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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 TIMES MIRROR COMPANY
(Exact Name of Registrant as Specified in Charter)
Delaware 1-13492 95-4481525
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
Times Mirror Square, Los Angeles California 90053
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (213) 237-3700
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
GENERAL
Immediately before midnight on October 15, 1996, The Times Mirror
Company (the "Company") consummated the transactions (the "Exchange") described
below which resulted in the acquisition by the Company of all of the common
stock of Shepard's/McGraw-Hill, Inc. ("Shepard's") from The McGraw-Hill
Companies, Inc. ("McGraw-Hill"), in exchange for all of the stock of The Times
Mirror Higher Education Group, Inc. ("TMHEG") and certain additional
consideration described below.
In addition, the Company assigned certain contract rights under the
Exchange Agreement described below to Shepard's and caused Shepard's to assign
those contract rights and to contribute all of its assets to a partnership
established by Shepard's and a newly formed, wholly owned subsidiary of
Shepard's. Subject to the completion of a pending regulatory review, the
Company expects in the near future to sell a 50% interest in such partnership to
Reed Elsevier Inc. ("REI") and an affiliate of REI.
On October 16, 1996, the Company issued a press release (the "Press
Release") announcing the completion of the Exchange.
THE TIMES MIRROR COMPANY
The Company is engaged principally in the newspaper publishing,
professional information and consumer media businesses. The Company owns all of
the common stock of Mosby-Year Book, Inc. ("Mosby"), an international publisher
in the health sciences, and all of the outstanding common stock of Times Mirror
International Publishers U.S., Inc. ("TMIP"), which, through its various
international subsidiaries and affiliates, produces and distributes professional
information and higher education textbooks and other teaching materials
worldwide. Prior to the Exchange, the Company owned all of the outstanding
common stock of TMHEG (the "TMHEG Shares"); TMHEG is comprised of three college
text divisions, Richard D. Irwin ("Irwin"), Wm. C. Brown Publishers and Brown &
Benchmark.
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MCGRAW-HILL
McGraw-Hill is a multimedia publishing and information company meeting
worldwide needs in education, business, finance, the professions and government.
Its key markets include finance, business, education, construction, medical and
health, computers and communications, aerospace and defense, and prior to the
Exchange, law. Prior to the Exchange, McGraw-Hill owned all of the outstanding
common stock of Shepard's (the "Shepard's Shares"). Shepard's is the premier
legal citation service in the United States.
No material relationship exists between McGraw-Hill and the Company or
any of its affiliates, any director or officer of the Company, or any associate
of any such director or officer.
REED ELSEVIER INC.
REI is the wholly-owned United States subsidiary of Reed Elsevier plc
("Reed Elsevier"), a leading world publisher and information provider with its
principal operations in North America and Europe. Reed Elsevier's information
products and services for the United States legal profession include the LEXIS-
NEXIS online information service, the Michie Company, Martindale-Hubbell and
Congressional Information Service.
THE EXCHANGE -- ACQUISITION OF THE SHEPARD'S SHARES AND DISPOSITION OF THE TMHEG
SHARES AND CERTAIN ASSETS OF MOSBY AND TMIP
In early 1996, management of the Company considered various strategic
alternatives with respect to TMHEG, and in March the Board of Directors of the
Company authorized management to proceed with its plan for the sale or exchange
of TMHEG. Management identified and contacted several potential bidders,
including McGraw-Hill, about a possible sale and/or exchange of assets, and
engaged Morgan Stanley & Co. Incorporated as its financial advisor for an
auction process beginning in April. In June, the Board of Directors authorized
management to continue to negotiate with the bidders, in one or more related or
unrelated transactions, the sale of all of the outstanding common stock and all
or a portion of the assets of TMHEG as well as certain assets of Mosby and TMIP
for consideration in the form of cash, assets
3
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or a combination of cash and assets, and also authorized management to negotiate
purchase or exchange agreements with respect to such sale. After evaluating bids
from several parties, management of the Company determined that McGraw-Hill
presented the most favorable possibility for an exchange of assets which would
meet the strategic interests of the Company.
The Company signed an Exchange Agreement dated as of July 3, 1996 (the
"Exchange Agreement") by and among the Company, Mosby and McGraw-Hill, pursuant
to which (1) McGraw-Hill agreed to sell to the Company all of the Shepard's
Shares; (2) the Company agreed to sell to McGraw-Hill all of the TMHEG Shares;
(3) Mosby agreed to sell to McGraw-Hill certain assets described in the Exchange
Agreement (the "Mosby Assets") devoted solely to Mosby's college-level life and
physical science text publishing business ("Mosby's College Text Business"), and
McGraw-Hill agreed to assume certain liabilities of Mosby described in the
Exchange Agreement (the "Mosby Liabilities") relating to Mosby's College Text
Business; (4) the Company agreed to cause TMIP, its direct and indirect
subsidiaries and Times Mirror Singapore Pte. Ltd. (the "TMIP Entities") to sell
to McGraw-Hill all of the interest of the TMIP Entities in certain assets
described in the Exchange Agreement (the "International Assets"), and McGraw-
Hill agreed to assume certain liabilities of the TMIP Entities described in the
Exchange Agreement (the "International Liabilities"); and (5) the Company agreed
to make a cash payment of $25 million to McGraw-Hill and made certain
commitments to McGraw-Hill related to the real estate assets of Irwin in an
amount not to exceed $10.5 million.
The Company, Mosby and McGraw-Hill signed the Amendment to Exchange
Agreement (the "Amendment"), dated as of October 15, 1996, which clarified
certain provisions of the Exchange Agreement, provided for the transfer of the
International Assets and the International Liabilities by the TMIP Entities to
TMHEG prior to the closing of the Exchange, and made certain other changes
required by a mid-month closing of the Exchange.
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CONSIDERATION FOR THE EXCHANGE
Immediately before midnight on October 15, 1996, the Company
transferred all of the TMHEG Shares and the Mosby Assets to McGraw-Hill, made a
cash payment of $25 million (less certain adjustments) to McGraw-Hill, and
confirmed certain commitments to McGraw-Hill related to the real estate assets
of Irwin in an amount not to exceed $10.5 million, in exchange for all of the
Shepard's Shares and the assumption by McGraw-Hill of the Mosby Liabilities.
