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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| New York | 13-1026995 | |
|
(State of other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
| 1221 Avenue of the Americas, New York, N.Y. | 10020 | |
| (Address of Principal executive offices) | (Zip Code) |
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Financial Information
Three Months
Six Months
(in thousands, except per share data)
2005
2004
2005
2004
$
649,096
$
577,260
$
977,942
$
892,285
807,181
668,702
1,507,341
1,273,544
1,456,277
1,245,962
2,485,283
2,165,829
322,185
280,702
526,160
462,849
252,256
213,737
479,008
417,950
574,441
494,439
1,005,168
880,799
254,584
230,908
455,383
422,073
275,135
225,789
513,809
448,022
529,719
456,697
969,192
870,095
26,134
22,992
50,837
45,188
12,010
6,774
20,439
13,639
1,142,304
980,902
2,045,636
1,809,721
313,973
265,060
439,647
356,108
3,512
2,161
4,210
3,898
310,461
262,899
435,437
352,210
115,491
97,273
161,732
110,318
194,970
165,626
273,705
241,892
—
—
—
(931
)
—
—
—
(344
)
—
—
—
(587
)
$
194,970
$
165,626
$
273,705
$
241,305
$
0.52
$
0.44
$
0.73
$
0.64
$
0.52
$
0.44
$
0.73
$
0.63
$
0.51
$
0.43
$
0.71
$
0.63
$
0.51
$
0.43
$
0.71
$
0.63
373,534
379,180
376,191
380,226
380,047
385,214
383,332
386,152
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June 30,
Dec. 31,
June 30,
(in thousands)
2005
2004
2004
$
245,895
$
680,623
$
383,578
1,121,069
1,002,408
916,203
433,879
327,781
375,716
267,058
258,157
235,221
148,925
157,153
114,645
2,216,826
2,426,122
2,025,363
455,584
428,205
455,395
294,330
299,792
293,825
225,444
220,611
220,493
519,774
520,403
514,318
1,244,602
1,195,792
1,109,567
729,964
682,726
657,083
514,638
513,066
452,484
1,741,769
1,505,340
1,240,326
220,911
228,502
236,460
495,284
219,643
178,033
2,457,964
1,953,485
1,654,819
$
6,164,786
$
5,841,281
$
5,102,379
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June 30,
Dec. 31,
June 30,
(in thousands)
2005
2004
2004
$
389,205
$
4,613
$
4,398
285,522
318,301
276,025
51,925
103,844
45,198
314,084
411,330
271,072
166,741
78,776
96,727
796,920
719,948
654,080
7,516
7,516
7,516
333,851
302,626
332,478
2,345,764
1,946,954
1,687,494
350
513
380
321,740
232,081
170,316
161,817
164,021
166,775
193,513
197,267
201,069
329,774
315,932
270,569
1,007,194
909,814
809,109
3,352,958
2,856,768
2,496,603
411,709
205,855
205,854
3,831
113,843
112,641
3,751,498
3,680,852
3,280,199
(55,347
)
(32,255
)
(65,529
)
4,111,691
3,968,295
3,533,165
1,271,727
963,751
899,662
28,136
20,031
27,727
2,811,828
2,984,513
2,605,776
$
6,164,786
$
5,841,281
$
5,102,379
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(in thousands)
2005
2004
$
273,705
$
241,305
50,837
45,277
20,439
13,639
80,380
105,151
13,233
8,483
(122
)
3,777
(106,881
)
(30,940
)
(106,768
)
(78,230
)
26,039
(42,860
)
(216,174
)
(159,585
)
63,479
60,400
10,687
(3,800
)
106,163
(120,153
)
(5,865
)
(10,398
)
19,937
(3,851
)
229,089
28,215
(109,890
)
(104,938
)
(43,826
)
(39,028
)
(449,965
)
(4,753
)
18,033
45,678
(5,978
)
(6,596
)
(591,626
)
(109,637
)
371,003
(21,693
)
(122,782
)
(114,301
)
(383,923
)
(223,025
)
80,281
132,171
(95
)
(166
)
(55,516
)
(227,014
)
(16,675
)
(3,577
)
(434,728
)
(312,013
)
680,623
695,591
$
245,895
$
383,578
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1.
Basis of Presentation
The financial information in this report has not been audited, but in the opinion of management
all adjustments (consisting only of normal recurring adjustments) considered necessary to
present fairly such information have been included. The operating results for the three and six
months ended June 30, 2005 and 2004 are not necessarily indicative of results to be expected for
the full year due to the seasonal nature of some of the Company’s businesses. The financial
statements included herein should be read in conjunction with the financial statements and notes
included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.
The Company’s critical accounting policies and estimates are disclosed in Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations, in the Company’s
annual report on Form 10-K for the year ended December 31, 2004. On an ongoing basis, the
Company evaluates its estimates and assumptions, including those related to revenue recognition,
allowance for doubtful accounts and sales returns, valuation of inventories, prepublication
costs, valuation of long-lived assets, goodwill and other intangible assets, retirement plans
and postretirement healthcare and other benefits and income taxes. Since the date of the annual
report on Form 10-K, there have been no material changes to the Company’s critical accounting
policies and estimates.
Certain prior year amounts have been reclassified for comparability purposes.
All share and per share figures have been restated to reflect the two-for-one stock split
announced April 27, 2005. See Note 7 for further detail.
In December 2002, The FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation -
Transition and Disclosure, an amendment of SFAS No. 123.” This statement amends SFAS No. 123,
“Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based employee
compensation, and requires additional disclosures in interim and annual financial statements.
The disclosure in interim periods requires pro forma net income and net income per share as if
the Company adopted the fair value method of accounting for stock-based awards. Pro forma net
income and earnings per share primarily reflecting compensation cost for the fair value of
stock options were as follows:
Three Months
Six Months
(in thousands except earnings per share data)
2005
2004
2005
2004
$
194,970
$
165,626
$
273,705
$
241,305
5,099
3,380
8,658
6,299
(18,006
)
(13,796
)
(33,592
)
(27,294
)
$
182,063
$
155,210
$
248,771
$
220,310
$
0.52
$
0.44
$
0.73
$
0.63
$
0.49
$
0.41
$
0.66
$
0.58
$
0.51
$
0.43
$
0.71
$
0.63
$
0.48
$
0.40
$
0.65
$
0.57
373,534
379,180
376,191
380,226
380,047
385,214
383,332
386,152
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The weighted average fair value of options granted during the six months ended June 30, 2005 and
2004 was $7.91 and $6.40, respectively. The fair value of each option grant was estimated on
the date of the grant using a lattice option-pricing model in 2005 and the Black-Scholes
option-pricing model in 2004, using the following assumptions:
2005
2004
1.99 — 4.64
%
2.9
%
1.6
%
1.6
%
16 — 24
%
17.0
%
0.5 — 6.8
5.0
2.
Comprehensive Income
The following table is a reconciliation of the Company’s net income to comprehensive income for
the three and six month periods ended June 30:
Three Months
Six Months
(in thousands)
2005
2004
2005
2004
$
194,970
$
165,626
$
273,705
$
241,305
(20,237
)
(1,055
)
(23,092
)
3,995
$
174,733
$
164,571
$
250,613
$
245,300
3.
Segment and Related Information
The Company has three reportable segments: McGraw-Hill Education, Financial Services, and
Information and Media Services. McGraw-Hill Education is one of the premier global educational
publishers serving the elementary and high school, college and university, professional and
international markets. In January 2004, the Company divested Landoll, Frank Schaffer and
related juvenile retail publishing businesses, which were part of the McGraw-Hill Education
segment. In accordance with SFAS No. 144, the Company reflected the results of these businesses
as discontinued operations as of December 31, 2003 (See Note 4). The Financial Services segment
operates under the Standard & Poor’s brand and provides credit ratings, evaluation services, and
analyses globally on corporations, financial institutions, securitized and project financings,
and local, state and sovereign governments. Financial Services provides a wide range of
analytical and data services for investment managers and investment advisors globally. The
Financial Services segment is also a leading provider of valuation and consulting services.
