. For a
period of three years following the Closing Date:
(a) McGraw-Hill shall indemnify and hold Times Mir-
ror and Mosby harmless from any Losses Times Mirror or
Mosby may incur as a result of (i) McGraw-Hill's failure
to honor any obligation expressly assumed under this Ar-
ticle 10 by McGraw-Hill or a breach by McGraw-Hill of any
covenant of McGraw-Hill set forth in this Article 10 and
(ii) any actions taken by McGraw-Hill with respect to any
College Publishing Business Transferred Employee on or
after the Closing Date; and
(b) Times Mirror and Mosby shall indemnify and hold
McGraw-Hill and TMHE harmless from any Losses McGraw-Hill
or TMHE may incur as a result of (i) Times Mirror's or
Mosby's failure to honor any obligations expressly re-
tained or assumed under this Article 10 by Times Mirror or
Mosby or a breach by Times Mirror or Mosby of any covenant
of Times Mirror or Mosby set forth in this Article 10,
(ii) any actions taken by Times Mirror or Mosby with re-
spect to any College Publishing Business Employee prior to
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the Closing Date or any College Publishing Business Re-
tiree and (iii) any failure of any representation or war-
ranty of Times Mirror or Mosby contained in Section 5.17
to be true and correct as of the Closing Date.
Section 10.11. Third-Party Claims. Nothing in this
Agreement is intended, or shall be construed, to confer upon
any person, other than the parties hereto and their successors
and permitted assigns, any rights or remedies by reason of this
Article 10.
ARTICLE TEN-A
EMPLOYEE AND RELATED MATTERS
WITH RESPECT TO SHEPARD'S
Section 10A.01. Continuation of Employment.
(a) Offers of Employment. Except as otherwise pro-
vided herein, on or after the Closing Date, Times Mirror shall
offer employment to (or cause Shepard's to offer employment to
or to continue to employ) all Shepard's Employees who are ac-
tively employed immediately prior to the Closing Date by Shep-
ard's, subject to the terms and conditions set forth in this
Article 10A. In addition, each Shepard's Employee who is on an
authorized leave of absence, short- or long-term disability
leave, worker's compensation leave or vacation leave as of the
Closing Date shall be offered employment with Times Mirror or
Shepard's following the expiration of the leave of absence to
the extent that McGraw-Hill or Shepard's was obligated to offer
employment to such employees upon their return to work follow-
ing such leave, subject to the terms and conditions set forth
in this Article 10A. All persons who are offered employment in
accordance with the terms of this Section 10A.01(a) and who are
employed by Shepard's or Times Mirror on or after the Closing
Date are collectively referred to herein as the "Shepard's
Transferred Employees." Notwithstanding anything contained
herein to the contrary, on and after the Closing Date, Times
Mirror and Shepard's shall have no obligation to employ each of
Shepard's Employees identified on Schedule 10A.01(a)-1 and
McGraw-Hill shall retain all responsibility for any obligations
with respect to such employees. In addition, nothing contained
in this Article 10A shall be construed to prevent, limit or re-
strict in any way Times Mirror's right to terminate any Shep-
ard's Transferred Employee following the Closing Date.
(a) WARN Act and Other Matters. Times Mirror shall
be fully responsible for any liability arising under the Worker
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Adjustment and Retraining Notification Act arising in connec-
tion with the termination of the employment of any Shepard's
Transferred Employee on or after the Closing Date.
Section 10A.02 McGraw-Hill's Benefit Plans and Em-
ployee Related Liabilities. McGraw-Hill agrees to continue
coverage of Shepard's Personnel under the McGraw-Hill Plans in
accordance with their terms up to the Closing Date. As of the
Closing Date, each Shepard's Transferred Employee shall cease
to be covered by each of the McGraw-Hill Plans. Except with
respect to the liabilities under the McGraw-Hill Plans that are
expressly assumed by Times Mirror under this Article 10A,
McGraw-Hill (and not Shepard's) shall remain obligated for all
benefits and benefit entitlements under the McGraw-Hill Plans
which were earned or accrued by Shepard's Transferred Employees
and Shepard's Retirees prior to the Closing Date and for all
employment or employment related liabilities or claims relating
to facts or events that occurred prior to the Closing Date.
Section 10A.03. Times Mirror's Benefit Plans. On
the Closing Date, each Shepard's Transferred Employee shall be
covered by employee benefit plans maintained, sponsored or con-
tributed to by Times Mirror or one or more of its affiliates
that provide benefits that in the aggregate are comparable to
those provided to similarly situated employees of the publish-
ing industry (the "Replacement Plans"). For purposes of the
Replacement Plans, Times Mirror shall credit each Shepard's
Transferred Employee with full credit for employment with
McGraw-Hill and Shepard's prior to the Closing Date for pur-
poses of eligibility and vesting. In no event shall Times Mir-
ror be obligated to grant credit for service to any Shepard's
Transferred Employee for purposes of benefit accrual under any
Replacement Plan (including, but not limited to, any Replace-
ment Plan that is a defined benefit pension plan). Nothing
contained in this Article 10A shall obligate or commit Times
Mirror to continue any of the Replacement Plans after the Clos-
ing Date or to maintain in effect any such plan or any level or
type of benefits.
Section 10A.04. Severance Obligations. Times Mirror
shall assume (or cause Shepard's to assume) responsibility for
the obligations which become payable on or after the Closing
Date to the Shepard's Transferred Employees pursuant to the
individual severance agreements or severance plans which are
described in Schedule 10A.04, other than those obligations set
forth in Schedule 10A.04 that are designated as retention or
stay-pay, performance bonuses, and any obligation pursuant to
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any plan, agreement or arrangement which will remain obliga-
tions of McGraw-Hill. On or before the Closing Date, McGraw-
Hill shall pay to each Shepard's Transferred Employee all re-
tention or stay-pay and performance bonuses payable under the
plans or agreements described in Schedule 10A.04, to the extent
determinable, or as soon as practicable after the Closing Date
with respect to amounts that are not determinable as of the
Closing Date.
Section 10A.05. Defined Contribution Plans. As of
the Closing Date, McGraw-Hill shall cause the interests of all
Shepard's Transferred Employees in the Employee Retirement Ac-
count Plan of The McGraw-Hill Companies, Inc. and Its Subsid-
iaries ("ERAP") and the Savings Incentive Plan of The McGraw-
Hill Companies, Inc. and Its Subsidiaries (the "SIP," and with
the ERAP, the "McGraw-Hill Defined Contribution Plans") to be-
come fully vested and nonforfeitable. As soon as practicable
following the Closing Date, McGraw-Hill shall cause the McGraw-
Hill Defined Contribution Plans to distribute all or a portion
of the account balances of each Shepard's Transferred Employee
who so elects in accordance with the terms of such plans. Sub-
ject to the provisions of the applicable Replacement Plan and
McGraw-Hill's provision of evidence reasonably satisfactory to
Times Mirror that the McGraw-Hill Defined Contribution Plans
are qualified under Section 401(a) of the Code, Times Mirror
shall permit the Replacement Plan that is a defined contribu-
tion plan that is applicable to each Shepard's Transferred Em-
ployee to accept an "eligible rollover contribution" (within
the meaning of Section 401(a)(31) of the Code) in cash of all
or a portion of the account balance distributed to such Shep-
ard's Transferred Employee under the McGraw-Hill Defined Con-
tribution Plans; provided, however, that nothing contained
herein shall obligate Times Mirror to accept rollovers in the
form of McGraw-Hill stock. Any amounts rolled over to such
Replacement Plan that is a defined contribution plan as contem-
plated in this Section 10A.05 shall be held and administered in
all respects in accordance with the provisions of such Replace-
ment Plan as in effect from time to time.
Section 10A.06. Defined Benefit Plans. As of the
Closing Date, the Shepard's Transferred Employees shall cease
to accrue benefits under the Employee Retirement Plan of The
McGraw-Hill Companies, Inc. and Its Subsidiaries (the "McGraw-
Hill Retirement Plan") and Shepard's shall cease to be a par-
ticipating employer thereunder. McGraw-Hill shall take, or
cause to be taken, all action as may be necessary (i) to effect
such cessation of participation and (ii) to cause the Shepard's
Transferred Employees' benefits under the McGraw-Hill Retire-
ment Plan to become fully vested as of the Closing Date. No
assets or liabilities with respect to the Shepard's Transferred
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Employees shall be transferred as a result of this Agreement
from the McGraw-Hill Retirement Plan to any plan or arrangement
established or maintained by Times Mirror for the benefit of
the Shepard's Transferred Employees. As of the Closing Date,
eligible Shepard's Transferred Employees who were covered by
the McGraw-Hill Retirement Plan immediately prior to the Clos-
ing Date shall be eligible to participate in a Replacement Plan
that is a defined benefit pension plan and shall receive credit
for purposes of eligibility and vesting (but not for benefit
accrual) under such plan for all service with McGraw-Hill and
Shepard's prior to the Closing Date. Times Mirror and McGraw-
Hill shall provide each other with such records and information
as may be necessary or appropriate to carry out their obliga-
tions under this Section 10A.06 or for purposes of the adminis-
tration of the applicable Replacement Plan.
Section 10A.07. Welfare Benefits.
(a) McGraw-Hill agrees to continue coverage of
Shepard's Personnel under the McGraw-Hill group welfare benefit
plans up to the Closing Date and to provide benefits to or re-
imburse covered Shepard's Personnel for eligible health care
and other eligible welfare benefit expenses and services in-
curred up to the Closing Date in accordance with the terms of
such plans.
(b) In connection with Times Mirror's obligation to
provide welfare benefits to the Shepard's Transferred Employees
under one or more Replacement Plans pursuant to Section 10A.03,
to the extent permitted by the terms of the applicable Replace-
ment Plan, Times Mirror shall cause each Replacement Plan to
waive any pre-existing condition exclusions thereunder with
respect to the Shepard's Transferred Employees to the extent
that such employees are enrolled in the applicable group health
plan of McGraw-Hill as of the Closing Date. Notwithstanding
any other provision herein to the contrary, McGraw-Hill will
retain all of its obligations to provide post-retirement medi-
cal coverage to (i) Shepard's Transferred Employees who, as of
the Closing Date, (a) have been credited with at least ten
years of service under the applicable Shepard's Post-Retirement
Plan, (b) have attained at least age 55 and (c) are otherwise
eligible for such benefits under the terms of the applicable
Shepard's Post-Retirement Plan in effect as of the Closing
Date, and (ii) Shepard's Retirees with respect to expenses and
services incurred by such individuals on or after the Closing
Date in accordance with the terms of the applicable Shepard's
Post-Retirement Plan as in effect from time to time with re-
spect to similarly situated retirees or employees of McGraw-
Hill; provided, however, that in order for any Shepard's Trans-
ferred Employee to be eligible to participate in any Shepard's
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Post-Retirement Plan, such employee must expressly elect to
participate therein as of his retirement date with Times Mirror
or the College Publishing Business.
(c) With respect to any welfare benefit plans main-
tained at Shepard's level, Times Mirror and McGraw-Hill agree
to negotiate mutually beneficial transitional arrangements with
respect to the benefits provided thereunder, which arrangements
may result in terminating such plans as of the Closing Date or
providing for the continuation of such plans following the
Closing Date by Shepard's for eligible Shepard's Transferred
Employees.
(d) For purposes of this Section 10A.07, an expense
or service is deemed to be incurred when the medical services
are performed, or, with respect to welfare benefits other than
medical or dental benefits, when the event giving rise to such
expense or service occurs.
Section 10A.08. Modifications. Neither McGraw-Hill
nor Shepard's will change the employment status of any
Shepard's Employee so as to promise employment for any speci-
fied term of employment.
Section 10A.09. Mutual Cooperation. Times Mirror
and McGraw-Hill agree, in a complete, diligent and timely man-
ner, to exchange such employee census, actuarial or other data
as shall be reasonably necessary to calculate benefits under
any plan and to take any and all actions as shall be reasonably
necessary or advisable to effect the provisions of this Article
10A.
Section 10A.10. Employee Benefits Indemnity. For a
period of three years following the Closing Date:
(a) Times Mirror shall indemnify and hold McGraw-
Hill harmless from any Losses McGraw-Hill may incur as a
result of (i) Times Mirror's failure to honor any obliga-
tion expressly assumed under this Article 10A by Times
Mirror or a breach by Times Mirror of any covenant of
Times Mirror set forth in this Article 10A and (ii) any
actions taken by Times Mirror with respect to any
Shepard's Transferred Employee on or after the Closing
Date; and
(b) McGraw-Hill shall indemnify and hold Times Mir-
ror and Shepard's harmless from any Losses Times Mirror or
Shepard's may incur as a result of (i) McGraw-Hill's fail-
ure to honor any obligations expressly retained or assumed
under this Article 10A by McGraw-Hill or a breach by
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McGraw-Hill of any covenant of McGraw-Hill set forth in
this Article 10A, (ii) any actions taken by McGraw-Hill
with respect to any Shepard's Transferred Employee prior
to the Closing Date or any Shepard's Retiree and (iii) any
failure or any representation or warranty of McGraw-Hill
contained in Section 6.16 to be true and correct as of the
Closing Date.