Certain post-closing adjustments in the purchase price will be made pursuant to
the terms of the Exchange Agreement and the Amendment.
The source of funds for the cash portion of the consideration paid by
the Company for the acquisition of the Shepard's Shares was short-term
borrowings by the Company.
CREATION OF SHEPARD'S COMPANY
Immediately after the closing of the Exchange, the Company assigned
its indemnification rights and certain other contractual rights under the
Exchange Agreement to Shepard's as a contribution to capital. The Company then
caused Shepard's to contribute all of its assets and to assign the contractual
rights to a general partnership called Shepard's Company. TM ShepCo Inc., a
wholly owned subsidiary of Shepard's, was also formed immediately after the
closing of the Exchange and is the other general partner of Shepard's Company.
Subject to the completion of a pending regulatory review, REI and its wholly
owned subsidiary Reed Books Inc. are expected to purchase partnership interests
aggregating 50% in Shepard's Company.
EXHIBITS
The Exchange Agreement, the Amendment and the Press Release are
attached to this Form 8-K as exhibits and are incorporated herein by reference
in their entirety. The foregoing summaries of such documents do not purport to
be complete and are qualified in their entirety by reference to such exhibits.
Exhibits and schedules to the Exchange Agreement, which are listed in the Table
of Schedules and Table of Exhibits to the Exchange Agreement, have not been
filed and will be furnished supplementally to the Securities and Exchange
Commission upon its request.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The Company will file the financial statements required by this Item
7(a) as an amendment to this Form 8-K as soon as practicable, but no later than
December 30, 1996.
(b) Pro Forma Financial Information.
The Company will file the pro forma financial information required by
this Item 7(b) as an amendment to this Form 8-K as soon as practicable, but no
later than December 30, 1996.
(c) Exhibits.
The following exhibits are filed with this report on Form 8-K:
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
2.1 Exchange Agreement, dated as of July 3, 1996, by
and among The Times Mirror Company, Mosby-Year
Book, Inc. and The McGraw-Hill Companies, Inc.
2.2 Amendment to Exchange Agreement, dated as of
October 15, 1996, by and among The Times Mirror
Company, Mosby-Year Book, Inc. and The McGraw-Hill
Companies, Inc.
99.1 Press release dated October 16, 1996 announcing the
acquisition by the Company of Shepard's/McGraw-
Hill, Inc. from The McGraw-Hill Companies, Inc. in
exchange for The Times Mirror Higher Education
Group, Inc. and certain additional consideration.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated as of October 30, 1996
THE TIMES MIRROR COMPANY
By: /s/ Kathleen G. McGuinness
--------------------------
Name: Kathleen G. McGuinness
Title: Vice President, Secretary
and General Counsel
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Exchange Agreement, dated as of July 3, 1996, by and among
The Times Mirror Company, Mosby-Year Book, Inc. and The
McGraw-Hill Companies, Inc.
2.2 Amendment to Exchange Agreement, dated as of October 15,
1996, by and among The Times Mirror Company, Mosby-Year Book,
Inc. and The McGraw-Hill Companies, Inc.
99.1 Press release dated October 16, 1996 announcing the
acquisition by the Company of Shepard's/ McGraw-Hill, Inc.
from The McGraw-Hill Companies, Inc. in exchange for The
Times Mirror Higher Education Group, Inc. and certain
additional consideration.
</TABLE>
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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
<TABLE>
<S> <C>
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
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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
</TABLE>
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<S> <C> <C>
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
</TABLE>
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<S> <C> <C>
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 No Consequential or Punitive
Damages...................................................... 105
</TABLE>
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TABLE OF SCHEDULES
<TABLE>
<S> <C>
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
</TABLE>
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<TABLE>
<S> <C>
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
</TABLE>
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<TABLE>
<S> <C>
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
</TABLE>
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<S> <C>
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
</TABLE>
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TABLE OF EXHIBITS
Exhibit A Form of Mosby Transition Services
Agreement
Exhibit B Form of TMIP Transition Services
Agreement
<PAGE>
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (the "Agreement") is dated as of July 3, 1996,
---------
by and among THE TIMES MIRROR COMPANY, a Delaware 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 described herein, the
"Mosby Assets") devoted solely and exclusively 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 corporation
("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 education publishing
---------------------------
business consisting of TMHE and the TMHE Subsidiaries, 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 AGREEMENT" 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 absence, 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 formal 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 Mirror, TMHE or the TMHE Subsidiaries or Mosby.
"COLLEGE PUBLISHING BUSINESS RETIREES" means all persons 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 eligible 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 defined 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 Section 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 appli cable
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
-- ---
Reauthorization Act of 1986; the Resource Conservation and Recovery Act, 42
U.S.C. Sections 6901 et seq.; the Federal Water Pollution 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
-- --- -- ---
Insecticide, 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
-- ---
Control Act, 15 U.S.C. Sections 2601 et seq. and other legal requirements 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 under 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
disposal of which is or may be regulated under any Environmental
-4-
<PAGE>
Law. Hazardous Materials include but are not limited to asbestos,
polychlorinated biphenyls, mercury, lead, petroleum and petroleum products and
derivatives, urea formaldehyde foam insulation, 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 Profes sional 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 knowledge of any of E.
-------------------------
Thomas Unterman, Senior Vice President and Chief Fi nancial 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 McLaugh lin, 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 diminution in the value
------
of assets), liability and expense (including, 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, engineers, contractors, experts,
laboratories and all costs incurred in connection with any investigation,
cleanup, remediation, removal, abatement, closure and monitoring, action, suit
or proceeding), resulting from a violation of any Environmental 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 Section 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 hereto 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 encumbrances do not
materially impair the continued use and operation 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
compensation leave, or on vacation.
"SHEPARD'S INTELLECTUAL PROPERTY" is defined in Section 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, program, 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 contributed to by McGraw-Hill or
Shepard's.
"SHEPARD'S PROPERTIES" is defined in Section 6.12(b).
--------------------
"SHEPARD'S RETIREES" means all persons formerly employed 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 Section 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, transfer, registration,
value added, VAT, alternative or add-on minimum, 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 Transition 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 consummation 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
benefit plans on or prior to the Closing Date and fees and expenses 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 Agreement clearly requires
------------
otherwise, references to the plural include 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 (including the
Preamble, the Recitals, the Schedules and the Exhibits) and not to any
particular provision of this Agreement. Article, section, exhibit, schedule,
recital and preamble references in this Agreement are to those portions of this
Agreement 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 performed 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 reference 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 dis closed 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 relevancy 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 connection 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
application 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 International 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 Liabilities 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 relating
to the TMIP Entities.