During the first six months of 2005, the Company acquired Vista Research and an additional
49.07% investment in CRISIL Limited. The assets of these acquisitions total approximately $133
million. These acquisitions are included as part of the Financial Services segment. The
results and assets of these acquisitions are not considered material to the Company. The
Information and Media Services (IMS) segment includes business and professional media offering
information, insight and analysis. Included in the results of the IMS segment are the results of
J.D. Power and Associates which was acquired on April 1, 2005 (see Note 4). The assets acquired
in this acquisition totaled approximately $507 million. J.D. Power and Associates results and
assets are not considered material to the Company.
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In accordance with Emerging Issues Task Force Issue 00-10, “Accounting for Shipping and Handling
Fees and Costs,” all amounts billed to customers in a sales transaction for shipping and
handling are classified as revenue. All prior periods have been reclassified to comply with the
classification guidelines of this issue.
Operating profit by segment is the primary basis for the chief operating decision maker of the
Company, the Executive Committee, to evaluate the performance of each segment. A summary of
operating results by segment for the three and six months ended June 30, 2005 and 2004 follows:
2005
2004
(in thousands)
Operating
Operating
Three Months
Revenue
Profit
Revenue
Profit
$
628,647
$
71,591
$
547,386
$
57,055
597,366
258,286
504,472
214,205
230,264
13,608
194,104
24,841
1,456,277
343,485
1,245,962
296,101
—
(29,512
)
—
(31,041
)
—
(3,512
)
—
(2,161
)
$
1,456,277
$
310,461
*
$
1,245,962
$
262,899
*
*
Income from continuing operations before taxes on income.
2005
2004
(in thousands)
Operating
Operating
Six Months
Revenue
Profit
Revenue
Profit
$
935,947
$
(7,083
)
$
833,875
$
(11,741
)
1,144,647
480,798
961,107
388,044
404,689
18,354
370,847
38,492
2,485,283
492,069
2,165,829
414,795
—
(52,422
)
—
(58,687
)
—
(4,210
)
—
(3,898
)
$
2,485,283
$
435,437
*
$
2,165,829
$
352,210
*
*
Income from continuing operations before taxes on income.
4.
Acquisitions and Dispositions
Acquisitions:
During the first six months of 2005, the Company paid approximately $450.0
million for the acquisitions of Vista Research, Inc. and J.D. Power and Associates and an
additional 49.07% investment in its investment in CRISIL Limited. The excess of the purchase
price over the net assets acquired for these acquisitions was preliminarily allocated to
goodwill and other intangibles in the amount of $234.3 million and $279.7 million, respectively.
These acquisitions are discussed in further detail below.
On May 9, 2005, the Company announced that it became the majority shareholder of CRISIL Limited
(CRISIL), a leading provider of credit ratings, financial news and risk and policy advisory
services in India. During the Company’s recent tender offer, it received valid acceptances for
3,120,948 shares, representing 49.07% of CRISIL. When combined with
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As a result of the Company’s disposition of the juvenile retail publishing business, the results
of these businesses are reflected as discontinued operations for all periods presented. For the
six months
ended June 30, 2004, the juvenile retail publishing business generated revenue of approximately
$3.9 million and had an immaterial impact on operating profit.
5.
Allowances, Inventories and Accumulated Amortization of Prepublication Costs
The allowances for doubtful accounts and sales returns, the components of inventory and the
accumulated amortization of prepublication costs were as follows:
June 30,
Dec. 31,
June 30,
(in thousands)
2005
2004
2004
$
76,949
$
80,570
$
87,722
$
107,276
$
178,128
$
115,397
$
395,773
$
292,693
$
343,260
16,190
15,255
11,853
21,916
19,833
20,603
$
433,879
$
327,781
$
375,716
$
876,471
$
1,074,645
$
930,797
6.
Debt
A summary of long-term debt follows:
June 30,
Dec. 31,
June 30,
(in thousands)
2005
2004
2004
$
350
$
513
$
380
Commercial paper borrowings at June 30, 2005, totaled $384.8 million and are categorized as
current. There were no commercial paper borrowings as of June 30, 2004.
The Company has a five-year revolving credit facility agreement of $1.2 billion that expires on
July 20, 2009. The Company pays a facility fee of seven basis points on the credit facility
agreement whether or not amounts have been borrowed, and borrowings may be made at a spread of
13 basis points above the prevailing LIBOR rates. This spread increases to 18 basis points for
borrowings exceeding 50% of the total capacity available under the facility.
On July 5, 2005, the Company amended its credit facility to implement a materiality threshold
for determining whether the effects of acquisitions and dispositions are included in the
financial calculations for covenant reporting. The amended facility contains certain covenants
and the only financial covenant requires that the Company not exceed indebtedness to cash flow
ratio, as defined of 4 to 1 at any time. This restriction has never been exceeded. There were
no borrowings under the amended facility as of June 30, 2005 and 2004.
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7.
Capital Structure
On April 27, 2005, the Company’s Board of Directors approved a two-for-one stock split of the
Company’s common stock to be effected in the form of a 100 percent stock dividend to
shareholders of record as of May 6, 2005. On May 17, 2005, the Company’s shareholders received
one additional share for each share in their possession on the date of record. This did not
change the proportionate interest a shareholder maintains in the Company.
The number of common shares reserved for issuance for employee stock plan awards and under the
Director Deferred Stock Ownership Plan, were as follows:
June 30,
Dec. 31,
June 30,
(in thousands)
2005
2004
2004
63,300
64,396
65,648
The number of common shares issued upon exercise of stock based awards were as follows:
(in thousands)
3,201
10,176
5,272
8.
Cash Dividends
Cash dividends per share have been restated to reflect the two-for-one stock split announced
April 27, 2005 and effective May 17, 2005 to shareholders of record on May 6, 2005.
Cash dividends per share declared during the three and six months ended June 30, 2005 and 2004
were as follows:
Three Months
Six Months
2005
2004
2005
2004
$
0.165
$
0.150
$
0.330
$
0.300
9.
Common Shares Outstanding
A reconciliation of the number of shares used for calculating basic earnings per common share
and diluted earnings per common share for the three and six months ended June 30, 2005 and 2004
follows:
Three Months
Six Months
(in thousands)
2005
2004
2005
2004
373,534
379,180
376,191
380,226
6,513
6,034
7,141
5,926
380,047
385,214
383,332
386,152
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Restricted performance shares outstanding at June 30, 2005 and 2004 of 1,458,000 and 1,528,000
were not included in the computation of diluted earnings per common shares because the
necessary vesting conditions have not yet been met.
10.
Retirement Plans and Postretirement Healthcare and Other Benefits
A summary of net periodic benefit cost for the Company’s defined benefit plans and
postretirement healthcare and other benefits for the three and six months ended June 30, 2005
and 2004 is as follows:
(in thousands)
Three Months
Six Months
Defined Benefit Plan
2005
2004
2005
2004
$
11,967
$
10,599
$
24,445
$
21,431
15,004
13,711
30,019
27,315
(22,150
)
(24,470
)
(44,335
)
(49,063
)
83
94
167
164
1,491
130
2,843
260
$
6,395
$
64
$
13,139
$
107
(in thousands)
Three Months
Six Months
Postretirement Healthcare and Other Benefits
2005
2004
2005
2004
$
475
$
572
$
950
$
1,145
2,324
2,758
4,648
5,516
(266
)
(593
)
(532
)
(1,187
)
$
2,533
$
2,737
$
5,066
$
5,474
Effective January 1, 2005 the Company changed its expected rate of return on plan assets to
8.0% from 8.75%. The expected rate of return on plan assets is based on a market-related value
of assets, which recognizes changes in market value over five years. Additionally, effective
January 1, 2005, the Company changed its discount rate assumptions on its retirement plans to
5.75% from 6.25% in 2004. The effect of these changes on pension expense for the three and six
months ended June 30, 2005 was an increase in expense of $3.8 million pretax and $7.5 million
pretax, respectively. On a post-split basis, the per share impact for the quarter was a half
cent per diluted share, and for the six months ended June 30, 2005, the increase in expense was
one cent per diluted share. There has been no significant change in the Company’s expected
contributions to the above plans from what was disclosed in the Company’s 2004 consolidated
financial statements.
11.