Section 10A.11. Third-Party Claims. Nothing in this
Agreement is intended, or shall be construed, to confer upon
any person, other than the parties hereto and their successors
and permitted assigns, any rights or remedies by reason of this
Article 10A.
ARTICLE ELEVEN
INDEMNIFICATION
Section 11.01. Tax Indemnification.
(a) Times Mirror shall indemnify McGraw-Hill and its
affiliates (including TMHE and the TMHE Subsidiaries) and each
of their respective stockholders, controlling persons, offic-
ers, directors, employees and agents and hold them harmless
from any loss, liability, claim, damage, expense (including
reasonable attorneys' fees) (collectively, "Damages"), arising,
directly or indirectly, from or in connection with any College
Publishing Business Tax Liabilities (as defined in Section
12.05). Any refunds of College Publishing Business Tax Li-
abilities, other than refunds accrued on the College Publishing
Business Closing Date Balance Sheet, shall belong to Times
Mirror.
(b) McGraw-Hill shall indemnify Times Mirror and its
affiliates (including Shepard's) and each of their respective
stockholders, controlling persons, officers, directors, employ-
ees and agents and hold them harmless from any Damages arising,
directly or indirectly, from or in connection with any Shep-
ard's Tax Liabilities (as defined in Section 12A.05). Any
refunds of Shepard's Tax Liabilities, other than refunds ac-
crued on the Shepard's Closing Date Balance Sheet, shall belong
to McGraw-Hill.
Section 11.02. Environmental Indemnification;
Litigation Indemnification.
(a) Times Mirror shall indemnify McGraw-Hill, its
affiliates (including TMHE) and each of their respective offic-
ers, directors, employees, and agents and hold them harmless
from any Losses suffered or incurred by any such indemnified
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party to the extent arising from any breach of any representa-
tion or warranty of Times Mirror and Mosby set forth in Sec-
tions 5.19(b), (c) or (d); provided, however, that Times Mirror
shall not have any liability hereunder unless the aggregate of
all Losses relating thereto for which Times Mirror would, but
for this provision, be liable exceeds on a cumulative basis an
amount equal to $3,000,000 (and then only to the extent of any
such excess); and provided further, however, that Times Mir-
ror's aggregate liability under this Section 11.02(a) shall in
no event exceed $35,000,000.
(b) McGraw-Hill shall indemnify Times Mirror, its
affiliates (including Shepard's) and each of their respective
officers, directors, employees, and agents and hold them harm-
less from any Losses suffered or incurred by any such indemni-
fied party to the extent arising from any breach of any repre-
sentation or warranty of McGraw-Hill set forth in Sections
6.18(b), (c) or (d); provided, however, that McGraw-Hill shall
not have any liability hereunder unless the aggregate of all
Losses relating thereto for which McGraw-Hill would, but for
this provision, be liable exceeds on a cumulative basis an
amount equal to $3,000,000 (and then only to the extent of any
such excess); and provided further, however, that McGraw-Hill's
aggregate liability under this Section 11.02(b) shall in no
event exceed $35,000,000.
(c) Times Mirror shall indemnify McGraw-Hill, its
affiliates (including TMHE) and each of their respective offic-
ers, directors, employees, and agents and hold them harmless
from any Losses suffered or incurred by any such indemnified
party to the extent arising from violations of any Environmen-
tal Law at properties formerly owned or leased by TMHE, the
TMHE Subsidiaries, Mosby or TMIP but not owned or leased by
them as of the Closing Date.
(d) McGraw-Hill shall indemnify Times Mirror, its
affiliates (including Shepard's) and each of their respective
officers, directors, employees, and agents and hold them harm-
less from any Losses suffered or incurred by any such indemni-
fied party to the extent arising from violations of any Envi-
ronmental Law at properties formerly owned or leased by
Shepard's but not owned or leased by it as of the Closing Date.
(e) McGraw-Hill shall indemnify Times-Mirror, its
affiliates (including Shepard's) and each of their respective
officers, directors, employees, and agents and hold them harm-
less from any Losses suffered or incurred by any such indemni-
fied party to the extent arising from claims asserted by au-
thors of works transferred pursuant to the sale of Shepard's
Topical Publishing business to Thomson Legal Publishing.
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Section 11.03. Indemnification by Times Mirror and
Mosby. Times Mirror and Mosby shall jointly and severally in-
demnify McGraw-Hill, its affiliates (including TMHE) and each
of their respective officers, directors, employees and agents
and hold them harmless from any Losses suffered or incurred by
any such indemnified party (other than any relating to Taxes,
for which indemnification provisions are set forth in Section
11.01, or environmental matters, for which indemnification pro-
visions are set forth in Section 11.02 or employee benefit mat-
ters, for which indemnification provisions are set forth in
Section 10.10) to the extent arising from (i) the breach by
Times Mirror or Mosby of any covenant contained in Article 7
requiring performance on or prior to the Closing Date, (ii) any
failure of any representation or warranty of Times Mirror or
Mosby to be true and correct as of the date of this Agreement
or (iii) any failure of any representation or warranty of Times
Mirror or Mosby to be true and correct as of the Closing Date;
provided, however, that neither Times Mirror nor Mosby shall
have any liability hereunder unless the aggregate of all Losses
relating thereto for which Times Mirror or Mosby would, but for
this provision, be liable exceeds on a cumulative basis an
amount equal to $10 million (and then only to the extent of any
such excess); and provided further, however, that Times Mir-
ror's and Mosby's aggregate liability under this Section 11.03
shall in no event exceed $100 million.
Section 11.04. Indemnification by McGraw-Hill.
McGraw-Hill shall indemnify Times Mirror, its affiliates (in-
cluding Shepard's) and each of their respective officers, di-
rectors, employees and agents against and hold them harmless
from any Losses suffered or incurred by any such indemnified
party (other than any relating to Taxes, for which indemnifica-
tion provisions are set forth in Section 11.01, or environmen-
tal matters or certain litigation matters, for which indemnifi-
cation provisions are set forth in Section 11.02 or employee
benefit matters, for which indemnification provisions are set
forth in Section 10A.10) to the extent arising from (i) the
breach by McGraw-Hill of any covenant contained in Article 8
requiring performance on or prior to the Closing Date, (ii) any
failure of any representation or warranty of McGraw-Hill to be
true and correct as of the date of this Agreement or (iii) any
failure of any representation or warranty of McGraw-Hill to be
true and correct as of the Closing Date; provided, however,
that McGraw-Hill shall not have any liability hereunder unless
the aggregate of all Losses for which McGraw-Hill would, but
for this provision, be liable exceeds on a cumulative basis,
excluding liability with respect to Section 6.21, an amount
equal to $10 million or, in the case of clauses (ii) and (iii)
above with respect to Section 6.21, $5 million (and in each
case then only to the extent of any such excess); and provided,
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further, however, that McGraw-Hill's aggregate liability under
this Section 11.04, excluding liability with respect to Section
6.21, shall in no event exceed $100 million; and provided fur-
ther, however, that McGraw-Hill's liability under this Section
11.04 with respect to Section 6.21 shall in no event exceed
$100 million.
Section 11.05. Exclusive Remedy. Except for any
breach of a covenant requiring performance after the Closing
Date or any matter covered by Articles 10, 10-A, 12 or 12-A,
(i) the remedy contained in Sections 11.01, 11.02 and 11.03
constitute the sole and exclusive remedy of McGraw-Hill (and
its affiliates (including TMHE) and each of their respective
officers, directors, employees and agents) against Times Mirror
for Losses suffered or incurred in connection with this Agree-
ment and the transactions contemplated hereby and (ii) the rem-
edy contained in Sections 11.01, 11.02 and 11.04 constitute the
sole and exclusive remedy of Times Mirror (and its affiliates
(including Shepard's) and each of their respective officers,
directors, employees and agents) against McGraw-Hill for Losses
suffered or incurred in connection with this Agreement and the
transactions contemplated hereby.
Section 11.06. Losses Net of Insurance. The amount
of any Losses for which indemnification is provided under this
Article 11 shall be net of any amounts recovered or recoverable
by the indemnified party under insurance policies with respect
to such Losses.
Section 11.07. Termination of Indemnification. The
obligations to indemnify and hold harmless a party hereto, (a)
pursuant to Section 11.01, shall terminate 30 days after the
time the applicable statutes of limitations with respect to the
tax liabilities in question expire (giving effect to any exten-
sion thereof by waiver or otherwise), (b) pursuant to para-
graphs (a) and (b) of Section 11.02, shall terminate when the
applicable representation or warranty terminates pursuant to
Section 13.04, (c) pursuant to paragraphs (c), (d) and (e) of
Section 11.02, shall survive indefinitely, and (d) pursuant to
Sections 11.03 and 11.04, shall terminate on the later of March
31, 1997 and the date that is six months after the Closing
Date; provided, however, that as to clauses (a), (b) and (d)
above, such obligations to indemnify and hold harmless shall
not terminate with respect to any item as to which the person
to be indemnified or the related party hereto shall have, be-
fore the expiration of the applicable period, previously made a
claim by delivering a notice (setting forth the detailed basis
of such claim) to the indemnifying party.
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Section 11.08. Procedures Relating to Indemnifica-
tion (Except Under Section 11.01). In order for a party (the
"indemnified party") to be entitled to any indemnification pro-
vided for under this Agreement (other than under Section 11.01)
in respect of, arising out of or involving a claim or demand
made by any person, firm, governmental authority or corporation
against the indemnified party (a "Third-Party Claim"), such
indemnified party must notify the indemnifying party in writ-
ing, and in reasonable detail, of the Third-Party Claim within
10 Business Days after receipt by such indemnified party of
written notice of the Third-Party Claim; provided, however,
that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the
indemnifying party shall have been actually prejudiced as a
result of such failure (except that the indemnifying party
shall not be liable for any expenses incurred during the period
in which the indemnified party failed to give such notice).
Thereafter, the indemnified party shall deliver to the indemni-
fying party, within 5 Business Days after the indemnified par-
ty's receipt thereof, copies of all notices and documents
(including court papers) received by the indemnified party
relating to the Third-Party Claim.
If a Third-Party Claim is made against an indemnified
party, the indemnifying party will be entitled to participate
in the defense thereof and, if it so chooses, to assume the
defense thereof with counsel selected by the indemnifying party
and reasonably satisfactory to the indemnified party. Should
the indemnifying party so elect to assume the defense of a
Third-Party Claim, the indemnifying party will not be liable to
the indemnified party for legal fees and expenses subsequently
incurred by the indemnified party in connection with the de-
fense thereof. If the indemnifying party assumes such defense,
the indemnified party shall have the right to participate in
the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the indemnifying party,
it being understood that the indemnifying party shall control
such defense. The indemnifying party shall be liable for the
fees and expenses of counsel employed by the indemnified party
for any period during which the indemnifying party has not as-
sumed the defense thereof (other than during any period in
which the indemnified party shall have failed to give notice of
the Third-Party Claim as provided above). If the indemnifying
party chooses to defend or prosecute any Third-Party Claim, all
the parties hereto shall cooperate in the defense or prosecu-
tion thereof. Such cooperation shall include the retention and
(upon the indemnifying party's request) the provision to the
indemnifying party of records and information which are reason-
ably relevant to such Third-Party Claim, and making employees
available on a mutually convenient basis to provide additional
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information and explanation of any material provided hereunder.
Whether or not the indemnifying party shall have assumed the
defense of a Third-Party Claim, the indemnified party shall not
admit any liability with respect to, or settle, compromise or
discharge, such Third-Party Claim without the indemnifying par-
ty's prior written consent (which consent shall not be unrea-
sonably withheld). All Tax Claims shall be governed by Section
12.06 and 12A.06.
For all purposes of this Article 11, an "affiliate"
of any entity shall include a joint venture to which all or
substantially all of the assets and liabilities of Shepard's
are assigned.
ARTICLE TWELVE
TAX MATTERS RELATING TO THE
TRANSFER OF TMHE SHARES, ETC.
Section 12.01. Section 338(h)(10) Election. (a)
Times Mirror and McGraw-Hill shall jointly make timely and ir-
revocable elections under Section 338(h)(10) of the Code and,
if permissible, similar elections under any applicable state or
local income tax laws with respect to the transfer of the TMHE
Shares and the shares of the TMHE Subsidiaries. Times Mirror,
McGraw-Hill, TMHE and the TMHE Subsidiaries shall report the
transfer of the TMHE Shares and the shares of the TMHE Subsid-
iaries consistent with such elections under Section 338(h)(10)
of the Code or any similar state or local tax provision (the
"TMHE Elections") and shall take no position contrary thereto
unless and to the extent required to do so pursuant to a deter-
mination (as defined in Section 1313(a) of the Code or any sim-
ilar state or local tax provision). McGraw-Hill may make elec-
tions under Section 338 of the Code (and if permissible similar
elections under any applicable state or local income tax law)
with respect to the transfer of any non-U.S. incorporated TMHE
Subsidiary. Any such election shall be considered a TMHE Elec-
tion for purposes of this Agreement.