Section 2.03. Cash Payment. In partial consideration 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, options, 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 Liabilities 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 offices 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 Closing, 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 in blank, or accompanied by stock powers duly endorsed
-12-
<PAGE>
in blank, in proper form for transfer, (ii) instruments of assumption 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 International 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 designated 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 contained 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 substance 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 necessary or convenient
for the performance of Mosby's obligations under the Mosby 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 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 convenient 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 as
signment 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 received 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 termi nation 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 lawsuit, action, claim, proceeding or investigation
commenced or threat ened 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 College 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 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 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' Obligations. The respective
--------------------------------------
obligations of parties hereto to consummate the Closing shall be subject to the
satisfaction (or waiver by each party) as of the Closing of the following
conditions:
(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 either 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 prohibiting 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 Obligations. Subject to
---------------------------------------
paragraph (b) of this Section 4.02, the obligations of McGraw-Hill to consummate
the Closing are subject 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 specifically 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 Mirror, 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 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.
(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, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby, and all
such resolutions 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 received 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; provided, however, that the foregoing shall not
-------- -------
apply to any failure 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.
----------------------------------------------------
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 following 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 incorporation 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.
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<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; provided, however, that the foregoing shall not apply to any failure
-------- -------
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
consummate the transactions contemplated hereby. All necessary corporate
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 delivery 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 agreement 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, including, 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
contemplated 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 accordance 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 termination of the waiting period
under, the HSR Act and (ii) where the failure to obtain such consent, approval,
authorization 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, possesses
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 business 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
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<PAGE>
the failure to be so qualified or in good standing would not have a material
adverse effect on the business, financial condition or results of operations of
TMHE or the TMHE Subsidiaries 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 certificates 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, return or redeem any shares of capital stock or other
securities of TMHE, and no equity securities of TMHE are reserved for issuance
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
understanding restricting or otherwise relating to the voting, dividend 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
contemplated by Article 2, good and marketable title to the TMHE Shares will
pass to McGraw-Hill, free and clear of any mortgages, liens, claims,
encumbrances, security interests, options, 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,
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<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 subject 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 interests.
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 thereto as of December 31, 1995 and the audited consolidated
statements 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.
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<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 College 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 covered
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 Schedule 5.09(c) was prepared in a manner consistent with the
statement 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 Business are set forth on Schedule 5.09(d)-1 and 5.09(d)-2,
respectively. 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 Business 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 operations located in Dubuque,
Iowa; and
(iii) the pro forma consolidated balance sheet of TMHE reflects
the contribution by Times Mirror to the capital 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,
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<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 practice, 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 authority all material Tax returns, reports and forms
they are required 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, except 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) Permitted 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 property 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 restrictions, (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 there to 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 therefor (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 exclusively in connection with the International Assets.
Schedule 5.14(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. All of the College Publishing Business Trademarks are owned
by College Publishing Business free and clear of all Liens.
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<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 revenue 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 December 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 otherwise 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 otherwise 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 aggregate, would not
have a ma terial 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.
(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
Business 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 Business 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 condition 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 respect to the International
Assets and International Liabilities, 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 proprietary 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
hereunder.
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 Business, or the TMIP Entities, with respect to the International Assets
and International Liabilities, is a party ("College Publishing Business
---------------------------
Contracts"):
- ---------
(a) Employment, Independent Contractor and Consulting Agreements. (i)
------------------------------------------------------------
Any employment agreement, employment contract 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 control of TMHE or
Mosby (other than any enhanced benefits described 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 labor 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 Business) or any of the TMIP Entities (with respect to
the International 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 International 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,
vehicle 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 continuing 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 Business) 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 partnership 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 respect 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 connection with the reproduction, publication or
distribution of any works; and
(l) Other Agreements. Any other agreement, contract, 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 respect 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 Business, 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
performed 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 thereunder 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. 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 law suits or claims (other than lawsuits or claims related to
Taxes with respect to which Times Mirror is obligated to indemnify 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
International Assets, is subject to any judgment, order or decree of any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, applicable 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.
-----------------------------------
Schedule 5.17(a) sets forth each employee pension, retirement,
----------------
profit sharing, stock bonus, stock option, stock purchase, incentive, deferred
compensation, hospitalization, medical, dental, vision, life insurance,
accidental death and dismemberment insurance, business travel insurance,
cafeteria and flexible spending, sick pay, disability, severance, golden
parachute or other plan, fund, program, policy, contract or arrangement
(including any contracts or agreements with certain employees of the College
Publishing Business that relate to the transactions contemplated by this
Agreement) providing employee benefits that is maintained, contributed to or
required to be contributed to by Times Mirror or any of its affiliates 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
Affiliate is liable for any amount under Title IV of ERISA (except for premiums
to the Pension Benefit Guaranty Corporation arising in the ordinary course) and
no fact or event exists which could reasonably give rise to such liability.
Except as disclosed on Schedule 5.17(a), no College Publishing Business
----------------
Personnel is entitled to any benefit under any College Publishing Business Plan
by reason of the transactions contemplated hereby, including, but not limited
to, severance, stay-pay or retention 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
transaction in connection with which TMHE or any TMHE Subsidiary would be
subject to either a material liability or civil penalty 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 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
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
issuance of such letter that would adversely affect the Tax qualification of any
such College Publishing Business Plan. There
-32-
<PAGE>
are no pending or, to the Knowledge of College Publishing Business, 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
Business Plan (other than individual claims for benefits arising in the ordinary
course).
(c) Multiemployer Plan Liabilities. Except as disclosed 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 Subsidiary, to a
multiemployer plan (as defined in Section 3(37) of ERISA) and no such ERISA
Affiliate of TMHE 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 College
---------------------------------------
Publishing Business 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 College Publishing Business Plans. No contribution
failure has occurred with respect to any College 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 welfare 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 Business 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 Balance Sheet and the Mosby
- -------------
Statement, there has not been a material 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 general 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. Except 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 incidents 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 Business 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, citation, 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 Subsidiaries, 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 Knowledge of Times Mirror, threatened against or
affecting 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); (b) to the Knowledge of Times Mirror, no union
organizing campaign is in progress with respect 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 material 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 relating 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 determination, other than those which, if so
determined, would not have a material adverse effect on the business, financial
condition 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,
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<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 access 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 answers concerning the terms and conditions of the purchase and sale of
the Shepard's Shares and to obtain information necessary to verify the accuracy
of the financial and non-financial 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 International 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 respect to one edition only of the work subject to such
agreement.