Sale Leaseback Transaction
In December 2003, the Company sold its 45% equity investment in Rock-McGraw, Inc. Rock-McGraw,
Inc. owns the Company’s headquarters building in New York City. The transaction was valued at
$450.0 million, including assumed debt. Proceeds from the disposition were $382.1 million.
The sale resulted in a pre-tax gain of $131.3 million and an
after-tax benefit of $58.4 million, or 15 cents per diluted share (post-split) in 2003.
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The Company remains an anchor tenant of what continues to be known as The McGraw-Hill Companies
building and will continue to lease space from Rock-McGraw, Inc., under an existing lease. As
of December 31, 2004, the Company had a lease for approximately 17% of the building space for
approximately 15 years, which is being accounted for as an operating lease. Pursuant to sale
leaseback accounting rules, as a result of the Company’s continued involvement, a gain of
approximately $212.3 million ($126.3 million after-tax) was deferred and will be amortized over
the remaining lease term as a reduction in rent expense. Information relating to the
sale-leaseback transaction for the three and six months ended June 30, 2005 and 2004 is as
follows:
Three Months
Six Months
(in millions)
2005
2004
2005
2004
$
(4.2
)
$
(4.3
)
$
(8.4
)
$
(8.6
)
2.3
2.4
4.7
4.8
12.
Income Taxes
In calculating the provision for income taxes on an interim basis, the Company uses an estimate
of the annual effective tax rate based upon the facts and circumstances known. The Company’s
effective tax rate is based on expected income, statutory tax rates and permanent differences
between financial statement and tax return income applicable to the Company in the various
jurisdictions in which the Company operates.
Significant judgment is required in determining the Company’s effective tax rate and in
evaluating the Company’s tax position. The Company establishes reserves when, despite its
belief that the tax return positions are supportable, it believes that certain positions are
likely to be challenged and it may not succeed. Based on an evaluation of the Company’s tax
positions, the Company believes that it is appropriately accrued under SFAS No. 5, “Accounting
for Contingencies” for all probable and estimable expenses. All periods presented utilized
these same basic assumptions. The Company adjusts these reserves in light of changing facts and
circumstances. The effective tax rate includes the
impact of reserve provisions and changes to reserves that the Company considers appropriate.
The Company has completed various federal, state and local, and foreign tax audit cycles and,
in the first quarter of 2004, accordingly removed approximately $20.0 million from its accrued
income tax liability accounts. This non-cash item resulted in a reduction to the overall
effective tax rate for continuing operations for the first six months of 2004 from 37.0% to
31.3%. The effective tax rate for the first six months of 2005 of approximately 37.1% is a
weighted blend of the rates for the first and second quarters of 2005; 37.0% and 37.2%,
respectively. The Company remains subject to federal audits for 2002 and subsequent years, and
to state and local and foreign tax audits for a variety of open years depending upon the
jurisdiction in question.
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13.
Recently Issued Accounting Standards
On December 16, 2004, the FASB issued Statement No. 123 (revised 2004), “Share-Based Payment”
(Statement 123(R)), which replaces Statement No. 123, “Accounting for Stock-Based
Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.”
Statement 123(R) requires all companies to measure compensation cost for all share-based
payments (including employee stock options) at fair value and recognize the cost in the
financial statements beginning with the first interim or annual reporting period that begins
after June 15, 2005. The pro forma disclosures previously permitted under Statement 123 will no
longer be an alternative to financial statement recognition. This statement applies to all
awards granted after the date of adoption and to awards modified, repurchased, or cancelled
after that date. The cumulative effect of initially applying Statement 123(R), if any, is
recognized as of the date of adoption.
On April 14, 2005, the Securities and Exchange Commission announced that it would provide for a
phased-in implementation process for FASB Statement No. 123(R), “Share-Based Payment”. The SEC
now requires that registrants adopt Statement 123(R)’s fair value method of accounting for
share-based payments to employees no later than the beginning of the first fiscal year
beginning after June 15, 2005. The Company is required to adopt Statement 123(R) beginning
January 1, 2006.
The Company is required to apply Statement 123(R) using a modified version of prospective
application. Under that transition method, compensation cost is recognized on or after the date
of adoption for the portion of outstanding awards, for which the requisite service has not yet
been rendered, based on the grant-date fair value of those awards calculated under Statement
123 for pro forma disclosures. For periods before the date of adoption, the Company may elect
to apply a modified version of retrospective application under which financial statements for
prior periods are adjusted on a basis consistent with the pro forma disclosures required for
those periods by Statement 123. The Company is currently evaluating the impact of the
statement.
On December 21, 2004, the FASB issued FASB Staff Position (FSP) No. 109-2, “Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs
Creation Act of 2004” (FSP 109-2). FSP 109-2 provides guidance under FASB Statement No. 109,
“Accounting for Income Taxes,” with respect to recording the potential impact of the
repatriation provisions of the American Jobs Creation Act of 2004 (the Jobs Act) on
enterprises’ income tax expense and deferred tax liability. The Jobs Act was enacted on October
22, 2004. FSP 109-2 states that an enterprise is allowed time beyond the financial reporting
period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or
repatriation of foreign earnings for purposes of applying FASB Statement No. 109. The Company
has not yet completed evaluating the impact of the repatriation provisions. Accordingly, as
provided for in FSP 109-2, the Company has not adjusted its tax expense or deferred tax
liability to reflect the repatriation provisions of the Jobs Act.
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Second
Second
Quarter
%
Quarter
(millions of dollars)
2005
Increase
2004
$
1,456.3
16.9
$
1,246.0
343.5
16.0
296.1
24
24
*
Operating profit is income from continuing operations before taxes on income, interest expense and
corporate expense.
•
CRISIL Limited
: On May 9, 2005, the Company announced that it became the majority
shareholder of CRISIL Limited (CRISIL), a leading provider of credit ratings, financial
news and risk and policy advisory services in India. During the Company’s recent tender
offer, it received valid acceptances for 3,120,948 shares, representing 49.07% of CRISIL.
When combined with its existing interest, the Company now owns 3,720,948 shares, or 58.5%
of CRISIL. CRISIL’s operations will be integrated with the Financial Services segment and
will allow the Company to leverage opportunities in India.
•
Vista Research, Inc:
The Company acquired Vista Research, Inc., a leading provider of
primary research on April 1, 2005. Vista will enhance the growth prospects of the
Financial Services segment’s research product suite by providing clients with access to
professionals
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with direct experience in industries such as technology, media,
telecommunications and healthcare. Vista’s network of industry practitioners is able to
offer investors fresh, field-level insights about issues and conditions affecting companies
and sectors. Vista Research, Inc. is now part of the Financial Services segment.
•
J.D. Power and Associates (JDPA)
: The Company acquired JDPA, on April 1, 2005. JDPA,
founded in 1968 by J.D. Power III, is a leading provider of marketing information services
for the global automotive industry and has established a strong and growing presence in
several other important industries, including finance and insurance, healthcare, home
building, telecommunications and energy. Its customer satisfaction ratings and market
research are recognized worldwide as benchmarks for quality and independence. The company,
which includes the Power Information Network, LLC, has 787 employees and operates globally
in 12 locations.
The acquisition will enhance the Company’s growth prospects for its core business
information platform by providing a new direct link to consumers, while also providing new
collaborative opportunities with the Company’s leading franchises including
BusinessWeek
,
Platts, McGraw-Hill Construction, Aviation Week and healthcare. J.D. Power and Associates
is now part of the Information and Media Services segment.
•
Capital IQ
: The Company acquired Capital IQ, a leading provider of high-impact
information solutions to the global investment and financial services communities on
September 17, 2004. Its innovative technology and data platform and rapidly growing client
base will complement Standard & Poor’s content covering fixed income, equities, indices,
and mutual funds, as well as fundamental data from Compustat. Capital IQ is a unit of the
Financial Services segment.
•
The Grow Network:
The Company acquired The Grow Network, a privately held company, on
July 16, 2004. The Grow Network is a leading provider of assessment, reporting and
customized content for states and large school districts across the country. The
acquisition supports McGraw-Hill Education’s strategy to provide a full range of customized
education solutions to help improve teaching and learning. The Grow Network is now part of
the School Education Group and has been renamed Grow Network/McGraw-Hill.