(b) To the extent possible, Times Mirror, McGraw-
Hill and TMHE shall execute at the Closing any and all forms
necessary to effectuate the TMHE Elections (including, without
limitation, Internal Revenue Service Form 8023-A and any simi-
lar forms under applicable state and local income tax laws (the
"TMHE Section 338 Forms")). In the event, however, any TMHE
Section 338 Forms are not executed at the Closing, Times Mir-
ror, McGraw-Hill and TMHE shall prepare and complete each such
TMHE Section 338 Form no later than 15 days prior to the date
such TMHE Section 338 Form is required to be filed. Times Mir-
ror, McGraw-Hill and TMHE shall each cause the TMHE Section 338
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Forms to be duly executed by an authorized person for Times
Mirror, McGraw-Hill and TMHE in each case, and shall duly and
timely file the TMHE Section 338 Forms in accordance with ap-
plicable tax laws and the terms of this Agreement.
(c) (i) Times Mirror and McGraw-Hill agree that
they shall calculate the Modified Aggregate Deemed Sale Price
(as defined under applicable Treasury Regulations, "MADSP") of
the assets of TMHE and the TMHE Subsidiaries and the allocation
of such MADSP and amounts allocable to the Mosby Assets and the
International Assets (hereinafter collectively referred to as
the "Purchased Assets") among such assets on the one hand, and
the computation of the MADSP of the assets of Shepard's on the
other hand, in the manner set forth in clauses (ii) and (iii)
below.
(ii) Times Mirror and McGraw-Hill shall agree upon a
Big Six Accounting Firm to act as the "Appraiser". The fees
and expenses of the Appraiser shall be shared equally by Times
Mirror and McGraw-Hill. Within 150 days of Closing, the Ap-
praiser shall deliver to each of McGraw-Hill and Times Mirror a
determination of the fair market value of each of TMHE and its
Subsidiaries and the Purchased Assets (the "TM Properties") on
the one hand, and Shepard's on the other hand, a determination
of the MADSP of TMHE and the TMHE Subsidiaries and Shepard's,
and an allocation of the MADSP and the fair market value of the
Purchased Assets among the assets of the TM Properties and
Shepard's, respectively. Each such determination and alloca-
tion shall be binding upon the parties.
(iii) Times Mirror and McGraw-Hill agree to act in
accordance with the allocations determined by the Appraiser in
any relevant Tax Returns or similar filings and not to take a
position before any taxing authority or otherwise (including in
any Tax Return) inconsistent with such allocation unless and to
the extent required to do so pursuant to a determination (as
defined in Section 1313(a) of the Code or any similar state of
local law).
Section 12.021. Liability for Taxes; Preparation of
Returns.
(a) Times Mirror shall be liable for all Taxes of
TMHE and the TMHE Subsidiaries for any taxable period that ends
on or before the Closing Date, including the portion of any
Straddle Period ending on the Closing Date. Times Mirror shall
be liable for all Taxes of Mosby and the TMIP Entities. Times
Mirror shall be liable for all transfer, sales or gains Taxes
arising as a result of the transactions contemplated by this
Agreement and relating to the transfer of the TMHE Shares and
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the Purchased Assets, other than transfer or sales taxes based
upon the value of property transferred and which are imposed by
law on McGraw-Hill, which shall be paid by McGraw-Hill.
(b) McGraw-Hill and Times Mirror agree that if TMHE
or any of the TMHE Subsidiaries is permitted but not required
under applicable state or local Tax laws to treat the Closing
Date as the last day of a taxable period, McGraw-Hill and Times
Mirror shall treat such day as the last day of a taxable
period.
(c) Times Mirror shall prepare or cause to be pre-
pared and timely filed all federal, state, provincial, local
and foreign Tax Returns in respect of TMHE and the TMHE Subsid-
iaries, Mosby, the TMIP Entities, their assets or activities
that (i) are required to be filed on or before the Closing Date
or (ii) are required to be filed after the Closing Date and (A)
are Consolidated Tax Returns or (B) are with respect to Income
Taxes and are required to be filed on a separate Tax Return
basis for any tax period ending on or before the Closing Date
or (C) are required to be filed by Mosby or the TMIP Entities.
Times Mirror shall pay all Taxes shown as due on such Tax Re-
turns. McGraw-Hill shall prepare or cause to be prepared and
shall file or cause to be filed all other Tax Returns required
of TMHE and the TMHE Subsidiaries, or in respect of their as-
sets or activities. Times Mirror shall reimburse McGraw-Hill
for its share of the Taxes due with respect to such Tax Re-
turns, in accordance with Section 12.02(a) and (d) hereof. Any
such Tax Returns that include periods ending on or before the
Closing Date or that include the activities of TMHE or any of
the TMHE Subsidiaries prior to the Closing Date shall, insofar
as they relate to TMHE or any of the TMHE Subsidiaries, be on a
basis consistent with past practices for such Tax Returns filed
in respect of TMHE or any of the TMHE Subsidiaries, unless
Times Mirror or McGraw-Hill, as the case may be, concludes that
there is no reasonable basis for such position. None of
McGraw-Hill, TMHE or any of the TMHE Subsidiaries shall file
any amended Tax Returns for any periods for or in respect of
TMHE or any of the TMHE Subsidiaries with respect to which
McGraw-Hill is not obligated to prepare or cause to be prepared
the original of such Tax Returns pursuant to this Section
12.02, without the prior written consent of Times Mirror.
(d) Any Taxes for a Straddle Period of TMHE and/or
the TMHE Subsidiaries shall be apportioned between Times Mirror
and McGraw-Hill as set forth below in Section 12.05(a). To the
extent estimated Taxes have been paid prior to the Closing Date
or, in the case of Taxes other than Income Taxes, are accrued
on the Closing Date Balance Sheet with respect to a Pre-Closing
Tax Period or Straddle Period, Times Mirror's liability with
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respect thereto shall be reduced by that amount. Upon timely
notice from McGraw-Hill, Times Mirror shall pay to McGraw-Hill,
at least 10 days prior to the date any payment for Taxes as
described in this Section 12.02 is due, Times Mirror's share of
such Taxes as described in this Section 12.02.
Section 12.03. Tax Sharing Agreements. On the Clos-
ing Date, all Tax sharing agreements and arrangements between
(i) TMHE or any of the TMHE Subsidiaries, on the one side, and
(ii) Times Mirror or any of its subsidiaries or affiliates
(other than TMHE and the TMHE Subsidiaries), on the other side,
shall be terminated and have no further effect for any taxable
year or period (whether a past, present or future year or pe-
riod), and no additional payments shall be made thereunder on
or after the Closing Date in respect of a redetermination of
College Publishing Business Tax Liabilities or otherwise.
Section 12.04. Assistance and Cooperation. After
the Closing Date, each of Times Mirror and McGraw-Hill shall:
(i) assist in all reasonable respects (and cause
their respective affiliates to assist) the other party in
preparing any Tax Returns or reports which such other par-
ty is responsible for preparing and filing in accordance
with this Article 12;
(ii) cooperate in all reasonable respects in pre-
paring for any audits of, or disputes with taxing authori-
ties, regarding any Tax Returns of TMHE, Mosby, the TMIP
Entities or any TMHE Subsidiary;
(iii) make available to the other and to any taxing
authority as reasonably requested all information, rec-
ords, and documents relating to Taxes of TMHE, Mosby, the
TMIP Entities and each TMHE Subsidiary;
(iv) provide timely notice to the other in writing of
any pending or threatened tax audits or assessment of
TMHE, Mosby, the TMIP Entities and each TMHE Subsidiary
for taxable periods for which the other may have a li-
ability under this Article 12 or Article 11; and
(v) furnish the other with copies of all correspon-
dence received from any taxing authority in connection
with any tax audit or information request with respect to
any such taxable period.
Section 12.05. Definitions. For purposes of this
Agreement:
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(a) "College Publishing Business Tax Liabilities"
means (x) all liability for Taxes of TMHE, the TMHE Sub-
sidiaries, Mosby and the TMIP Entities for any taxable
period that ends on or before the Closing Date and the
portion of any Straddle Period ending on the Closing Date
including any Taxes incurred as a result of making the
TMHE Elections and any transfer, sales or gains Taxes
(other than transfer Taxes or sales Taxes based upon the
value of transferred property and imposed by law on
McGraw-Hill) arising as a result of the transactions con-
templated by this Agreement; (y) all liability for Taxes
of Mosby and the TMIP Entities, whether arising before or
after the Closing Date, including any liability arising
out of the purchase of the Mosby Assets and assumption of
the Mosby Liabilities and any liability arising out of the
purchase of the International Assets and the assumption of
the International Liabilities (other than transfer Taxes
or sales Taxes based upon the value of transferred prop-
erty and imposed by law on McGraw-Hill); and (z) all li-
ability (as a result of Treasury Regulation Section
1.1502-6(a) or otherwise) for Taxes of any stockholders of
TMHE or any other Person (including Mosby and the TMIP
Entities and other than TMHE or any of the TMHE Subsidia-
ries) which is or has ever been affiliated with TMHE or
any of the TMHE Subsidiaries, or with whom TMHE or any of
its Subsidiaries otherwise joins or has ever joined (or is
or has ever been required to join) in filing any Consoli-
dated Return, prior to the Closing Date; provided, how-
ever, that College Publishing Business Tax Liabilities
described above shall be reduced to the extent that the
aggregate reserves for Taxes (excluding deferred income
taxes) reflected on the Closing Date Balance Sheet exceeds
the aggregate liability for Taxes for periods through the
Closing Date not previously paid.
In the case of any Straddle Period:
(A) the periodic Taxes of TMHE and the TMHE Sub-
sidiaries that are not based on income or receipts (e.g.,
property Taxes) for the portion of any Straddle Period
ending on the Closing Date (the "Pre-Closing Tax Period")
shall be computed based upon the ratio of the number of
days in the Pre-Closing Tax Period and the number of days
in the entire Tax period; and
(B) Taxes of TMHE and the TMHE Subsidiaries for the
Pre-Closing Tax Period (other than Taxes described in
clause (A)) shall be computed as if such taxable period
ended as of the close of business on the Closing Date,
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and, in the case of any Taxes of TMHE and the TMHE Sub-
sidiaries attributable to the ownership by TMHE or any of
the TMHE Subsidiaries of any equity interest in any part-
nership or other "flowthrough" entity (other than the TMHE
Subsidiaries), as if a taxable period of such partnership
or the "flowthrough" entity ended as of the close of busi-
ness on the Closing Date.
(b) "Consolidated Tax Returns" means a Tax Return
with respect to combined, consolidated or unitary Taxes.
(c) "Income Taxes" means any Tax based upon or mea-
sured with respect to net income, income, gain, profits or
similar items.
(d) "Straddle Period" means any taxable period that
includes (but does not end on) the Closing Date.
(e) "Tax Return" or "Tax Returns" means any return,
report, declaration, information return, statement or
other document filed or required to be filed with any gov-
ernmental authority in connection with the determination,
assessment or collection of any Tax or the administration
of any laws, regulations or administrative requirements
relating to any Tax.
Section 12.06. Controversies. Times Mirror shall
have the right, at its own expense, to control any audit or
examination by any taxing authority ("Tax Audit"), initiate any
claim for refund, contest, resolve and defend against any as-
sessment, notice of deficiency, or other adjustment or proposed
adjustment relating to any and all Taxes for any Pre-Closing
Tax Period or any period preceding a Pre-Closing Tax Period
with respect to TMHE and the TMHE Subsidiaries and any and all
Taxes of Mosby and the TMIP Entities. McGraw-Hill shall have
the right, at its own expense, to control any other Tax Audit,
initiate any other claim for refund, and contest, resolve and
defend against any other assessment, notice of deficiency, or
other adjustment or proposed adjustment relating to Taxes with
respect to TMHE and/or the TMHE Subsidiaries; provided that,
with respect to any state and local or foreign Taxes for any
Straddle Period, McGraw-Hill shall consult with Times Mirror
with respect to the resolution of any issue that would affect
Times Mirror, and not settle any such issue, or file any
amended return relating to any such issue, without the consent
of Times Mirror, which consent shall not unreasonably be
withheld. Where consent to a settlement is withheld by the
other party pursuant to this Section 12.06, such other party
may continue or initiate any further proceedings at its own ex-
pense, provided that the liability of the first party, after
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giving effect to this Agreement, shall not exceed the liability
that would have resulted from the settlement or amended return.
Times Mirror shall furnish McGraw-Hill, TMHE and the TMHE Sub-
sidiaries with its cooperation in a manner comparable to that
described in Section 12.04 hereof to effect the purposes of
this Section 12.06.
ARTICLE TWELVE-A
TAX MATTERS RELATING TO THE
TRANSFER OF THE SHEPARD'S SHARES
Section 12A.01. Section 338(h)(10) Election.