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 con templated 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 constitutes 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 Shepard's will not, (i) violate or conflict with the
Charter or Bylaws of McGraw-Hill or Shepard's or (ii) constitute a material
breach or default or (iii) except as set forth on Schedule 6.02 hereto, give
rise to any Lien, third-party right of termination, 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 authority, 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 prevent 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 validly 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,
authorizations and approvals the lack of which would not have a material adverse
effect on the business, financial condition or results of operations of
Shepard's. Shepard's is duly qualified 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 necessary, except such
jurisdictions where the failure be so qualified or in good standing would not
have a material adverse effect on the business, financial condition or results
of operations of Shepard's. McGraw-Hill has made available to Times Mirror true
and complete copies of (i) the Certificate of Incorporation 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 authorized 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 validly issued and outstanding, fully paid and nonassessable.
Except 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 subscription 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 equity
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 endorsed 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 restrictions 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. The financial
------------------------------
statements set forth on Schedule 6.08, which consist of (i) the unaudited
-------------
balance sheet of Shepard's and the notes thereto as of December 31, 1995 and the
unaudited statement of operations and the notes thereto for the year then
ended, and (ii) the unaudited condensed balance sheet of Shepard's and the
notes thereto as of March 31, 1996 (the "Shepard's Balance Sheet") and the
-----------------------
unaudited condensed statement of operations for the three-month period then
ended, were prepared in accordance with GAAP, and present fairly, in all
material respects, 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 presentation 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, inventory 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 Shepard's Balance Sheet or thereafter
acquired, except for inventory 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 consistent with past practice,
free and clear of all Liens, except
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<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 subject 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 property 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 property leased by Shepard's
("Shepard's Leased Properties," and together with the Shepard's Owned
---------------------------
Properties, "Shepard's Properties") 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, 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 Shepard's business and operation 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 therefor (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.
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<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 sufficient 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 Intellectual 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 exclusively 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 proprietary 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 publication 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 following types of contracts to
which Shepard's is a party ("Shepard's Contracts"):
-------------------
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<PAGE>
(a) Employment, Independent Contractor and Consulting Agreements.
------------------------------------------------------------
(i) Any employment agreement, employment contract 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
following 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 consulting 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 labor 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 similar 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 personal 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 terminable by notice of less than 60 calendar days for a
cost of less than $150,000;
(g) Supply and Service Agreements. (i) Any continuing agreement or
-----------------------------
contract for the future purchase by Shepard's of materials, supplies or
equipment (other than purchase contracts and orders for inventory in the
ordinary course
-42-
<PAGE>
of business consistent with past practice) or (ii) any advertising 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 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 Shepard's
------------
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 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 partnership 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, contract, 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 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 6.14 or the other schedules hereto, Shepard's
-------------
has performed all material obligations required 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.
-43-
<PAGE>
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 law suits or claims (other than lawsuits or claims
related to Taxes with respect to which McGraw-Hill is obligated to indemnify
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 instrumentality, domestic or foreign, applicable
to Shepard's which is material 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 pension, retirement,
----------------
profit sharing, stock bonus, stock option, stock purchase, incentive, deferred
compensation, hospitalization, medical, dental, vision, life insurance,
accidental death and dismemberment insurance, business travel insurance,
cafeteria and flexible spending, sick pay, disability, severance, golden
parachute or other plan, fund, program, policy, contract or arrangement
(including any contracts or agreements with certain 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 contributed to by
McGraw-Hill or any of its affiliates in which any Shepard's Personnel has
participated or under which any Shepard's Personnel has accrued and remains
entitled to any benefits (the "McGraw-Hill Plans"). McGraw-Hill has made
-----------------
available 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
-44-
<PAGE>
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
contract relating to any McGraw-Hill Plan. Neither Shepard's nor any corporation
or trade or business (whether or not incorporated) which would be treated as its
ERISA Affiliate is liable for any amount under Title IV of ERISA (except for
premiums to the Pension Benefit Guaranty Corporation arising in the ordinary
course) and no fact or event exists which could reasonably 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 transactions
contemplated hereby, including, but not limited to, severance, 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 Affiliate 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 applicable 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 disclosed 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 current or former
employee of Shepard's, to a multiemployer plan (as defined in Section 3(37) of
ERISA) and no such ERISA Affiliate 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 Balance 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 general
or the legal citations business in general and not specifically 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. Except 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 respect 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, citation, 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 respect to any alleged violation of or
liability under any Environmental 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 Knowledge of McGraw-Hill, threatened against or
affecting Shepard's; (b) to the Knowledge of McGraw-Hill, no union organizing
campaign is in progress with respect to the employees of Shepard's;
(c) there is no unfair labor practice charge or complaint 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 operations 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 determination, other than those
which, if so determined, would not have a material adverse effect on the
business, financial condition 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 registration 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 Subsidiaries 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 opportunity 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 verify the accuracy of the financial
and non-financial information furnished to it by Times Mirror and Mosby.