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Second
Second
Quarter
%
Quarter
(millions of dollars)
2005
Increase
2004
$
414.4
17.0
$
354.2
214.2
10.9
193.2
628.6
14.8
547.4
$
71.6
25.5
$
57.1
11
10
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•
Silberberg,
Chemistry
, 4/e
•
McConnell and Brue,
Economics
, 16/e; and
•
Knorr,
Puntos de Partida,
7/e
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Second
Second
Quarter
%
Quarter
(millions of dollars)
2005
Increase
2004
$
597.4
18.4
$
504.5
258.3
20.6
214.2
43
42
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Six Months
%
Six Months
(millions of dollars)
2005
Increase
2004
$
2,485.3
14.8
$
2,165.8
492.1
18.6
414.8
20
19
*
Operating profit is income from continuing operations before taxes on income, interest expense and
corporate expense.
Table of Contents
•
CRISIL Limited
: On May 9, 2005, the Company announced that it became the majority
shareholder of CRISIL Limited (CRISIL), a leading provider of credit ratings, financial
news and risk and policy advisory services in India. During the Company’s recent tender
offer, it received valid acceptances for 3,120,948 shares, representing 49.07% of CRISIL.
When combined with its existing interest, the Company now owns 3,720,948 shares, or 58.5%
of CRISIL. CRISIL’s operations will be integrated with the Financial Services segment and
will allow the Company to fully leverage opportunities in India.
•
Vista Research, Inc
: The Company acquired Vista Research, Inc., a leading provider of
primary research on April 1, 2005. Vista will enhance the growth prospects of the Financial
Services segment’s research product suite by providing clients with access to professionals
with direct experience in industries such as technology, media, telecommunications and
healthcare. Vista’s network of industry practitioners is able to offer investors fresh,
field-level insights about issues and conditions affecting companies and sectors. Vista
Research, Inc. is now part of the Financial Services segment.
•
J.D. Power and Associates (JDPA)
: The Company acquired JDPA, on April 1, 2005. JDPA,
founded in 1968 by J.D. Power III, is a leading provider of marketing information services
for the global automotive industry and has established a strong and growing presence in
several other important industries, including finance and insurance, healthcare, home
building, telecommunications and energy. Its customer satisfaction ratings and market
research are recognized worldwide as benchmarks for quality and independence. The company,
which includes the Power Information Network, LLC, has 787 employees and operates globally
in 12 locations.
The acquisition will enhance the Company’s growth prospects for its core business
information platform by providing a new direct link to consumers, while also providing new
collaborative opportunities with the Company’s leading franchises including
BusinessWeek
,
Platts, McGraw-Hill Construction, Aviation Week and healthcare. J.D. Power and Associates is
now part of the Information and Media Services segment.
•
Capital IQ
: The Company acquired Capital IQ, a leading provider of high-impact
information solutions to the global investment and financial services communities on
September 17, 2004. Its innovative technology and data platform and rapidly growing client
base will complement Standard & Poor’s content covering fixed income, equities, indices,
and
mutual funds, as well as fundamental data from Compustat. Capital IQ is a unit of the
Financial Services segment.
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The Grow Network:
The Company acquired The Grow Network, a privately held company, on July 16,
2004. The Grow Network is a leading provider of assessment reporting and customized content for
states and large school districts across the country. The acquisition supports McGraw-Hill
Education’s strategy to provide a full range of customized education solutions to help improve
teaching and learning. The Grow Network is now part of the School Education Group and has been
renamed Grow Network/McGraw-Hill.
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%
Six Months
Increase/
Six Months
(millions of dollars)
2005
(Decrease)
2004
$
562.4
15.8
$
485.8
373.5
7.3
348.1
935.9
12.2
833.9
$
(7.1
)
(39.7
)
$
(11.7
)
(1
)
(1
)
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•
Sabin,
Gregg Reference Manual,
10/e
•
McConnell and Brue,
Economics,
16/e; and
•
Sanderson,
Computers in the Medical Office,
4/e
Table of Contents
Six Months
%
Six Months
(millions of dollars)
2005
Increase
2004
$
1,144.7
19.1
$
961.1
$
480.8
23.9
$
388.0
42
40
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Projected annual impact on operations
(millions)
$2.8 million
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42
43
44
Other Information
(c)Total Number of
(d) Maximum Number
Shares Purchased as
of Shares that may
(a)Total Number of
Part of Publicly
yet be Purchased
Shares Purchased
(b)Average Price
Announced Programs
Under the Programs
Period
(in millions)
Paid per Share
(in millions)
(in millions)
0.1
$
43.33
—
10.6
—
—
—
10.6
2.1
$
44.01
2.0
8.6
2.2
$
43.97
2.0
8.6
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(a)
The 2005 Annual Meeting of Shareholders of the Registrant was held on April
27, 2005.
(b)
The following nominees, having received the FOR votes set forth opposite their
respective names, constituting a plurality of the votes cast at the Annual Meeting
for the election of Directors, were duly elected Directors of the Registrant:
DIRECTOR
FOR
WITHHOLD AUTHORITY
103,155,079
56,674,360
104,798,292
55,031,147
100,294,229
59,535,210
109,356,052
50,473,387
The terms of office of the following directors continued after the meeting:
Pedro Aspe, Robert P. McGraw, Hilda Ochoa-Brillembourg, James H. Ross, Edward
B. Rust, Jr., Kurt L. Schmoke and Sidney Taurel.
(c)
Shareholders approved the Key Executive Short-Term Incentive Compensation
Plan. The vote was 129,350,895 shares FOR and 12,607,176 shares AGAINST, with
1,383,860 shares abstaining and 16,487,508 broker non-votes.
(d)
Shareholders approved the increase in authorized Common Stock to 600,000,000
shares from 300,000,000 shares. The vote was 144,007,873 shares FOR and 14,667,204
shares AGAINST, with 1,154,362 shares abstaining.
(e)
Shareholders ratified the appointment of Ernst & Young LLP as independent
auditors for the Registrant and its subsidiaries for 2005. The vote was
152,085,973 shares FOR and 6,687,732 shares AGAINST, and 1,055,734 shares
abstaining.
(f)
The shareholder proposal requesting a shareholder vote on “poison pills”
received the following number of votes: 102,239,530 shares FOR and 39,379,376
shares AGAINST, with 1,723,026 shares abstaining and 16,487,507 broker non-votes.
(3)
Restated Certificate of Incorporation of the Registrant
(10)
First Amendment, dated as of July 5, 2005, to the Five-Year
Credit Agreement, dated as of July 20, 2004, among the Registrant, the
several banks and other financial institutions from time to time parties
thereto, and JP Morgan Chase Bank, N.A., as administrative agent.
(12)
Computation of Ratio of Earnings to Fixed Charges
(15)
Letter on Unaudited Interim Financials
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(31.1)
Quarterly Certification of the Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2)
Quarterly Certification of the Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32)
Quarterly Certification of the Chief
Executive Officer and the Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
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45
THE MCGRAW-HILL COMPANIES, INC.
By
/s/ Robert J. Bahash
Robert J. Bahash
Executive Vice President
and Chief Financial Officer
By
/s/ Kenneth M. Vittor
Kenneth M. Vittor
Executive Vice President
and General Counsel
By
/s/ Talia M. Griep
Talia M. Griep
Corporate Controller
and Senior Vice President,
Global Business Services
Exhibit 3
RESTATED CERTIFICATE
OF
INCORPORATION
OF
McGRAW-HILL, INC.
Under Section 807 of the Business Corporation Law
Pursuant to the provisions of Section 807 of the Business Corporation Law, the undersigned hereby certify:
1. The name of the Corporation is McGraw-Hill, Inc. The name under which the Corporation was formed is McGraw-Hill Publishing Company, Inc., which name was changed to McGraw-Hill, Inc. on January 2, 1964.
2. The Certificate of Incorporation of the Corporation was filed by the Department of State on the 29th of December, 1925.
3. The text of the Certificate of Incorporation of the Corporation, as heretofore amended, is hereby restated without further amendment or change to read as herein set forth in full:
ARTICLE I.
The corporate name shall be: McGRAW-HILL, INC.
ARTICLE II.