(a) McGraw-Hill and Times Mirror shall jointly make
timely and irrevocable elections under Section 338(h)(10) of
the Code and, if permissible, similar elections under any ap-
plicable state or local income tax laws with respect to the
transfer of the Shepard's Shares. McGraw-Hill, Times Mirror
and Shepard's shall report the transfer of the Shepard's Shares
consistent with such elections under Section 338(h)(10) of the
Code or any similar state or local tax provision (the "Shep-
ard's Elections") and shall take no position contrary thereto
unless and to the extent required to do so pursuant to a deter-
mination (as defined in Section 1313(a) of the Code or any
similar state or local tax provision).
(b) To the extent possible, McGraw-Hill, Times Mir-
ror and Shepard's shall execute at the Closing any and all
forms necessary to effectuate the Shepard's Elections (includ-
ing, without limitation, Internal Revenue Service Form 8023-A
and any similar forms under applicable state and local income
tax laws (the "Shepard's Section 338 Forms")). In the event,
however, any Shepard's Section 338 Forms are not executed at
the Closing, McGraw-Hill, Times Mirror and Shepard's shall pre-
pare and complete each such Shepard's Section 338 Form no later
than 15 days prior to the date such Shepard's Section 338 Form
is required to be filed. McGraw-Hill, Times Mirror and
Shepard's shall each cause the Shepard's Section 338 Forms to
be duly executed by an authorized person for McGraw-Hill, Times
Mirror and Shepard's in each case, and shall duly and timely
file the Shepard's Section 338 Forms in accordance with ap-
plicable tax laws and the terms of this Agreement.
(c) The purchase price for the Shepard's Shares
shall be allocated in accordance with Section 12.01(c) of this
Agreement.
Section 12A.02. Liability for Taxes; Preparation of
Returns. (a) McGraw-Hill shall be liable for all Taxes of
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Shepard's for any taxable period that ends on or before the
Closing Date, including the portion of any Straddle Period end-
ing on the Closing Date. McGraw-Hill shall be liable for all
transfer, sales or gains Taxes arising as a result of the
transactions contemplated by this Agreement, other than trans-
fer or sales taxes based upon the value of property transferred
and which are imposed by law on Times Mirror, which shall be
paid by Times Mirror.
(b) Times Mirror and McGraw-Hill agree that if
Shepard's is permitted but not required under applicable state
or local Tax laws to treat the Closing Date as the last day of
a taxable period, Times Mirror and McGraw-Hill shall treat such
day as the last day of a taxable period.
(c) McGraw-Hill shall prepare or cause to be pre-
pared and timely filed all federal, state, provincial, local
and foreign Tax Returns in respect of Shepard's, its assets or
activities that (i) are required to be filed on or before the
Closing Date or (ii) are required to be filed after the Closing
Date and (A) are Consolidated Tax Returns or (B) are with re-
spect to Income Taxes and are required to be filed on a sepa-
rate Tax Return basis for any tax period ending on or before
the Closing Date. McGraw-Hill shall pay all Taxes shown as due
on such Tax Returns. Times Mirror shall prepare or cause to be
prepared and shall file or cause to be filed all other Tax Re-
turns required of Shepard's or in respect of its assets or ac-
tivities. McGraw-Hill shall reimburse Times Mirror for its
share of the Taxes due with respect to such Tax Returns, in
accordance with Section 12A.02(a) and (d) hereof. Any such Tax
Returns that include periods ending on or before the Closing
Date or that include the activities of Shepard's prior to the
Closing Date shall, insofar as they relate to Shepard's, be on
a basis consistent with past practices for such Tax Returns
filed in respect of Shepard's, unless McGraw-Hill or Times Mir-
ror, as the case may be, concludes that there is no reasonable
basis for such position. Neither Times Mirror nor Shepard's
shall file any amended Tax Returns for any periods for or in
respect of Shepard's with respect to which Times Mirror is not
obligated to prepare or cause to be prepared the original of
such Tax Returns pursuant to this Section 12A.02, without the
prior written consent of McGraw-Hill.
(d) Any Taxes for a Straddle Period of Shepard's
shall be apportioned between McGraw-Hill and Times Mirror as
set forth below in Section 12A.05. To the extent estimated
Taxes have been paid prior to the Closing Date or, in the case
of Taxes other than Income Taxes, are accrued on the Closing
Date Balance Sheet with respect to a Pre-Closing Tax Period or
Straddle Period, McGraw-Hill's liability with respect thereto
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shall be reduced by that amount. Upon timely notice from Times
Mirror, McGraw-Hill shall pay to Times Mirror at least 10 days
prior to the date any payment for Taxes as described in this
Section 12A.02 is due, McGraw-Hill's share of such Taxes as
described in this Section 12A.02.
Section 12A.03. Tax Sharing Agreements. On the
Closing Date, all Tax sharing agreements and arrangements be-
tween (i) Shepard's, on the one side, and (ii) McGraw-Hill or
any of its subsidiaries or affiliates (other than Shepard's),
on the other side, shall be terminated and have no further ef-
fect for any taxable year or period (whether a past, present or
future year or period), and no additional payments shall be
made thereunder on or after the Closing Date in respect of a
redetermination of Shepard's Tax Liabilities or otherwise.
Section 12A.04. Assistance and Cooperation. After
the Closing Date, each of McGraw-Hill and Times Mirror shall:
(i) assist in all reasonable respects (and cause
their respective affiliates to assist) the other party in
preparing any Tax Returns or reports which such other par-
ty is responsible for preparing and filing in accordance
with this Article 12A;
(ii) cooperate in all reasonable respects in pre-
paring for any audits of, or disputes with taxing authori-
ties, regarding any Tax Returns of Shepard's;
(iii) make available to the other and to any taxing
authority as reasonably requested all information,
records, and documents relating to Taxes of Shepard's;
(iv) provide timely notice to the other in writing of
any pending or threatened tax audits or assessment of
Shepard's for taxable periods for which the other may have
a liability under this Article 12A or Article 11; and
(v) furnish the other with copies of all correspon-
dence received from any taxing authority in connection
with any tax audit or information request with respect to
any such taxable period.
Section 12A.05. Definitions. For purposes of this
Agreement, "Shepard's Tax Liabilities" means (x) all liability
for Taxes of Shepard's for any taxable period that ends on or
before the Closing Date and the portion of any Straddle Period
ending on the Closing Date including any Taxes incurred as a
result of making the Shepard's Elections and any transfer,
sales or gains Taxes (other than transfer Taxes or sales Taxes
-97-<PAGE>
based upon the value of transferred property and imposed by law
on Times Mirror) arising as a result of the transactions con-
templated by this Agreement; and (y) all liability (as a result
of Treasury Regulation Section 1.1502-6(a) or otherwise) for
Taxes of any stockholders of Shepard's or any other Person
other than Shepard's which is or has ever been affiliated with
Shepard's, or with whom Shepard's otherwise joins or has ever
joined (or is or has ever been required to join) in filing any
Consolidated Return, prior to the Closing Date; provided, how-
ever, that Shepard's Tax Liabilities described above shall be
reduced to the extent that the aggregate reserves for Taxes
(excluding deferred income taxes) reflected on the Closing Date
Balance Sheet exceeds the aggregate liability for Taxes for
periods through the Closing Date not previously paid.
In the case of any Straddle Period:
(A) the periodic Taxes of Shepard's that are not
based on income or receipts (e.g., property Taxes) for the
Pre-Closing Tax Period shall be computed based upon the
ratio of the number of days in the Pre-Closing Tax Period
and the number of days in the entire Tax period; and
(B) Taxes of Shepard's for the Pre-Closing Tax Pe-
riod (other than Taxes described in clause (A)) shall be
computed as if such taxable period ended as of the close
of business on the Closing Date, and, in the case of any
Taxes of Shepard's attributable to the ownership by
Shepard's of any equity interest in any partnership or
other "flowthrough" entity, as if a taxable period of such
partnership or the "flowthrough" entity ended as of the
close of business on the Closing Date.
Section 12A.06. Controversies. McGraw-Hill shall
have the right, at its own expense, to control any Tax Audit,
initiate any claim for refund, contest, resolve and defend
against any assessment, notice of deficiency, or other adjust-
ment or proposed adjustment relating to any and all Taxes for
any Pre-Closing Tax Period or any period preceding a Pre-
Closing Tax Period with respect to Shepard's. Times Mirror
shall have the right, at its own expense, to control any other
Tax Audit, initiate any other claim for refund, and contest,
resolve and defend against any other assessment, notice of de-
ficiency, or other adjustment or proposed adjustment relating
to Taxes with respect to Shepard's; provided that, with respect
to any state and local or foreign Taxes for any Straddle
Period, Times Mirror shall consult with McGraw-Hill with re-
spect to the resolution of any issue that would affect McGraw-
Hill, and not settle any such issue, or file any amended return
relating to any such issue, without the consent of McGraw-Hill,
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which consent shall not unreasonably be withheld. Where con-
sent to a settlement is withheld by the other party pursuant to
this Section 12A.06, such other party may continue or initiate
any further proceedings at its own expense, provided that the
liability of the first party, after giving effect to this
Agreement, shall not exceed the liability that would have re-
sulted from the settlement or amended return. McGraw-Hill
shall furnish Times Mirror and Shepard's with its cooperation
in a manner comparable to that described in Section 12A.04
hereof to effect the purposes of this Section 12A.06.
ARTICLE THIRTEEN
TERMINATION
Section 13.01. Events of Termination. Anything con-
tained herein to the contrary notwithstanding, this Agreement
may be terminated and the transactions contemplated hereby
abandoned at any time prior to the Closing Date:
(a) by mutual written consent of Times Mirror and
McGraw-Hill;
(b) by McGraw-Hill if any of the conditions set
forth in Section 4.01 and Section 4.02 is not satisfied
or, in the reasonable, good faith determination of McGraw-
Hill, not capable of being satisfied prior to January 3,
1997, and shall not have been waived by McGraw-Hill;
(c) by Times Mirror or Mosby if any of the condi-
tions set forth in Section 4.01 and Section 4.03 is not
satisfied or, in the reasonable, good faith determination
of Times Mirror or Mosby, not capable of being satisfied
prior to January 3, 1997, and shall not have been waived
by Times Mirror or Mosby; or
(d) by any party hereto, if the Closing does not
occur on or prior to January 3, 1997.
Section 13.02. Return of Confidential Information.
In the event of termination by Times Mirror or McGraw-Hill pur-
suant to Section 13.01, written notice thereof shall forthwith
be given to the other party and the transactions contemplated
by this Agreement shall be terminated, without further action
by either party. If the transactions contemplated by this
Agreement are terminated as provided herein:
(a) McGraw-Hill shall return to Times Mirror all
documents and copies and other material received from
Times Mirror, TMHE or Mosby, and Times Mirror shall return
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to McGraw-Hill all documents and copies and material re-
ceived from McGraw-Hill or Shepard's relating to the
transactions contemplated hereby, whether obtained before
or after the execution hereof; and
(b) All confidential information received by either
of McGraw-Hill and Times Mirror with respect to the Col-
lege Publishing Business or the businesses of Shepard's,
respectively, shall be treated in accordance with the ap-
plicable Confidentiality Agreement, which shall remain in
full force and effect notwithstanding the termination of
this Agreement.
Section 13.03. Effects of Termination. If this
Agreement is terminated and the transactions contemplated here-
by are abandoned as described in Section 13.01, this Agreement
shall become void and of no further force and effect, except
for the provisions of (a) Section 7.08 and Section 8.08 relat-
ing to the obligation of each of McGraw-Hill and Times Mirror
to keep confidential certain information and data obtained by
it, (b) Section 9.04 relating to publicity, (c) Section 14.02
relating to attorneys' fees and expenses, (d) Section 14.09
relating to finders' fees and brokers' fees, (e) Section 14.11
relating to arbitration and consent to jurisdiction and (f)
this Article 13. Nothing in this Article 13 shall be deemed to
release either party from any liability for any breach by such
party of the terms and provisions of this Agreement or to im-
pair the right of either party to compel specific performance
by the other party of its obligations under this Agreement.
Section 13.04. Survival of Representations. The
representations and warranties in this Agreement and in any
other document identified as being delivered in connection with
this Agreement shall survive the Closing until the later of
March 31, 1997 and the date that is six months after the Clos-
ing Date, except that representations in Section 5.19(b)(i),
6.18(b)(i) with respect to liability under CERCLA or state
equivalents for disposal of Hazardous Materials off-site shall
survive the Closing indefinitely, and the remaining provisions
of Section 5.19(b), (c) and (d), Section 6.18(b), (c) and (d)
and Section 6.21 shall survive the Closing for one year. This
Section 13.04 shall not limit the indemnities provided in Sec-
tion 11.01, Section 11.02(c) or (d) or Articles 10, 10-A, 12
and 12-A.
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ARTICLE FOURTEEN
MISCELLANEOUS
Section 14.01. Expenses. Whether or not the trans-
actions contemplated hereby are consummated, and except as oth-
erwise provided in this Agreement, all fees, costs and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such
fees, costs or expenses.
Section 14.02. Attorneys' Fees. Should any litiga-
tion be commenced concerning this Agreement or the rights and
duties of any party with respect to it, the party prevailing
shall be entitled, in addition to such other relief as may be
granted, to a reasonable sum for such party's attorneys' fees
and expenses determined by the court in such litigation or in a
separate action brought for that purpose.