Section 6.21. Certain Material Contracts. With respect to any
--------------------------
Lien, third-party right of termination, cancellation, 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 consummation 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 material 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 revenue associated with such contract or (y) the loss of the general
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
performance 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 acquired or used by
Shepard's in producing, publishing and distributing 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, understandings or
undertakings of Shepard's which would restrict the ability of Shepard's to use
any of Shepard's Intellectual Property 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 agreements 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 practicable 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
statements 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 unaudited 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 operations 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 Statements. 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
---------------------
unaudited condensed statement of profit and loss of Mosby's College Text
Business (the "Mosby P & L Statement"), each for the period 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 statement
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
Business, 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 operations of TMHE or
of Mosby's College Text Business, as the case may be, for the period covered
thereby. The statements described in this Section 7.01(b) shall be accompanied
by a certificate 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 practicable 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 Publishing Business Closing Date Balance
------------------------------------------------
Sheets"). The College Publishing Business Closing Date Balance Sheets (i) shall
- ------
be prepared 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 December 31, 1995 balance sheet of TMHE included
in Schedule 5.09(a), (ii) shall reflect the accounting adjustments described in
----------------
Section 5.09(d) and (iii) shall not reflect any purchase 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 described 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, advisors, representatives and
authorized agents will, and Times Mirror will cause TMHE and the TMIP Entities
and their officers, directors, employees, advisors, representatives and
authorized agents to, provide McGraw-Hill and its representatives, employees,
counsel and accountants during scheduled appointments 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, employees, 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 College 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 assessment and
any additional boring and sampling or other environmental assessment work as
McGraw-Hill may deem appropriate and (iii) access for purposes of conducting
preliminary facilities reviews; provided, however, that all information and
-------- -------
documentation made available to McGraw-Hill pursuant to the terms of this
Section 7.02 shall be subject to the terms of the Confidentiality Agreement
dated June 19, 1996 between McGraw-Hill and Times Mirror (the "College
-------
Publishing Business Confidentiality Agreement").
- ---------------------------------------------
Section 7.03. Ordinary Conduct. Except as contemplated 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 manner 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 contemplated 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 agreement, except as required by law;
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<PAGE>
(e) Compensation. (i) Grant to any executive officer or
------------
employee any increase in compensation or benefits 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 consistent with past practice; provided that
the exception set forth in this clause (B) shall not apply to enhanced
severance benefits, or (C) any increases, payments or benefits for which
Times Mirror shall be solely obligated, (ii) enter into any employment
agreement or amend any existing employment agreement, or (iii) terminate
any executive officer or employee other than in the ordinary course of
business consistent with past practice;
(f) Indebtedness. Incur or assume any liabilities, obligations
------------
or indebtedness for borrowed money or guarantee any such liabilities,
obligations or indebtedness, 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 Permitted 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
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<PAGE>
any of its assets to, or enter into any agreement or arrangement with Times
Mirror or any affiliate of Times Mirror 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 acquire 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 otherwise dispose of,
------------------
or agree to sell, lease or otherwise dispose 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 business, 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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<PAGE>
Section 7.04. Insurance. Times Mirror shall keep, or cause to be
---------
kept, all insurance policies presently maintained relating to TMHE, the TMHE
Subsidiaries and their properties, 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 policies presently owned and maintained by TMHE or the
TMHE Subsidiaries. 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 Assets 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 covenants 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 competes 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
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<PAGE>
textbooks and related supplementary materials which are primarily marketed to
(i) nurses and nursing students, dentists and dentistry students, veterinarians
and veterinary medicine students, nutritionists, dieticians and physicians and
medical students, including, but not limited to, textbooks and related
supplementary materials in the basic medical sciences of anatomy, physiology,
biochemistry, microbiology, pathology, pharmacology, 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
nursing, nursing assistance and home care fields, (iv) consumers and
participants in the consumer health market, (v) participants 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 managerial, 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
contemplated 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, neither 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 duration, 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 Section 7.06 to
any jurisdiction or time period shall be held invalid 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 unenforceable,
shall not be affected thereby. It is the intent
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<PAGE>
and agreement of Times Mirror and McGraw-Hill that the provisions 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 affiliates (other than TMHE and the TMHE Subsidiaries), on the
other side, to be contributed to capital (in the case of intercompany 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 Liabilities 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 acknowledges 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 representatives
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 information 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 avail able to Times Mirror in certain "data rooms," management
presentations or in any other form in expectation of the transactions
contemplated by this Agreement.
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<PAGE>
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 secondary, direct or
indirect, absolute or contingent, known or unknown, whether or not accrued,
whether arising before, on or after the Closing Date, of Shepard's, including,
without limitation, 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, contract or arrangement
described in Section 6.16, but not required to be set forth on Schedule 6.16(a);
----------------
provided, however, that the foregoing shall not apply to any obligation or
- -------- -------
liability 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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<PAGE>
Section 7.13. Purchase of Limited Partner Interest. (a) At the
------------------------------------
election of McGraw-Hill, Times Mirror shall purchase the limited partner
interest owned as of the Closing by TMHE in Burr Ridge Parkway Limited
Partnership (the "Partnership Interest"), for $7.5 million. Such election may be
exercised 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 Section 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 practicable 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 operations
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
financial 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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<PAGE>
(b) Closing Date Income Statement. As soon as practicable 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 balances 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 operations of Shepard's for the period covered thereby.
The statements described in this Section 8.01(b) shall be accompanied by a
certificate of the Chief Financial officer of Shepard's confirming that the
statements have been prepared as described above.
(c) Closing Date Balance Sheet. As soon as practicable 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 "Shepard'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 reflect 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 confirming 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, representatives and authorized agents
will, and McGraw-Hill will cause Shepard's and its officers, directors,
employees, advisors, representatives and authorized agents to, provide Times
Mirror and its representatives, employees, counsel and accountants 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, representatives 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
Employees 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
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assessment and any additional boring and sampling or other environmental
assessment work as Times Mirror may deem appropriate 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 contemplated 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 bargaining agreement, except as required
by law;
(e) Compensation. (i) Grant to any executive officer or
------------
employee any increase in compensation or benefits 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 consistent with past practice or (C) any
increases, payments or benefits for which McGraw-Hill shall be solely
obligated,
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<PAGE>
(ii) enter into any employment agreement or amend any existing employment
agreement, or (iii) terminate any executive officer or employee other than
in the ordinary course of business consistent with past practice;
(f) Indebtedness. Incur or assume any liabilities, obligations
------------
or indebtedness for borrowed money or guarantee any such liabilities,
obligations or indebtedness, 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 arrangement 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 acquire 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);
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<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 otherwise dispose of, or
------------------
agree to sell, lease or otherwise dispose 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 agreements, 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 replacements 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 insureds.