The purposes for which the Corporation is to be formed are:
To manufacture, print, publish, bind, conduct, circulate, sell, distribute, deliver and otherwise deal in and with magazines, periodicals, journals, and other publications and books of any and every description whatsoever, and generally to carry on the business of magazines, periodicals, journal, and book proprietors and publishers and that of general publishers and printers, to undertake and carry on all
kinds of business relative to the dissemination of information of every nature and kind; to carry on the stationery business and any other merchandising business, book printing, book manufacturing, book binding and book selling, designing, engraving, lithographing, etching, wood typing, stereotyping, electroplating and photographing, and the making and printing of illustrations and letter press of every nature and kind, by and with every process whatsoever now existing or at any time hereafter to be discovered, incidental to and necessary for a general publishing business and for such purpose to purchase or lease or otherwise acquire, build, construct, maintain and operate and in any way to utilize building structures, manufactories, machinery, storehouses and warehouses, and any and all other personal property, rights and privileges necessary or convenient in connection with any of the purposes herein mentioned, and to mortgage, improve and otherwise deal in and with the same without limit as to the amount, and to carry on the above business or any other business directly or indirectly connected therewith, and in carrying on its business for the purpose of attaining or furthering any of its obligations, express or implied, to do any and all acts and things, to carry on any business and to exercise any and all powers which a natural person could do and exercise, provided such business is not of the nature which can be carried on only by Corporations organized under the Banking, the Insurance, the Educational and the Transportation Corporation Laws.
To enter into, make, perform and carry out contracts of every kind which a corporation organized under the Stock Corporation Law may enter into with any person, firm, association or corporation.
To issue bonds, debentures, or obligations of the company from time to time, for any of the objects or purposes of the company and to secure the same by mortgage, pledge, deed of trust or otherwise as may be allowed by the laws of New York.
To acquire, hold, use, sell, assign, lease, grant licenses in respect of, mortgage, or otherwise dispose of Letters Patent of the United States, or any foreign country, patents, patent rights, licenses and privileges, inventions, improvements and processes, trademarks and trade names relating to or useful in connection with any business of the Corporation, but always subject to statute.
To purchase, acquire, hold and dispose of the shares of its capital stock in the manner and to the extent permitted by laws of New York.
- 2 -
To conduct and transact business in any of the states, territories, colonies or dependencies of the United States, and in any and all foreign countries; to have one or more offices therein and therein to hold, purchase, mortgage, and convey real and personal property, without limit as to amount, but always subject to local laws.
To purchase, acquire, hold, sell, assign, transfer, mortgage, pledge and otherwise dispose of the shares of capital stock, bonds, debentures or other evidences of indebtedness of any corporation, domestic or foreign, and while the holder thereof, to exercise all the rights and privileges of ownership, including the right to vote thereon, and to issue in exchange therefor its own stock, bonds and other obligations.
The foregoing clauses shall be construed both as objects and powers, and it is hereby expressly provided that the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the powers of the Corporation.
In general, to carry on any other lawful business of the same general nature in connection with the foregoing whether manufacturing or otherwise, and to have and to exercise all the powers conferred by the laws of New York upon corporations formed under the act hereinafter referred to.
ARTICLE III.
The aggregate number of shares which the Corporation shall have authority to issue shall be 82,891,256 shares, 891,256 shares of which shall have a par value of $10 per share and 82,000,000 shares of which shall have a par value of $1 per share. All of these shares are to be classified and the designations, number of shares in each class and the par value of the shares shall be as follows: $1.20 Convertible Preference Stock, 891,256 shares of the par value of $10 per share; Series Preferred Stock, 2,000,000 shares of the par value of $1 per share; and Common Stock, 80,000,000 shares of the par value of $1 per share.
A statement of the designations, preferences, privileges and voting powers of the shares of each class and the restrictions and qualifications thereof is as set forth below. All references to Convertible Preferred Stock apply to the $1.20 Convertible Preference Stock.
- 3 -
A.
CONVERTIBLE PREFERRED STOCK
Dividends . The holders of Convertible Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, out of funds legally available for the payment of dividends, cumulative cash dividends from the last day of the month of March, June, September or December next preceding the date on which such stock is issued, at the rate of $1.20 per share per annum in the case of the $1.20 Convertible Preference Stock, and no more, payable quarterly on the first day of the months of January, April, July and October in the case of the $1.20 Convertible Preference Stock, but in no event shall such dividends accrue for any period prior to January 1, 1966 in the case of the $1.20 Convertible Preference Stock. In no event, so long as any Convertible Preferred Stock shall remain outstanding, shall any dividend whatsoever, other than a dividend payable in shares of junior stock, be declared or paid upon, nor shall any distribution be made upon, any junior stock, nor shall any shares of junior stock be purchased or redeemed by the Corporation otherwise than in connection with a refunding of junior stock through the issue of other junior stock, nor shall any moneys be paid to or made available for a sinking fund for the purchase or redemption of any junior stock, unless in each instance dividends on all outstanding shares of the Convertible Preferred Stock for all past dividend periods shall have been paid and the dividend on all outstanding shares of the Convertible Preferred Stock for the then current quarterly dividend period shall have been paid or declared and sufficient funds are available for the payment thereof. Subject to the foregoing, dividends may be paid upon junior stock as and when declared by the Board of Directors out of any funds of the Corporation legally available therefor.
Redemption . The Corporation, at the option of the Board of Directors, at any time after January 1, 1972 in the case of the $1.20 Convertible Preference Stock, may redeem, in whole, or from time to time in part, the Convertible Preferred Stock, upon notice given as hereinafter provided, by paying for each share in cash the sum of Forty Dollars ($40) in the case of the $1.20 Convertible Preference Stock, plus in each case an amount equal to dividends accrued thereon to the date fixed for redemption. In case of the redemption of less than all of the outstanding shares of Convertible Preferred Stock, the shares to be redeemed shall be selected by lot or pro rata in such manner as the
- 4 -
Board of Directors shall determine from among the outstanding shares of Convertible Preferred Stock. Not less than thirty (30) days’ prior written notice shall be given by mail, postage prepaid, to the holders of record of the Convertible Preferred Stock to be redeemed, such notice to contain a statement of or reference to the conversion right set forth in the paragraph entitled ‘Conversion’ and to be addressed to each such shareholder at his post office address as shown by the records of the Corporation.
If such notice of redemption shall have been duly given, and if on or before the redemption date specified in such notice the funds necessary for such redemption shall have been set aside so as to be and continue to be available therefor, then, notwithstanding that any certificate for shares so called for redemption shall not have been surrendered for cancellation, from and after such redemption date, the shares so called for redemption shall no longer be deemed outstanding, the dividends thereon shall cease to accrue, and all rights with respect to shares so called for redemption, including the rights, if any, to receive notices and to vote, shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable upon redemption thereof, without interest; provided, however, that if such notice of redemption shall have been duly given, and if on or before the redemption date specified in such notice, there shall have been deposited with a bank or trust company in the Borough of Manhattan, City and State of New York, having capital, surplus and undivided profits of at least Five Million Dollars ($5,000,000) in trust for the account of the holders of the shares so called for redemption which shall not have been surrendered for conversion pursuant to the paragraph entitled ‘Conversion’, the funds necessary for such redemption, then upon the making of such deposit in trust, the shares with respect to which such deposit shall have been made shall no longer be deemed to be outstanding, and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall forthwith cease and terminate, except only the right of the holders thereof to receive, out of the funds so deposited in trust, from and after the date of such deposit, the amount payable upon the redemption thereof, without interest, or to convert their shares, up to the close of business on the third full business day prior to the date fixed for redemption, into Common Stock pursuant to the paragraph entitled ‘Conversion’. Any funds so deposited which shall not be required for such redemption because of the exercise of any right of conversion or exchange or otherwise
- 5 -
subsequent to the date of such deposit shall be returned to the Corporation forthwith. Any interest accrued on any funds so deposited shall belong to the Corporation and be paid to it from time to time. Any other funds so set aside or deposited by the Corporation and unclaimed at the end of six years from the date fixed for such redemption shall be repaid to the Corporation, upon its request, after which repayment the holders of such shares so called for redemption shall look only to the Corporation for the payment of the amount payable upon the redemption thereof. Subject to the provisions hereof the Board of Directors shall have authority to prescribe the manner in which the Convertible Preferred Stock shall be redeemed from time to time. All shares of Convertible Preferred Stock so redeemed shall be permanently retired and shall not under any circumstances be reissued; and the Corporation may from time to time take such appropriate corporate action as may be necessary to reduce the authorized Convertible Preferred Stock accordingly.