Section 14.03. Amendments. No amendment to this
Agreement shall be effective unless it shall be in writing and
signed by all of the parties hereto.
Section 14.04. Assignment. This Agreement and the
rights and obligations hereunder shall not be assignable or
transferable by McGraw-Hill, Times Mirror or Mosby (including
by operation of law in connection with a merger, or sale of
substantially all the assets, of McGraw-Hill, Times Mirror or
Mosby) without the prior written consent of the other parties
hereto, except that any party may assign any of its rights
hereunder, including rights to indemnification, to one or more
of its direct or indirect wholly-owned subsidiaries or to any
joint venture in which such party or its direct or indirect
subsidiaries own at least 50% of the equity interest; provided,
however, that no assignment shall limit or affect the
assignor's obligations hereunder. If the Closing occurs, the
obligations of the parties hereto shall be binding on all of
their respective successors and assigns.
Section 14.05. No Third-Party Beneficiaries. Except
as provided in Article 11 and except for the rights of Reed
Elsevier Inc. set forth in Section 8.02, this Agreement is for
the sole benefit of the parties hereto and their permitted
assigns and nothing herein expressed or implied shall give or
be construed to give to any person or entity, other than the
parties hereto and such assigns, any legal or equitable rights
hereunder.
Section 14.06. Notices. All notices or other commu-
nications required or permitted to be given hereunder shall be
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in writing and shall be delivered by hand or sent prepaid tele-
copy, or sent, postage prepaid, by registered, certified or
express mail, or reputable overnight courier service and shall
be deemed given when so delivered by hand or telecopied, or if
mailed, three days after mailing (one Business Day in the case
of express mail or overnight courier service), as follows:
(i) if to McGraw-Hill,
THE MCGRAW-HILL COMPANIES, INC.
1221 Avenue of the Americas
New York, New York 10020
Attention: General Counsel
with a copy to:
WACHTELL, LIPTON, ROSEN & KATZ
51 West 52nd Street
New York, New York 10019
Attention: Elliott V. Stein
(ii) if to Times Mirror,
THE TIMES MIRROR COMPANY
Times Mirror Square
Los Angeles, California 90053
Attention: Kathleen G. McGuinness
with a copy to
GIBSON, DUNN & CRUTCHER LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Peter F. Ziegler
(iii) if to Mosby,
MOSBY-YEAR BOOK, INC.
c/o The Times Mirror Company
Times Mirror Square
Los Angeles, California 90053
Attention: Kathleen G. McGuinness
with a copy to:
GIBSON, DUNN & CRUTCHER LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Peter F. Ziegler
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Section 14.07. Counterparts. This Agreement may be
executed in one or more counterparts, all of which shall be
considered one and the same agreement, and shall become effec-
tive when one or more such counterparts have been signed by
each of the parties and delivered to the other party.
Section 14.08. Entire Agreement. This Agreement,
the Mosby Transition Services Agreement, the TMIP Transition
Services Agreement, the College Publishing Business Confidenti-
ality Agreement and the Shepard's Confidentiality Agreement
contain the entire agreement and understanding between the par-
ties hereto with respect to the subject matter hereof and su-
persede all prior agreements and understandings relating to
such subject matter.
Section 14.09. Fees. Each party hereto hereby rep-
resents and warrants that (a) the only brokers or finders that
have acted for such party in connection with this Agreement or
the transactions contemplated hereby or that may be entitled to
any brokerage fee, finders' fee or commission in respect there-
of are Morgan Stanley & Co. Incorporated with respect to Times
Mirror and Goldman, Sachs & Co. with respect to McGraw-Hill and
(b) such party will pay all fees or commissions which may be
payable to the firms so named.
Section 14.10. Severability. If any provision of
this Agreement or the application of any such provision to any
person or circumstance shall be held invalid, illegal or unen-
forceable in any respect by a court of competent jurisdiction,
such invalidity, illegality or unenforceability shall not af-
fect any other provision hereof.
Section 14.11. Dispute Resolution; Equitable En-
forcement.
(a) Accounting Disputes. Notwithstanding anything
to the contrary contained in this Section 14.11, any contro-
versy, dispute or claim arising under this Agreement related to
or arising out of accounting matters relating to this Agreement
shall be resolved by means of discussions between the regularly
retained independent certified public accountants of McGraw-
Hill and Times Mirror. In the event that the independent cer-
tified public accountants of each of McGraw-Hill and Times Mir-
ror are unable to resolve the dispute within 60 days after the
dispute is first submitted to them, then a third independent
certified public accountant of recognized national standing
shall be selected by the independent certified public accoun-
tants of each of McGraw-Hill and Times Mirror and the determi-
nation of such third independent certified public accountant,
with respect to the matter in dispute, shall be rendered within
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45 days after the dispute has been submitted to it and such
determination shall be final and binding on all of the parties
hereto.
(b) Arbitration. Except as otherwise provided in
Section 14.11(a) or (c), any controversy, dispute or claim
arising under this Agreement shall be settled by arbitration
conducted in New York, New York in accordance with the rules of
the American Arbitration Association as then in effect and
judgment upon any award rendered by the arbitrator may be en-
tered by any federal or state court having jurisdiction there-
of. Any such arbitration shall be conducted by a single arbi-
trator who shall be a retired judge of either the Supreme Court
of the State of New York, New York County, the United States
District Court for the Southern District of New York or the
United States Court of Appeals for the Second Circuit. The
arbitrator shall comply with all rules of law, discovery and
evidence as then in effect in the Supreme Court of the State of
New York, New York County. The parties intend that this agree-
ment to arbitrate be valid, enforceable and irrevocable.
(c) Equitable Enforcement. Notwithstanding anything
to the contrary contained in this Section 14.11, any claim by
either party for injunctive or other equitable relief, includ-
ing specific performance (including specific performance of the
agreement to resolve disputes related to or arising out of ac-
counting matters contained in Section 14.11(a) and the agree-
ment to arbitrate contained in Section 14.11(b)), may be
brought in the Supreme Court of the State of New York, New York
County, or in the United States District Court for the Southern
District of New York before or as a result of arbitration, and
any judgment, order or decree relating thereto shall have pre-
cedence over any arbitral award or proceeding. Each of McGraw-
Hill, Times Mirror and Mosby irrevocably submits to the exclu-
sive jurisdiction of (i) the Supreme Court of the State of New
York, New York County, and (ii) the United States District
Court for the Southern District of New York, for the purposes
of any suit, action or other proceeding arising out of this
Agreement or any transaction contemplated hereby. Each of
McGraw-Hill, Times Mirror and Mosby agrees to commence any ac-
tion, suit or proceeding relating hereto either in the United
States District Court for the Southern District of New York or,
if, for jurisdictional reasons, such suit, action or other pro-
ceeding may not be brought in such court, in the Supreme Court
of the State of New York, New York County. Each of McGraw-
Hill, Times Mirror and Mosby further agrees that service of any
process, summons, notice or document by U.S. registered mail to
such party's respective address set forth in Section 14.06
above shall be effective service of process for any action,
suit or proceeding in New York with respect to any matters to
-104-<PAGE>
which it has submitted to jurisdiction as set forth above in
the immediately preceding sentence. Each of McGraw-Hill, Times
Mirror and Mosby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or pro-
ceeding arising out of this Agreement or the transactions con-
templated hereby in (x) the Supreme Court of the State of New
York, New York County, or (y) the United States District Court
for the Southern District of New York, and hereby further ir-
revocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceed-
ing brought in any such court has been brought in an incon-
venient forum.
Section 14.12. No Consequential or Punitive Damages.
Notwithstanding anything to the contrary elsewhere in this
Agreement, no party (or its affiliates) shall, in any event, be
liable to any other party (or its affiliates) for any conse-
quential damages, including, but not limited to, loss of reve-
nue or income, or loss of business reputation or opportunity,
or any punitive damages relating to the breach or alleged
breach of this Agreement.
-105-<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed as of the date first written
above.
THE TIMES MIRROR COMPANY,
a Delaware corporation
By: /s/ Thomas Unterman
Name: Thomas Unterman
Title: Senior Vice President & CFO
MOSBY-YEAR BOOK, INC.,
a Missouri corporation
By: /s/ James Imbriaco
Name: James Imbriaco
Title: Secretary
THE McGRAW-HILL COMPANIES, INC.,
a New York corporation
By:_/s/ Joseph L. Dionne
Name: Joseph L. Dionne
Title: Chairman & CEO
CONFORMED COPY
AMENDMENT TO EXCHANGE AGREEMENT
THIS AMENDMENT TO EXCHANGE AGREEMENT (the "Amend-
ment"), dated as of October 15, 1996, is made by and among The
Times Mirror Company, a Delaware corporation, Mosby-Year Book,
Inc., a Missouri corporation, and The McGraw-Hill Companies,
Inc., a New York corporation.
WHEREAS, the parties hereto entered into an Exchange
Agreement, dated as of July 3, 1996 (the "Agreement"); and
WHEREAS, the parties hereto desire to amend certain
provisions of the Agreement;
NOW, THEREFORE, in consideration of the foregoing,
and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to
be legally bound hereby, the parties hereto hereby agree as
follows:
1. Definitions. Capitalized terms not otherwise
defined herein shall have the meaning ascribed to them in the
Agreement.
2. Amendments to the Agreement.
(a) Notwithstanding any provision of the Agreement
to the contrary, the parties have agreed that Times Mirror will
cause the title to the International Assets to be transferred
to, and the International Liabilities (as set forth in Sched-
ules 2.02(a)(ii) and 2.02(b), respectively, along with any
increases and decreases therein in the ordinary course of busi-
ness of the TMIP Entities, as further reflected in the state-
ment of assets conveyed and liabilities assumed related to the
International Assets and the International Liabilities deliv-
ered pursuant to Section 7.01(a)(iii) as of June 30, 1996, and
such further increases and decreases therein in the ordinary
course of business that have occurred since June 30, 1996) to
be assumed by, TMHE prior to the Closing Date. For purposes of
the Post-Closing Adjustment described in Section 9.01(a), this
transfer shall be deemed to occur on the Closing Date and shall
have no impact upon such Post-Closing Adjustment.
(b) The definition of "College Publishing Business
Employee" is hereby amended to insert the words "on family
leave," after the phrase "on any authorized leave of absence,"
in subpart (ii) thereof.<PAGE>
(c) The definition of "Shepard's Employee" is hereby
amended to insert the words "on family leave," after the phrase
"on any authorized leave of absence," in subpart (ii) thereof.
(d) Section 2.03 is hereby amended as set forth in
the separate letter agreement concerning James H. Higby dated
October 14, 1996.
(e) The introductory paragraph to Section 3.01 is
hereby amended to read as follows:
The closing (the "Closing") of the purchase and
sale of the Shepard's Shares, the TMHE Shares and the
Mosby Assets and the assumption of the Mosby Liabil-
ities shall be effective immediately prior to 12:00
midnight on October 15, 1996. The date on which the
Closing shall be effective is hereinafter referred to
as the "Closing Date." The Closing shall be held at
the offices of Wachtell, Lipton, Rosen & Katz, 51
West 52nd Street, New York, New York.
(f) Section 3.01(a) is hereby amended by deleting
the words "and the TMIP entities" from the parenthetical clause
and by deleting the words "and the International Liabilities."
(g) The first sentence of Section 3.01(e) is hereby
amended to read as follows:
Title to the International Assets shall be trans-
ferred to TMHE, and the International Liabilities
shall be assumed by TMHE, prior to the Closing Date,
but any tangible International Assets will be in pos-
session or control of the TMIP Entities on the Clos-
ing Date.
(h) Section 4.02(a)(ii) is hereby amended to read as
follows:
McGraw-Hill shall have received from Times Mirror and
Mosby certificates issued by the appropriate govern-
mental authority of the jurisdiction of incorporation
or organization, as the case may be, of each of Times
Mirror, TMHE, Mosby and, except to the extent that
any has been dissolved prior to the Closing, the cor-
porations or other entities set forth on Schedule
5.08, evidencing its good standing in its respective
jurisdiction of incorporation or organization as of a
date not more than ten days prior to the Closing
Date, or to the extent that any of the corporations
or other entities set forth on Schedule 5.08 has been
-2-<PAGE>
dissolved prior to the Closing, evidence reasonably
satisfactory to McGraw-Hill and its counsel of such
dissolution.
(i) Section 4.02(a)(iv) is hereby amended by delet-
ing the words "The TMIP Entities shall have executed and deliv-
ered the instruments of sale and assignment referred to in Sec-
tion 3.01(b) and."
(j) Section 4.02(a)(vi) is hereby amended by delet-
ing the words "and Times Mirror shall have caused TMIP to ex-
ecute and deliver the TMIP Transition Services Agreement."
(k) Section 4.03(a)(iv) is hereby amended by delet-
ing the words "and the International Liabilities."