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 covenants 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 competes 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 analogous equity interest) of any company or
other organization that derives more than 5% of its consolidated revenue from
the Competing Business;
(b) during the Restricted Period, McGraw-Hill and its Affiliates
shall not solicit the employment of any managerial, 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 duration, 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
Section 8.06 to any jurisdiction or time period shall be held invalid 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
unenforceable, shall not be affected thereby. It is the intent and agreement
of Times Mirror and McGraw-Hill that the provisions 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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<PAGE>
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 acknowledges that the
---------------
information being provided to it by Times Mirror is subject to the terms of the
College Publishing Business Confidentiality Agreement, the terms of which are
incorporated herein by reference. Effective upon, and only upon, the Closing,
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 Assets 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 Publishing 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 obligation to McGraw-Hill or any other person
resulting from the distribution to McGraw-Hill, or McGraw-Hill's use of, any
such information, including, without limitation, the Confidential Offering
Memorandum prepared by Morgan Stanley & Co. Incorporated 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 secondary, direct or
indirect, absolute or contingent, known or unknown, whether or not accrued,
whether arising before, on or after the Closing Date, of TMHE, including,
without limitation,
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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
threshold 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 Liabilities.
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 immediately 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 account 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 benefit) 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 account 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 transferred 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.
(b) 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 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 Shepard's with McGraw-Hill for the period from July 1, 1996 to the
Closing Date plus (B) income taxes on the amount in clause (1) using 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
Statement) 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 Shepard's with McGraw-Hill for the period from July 1, 1996 to the
Closing Date plus (B) income taxes on the amount in clause (1) using 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; provided, however,
-------- -------
that the Mosby 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 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 respect to each publication included within the College Publishing
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
publication. 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 Mirror and Mosby shall
-----------
cooperate with each other and shall cause their respective officers, employees,
affiliates, agents, auditors 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 businesses 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 consent shall
not be unreasonably withheld), except as such release or announcement may be
required by law or the rules or regulations of any United States or foreign
securities exchange, 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 issuance. 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
---
Department 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 information and reasonable
assistance as the other may request in connection 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 communications
with, and inquiries or requests for additional information 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 contemplated
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 Mirror 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 original agreements, documents, books,
records and files (collectively, "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 convenient 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 subsidiaries 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
Business; 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 operations 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 Mirror;
(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 notice, 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 business 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 Liabilities) and assistance relating
to Shepard's, TMHE, the TMHE Subsidiaries, Mosby's College Text Business, the
International
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Assets and the International Liabilities as is reasonably necessary 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
- -------- -------
operations 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 consummate 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 Commission
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) contains 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 Subsidiary 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 vacation 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 Subsidiary 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 Subsidiary or
McGraw-Hill on or after the Closing Date are collectively 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 Business who is not listed on Schedule
10.01(a) and Times Mirror shall retain all responsibility for any obligations
with respect to such employees who are not College Publishing Business
Transferred Employees, including the obligation to pay severance. For a period
of one year following the Closing Date, McGraw-Hill shall not offer employment
to any College Publishing Business Employee who is not employed by McGraw-Hill
as of the Closing Date. In addition, nothing contained in this Article 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 connection with the termination of the employment of
any College Publishing Business Transferred Employee on or after the Closing
Date.
Section 10.02. Times Mirror's Benefit Plans and Employee 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 Publishing 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 under 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 Employee 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 Business Transferred Employee with
full credit for employment with Times Mirror, TMHE and Mosby prior to the
Closing Date for purposes of eligibility and vesting under McGraw-Hill plans;
provided, 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
obligate 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 pursuant 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 Employee all retention or
stay-pay and performance bonuses payable, including those payable under the
plans or agreements described 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 con templated 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 Investment 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 Probus 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 Closing 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 Transferred 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
reasonably 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; provided, 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 contribution 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 Employees 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 College 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 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 Times Mirror, TMHE, the
TMHE Subsidiaries 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 College 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 Section 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 eligible for such benefits under the terms of the applicable
College 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 individuals 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; provided, however, that in order for any College
-------- -------
Publishing Business 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 retirement date with McGraw-Hill.
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(c) With respect to any welfare benefit plans maintained 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 Mirror 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
Article 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
retained 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 respect to any College Publishing Business Employee prior to
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the Closing Date or any College Publishing Business Retiree and (iii) any
failure of any representation or warranty 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 provided 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 actively employed immediately prior to the Closing Date by
Shepard'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 following 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 restrict in any way Times Mirror's right to terminate any
Shepard's Transferred Employee following the Closing Date.
(b) 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 connection 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 Employee 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 contributed 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 publishing 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 purposes of eligibility
and vesting. In no event shall Times Mirror 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 Replacement 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 Closing 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 obligations of McGraw-Hill.
On or before the Closing Date, McGraw-Hill shall pay to each Shepard's
Transferred Employee all retention 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 Account Plan of The McGraw-Hill Companies, Inc. and
Its Subsidiaries ("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 become 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. Subject 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 contribution plan that is applicable to each
Shepard's 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 Shepard's Transferred
Employee under the McGraw-Hill Defined Contribution 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 contemplated in this Section 10A.05 shall
be held and administered in all respects in accordance with the provisions of
such Replacement 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
---------------------------
participating 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 Retirement 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 Closing 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 obligations under this Section 10A.06 or for purposes of the
administration 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 reimburse covered Shepard's 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 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 Replacement 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 medical 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 respect to similarly
situated retirees or employees of McGraw-Hill; provided, however, that in order
-------- -------
for any Shepard's Transferred 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 maintained 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 specified term of employment.