Liquidation . Upon any liquidation, dissolution or winding up of the Corporation, and after the holders of the Series Preferred Stock shall have been paid in full the amounts to which they shall be entitled, or after an amount sufficient to pay the aggregate amount to which the holders of the Series Preferred Stock shall be entitled shall have been deposited with a bank or trust company in the Borough of Manhattan, City and State of New York, having capital, surplus and undivided profits of at least Five Million Dollars ($5,000,000), in trust for the account of the holders of the Series Preferred Stock, the remaining net assets of the Corporation shall be distributed pro rata to the holders of the $1.20 Convertible Preference Stock and the Common Stock in proportion to the number of shares of each such class at the time outstanding. Written notice of such liquidation, dissolution or winding up, stating a payment date and the place where said sums shall be payable and containing a statement of or reference to the conversion right set forth in the paragraph entitled ‘Conversion’, shall be given by mail, postage prepaid, not less than thirty (30) days prior to the payment date stated therein, to the holders of record of the Convertible Preferred Stock, such notice to be addressed to each such shareholder at his post office address as shown by the records of the Corporation. Neither the consolidation or merger of the Corporation into or with any other corporation or corporations, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation,
- 6 -
shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of any of the provisions of this paragraph.
Conversion . (1) Any share or shares of Convertible Preferred Stock may be converted, at the option of the holder thereof, in the manner hereinafter provided, into full-paid and non-assessable shares of Common Stock of the Corporation; provided, however, that (a) as to any share of Convertible Preferred Stock which shall have been called for redemption, the right of conversion shall terminate at the close of business on the third full business day prior to the date fixed for redemption, and (b) on any liquidation of the Corporation the right of conversion shall terminate at the close of business on the third full business day before the date fixed for the initial payment of distributable amounts on the Convertible Preferred Stock.
(2) [Deleted]
(3) The conversion rate with respect to the $1.20 Convertible Preference Stock shall be .825 of a share of Common Stock for each one share of such $1.20 Convertible Preference Stock surrendered for conversion, subject to adjustment as hereinafter provided.
(a) In case at any time shares of Common Stock outstanding shall be combined into a lesser number of shares, whether by reclassification, recapitalization, reduction of capital stock or otherwise, the conversion rate shall be proportionately decreased.
(b) In case the shares of Common Stock at any time outstanding shall, at any time after December 31, 1965, be subdivided, by reclassification, recapitalization or otherwise (including the issuance of shares of Common Stock as a dividend on the Common Stock), into a greater number of shares without the actual receipt by the Corporation of any consideration for the additional number of shares so issued, the conversion rate shall be proportionately increased.
(4) Any conversion rate determined or adjusted as herein provided shall remain in effect until further adjustment as required herein. Upon each adjustment of the conversion rate a written instrument signed by an officer of the Corporation, setting forth such adjustment and the computation and a summary of the facts upon which it is based, shall forthwith be filed
- 7 -
with the principal transfer agent for the Convertible Preferred Stock of the class or classes affected and made available for inspection by the shareholders, and any adjustment so evidenced, made in good faith, shall be binding upon all shareholders and upon the Corporation. Upon any conversion, fractional shares shall not be issued but any fractions shall be adjusted in cash, unless the Board of Directors shall determine to adjust them by the issue of fractional scrip certificates or in some other manner. Upon any conversion, no adjustment shall be made for dividends on the Convertible Preferred Stock surrendered for conversion or on the Common Stock delivered. The Corporation shall pay all issue taxes, if any, incurred in respect of the issue of the Common Stock on conversion, provided, however, that the Corporation shall not be required to pay any transfer or other taxes incurred by reason of the issuance of such Common Stock in names other than those in which the Convertible Preferred Stock surrendered for conversion may stand.
(5) Any conversion of Convertible Preferred Stock into shares of Common Stock shall be made by the surrender to the Corporation, at the office of any transfer agent for the Convertible Preferred Stock, of the certificate or certificates representing the share or shares of Convertible Preferred Stock to be converted, duly endorsed or assigned (unless such endorsement or assignment be waived by the Corporation), together with a written request for conversion.
(6) All shares of Convertible Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall forthwith cease and terminate except only the right of the holders thereof to receive Common Stock in exchange therefor. Any shares of Convertible Preferred Stock so converted shall be permanently retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued and the Corporation may from time to time take such appropriate corporate action as may be necessary to reduce the authorized Convertible Preferred Stock accordingly.
(7) In case of any reclassification or change of outstanding shares of Common Stock of the class issuable upon conversion of the shares of Convertible
- 8 -
Preferred Stock, or in case of any consolidation or merger of the Corporation with or into another corporation, or in case of any sale or conveyance to another corporation of the property of the Corporation as an entirety or substantially as an entirety, the holder of each share of Convertible Preferred Stock then outstanding shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable, upon such reclassification, change, consolidation, merger, sale or conveyance, by a holder of the number of shares of Common Stock (whole or fractional) of the Corporation into which such share of Convertible Preferred Stock might have been converted immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. In the event of any such consolidation, merger, sale or conveyance (a) effective provision shall be made, in the charter of the continuing or successor Corporation or otherwise, so that in the opinion of the Board of Directors of the Corporation, the provisions set forth herein for the protection of the conversion rights of the Convertible Preferred Stock shall thereafter be applicable, as nearly as reasonably may be, to any such other shares of stock and other securities and property deliverable upon conversion of the Convertible Preferred Stock remaining outstanding or other Convertible Preferred Stock received by the holders in place thereof, and (b) any such continuing or successor Corporation shall expressly assume the obligation to deliver, upon the exercise of the conversion privilege, such shares, securities or property as the holders of shares of the Convertible Preferred Stock remaining outstanding, or other convertible preferred stock received by the holders in place thereof, shall be entitled to receive pursuant to the provisions hereof, and to make provision for the protection of the conversion right as above provided. In case securities or property other than Common Stock shall be issuable or deliverable upon conversion as aforesaid, then all references in this paragraph entitled ‘Conversion’ shall be deemed to apply so far as appropriate and as nearly as may be, to such other securities or property.
(8) A number of shares of authorized Common Stock sufficient to provide for the conversion of the Convertible Preferred Stock outstanding upon the basis hereinbefore provided shall at all times be reserved for such conversion. If the Corporation shall propose to make any change in its capital structure which would change the number of shares of Common Stock into which each share of the Convertible Preferred Stock shall be convertible as herein provided, the Corporation
- 9 -
shall at the same time also make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved for conversion of the outstanding Convertible Preferred Stock on the new basis.
Voting Rights . Each holder of Convertible Preferred Stock shall be entitled to one vote for each share held and, except as otherwise by law provided or as provided with respect to any series of the Series Preferred Stock, the Convertible Preferred Stock, the shares of any series of the Series Preferred Stock having general voting rights and the Common Stock of the Corporation shall vote together as one class.
Denial of Preemptive Rights . No holder of the Convertible Preferred Stock shall be entitled, as such, as a matter of right, to subscribe for or to purchase any part of any new or additional issue of stock of any class whatsoever or of securities convertible into stock of any class whatsoever, whether now or hereafter authorized, or whether issued for cash, or other consideration, or by way of dividend. Notwithstanding the foregoing, or the provisions of Section E of this Article III, in the event that the Corporation grants to the holders of its Common Stock generally rights to subscribe for or purchase any stock or securities, the Corporation shall also grant to the holders of the Convertible Preferred Stock rights to subscribe for or purchase, on the same terms as such stock or securities are offered to the holders of the Common Stock, an amount of such stock or securities equal to the amount which they would be entitled to purchase if the Convertible Preferred Stock had been converted into Common Stock at the then applicable conversion rate.
B.