(l) The final clause of Section 5.09(e) is hereby
amended by replacing the words "last paragraph of Section
9.01(a)(ii)" with the words "the paragraph in Section 9.01(a)
that begins with the words `The accrual of additional
reserves.'"
(m) The last sentence of the first paragraph of Sec-
tion 5.12 is hereby amended by adding the words "and as of the
Closing Date TMHE will have good title to the International
Assets," immediately before the words "except for inventory."
(n) Section 5.15(c) is hereby amended by deleting
the comma and adding the word "or" after the words "TMHE Sub-
sidiaries" and deleting the words "or any of the TMIP Entities
(with respect to the International Assets)."
(o) Section 5.15(d) is hereby amended by adding the
word "or" immediately before the word "Mosby" each time it oc-
curs, by deleting the words "or the TMIP Entities, with respect
to the International Assets and International Liabilities" and
by deleting the words "or any of the TMIP Entities."
(p) Section 5.15(f) is hereby amended by adding the
word "or" immediately before the word "Mosby" and by deleting
the words "or any of the TMIP Entities (with respect to the
International Assets)."
(q) Section 5.15(h) is hereby amended by adding the
word "or" immediately before the first occurrence of the word
"Mosby" and by deleting the words "or any of the TMIP Entities,
with respect to the International Liabilities."
(r) Section 5.15(i) is hereby amended by adding the
word "or" immediately before the word "Mosby" and by deleting
-3-<PAGE>
the words "or any of the TMIP Entities (with respect to the
International Assets)."
(s) Section 5.15(j) is hereby amended by adding the
word "or" immediately before the word "Mosby" and by deleting
the words "or any of the TMIP Entities (with respect to the
International Assets)."
(t) Section 5.15(l) is hereby amended by adding the
word "or" immediately before the first occurrence of the word
"Mosby," by deleting the words "or any of the TMIP Entities
(with respect to the International Assets)" and by deleting the
words "or any of the International Assets" and the comma pre-
ceding such phrase.
(u) Section 5.19(a) is hereby amended by adding the
words "and affecting" prior to the words "the International
Assets."
(v) Clauses (b) through (e) of Section 5.20 are
hereby amended by adding the word "or" immediately before the
word "Mosby" each time it appears and by deleting the words "or
any of the TMIP Entities (with respect to the International
Assets)" each time it appears.
(w) Section 5.22(a) is hereby amended to read as
follows:
Except as set forth on Schedule 5.22(a), the Inter-
national Assets do not include nor is any Interna-
tional Asset affected by any exclusive distribution
agreement or arrangement having a term exceeding one
year, whether written or oral, with any entity or
individual. With respect to any such distribution
agreement or arrangement, whether written or oral,
Schedule 5.22(a) sets forth the term thereof, the
territory and the works covered thereby.
(x) The first sentence of Section 7.01(a) is hereby
amended by replacing the reference to "August 31, 1996" by "Au-
gust 15, 1996."
(y) Section 7.01(b) is hereby amended by replacing
the reference to "45" with "60."
(z) The first sentence of Section 7.01(c) is hereby
amended to read as follows:
As soon as practicable and in any event not later
than 60 days after the Closing Date, Times Mirror
-4-<PAGE>
shall deliver to McGraw-Hill an unaudited balance
sheet for each of (1) TMHE and the TMHE Subsidiaries
that exist on the Closing Date, on a consolidating
basis, (2) the International Assets and International
Liabilities, by legal entity that transferred the
International Assets and International Liabilities to
TMHE pursuant to Section 3.01(e), included in the
TMHE balance sheet under Section 7.01(c)(1), and (3)
the Mosby Assets and the Mosby Liabilities, in each
case as of the Closing Date (the "College Publishing
Business Closing Date Balance Sheets").
(aa) Section 7.03(n) of the Agreement is hereby
amended to read as follows:
(n) Material Agreements. Enter into (i) any
agreement, whether or not in the ordinary course of
business, that calls for payments in excess of
$500,000 and will not be fully performed within 12
months, (ii) any author contract calling for advances
or pre-publication costs in excess of $500,000 or
(iii) any royalty guarantees; provided, however, that
this Section 7.03(n) shall not be deemed to prohibit
TMHE from entering into the agreement previously dis-
closed to McGraw-Hill by Times Mirror between Richard
D. Irwin and Pennsylvania State University, the ex-
ecution and performance of which agreement is hereby
specifically consented to by McGraw-Hill.
(bb) Clause (d) of Section 7.03 is hereby amended by
inserting the words "College Publishing Business" immediately
before the word "Plan."
(cc) Clause (o) of Section 7.03 is hereby amended by
replacing the words "last paragraph of Section 9.01(a)(ii)"
with the words "the paragraph in Section 9.01(a) that begins
with the words `The accrual of additional reserves.'"
(dd) Section 7.13(b) is hereby amended to read as
follows:
In the event that the sale to Times Mirror of the
Partnership Interest pursuant to paragraph (a) of
this Section 7.13 takes place, Times Mirror will pay
to McGraw-Hill at the closing of such purchase $3
million in immediately available funds.
(ee) The first sentence of Section 8.01(a) is hereby
amended by replacing the reference to "August 31, 1996" with
-5-<PAGE>
"August 15, 1996" and by adding the words "shareholder's equity
and cashflows" immediately after the word "operations."
(ff) The first sentence of each of Sections 8.01(b)
and 8.01(c) is hereby amended by replacing the reference to
"45" with "60."
(gg) Clause (d) of Section 8.03 is hereby amended to
read as follows:
(d) Employee Matters. Adopt or amend in any
material respect, with respect to Shepard's, any
McGraw-Hill Plan or collective bargaining agreement,
except as required by law;
(hh) Section 8.05 of the Agreement is hereby amended
by inserting the words "and all of the officers" immediately
after the words "Board of Directors."
(ii) Section 8.12 of the Agreement is hereby de-
leted.
(jj) Section 9.01(a) is hereby amended further by
adding the following immediately after the third paragraph:
Any cash on the books of TMHE at the close of busi-
ness on June 30, 1996 and reflected as such on the
June 30 Financial Statements shall be considered, on
that date, a debit to the intercompany account with
Times Mirror on the books of TMHE; any cash on the
books of TMHE on the Closing Date and reflected as
such on the Closing Date Balance Sheet shall be con-
sidered a debit on that date to the intercompany
account with Times Mirror on the books of TMHE and
shall be paid by McGraw-Hill to Times Mirror in
addition to any amount determined under Section
9.01(a)(ii) or 9.01(b)(i).
(kk) Section 9.01(b) is hereby amended further by
adding the following immediately after the third paragraph:
Any cash on the books of Shepard's at the close of
business on June 30, 1996 and reflected as such on
the June 30 Financial Statements shall be considered,
on that date, a debit to the intercompany account
with McGraw-Hill on the books of Shepard's; any cash
on the books of Shepard's on the Closing Date and
reflected as such on the Closing Date Balance Sheet
shall be considered a debit on that date to the in-
tercompany account with McGraw-Hill on the books of
-6-<PAGE>
Shepard's and shall be paid by Times Mirror to
McGraw-Hill in addition to any amount determined un-
der Section 9.01(a)(i) or 9.01(b)(ii).
(ll) Section 9.02(a) is hereby amended by inserting
the following immediately after the first sentence:
In addition, Mosby grants to McGraw-Hill and TMHE the
right to use Mosby's name on packaging materials, if
any, included in the Mosby Assets in the form it ap-
pears thereon on the Closing Date, and to continue to
use such packaging materials until all current sup-
pliers of such materials have been exhausted.
(mm) Section 9.02(b) is hereby amended by inserting
the following immediately after the first sentence:
In addition, Times Mirror grants to McGraw-Hill and
TMHE the right to use Times Mirror's name on packag-
ing materials included in the College Publishing
Business in the form it appears thereon on the Clos-
ing Date, and to continue to use such packaging mate-
rials until all current supplies of such materials
have been exhausted.
(nn) Section 9.02(c) is hereby amended by inserting
the following immediately after the first sentence:
In addition, McGraw-Hill grants to Times Mirror and
Shepard's the right to use McGraw-Hill's name on
packaging materials included in the assets of Shep-
ard's in the form it appears thereon on the Closing
Date, and to continue to use such packaging materials
until all current supplies of such materials have
been exhausted.
(oo) Clause (i) of Section 9.06(a) is hereby amended
to read as follows:
Mosby may retain Records until the Termination Date
of the Mosby Transition Services Agreement (as such
term is defined therein) to the extent necessary or
convenient for the performance of its obligations
thereunder;
(pp) Section 9.08 is hereby amended by adding the
words "and unaudited" immediately after the word "audited" each
time it appears.
-7-<PAGE>
(qq) A new Section 9.09 is hereby added to read as
follows:
Section 9.09 TMIP Returns Procedures.
(a) Processing of English-Language Returns. After
the Closing Date, returns of English-language publications
published by the College Publishing Business of TMHE or
any of the TMHE Subsidiaries or by Mosby's College Text
Business that were sold out of consigned inventory by the
TMIP Entities prior to the Closing Date will be processed
by McGraw-Hill in accordance with the following proce-
dures:
(i) McGraw-Hill will process all returns of
all such publications through McGraw-Hill affiliates lo-
cated in the United Kingdom, Canada, Singapore, Spain and
Australia. Shortly after the Closing Date, McGraw-Hill
will issue instructions to all customers who have pur-
chased such publications through TMIP to the effect that
all returns shall be made to and processed by McGraw-Hill.
Times Mirror agrees that McGraw-Hill may establish any
commercially reasonable guidelines for acceptance of re-
turns as McGraw-Hill determines. All such returned publi-
cations shall be the property of McGraw-Hill.
(ii) If and to the extent that there is an out-
standing account receivable associated with any of such
returned publications, McGraw-Hill shall issue to the cus-
tomer a credit document for the amount to be credited to
TMIP's customer's account.
(iii) If and to the extent that there is no out-
standing account receivable associated with any of such
returned publications, (A) McGraw-Hill shall issue to the
customer a credit document for the amount to be refunded
to the customer (or credited to the customer's account
with respect to other publications of McGraw-Hill or any
of its subsidiaries) and (B) a receivable from the TMIP
Entity that sold the returned publications shall be estab-
lished on the books of McGraw-Hill in the amount of the
customer credit, less the statutory price of the returned
publications previously paid to TMHE or Mosby. Times Mir-
ror or the relevant TMIP Entity shall pay such receivable
to McGraw-Hill within 30 days of invoicing by McGraw-Hill.
(b) Processing of Other Returns.
(i) After the Closing Date, returns of adapta-
tions, translations or indigenous works included in the
-8-<PAGE>
International Assets will be processed by McGraw-Hill and
credits for such returned publications shall be issued by
McGraw-Hill to the customer.
(ii) If and to the extent that there is an out-
standing account receivable associated with any of such
returned publications, McGraw-Hill shall issue to the cus-
tomer a credit document for the amount to be credited to
TMIP's customer's account.
(iii) If and to the extent that there is no out-
standing account receivable associated with any of such
returned publications, (A) McGraw-Hill shall issue to the
customer a credit document for the amount to be refunded
to the customer (or credited to the customer's account
with respect to other publications of McGraw-Hill or any
of its subsidiaries) and (B) a receivable from the TMIP
Entity that sold the returned publications shall be estab-
lished on the books of McGraw-Hill in the amount of the
customer credit. Times Mirror or the relevant TMIP Entity
shall pay such receivable to McGraw-Hill within 30 days of
invoicing by McGraw-Hill.
(iv) McGraw-Hill shall report to Times Mirror
not later than 30 days after the end of each month the
quantity and title of such publications returned to
McGraw-Hill during the proceeding month and will identify
any such returned publications that McGraw-Hill intends to
retain for resale. A receivable shall be established on
the books of Times Mirror in the amount of the paper,
printing and binding cost of such returned publications as
McGraw-Hill intends to retain for resale and all other
such returned publications shall be destroyed. McGraw-
Hill or the relevant McGraw-Hill subsidiary shall pay such
receivable to the relevant TMIP Entity within 30 days af-
ter invoicing by the TMIP Entity.
(v) After the Closing Date, returns of any
publications of Mosby other than publications of Mosby's
College Text Business received by McGraw-Hill or any of
its affiliates will not be processed by McGraw-Hill and
will be forwarded to Mosby or to another Person designated
by Mosby at Mosby's sole expense and risk.
(c) Returns Received by Times Mirror or any of the
TMIP Entities. After the Closing Date, returns of the
English-language publications published by the College
Publishing Business of TMHE or any of the TMHE Subsid-
iaries or by Mosby's College Text Business that were sold
out of consigned inventory by the TMIP Entities prior to
-9-<PAGE>
the Closing Date that are received by Times Mirror or any
of the TMIP Entities shall be forwarded to McGraw-Hill at
McGraw-Hill's sole expense and risk.
(d) General Matters Regarding Returns. Times Mirror
shall cause each of the TMIP Entities to provide to
McGraw-Hill or to the McGraw-Hill affiliate designated by
McGraw-Hill, within 30 days after the Closing Date, all
original customer billing and account status information
as reasonably requested by McGraw-Hill. Times Mirror
shall designate certain employees of the TMIP Entities
and/or Mosby to be the primary contact for McGraw-Hill
with respect to returns.