Section 10A.09. Mutual Cooperation. Times Mirror and McGraw-Hill
------------------
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 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 obligation 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 Mirror and Shepard's
harmless from any Losses Times Mirror or Shepard's may incur as a result of
(i) McGraw-Hill's failure 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, officers, 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 Liabilities, 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, employees and agents and hold them harmless from
any Damages arising, directly or indirectly, from or in connection with any
Shepard's Tax Liabilities (as defined in Section 12A.05). Any refunds of
Shepard's Tax Liabilities, other than refunds accrued 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 officers, 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 representation or warranty of
Times Mirror and Mosby set forth in Sections 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 Mirror'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 harmless from any Losses suffered or
incurred by any such indemnified party to the extent arising from any breach of
any representation 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 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 officers, 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
Environmental 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 harmless from any Losses suffered or
incurred by any such indemnified party to the extent arising from violations of
any Environmental 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 harmless from any Losses suffered or
incurred by any such indemnified party to the extent arising from claims
asserted by authors 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 indemnify 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 provisions are set forth in Section 11.02 or
employee benefit matters, 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 Mirror'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 (including Shepard's) and each of their
respective officers, directors, 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 indemnification provisions are set
forth in Section 11.01, or environmental matters or certain litigation matters,
for which indemnification 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 further, 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 Agreement and the transactions contemplated hereby and
(ii) the remedy 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
extension thereof by waiver or otherwise), (b) pursuant to paragraphs (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, before 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 Indemnification (Except Under
----------------------------------------------------
Section 11.01). In order for a party (the "indemnified party") to be entitled
- ------------- -----------------
to any indemnification provided 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 writing, 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 indemnifying party, within 5 Business Days after the indemnified party'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 defense 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 assumed 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 prosecution 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 reasonably
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 party's
prior written consent (which consent shall not be unreasonably 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. Times Mirror and
---------------------------
McGraw-Hill shall jointly make timely and irrevocable 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 Subsidiaries 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 determination (as defined in Section
1313(a) of the Code or any similar state or local tax provision). McGraw-Hill
may make elections 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 Election 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 similar 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 Mirror, 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 Mirror,
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 applicable 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 Appraiser 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 allocation 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 12.02. 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 prepared and timely
filed all federal, state, provincial, local and foreign Tax Returns in respect
of TMHE and the TMHE Subsidiaries, 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 Returns. 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 assets or activities. Times Mirror shall reimburse McGraw-Hill for its
share of the Taxes due with respect to such Tax Returns, 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 re spect 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 Closing 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 period), 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 party is responsible for preparing and filing in
accordance with this Article 12;
(ii) cooperate in all reasonable respects in preparing for any
audits of, or disputes with taxing authorities, 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, records, 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
liability under this Article 12 or Article 11; and
(v) furnish the other with copies of all correspondence 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 Subsidiaries, 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 contemplated 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 property and
imposed by law on McGraw-Hill); and (z) all liability (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 Subsidiaries) 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 Consolidated Return,
prior to the Closing Date; provided, however, 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 Subsidiaries 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 Subsidiaries
attributable to the ownership by TMHE or any of the TMHE Subsidiaries of
any equity interest in any partnership 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 business
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 measured 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 governmental 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 assessment, 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 expense, 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 Subsidiaries 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 applicable 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 "Shepard's Elections") and shall take no position contrary
-------------------
thereto 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 or local tax
provision).
(b) To the extent possible, McGraw-Hill, Times Mirror and Shepard's
shall execute at the Closing any and all forms necessary to effectuate the
Shepard's Elections (including, 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 prepare 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 applicable 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 ending 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 transfer 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 prepared 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 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. 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 Returns required of Shepard's or
in respect of its assets or activities. 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 Mirror, 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 between (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 effect
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 party is responsible for preparing and filing in
accordance with this Article 12A;
(ii) cooperate in all reasonable respects in preparing for any
audits of, or disputes with taxing authorities, 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 correspondence 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
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based upon the value of transferred property and imposed by law on Times Mirror)
arising as a result of the transactions contemplated 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,
--------
however, 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 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, 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 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 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 deficiency, 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 respect 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 consent 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 resulted 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 contained 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 conditions 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 pursuant 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 received 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 College Publishing Business or the
businesses of Shepard's, respectively, shall be treated in accordance with
the applicable 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 hereby 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 relating
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 impair 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 Closing 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 Section 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 transactions
--------
contemplated hereby are consummated, and except as otherwise 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 litigation 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 communications
-------
required or permitted to be given hereunder shall be
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in writing and shall be delivered by hand or sent prepaid telecopy, 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 effective 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 Confidentiality Agreement and the Shepard's
Confidentiality Agreement contain the entire agreement and understanding between
the parties 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 represents 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
thereof 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 unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision hereof.
Section 14.11. Dispute Resolution; Equitable Enforcement.
-----------------------------------------
(a) Accounting Disputes. Notwithstanding anything to the contrary
-------------------
contained in this Section 14.11, any controversy, 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 certified public accountants of each
of McGraw-Hill and Times Mirror 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 accountants of each of McGraw-Hill and Times Mirror
and the determination of such third independent certified public accountant,
with respect to the matter in dispute, shall be rendered within
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<PAGE>
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 aris ing under this Agreement shall be
settled by arbitration con ducted 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 entered by any federal or state
court having jurisdiction thereof. Any such arbitration shall be conducted by a
single arbitrator 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 agreement 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, including specific performance (including specific
performance of the agreement to resolve disputes related to or arising out of
accounting matters contained in Section 14.11(a) and the agreement 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 precedence over any
arbitral award or proceeding. Each of McGraw-Hill, Times Mirror and Mosby
irrevocably submits to the exclusive 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 action, 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 proceeding 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
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<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 proceeding arising out of this Agreement or the transactions contemplated
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 irrevocably and unconditionally waives and agrees not to plead
or claim in any such court that any such action, suit or proceeding brought in
any such court has been brought in an inconvenient 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 consequential damages, including, but not limited to, loss
of revenue 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:___________________________________
Name:
Title:
MOSBY-YEAR BOOK, INC.,
a Missouri corporation
By:___________________________________
Name:
Title:
THE McGRAW-HILL COMPANIES, INC.,
a New York corporation
By:___________________________________
Name:
Title:
<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:_____________________________________
Name:
Title:
MOSBY-YEAR BOOK, INC.,
a Missouri corporation
By:_____________________________________
Name:
Title:
THE McGRAW-HILL COMPANIES, INC.,
a New York corporation
By: /s/ Joseph L. Dionne
-------------------------------------
Name: Joseph L. Dionne
Title: Chairman & CEO
<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:_____________________________________
Name:
Title:
<PAGE>
CONFORMED COPY
AMENDMENT TO EXCHANGE AGREEMENT
THIS AMENDMENT TO EXCHANGE AGREEMENT (the "Amendment"), 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 Schedules 2.02(a)(ii) and 2.02(b), respectively, along with any
increases and decreases therein in the ordinary course of business of the TMIP
Entities, as further reflected in the statement of assets conveyed and
liabilities assumed related to the International Assets and the International
Liabilities delivered 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 Liabilities 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 off ices 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 transferred to TMHE, and
the International Liabilities shall be assumed by TMHE, prior to the
Closing Date, but any tangible International Assets will be in
possession or control of the TMIP Entities on the Closing 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 governmental 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 corporations 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 deleting the words "The
TMIP Entities shall have executed and delivered the instruments of sale and
assignment referred to in Section 3.01(b) and."