SERIES PREFERRED STOCK
1. Board Authority . The Series Preferred Stock may be issued from time to time as herein provided in one or more series. The designations, relative rights, preferences and limitations of the Series Preferred Stock, and particularly of the shares of each series thereof, may, to the extent permitted by law, be similar to or differ from those of any other series. The Board of Directors of the Corporation is hereby expressly granted authority, subject to the provisions of this Article III, to fix from time to time before issuance thereof the number of shares in
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each series of such class and all designations, relative rights, preferences and limitations of the shares in each such series, including, but without limiting the generality of the foregoing, the following:
(i) The number of shares to constitute such series and the distinctive designation thereof;
(ii) The dividend rate on the shares of such series, whether or not dividends on the shares shall be cumulative, and the date or dates, if any, from which dividends thereon shall be cumulative;
(iii) Whether or not the shares of such series shall be redeemable, and, if redeemable, the date or dates upon or after which they shall be redeemable, the amount per share payable thereon in the case of the redemption thereof, which amount may vary at different redemption dates or otherwise as permitted by law;
(iv) Whether or not the shares of such series shall be subject to the operation of a retirement or sinking fund to be applied to the purchase or redemption of such shares for retirement and, if such retirement or sinking fund be established, the amount thereof, and the terms and provisions relative to the operation thereof;
(v) The right, if any, of holders of shares of such series to convert the same into or exchange the same for Common Stock, and the terms and conditions of such conversion or exchange, as well as provisions for adjustment of the conversion rate in such events as the Board of Directors shall determine;
(vi) The amount per share payable on the shares of such series upon the voluntary and involuntary liquidation, dissolution or winding up of the Corporation;
(vii) Whether the holders of shares of such series shall have voting power, full or limited, in addition to the voting powers provided by law, and in case additional voting powers are accorded to fix the extent thereof; and
(viii) Generally to fix the other rights and privileges and any qualifications, limitations or restrictions of such rights and privileges of such series, provided, however, that no such rights,
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privileges, qualifications, limitations or restrictions shall be in conflict with the Certificate of Incorporation of the Corporation or with the resolution or resolutions adopted by the Board of Directors providing for the issue of any series of which there are shares then outstanding.
All shares of Series Preferred Stock of the same series shall be identical in all respects, except that shares of any one series issued at different times may differ as to dates, if any, from which dividends thereon may accumulate. All shares of Series Preferred Stock of all series shall be of equal rank (ranking equally as to dividends with the $1.20 Convertible Preference Stock) and shall be identical in all respects except that to the extent not otherwise limited in this Article III any series may differ from any other series with respect to any one or more of the designations, relative rights, preferences and limitations described or referred to in subparagraphs (i) to (viii) inclusive above.
2. Dividends . The holders of shares of the Series Preferred Stock of each series shall be entitled to receive, when and as declared by the Board of Directors, out of funds legally available for the payment of dividends, dividends at the rates fixed by the Board of Directors for such series, and no more, before any dividends, other than dividends payable in Common Stock, shall be declared and paid, or set apart for payment, on the Common Stock with respect to the same dividend period.
All shares of Series Preferred Stock of all series shall be of equal rank, preference and priority as to dividends irrespective of whether or not the rates of dividends to which the same shall be entitled shall be the same and when the stated dividends are not paid in full, the shares of all series of the Series Preferred Stock shall share ratably in the payment thereof in accordance with the sums which would be payable on such shares if all dividends were paid in full, provided, however, that any two or more series of the Series Preferred Stock may differ from each other as to the existence and extent of the right to cumulative dividends, as aforesaid.
3. Voting Rights. Except as otherwise specifically provided in the certificate filed pursuant to law with respect to any series of the Series Preferred Stock, or as otherwise provided by law, the Series Preferred Stock shall not have any right to vote for the election of directors or for any
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other purpose and the Convertible Preferred Stock and the Common Stock shall have the exclusive right to vote for the election of directors and for all other purposes.
4. Liquidation. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, each series of the Series Preferred Stock shall have preference and priority over the $1.20 Convertible Preference Stock and the Common Stock for payment of the amount to which each outstanding series of the Series Preferred Stock shall be entitled in accordance with the provisions thereof and each holder of the Series Preferred Stock shall be entitled to be paid in full such amounts, or have a sum sufficient for the payment in full set aside, before any payments shall be made to the holders of the $1.20 Convertible Preference Stock or the Common Stock. If, upon liquidation, dissolution or winding up of the Corporation, the assets of the Corporation or proceeds thereof, distributable among the holders of the shares of all series of the Series Preferred Stock shall be insufficient to pay in full the preferential amounts aforesaid, then such assets, or the proceeds thereof, shall be distributed among such holders ratably in accordance with the respective amounts which would be payable if all amounts payable thereon were paid in full. After the payment to the holders of the Series Preferred Stock of all such amounts to which they are entitled, as above provided, the remaining assets and funds of the Corporation shall be divided and paid to the holders of the $1.20 Convertible Preference Stock and the Common Stock. Neither the consolidation or merger of the Corporation into or with any other corporation or corporations, nor the sale or transfer by the Corporation of all or any part of its assets, nor the reduction of the capital stock of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of any of the provisions of this paragraph.
5. Redemption. In the event that the Series Preferred Stock of any series shall be made redeemable as provided in clause (iii) of paragraph 1 of this Section B of Article III, the Corporation, at the option of the Board of Directors, may redeem at any time or times, and from time to time, all or any part of any one or more series of Series Preferred Stock outstanding, upon notice and terms as may be specifically provided in the certificate filed pursuant to law with respect to the series, by paying for each share the then applicable redemption price
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fixed by the Board of Directors plus an amount equal to accrued and unpaid dividends to the date fixed for redemption.
C.
COMMON STOCK
Dividends. Subject to all of the rights of the Convertible Preferred Stock and the rights of the Series Preferred Stock, dividends may be paid upon the Common Stock as and when declared by the Board of Directors out of any funds legally available for the payment of dividends.
Liquidation. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, and after the holders of the Series Preferred Stock shall have been paid in full amounts to which they respectively shall be entitled, or an amount sufficient to pay the aggregate amount to which the holders of the Series Preferred Stock shall be entitled shall have been deposited with a bank or trust company having its principal office in the Borough of Manhattan, The City of New York, and having capital, surplus and undivided profits of at least Five Million Dollars ($5,000,000), as a trust fund for the benefit of the holders of the Series Preferred Stock, the remaining net assets of the Corporation shall be distributed pro rata to the holders of the $1.20 Convertible Preference Stock and the Common Stock in proportion to the number of shares of each such class at the time outstanding.
Voting Rights. Each holder of Common Stock of the Corporation shall be entitled to one vote for each share held and, except as otherwise by law provided or as provided with respect to any series of the Series Preferred Stock, the Convertible Preferred Stock, the shares of any series of Series Preferred Stock having general voting rights and the Common Stock of the Corporation shall vote together as one class.
D.
CERTAIN DEFINITIONS
For the purposes of this Article III the following terms shall be deemed to have the meanings specified below:
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The terms ‘dividends accrued’ and ‘an amount equal to dividends accrued, ‘ whenever used herein with reference to shares of Convertible Preferred Stock, shall mean an amount per share computed at the annual rate set forth in the paragraph entitled ‘Dividends’ under ‘Convertible Preferred Stock’ above, or a quarterly rate equal to one-fourth (1/4) of such annual rate, from and including the dividend payment date to which the dividends on such share have been paid, to but not including the date to which dividends are to be accrued. The amount per share for less than a full quarterly dividend period shall be computed by (a) assuming that there are 90 days in such full quarterly dividend period, (b) determining the number of days from and including the next preceding dividend payment date, to but not including the date to which the dividend is to be accrued, and (c) multiplying the applicable quarterly dividend rate by a fraction, the numerator of which shall be the number of days of the accrual as in (b) and the denominator of which shall be 90, but in no event shall such accrual be more than such applicable quarterly dividend rate.
The term ‘junior stock’ shall mean the Common Stock and any other stock ranking junior to the Convertible Preferred Stock in respect of the payment of dividends or of payment in liquidation, or both, in accordance with the subject matter of the context, provided that the $1.20 Convertible Preference Stock shall not be deemed to be ‘junior stock’ for the purposes of the paragraph entitled ‘Dividends’ under ‘Convertible Preferred Stock’ above.
E.