(e) Offsets. Each of the parties may offset amounts
owed to any other party pursuant to this Section 9.09
against amounts owed by such other party pursuant to this
Section 9.09.
(rr) A new Section 9.10 is hereby added to read as
follows:
Section 9.10 Costs of TMIP Receivables Collection.
McGraw-Hill shall reimburse Times Mirror, within 90
days after invoice therefor, for costs incurred by
Times Mirror or the TMIP Entities in connection with
the collection by Times Mirror or by any of the TMIP
Entities of any accounts receivable with respect to
english-language publications published by the Col-
lege Publishing Business of TMHE or any of the TMHE
Subsidiaries or by Mosby's College Text Business that
were sold out of consigned inventory by the TMIP En-
tities prior to the Closing Date. For purposes of
this Section, costs shall not exceed 2% of the share
of such receivables actually collected and paid over
to McGraw-Hill or TMHE.
(ss) The first four sentences of Section 10.01 are
hereby amended to read as follows:
Schedule 10.01(a), as updated to the Closing Date,
contains a complete and accurate list of each Mosby's
College Text Business employee who will be offered
employment by McGraw-Hill on the Closing Date (the
"Mosby College Text Business Employees"). On the
Closing Date, McGraw-Hill shall offer employment to
(or cause TMHE to offer employment to) each Mosby's
College Text Business Employee. Except as otherwise
provided herein, on the Closing Date, all College
Publishing Business Employees (but excluding any
-10-<PAGE>
Mosby's College Text Business Employee who has not
accepted the aforementioned offer of employment or
any employee in Mosby's College Text Business who is
not listed on Schedule 10.01(a)) who are then (i)
actively employed or (ii) carried on the payroll as a
result of being on an authorized leave of absence
(other than a short-term or long-term disability
leave), family leave or vacation leave (hereinafter,
an "Employee-on-Leave") shall be employees of TMHE
and McGraw-Hill (collectively, the "College Publish-
ing Business Transferred Employees"). College Pub-
lishing Business Employees (but excluding any em-
ployee of Mosby's College Text Business who is not
listed on Schedule 10.01(a)) who are on short-term or
long-term disability leave on the Closing Date shall
be offered employment with McGraw-Hill or TMHE fol-
lowing the expiration of the leave of absence only to
the extent that Times Mirror, TMHE, a TMHE Subsidiary
or Mosby was obligated to offer employment to any
such employee upon return to work following such
leave, and, as of the date of such employee's accep-
tance of such offer of employment, such employee
shall be deemed a College Publishing Business Trans-
ferred Employee for purposes of this Agreement, sub-
ject to the terms and conditions set forth in this
Article 10; provided, however, that McGraw-Hill and
TMHE shall have no obligation to employ any employee
described in this sentence whose leave of absence
does not end prior to the first anniversary of the
Closing Date. Times Mirror shall retain the obliga-
tion to provide worker's compensation, short-term
disability, long-term disability and other benefits
to any employee described in the previous sentence
until such time as such employee becomes a College
Publishing Business Transferred Employee.
(tt) The sixth sentence of Section 10.01(a) is here-
by amended by deleting the first word thereof and replacing it
with "Except as provided above with respect to College Publish-
ing Business Employees on short-term or long-term disability
leave on the Closing Date, for."
(uu) The proviso in Section 10.07(b) is hereby
amended to read as follows:
provided, however, that, in order for any College
Publishing Business Transferred Employee to be eli-
gible to participate in any College Publishing Busi-
ness Post-Retirement Plan, such employee must ex-
pressly elect in writing to participate therein
-11-<PAGE>
within 31 days following the Closing Date and must
elect in writing to commence coverage thereunder
either effective as of the Closing Date or effective
as of the date of such employee's retirement under
the TM Pension Plan, if later.
(vv) The first three sentences of Section 10A.01 are
hereby amended to read as follows:
Except as otherwise provided herein, on the Closing
Date, all Shepard's Employees who are then (i) ac-
tively employed or (ii) carried on the payroll as a
result of being on an authorized leave of absence
(other than a short-term or long-term disability
leave), family leave or vacation leave (hereinafter,
an "Employee-on-Leave") shall be employees of Shep-
ard's and Times Mirror (collectively, the "Shepard's
Transferred Employees"). Shepard's Employees who are
on short-term or long-term disability leave on the
Closing Date shall be offered employment with Times
Mirror and Shepard's following the expiration of the
leave of absence only to the extent that Shepard's or
McGraw-Hill was obligated to offer employment to any
such employee upon return to work following such
leave, and, as of the date of such employee's accep-
tance of such offer of employment, such employee
shall be deemed a Shepard's Transferred Employee for
purposes of this Agreement, subject to the terms and
conditions set forth in this Article 10A; provided,
however, that Times Mirror or Shepard's shall have no
obligation to employ any employee described in this
sentence whose leave of absence does not end prior to
the first anniversary of the Closing Date. McGraw-
Hill shall retain the obligation to provide worker's
compensation, short-term disability, long-term dis-
ability and other benefits to any employee described
in the previous sentence until such time as such em-
ployee becomes a Shepard's Transferred Employee.
(ww) Section 10A.01 is further amended by inserting
the following at the end thereof:
McGraw-Hill shall pay and process the regular payroll
for each Shepard's Transferred Employee on the sched-
uled payment date for the bi-weekly or monthly pay-
roll period that includes the Closing Date (the
"Transition Payroll Period"). Times Mirror shall
promptly reimburse McGraw-Hill, within five days af-
ter receipt of invoice from McGraw-Hill, for the por-
tion of the gross employer payroll for the Transition
-12-<PAGE>
Payroll Period that relates to periods after the
Closing Date, and McGraw-Hill shall promptly remit to
Times Mirror, in the manner to be agreed by the par-
ties, employee-paid payroll tax withholdings in re-
spect of such Shepard's Transferred Employees attri-
butable to the portion of the Transition Payroll
Period occurring after the Closing Date, which shall
be remitted when due by Times Mirror to the appropri-
ate governmental taxing authority. For purposes of
the previous sentence, "gross employer payroll" means
all gross wages, employer-paid payroll taxes and any
other employer-paid amounts. The portion of the
Transition Payroll Period amount that relates to pe-
riods after the Closing Date and that is paid by
Times Mirror to McGraw-Hill shall be ignored for pur-
poses of the Post-Closing Adjustment and shall not be
included in the change in the intercompany balance
between Shepard's and McGraw-Hill for the period from
July 1, 1996 through the Closing Date.
(xx) Clause (i) of the second sentence of Section
10A.07(b) is hereby amended to read as follows:
(i) Shepard's Transferred Employees who, as of the
Closing Date, (a) have either been credited with at
least ten years of service under the applicable Shep-
ard's Post-Retirement Plan and attained at least age
55 or have been credited with at least twenty years
of service under the applicable Shepard's Post-
Retirement Plan and have attained age 50 and (b) are
otherwise eligible for benefits under the terms of
the applicable Shepard's Post-Retirement Plan,
(yy) The proviso in Section 10A.07(b) is hereby
amended to read as follows:
provided, however, that, in order for any Shepard's
Transferred Employee to be eligible to participate in
any Shepard's Post-Retirement Plan, such employee
must expressly elect in writing to participate there-
in within 31 days following the Closing Date and must
elect in writing to commence coverage thereunder ef-
fective as of the Closing Date.
(zz) The final sentence of Section 12.06 is hereby
amended to read as follows:
Times Mirror, McGraw-Hill, Shepard's, TMHE and the
TMHE Subsidiaries shall cooperate with one another in
a manner comparable to that described in Section
-13-<PAGE>
12.04 hereof to effect the purpose of this Section
12.06.
(aaa) The final sentence of Section 12A.06 is hereby
amended to read as follows:
Times Mirror, McGraw-Hill, Shepard's, TMHE and the
TMHE Subsidiaries shall cooperate with one another in
a manner comparable to that described in Section
12A.04 hereof to effect the purpose of this Section
12A.06.
(bbb) The last two paragraphs of Schedule 4.02(a)(v)
are hereby amended to read as follows:
For purposes of computing the Post-Closing Ad-
justments described in Section 9.01(a) hereof, the
adjustment described above with respect to reserves
for uncollectible accounts and returns will be
treated as a pre-June 30, 1996 entry. As a result,
the pro-forma June 30, 1996 unaudited balance sheet
or statement of assets conveyed and liabilities as-
sumed, as the case may be, of TMHE and Mosby College
Text Business will reflect their appropriate share of
this adjustment.
TMIP has other assets which will be transferred
to Buyer under the purchase agreements ("other TMIP
assets"). These assets consist of third party li-
cense agreements, prepaid expenses, and inventory
relating to indigenous works, including work in prog-
ress. There are various liabilities relating to the
other TMIP assets recorded on the books of TMIP, in-
cluding payables and royalties payable. The other
TMIP assets and the related liabilities will be sold
to TMHE prior to the Closing and will therefore be
sold to Buyers upon Closing.
(ccc) Schedule 10A.04 is hereby amended and updated
to read as set forth in Annex A to this Amendment.
(ddd) Schedule 2.02(a)(i) is hereby amended to read
as set forth in Annex B to this Amendment.
(eee) Schedule 5.03 is hereby amended to read as set
forth in Annex C to this Amendment.
(fff) Schedule 5.13(a) is hereby amended to read as
set forth in Annex D to this Amendment.
-14-<PAGE>
(ggg) Schedule 5.15(a) is hereby amended by replac-
ing tabs (A) and (D) thereof with replacement tabs (A) and (D)
as set forth in Annex E to this Amendment.
(hhh) Schedule 5.15(c) is hereby amended to read as
set forth in Annex F to this Amendment.
(iii) Schedule 5.15(k) is hereby amended by replac-
ing tab E thereof with replacement tab E as set forth in Annex
G to this Amendment.
(jjj) Schedule 5.15(l) is hereby amended to replace
the first page thereof to read as set forth in Annex H to this
Amendment.
(kkk) Schedule 5.17(a) is hereby amended by
replacing tabs (A) and (B) as set forth in Annex I to this
Amendment.
(lll) Schedule 5.22(a) is hereby amended to replace
the first page thereof to read as set forth in Annex J to this
Amendment.
(mmm) Schedule 10.01(a) is hereby updated, as pro-
vided in Section 10.01(a), to replace Schedule 10.01(a) to read
as set forth in Annex K to this Amendment.
(nnn) Schedule 10.04 is hereby amended by replacing
tabs (A) and (G) thereof with the replacement tabs (A) and (G)
as set forth in Annex L.
(ooo) The Mosby Transition Services Agreement is
hereby amended to read as set forth in Annex M to this Amend-
ment.
(ppp) Schedule 6.14(a) is hereby amended to read as
set forth in Annex N to this Agreement.
3. The parties agree that a full financial clos-
ing, with appropriate cut-off procedures, is to be planned,
executed and documented. Because the agreed-upon closing date
occurs on a date other than a fiscal month-end, the parties,
acknowledging that certain expenses and revenues are typically
budgeted and recorded on a full-fiscal-month basis, agree to
the following in an effort to facilitate the preparation of the
Closing Date financial statements and to ensure that the finan-
cial statements for Shepard's, TMHE and Mosby are prepared on a
common, consistent basis:
-15-<PAGE>
I. Certain expenses can be prorated for the period Octo-
ber 1 - October 15 as a percentage of the full month October
amounts. The percentage to apply to the full fiscal month Oc-
tober amounts to calculate the amount for the period October 1
- 15 is either of the following two formulas:
Apportionment Method A. The percentage is calculated as:
(Revenues for October 1 - 15) / (October fiscal month revenues)
(revenues for purposes of this apportionment are defined as
operating revenues inclusive of the provision for sale re-
turns);
or
Apportionment Method B. The percentage is calculated as:
(Business days for October 1 - 15) / (October fiscal month
business days).
The parties agree as follows:
Shepard's TMHE and Mosby
Apportionment Apportionment
Method Method
------------- -------------
Prepublication amortization n/a A
Sales returns provision
(on a gross revenue basis) A A
Reserve Provisions A A
(inv. obsolescence,
bad debts, etc.)
Depreciation B B
Amortization of intangible
assets B B
Corporate or segment
allocations B n/a
Rent and occupancy expense B B
Vacation expense B B
Incentive compensation
expense B B
Monthly exempt payroll B B
(All other payrolls -- hourly, weekly, etc. -- will be
cut-off on an actual basis)
II. Revenue for subscription products will be prorated
for the period October 1 - October 15 as a percentage of the
full month revenue amount. The percentage is to be calculated
as: (Business days for October 1 - October 15) / (October fis-
cal month business days).
-16-<PAGE>
III. All cash, intercompany accounts, accounts receiv-
able, accounts payable and other balance sheet account cut-offs
are to be executed and documented on a full closing basis, ex-
cept that balance sheet accounts should reflect apportionment
amounts if called for by paragraph I. For all revenue (other
than revenue for subscription products) and for all expenses
(other than those prorated in accordance with paragraph I),
cut-offs are to be executed and documented on a full closing
basis.