(j) Section 4.02(a)(vi) is hereby amended by deleting the words "and
Times Mirror shall have caused TMIP to execute and deliver the TMIP Transition
Services Agreement."
(k) Section 4.03(a)(iv) is hereby amended by deleting 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 Section 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 Subsidiaries" 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 occurs, 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
preceding 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 International Assets do
not include nor is any International 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 "August 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 disclosed to McGraw-
Hill by Times Mirror between Richard D. Irwin and Pennsylvania State
University, the execution 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 deleted.
(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 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
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 considered 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
intercompany 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 under 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 appears thereon on the Closing Date, and to
continue to use such packaging materials until all current suppliers
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 packaging materials included in the College
Publishing Business 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.
(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 Shepard'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 procedures:
(i) McGraw-Hill will process all returns of all such
publications through McGraw-Hill affiliates located in the United
Kingdom, Canada, Singapore, Spain and Australia. Shortly after the
Closing Date, McGraw-Hill will issue instructions to all customers who
have purchased 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 returns as McGraw-Hill determines. All
such returned publications shall be the property of McGraw-Hill.
(ii) If and to the extent that there is an outstanding
account receivable associated with any of such returned publications,
McGraw-Hill shall issue to the customer 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 outstanding
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 established 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
Mirror 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 adaptations,
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 outstanding
account receivable associated with any of such returned publications,
McGraw-Hill shall issue to the customer 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 outstanding
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 established 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 after
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 Subsidiaries 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 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. 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
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<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
-------
Publishing Business Transferred Employees"). College Publishing
-----------------------------------------
Business Employees (but excluding any employee 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 following
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
acceptance of such offer of employment, such employee shall be
deemed a College Publishing Business Transferred Employee for
purposes of this Agreement, subject 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 obligation 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 hereby amended by
deleting the first word thereof and replacing it with "Except as provided above
with respect to College Publishing 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 eligible to participate in
any College Publishing Business Post-Retirement Plan, such
employee must expressly 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) 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 Shepard'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
acceptance 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 disability and other benefits to any
employee described in the previous sentence until such time as
such employee 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 scheduled payment date for
the bi-weekly or monthly payroll period that includes the Closing
Date (the "Transition Payroll Period"). Times Mirror shall
-------------------------
promptly reimburse McGraw-Hill, within five days after receipt of
invoice from McGraw-Hill, for the portion 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 parties, employee-paid payroll tax
withholdings in respect of such Shepard's Transferred Employees
attributable to the portion of the Transition Payroll Period
occurring after the Closing Date, which shall be remitted when
due by Times Mirror to the appropriate 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 periods after the Closing
Date and that is paid by Times Mirror to McGraw-Hill shall be
ignored for purposes 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 Shepard'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 therein within 31 days following the Closing Date and
must elect in writing to commence coverage thereunder effective
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 Adjustments
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 assumed, 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 license agreements, prepaid expenses, and
inventory relating to indigenous works, including work in
progress. There are various liabilities relating to the other
TMIP assets recorded on the books of TMIP, including 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 replacing 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 replacing 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 provided 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 Amendment.
(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 closing, 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 financial 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 October 1 -October 15
as a percentage of the full month October amounts. The percentage to apply to
the full fiscal month October 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 returns);
or
Apportionment Method B. The percentage is calculated as: (Business days for
October 1 - 15) / (October fiscal month business days).
<TABLE>
<CAPTION>
The parties agree as follows:
Shepard's TMHE and Mosby
Apportionment Apportionment
Method Method
------------- --------------
<S> <C> <C>
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
</TABLE>
(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 fiscal month business days).
-16-
<PAGE>
III. All cash, intercompany accounts, accounts receivable, accounts
payable and other balance sheet account cut-offs are to be executed and
documented on a full closing basis, except 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 documentation is to be
prepared for the mid-month closing. All revenues and expenses for October,
through the Closing, including 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 Exchange.
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 production 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 Amendment 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-
<PAGE>
[LETTERHEAD OF TIMES MIRROR]
For Immediate Release
Times Mirror Announces Completion of Sale
of Higher Education Group to The McGraw-Hill Companies
LOS ANGELES, CALIFORNIA, October 16, 1996 -- The Times Mirror Company
announced today that it has completed its acquisition of Shepard's, the nation's
premier legal citation service, from The McGraw-Hill Companies in exchange for
the Times Mirror Higher Education Group and additional undisclosed
consideration. Times Mirror expects to report a small gain on the exchange net
of special charges related to the transaction.
The previously announced formation of a partnership with Reed Elsevier to
jointly own Shepard's will follow the completion of a currently pending
regulatory review of the transaction. This process is expected to be
successfully completed in the near future.
"We are delighted to begin our relationship with Shepard's," said Kathryn
M. Downing, president and chief executive officer, Matthew Bender & Co. Inc.
"Shepard's outstanding product mix of Federal and State jurisdictional and
topical Citator services substantially strengthens the scope of legal research
tools which we will now offer our customers." Shepard's will be managed by
Matthew Bender, reporting to Downing, pending the formation of the joint venture
with Reed Elsevier.
The acquisition of Shepard's is an important step in broadening the mix of
legal information which Bender provides its customers. Earlier this year Times
Mirror and Reed Elsevier entered into a long-term cross-license agreement to
offer Matthew Bender publications online through LEXIS service and to provide a
significant portion of the LEXIS caselaw database through Matthew Bender's print
and CD-ROM products. Times Mirror and Reed Elsevier expect to pursue other
opportunities together.
(more)
<PAGE>
Matthew Bender & Company, Inc. is the country's premier
publisher of legal treatises, in both print and electronic form. In 1996, Bender
released its new line of CD-ROM products, "Authority From Matthew Bender(TM),"
which features the popular Folio search engine.
The Times Mirror Higher Education Group is comprised of Richard D. Irwin,
Wm. C. Brown Publishers, Brown & Benchmark, Irwin Professional Publishing and
Mosby College.
Times Mirror (TMC-New York and Pacific stock exchanges), a Los Angeles-
based news and information company, publishes the Los Angeles Times, Newsday,
----------------- -------
The Baltimore Sun and other newspapers; a wide array of professional information
- -----------------
for the legal, aviation, health sciences and training markets; and national and
trade magazines.
###
Press Information Investor Information
Vicki Cho Estrada Jean M. Jarvis
213-237-6409 213-237-3955
2