All standard account reconciliations and audit-verifiable docu-
mentation is to be prepared for the mid-month closing. All
revenues and expenses for October, through the Closing, includ-
ing monthly amounts prorated pursuant to paragraphs I and II,
shall be computed in a manner consistent with prior practice
and without regard to any revaluations resulting from the Ex-
change.
4. Times Mirror represents to McGraw-Hill that (i)
notwithstanding the statement to the contrary in the notes to
the TMHE financial statements set forth in Schedule 5.09(a),
such statements did not include incremental editorial and pro-
duction expense of $666,000 and incremental plant amortization
expense of $1,074,000 and (ii) the absence of such amounts was
offset by the overstatement of certain other inventory related
costs.
5. No Effect on Consistent Terms. All terms of the
Agreement not inconsistent with this Amendment shall remain in
place and in full force and effect and shall be unaffected by
this Amendment.
6. Headings. The headings contained in this Amend-
ment are inserted for convenience of reference only and shall
not affect the meaning or interpretation of this Amendment.
7. Counterparts. This Amendment may be executed in
one or more counterparts, all of which shall be considered one
and the same agreement, and shall become effective when one or
more counterparts have been signed by each party hereto and
delivered to the other party.
-17-<PAGE>
IN WITNESS WHEREOF, this Amendment has been signed by
or on behalf of each of the parties hereto as of the day first
above written.
THE TIMES MIRROR COMPANY
By: /s/ Patrick A. Clifford
Name: Patrick A. Clifford
Title: Senior Vice President
MOSBY-YEAR BOOK, INC.
By: /s/ James Imbriaco
Name: James Imbriaco
Title: Secretary
THE MCGRAW-HILL COMPANIES, INC.
By: /s/ Scott L. Bennett
Name: Scott L. Bennett
Title: Senior Vice President
-18-
FOR IMMEDIATE RELEASE (23SW--070396)
THE MCGRAW-HILL COMPANIES AGREES TO ACQUIRE
TIMES MIRROR HIGHER EDUCATION GROUP
IN EXCHANGE FOR SHEPARD'S/MCGRAW-HILL
LEGAL PUBLISHING
ACQUISITION OF ESTABLISHED COLLEGE PUBLISHER
IN MAJOR DISCIPLINES REINFORCES
CORPORATION'S GROWTH STRATEGY AND
EDUCATIONAL LEADERSHIP POSITION
NEW YORK, N.Y. -- July 3, 1996 -- In a move that will establish it
as the world's largest educational publisher, The McGraw-Hill Com-
panies (NYSE: MHP) announced today it had signed an exchange
agreement to acquire the Times Mirror Higher Education Group, the
fourth largest college publisher in the U.S.
In return for acquiring The Times Mirror Higher Education Group,
which had 1995 revenues of $228.2 million, The McGraw-Hill Compa-
nies will trade its Shepard's/ McGraw-Hill legal publishing unit
to The Times Mirror Company, and will also receive additional un-
disclosed consideration. It is anticipated the transaction will
be completed in the fall, subject to obtaining necessary govern-
ment approvals as required under the Hart-Scott-Rodino Act.
The Times Mirror Higher Education Group possesses a talented em-
ployee team, a rich resource of intellectual property and an out-
standing record of growth. The group is comprised of five well-
known business units: Richard D. Irwin, Wm. C. Brown, Brown &
Benchmark, Irwin Professional Publishing and Mosby College.
Through this acquisition, The McGraw-Hill Companies will
strengthen its Educational and Professional Publishing business
segment, and leverage its prowess in international marketing and
electronic custom publishing. The McGraw-Hill Companies will be a
leader in 12 higher education disciplines, including economics,
accounting, finance, biology and psychology.
"This acquisition reinforces The McGraw-Hill Companies' global
growth strategy to build on our current strengths in order to
achieve long-term, double-digit profit growth. College publishing
is a promising segment which offers us significant opportunities,"
said Joseph L. Dionne, chairman and chief executive officer. "Ad-
ditionally, consistent with our growth strategy, we will divest
businesses where we cannot be among the leaders. Accordingly, due
to recent consolidation in legal publishing, it is an appropriate
time to divest Shepard's/McGraw-Hill, and provide this fine busi-
ness and its dedicated employees the best opportunity for future
success."<PAGE>
"By acquiring the Times Mirror Higher Education Group, we expect
to generate significant revenue and profit growth through interna-
tional expansion, database marketing, and other synergies between
the two organizations," said Harold McGraw III, president and
chief operating officer. "This acquisition fits exceptionally
well with our core strengths, and our future direction for growth
through international expansion."
Peter Jovanovich, president, Educational and Professional Publish-
ing Group, said, "With little product overlap of its rich base of
titles, this acquisition allows us to further expand our strong
international presence and leverage existing innovative technology
investments, and increase our custom publishing capabilities
through an increased product line." He added, "We are fortunate
to be joining forces with such a talented group of people with an
outstanding track record of performance. We are looking forward
to this larger McGraw-Hill higher education company becoming the
preeminent higher education publisher in the world."
The Times Mirror Higher Education Group publishes some of the
leading and most impressive titles in the college business today.
Unmatched in history, quality and sell-through ability are publi-
cations such as: Larson's Fundamental Accounting Principles;
Perreult's Basic Marketing; Ross' Fundamentals of Corporate Fi-
nance; Hole's Human Anatomy & Physiology; Mader's Biology and Hu-
man Biology; Raven and Johnson's Biology; Santrock's Adolescence
and Lifespan Development, and others.
Completion of the transaction is subject to obtaining the neces-
sary government approvals.
The McGraw-Hill Companies is a leading information services pro-
vider meeting worldwide needs in education, business, finance, the
professions and government. Founded in 1888, the Corporation to-
day provides information and analysis in multiple media through
its rich portfolio of valuable brands. Sales in 1995 exceeded
$2.9 billion.
###
Contacts:
Steven H. Weiss Michelle Marin
Senior Director, The McGraw-Hill Companies
Corporate Communications 212-512-3498 (office)
The McGraw-Hill Companies 212-534-6384 (home)
212-512-2247 (office)
201-867-7699 (home)
[email protected] (e-mail)
-2-<PAGE>
Martha Goldstein Jean Jarvis
Director, Director, Investor Relations
Corporate Communications Times Mirror
Times Mirror 213-237-3935
213-237-3727
-3-
FOR IMMEDIATE RELEASE 34WM-101696
THE McGRAW-HILL COMPANIES REPORTS
8.2% INCREASE IN THIRD QUARTER EARNINGS
COMPLETES EXCHANGE OF SHEPARD'S FOR
TIMES MIRROR HIGHER EDUCATION GROUP
ACQUISITION ESTABLISHES THE MCGRAW-HILL COMPANIES
AS WORLD'S LARGEST EDUCATIONAL PUBLISHER
NEW YORK, N.Y., OCTOBER 16, 1996 -- The McGraw-Hill Companies
(NYSE: MHP) today reported that net income for the third quar-
ter increased by 8.2% to $114.5 million while revenue grew 4.9%
to $949 million. Earnings per share were $1.15 compared to
$1.06 for the same period last year.
For the first nine months, net income grew 8.8% to
$187.9 million. Revenue for the period was $2.2 billion, an
increase of 2.7%. Earnings per share for the first nine months
were $1.88 versus $1.73 for the comparable period a year ago.
The McGraw-Hill Companies also announced the comple-
tion of the exchange of its Shepard's/McGraw-Hill legal pub-
lishing unit for the Times Mirror Higher Education Group and
other consideration, including an undisclosed amount of cash.
THIRD QUARTER RESULTS: "Keys to our third quarter
were the strong performance of Financial Services and good re-
sults in the school market despite an off-adoption year," said<PAGE>
Joseph L. Dionne, chairman and chief executive officer of The
McGraw-Hill Companies.
EDUCATION AND PROFESSIONAL PUBLISHING: "Operating
profit increased 4.9% on a revenue gain of 5.4% in this segment
for the third quarter.
"Although comparisons were difficult after an out-
standing 1995 adoption year in the school market, our
elementary-high school operations still produced gains this
year. We had outstanding results in the secondary school and
supplemental markets, showing strength in both the open ter-
ritories and in adoption states. We were also encouraged by
the early sales of our new basal reading program, Spotlight on
Literacy, in the open territories. Spotlight on Literacy is
currently up for adoption in California, which may spend as
much as $300 million on new reading programs starting in 1997.
"We also benefited from continuing improvement in our
college division, which had strength in the front and back
lists and in Primis Custom Publishing sales.
"In international markets, we had excellent results
in Spain with a major new program for secondary schools, but
improvement there and in Asia could not offset the slow pace of
recovery in Mexico. As a result, total international sales
were flat for the third quarter and profits declined. Without
-2-<PAGE>
the shortfall in Mexico, total international sales and profits
would have been ahead of last year for the third quarter.
There was also softness in professional book operations.
FINANCIAL SERVICES: "Global growth, new products and
a strong market for asset-backed securities contributed to the
10.9% increase in operating profits on a 8.2% gain in revenue
for this segment in the third quarter.
"Standard & Poor's Ratings Services showed strength
across its entire product lineup. International and structured
finance businesses were particularly strong. Other factors
were the increased issuance of high yield corporate debt, im-
proved share in the public finance market and gains in the in-
surance ratings business both here and abroad.
"Our around-the-clock global information businesses
continued to produce growth at Standard & Poor's Financial In-
formation Services. Platt's, our commodities information ser-
vice in the energy market, and MMS International, which pro-
vides analysis and information for global debt and currency
markets, both grew over third-party networks. But there was
softness in the secondary municipal market and at DRI.
INFORMATION AND MEDIA SERVICES: "Revenue advanced by
less than 1% and operating profits declined by 17.3% in this
segment for the third quarter.
-3-<PAGE>
"Improved results at Business Week, Aviation Week and
our healthcare publications could not overcome the shortfalls
at BYTE and LAN Times, our computer and communications publica-
tions, Broadcasting and in the Construction Information Group.
"Revenue improved for the Construction Information
Group, but development and marketing costs for launching the
windows version of Dodge DataLine and weakness in the construc-
tion publications contributed to a drop in operating profits.
"Despite stronger than expected political advertising, the
Broadcasting Company's revenue and operating profits declined,
reflecting competition from the Summer Olympics on a rival net-
work.
"Business Week's revenue and profits both grew, pri-
marily driven by improvements in circulation revenue.
THE OUTLOOK: "There are signs of improvement in our
construction information group and some of our key advertising-
based businesses for the fourth quarter. Political advertising
is strengthening at our television stations and momentum is
starting to build at Business Week. Financial Services contin-
ues to show strength. Excluding the impact of the swap for the
Times Mirror properties, we believe we will achieve our growth
objectives for the year.
-4-<PAGE>
"The exchange of the Shepard's/McGraw-Hill legal pub-
lishing unit for the Times Mirror Higher Education Group will
be a factor in the fourth quarter. We expect a pre-tax gain,
net of one-time charges, of more than $300 million. Dilution
in fourth quarter earnings is estimated to be five-to-seven
cents per share, excluding one-time charges, due to the typical
seasonal decline in higher education business' earnings and the
timing of integration savings.
"The acquisition of the Times Mirror Higher Education
Group makes The McGraw-Hill Companies the world's largest edu-
cational publisher and the leader in 12 higher education disci-
plines, including accounting, economics, finance, biology and
psychology. The new product lineup significantly increases our
sales opportunities overseas where The McGraw-Hill Companies
already has a significant presence."
"The new acquisition represents another step in our
strategy of building on our strength in global publishing,"
said Harold McGraw III, president and chief operating officer
of The McGraw-Hill Companies. "There is very little product
overlap, and we will gain some significant operating efficien-
cies by integrating the Times Mirror Higher Education Group
with our own operations."
-5-<PAGE>
The acquisition involves approximately 1,000 employ-
ees mainly located in Dubuque, Iowa, Madison, Wis., Burr Ridge,
Ill., St. Louis, Mo., and Guilford, Conn.
The five Times Mirror Higher Education business units
that have been acquired --Richard D. Irwin, William C. Brown,
Brown & Benchmark, Irwin Professional Publishing and Mosby Col-
lege -- will become part of The McGraw-Hill CompaniesO new
Higher Education and Consumer Group, headed by Robert E. Evan-
son. The William C. Brown printing operation was sold to Que-
becor Printing (USA) Corp.
The McGraw-Hill Companies is a leading information
services provider, meeting worldwide needs in education, busi-
ness, finance, the professions and government. Founded in 1888,
the Corporation today provides information and analysis in mul-
tiple media through its rich portfolio of valuable brands.
Sales in 1995 exceeded $2.9 billion.
# # #
Contact:
Steven H. Weiss Michelle Marin
Senior Director, The McGraw-Hill Companies
Corporate Communications 212/512-3498 (office)
The McGraw-Hill Companies 212/534-6384 (home)
212/512-2247 (office)
212/580-2565 (home)
[email protected] (e-mail)
-6-