WAIVER OF PREEMPTIVE RIGHTS
No holder of Convertible Preferred Stock, Series Preferred Stock or Common Stock shall be entitled as of right to purchase or subscribe for any part of any unissued stock of any class or of any additional Convertible Preferred Stock, Series Preferred Stock or Common Stock to be issued by reason of any increase of the authorized capital stock of the Corporation of any class, or of bonds, certificates of indebtedness, debentures or other securities convertible into stock of the Corporation, but any such unissued stock or such additional authorized issue of new stock or of other securities convertible into stock may be issued and disposed of pursuant to resolution of the Board of
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Directors to such persons, firms, corporations or associations and upon such terms as may be deemed advisable by the Board of Directors in the exercise of their discretion.
F.
SCRIP
In no case shall fractions of shares of any class be issued by the Corporation, but in lieu thereof the Corporation may issue fractional Scrip Certificates, in either bearer or registered form, and in such denominations as shall be determined by the Board of Directors. Such Scrip Certificates shall be exchangeable on or before such date as the Board of Directors may fix, when surrendered with other similar Scrip Certificates in sufficient aggregate amounts, for certificates for full paid and non-assessable shares of the stock for which such Scrip Certificates are exchangeable, and the amount of dividends theretofore paid upon such full shares, and new Scrip Certificates of a like tenor for the remaining fraction of a share, if any. Such Scrip Certificates shall not entitle any holder thereof to voting rights, dividend rights or any other right of a shareholder or any rights other than the rights herein set forth, and no dividend or interest shall be payable or shall accrue with respect to the Scrip Certificates or the interests represented thereby. All such Scrip Certificates which are not surrendered in exchange for shares of stock on or before such date as the Board of Directors may fix, shall thereafter be void and of no effect whatever, except that the holders thereof shall be entitled to receive their pro rata share of the proceeds resulting from the sale of the full shares of stock for which such Scrip Certificates are exchangeable, together with their pro rata share of dividends theretofore paid upon such full shares; such sale (which may be effected either publicly or privately at the current market price, and as to which the Corporation may be the purchaser) to be made by the Corporation or by an agent of the Corporation (which agent may be a transfer agent or registrar of the shares for which such Scrip Certificates are exchangeable), as agent and on behalf of the holders of the Scrip Certificates.
ARTICLE IV.
The company may use and apply its surplus earnings or accumulated profits to the purchase or acquisition of property and to the purchase and acquisition of its own capital stock from time to time, to such extent and in such manner, and upon such terms as its Board
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of Directors shall determine, and neither the property nor the capital stock so purchased and acquired shall be regarded as profits for the purpose of declaration or payment of dividends, unless otherwise determined by a majority of the Board of Directors.
ARTICLE V.
[Deleted]
ARTICLE VI.
The office of the Corporation is to be located in the Borough of Manhattan, City, County and State of New York.
ARTICLE VII.
The duration of the Corporation is to be perpetual.
ARTICLE VIII.
A. Number, Election and Terms of Directors. The business and affairs of the Corporation shall be managed under the direction of its Board of Directors which, subject to any rights of the holders of any series of Preferred Stock then outstanding to elect additional directors under specified circumstances, shall consist of not less than twelve (12) nor more than twenty-five (25) persons. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be determined from time to time by the affirmative vote of (i) a majority of the Board of Directors, or (ii) the holders of at least 80% of the voting power of all of the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. At the 1985 Annual Meeting of Shareholders, the directors shall be divided into three classes, as nearly equal in number as possible, with the term of office of the first class to expire at the 1986 Annual Meeting of Shareholders, the term of office of the second class to expire at the 1987 Annual Meeting of Shareholders and the term of office of the third class to expire at the 1988 Annual Meeting of Shareholders, and with the members of each class to hold office until their successors have been duly elected and qualified. At each Annual Meeting of Shareholders following such initial classification and election, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding Annual Meeting of Shareholders after their election and after their successors have been duly elected and qualified.
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B. Newly Created Directorships and Vacancies . Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors and any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled by a majority vote of the directors then in office (even though less than a quorum of the Board of Directors), and directors so chosen shall hold office for a term expiring at the next Annual Meeting of Shareholders and after their successors have been duly elected and qualified. If the number of directors is increased by the Board of Directors and the newly created directorship is filled by the Board, there shall be no classification of the additional directors so chosen until the next Annual Meeting of Shareholders at which time a majority of the Board shall designate the class of the director to be elected to fill such directorship by the shareholders. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
C. Removal . Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director or directors may be removed from office at any time, but only for cause and only by the affirmative vote of (i) the holders of at least 80% of the voting power of all of the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, or (ii) a majority of the Board of Directors.
D. Special Meetings of Shareholders . Special meetings of Shareholders of the Corporation may be called only by the Board of Directors pursuant to a resolution approved by a majority of the Board of Directors, upon not less than 30 nor more than 50 days’ written notice.
E. Amendment, Repeal, Etc . Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all of the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article Eighth.
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ARTICLE IX.
A.
VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS
1. Higher Vote for Certain Business Combinations . In addition to any affirmative vote required by law or this Certificate of Incorporation, and except as otherwise expressly provided in Section B of this Article Ninth:
(a) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (i) any Interested Shareholder (as hereinafter defined) or (ii) any other Corporation (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Shareholder; or
(b) any sale, lease, license, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder or any Affiliate of any Interested Shareholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) of $1,000,000 or more; or
(c) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Shareholder or any Affiliate of any Interested Shareholder having an aggregate Fair Market Value of $1,000,000 or more; or
(d) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Shareholder or any Affiliate of any Interested Shareholder; or
(e) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Shareholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or
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indirectly owned by any Interested Shareholder or any Affiliate of any Interested Shareholder;
shall require the affirmative vote of the holders of at least 80% of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (the “Voting Stock”), voting together as a single class (it being understood that for purposes of this Article Ninth, each share of the Voting Stock shall have the number of votes granted to it pursuant to Article Third of this Certificate of Incorporation). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise.
2. Definition of “Business Combination” . The term “Business Combination” as used in this Article Ninth shall mean any transaction which is referred to in any one or more of clauses (a) through (e) of paragraph 1 of this Section A of Article Ninth.
B.
WHEN HIGHER VOTE IS NOT REQUIRED
The provisions of Section A of this Article Ninth shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of this Certificate of Incorporation, if all of the conditions specified in either of the following paragraphs 1 or 2 are met:
1. Approval by Disinterested Directors. The Business Combination shall have been approved by a majority of the total number of Disinterested Directors (as hereinafter defined).
2. Price and Procedural Requirements . All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the higher of the following:
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(i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Shareholder for any shares of Common Stock acquired by it (1) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the “Announcement Date”) or (2) in the transaction in which it became an Interested Shareholder, whichever is higher; and
(ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Shareholder became an Interested Shareholder (such latter date is referred to in this Article Ninth as the “Determination Date”), whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any other class of outstanding Voting Stock (other than Institutional Voting Stock, as hereinafter defined) shall be at least equal to the highest of the following (it being intended that the requirements of this clause (b) shall be required to be met with respect to every class of outstanding Voting Sock (other than Institutional Voting Stock), whether or not the Interested Shareholder has previously acquired any shares of a particular class of Voting Stock):
(i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers’ fees) paid by the Interested Shareholder for any shares of such class of Voting Stock acquired by it (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Shareholder, whichever is higher;
(ii) the Fair Market Value per share of such class of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher; and
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(iii) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.
(c) The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Shareholder has previously paid for shares of such class of Voting Stock. If the Interested Shareholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration for such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by it.
(d) After such Interested Shareholder has become an Interested Shareholder and prior to the consummation of such Business Combination: (i) except as approved by a majority of the total number of Disinterested Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on the outstanding preferred stock of the Corporation; (ii) there shall have been (x) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the total number of Disinterested Directors, and (y) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by a majority of the total number of Disinterested Directors; and (iii) such Interested Shareholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Shareholder becoming an Interested Shareholder.
(e) After such Interested Shareholder has become an Interested Shareholder, such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans,
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advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise.
(f) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public shareholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions).
(g) The holders of all outstanding shares of Voting Stock not beneficially owned by the Interested Shareholder prior to the consummation of any Business Combination shall be entitled to receive in such Business Combination cash or other consideration for their shares of such Voting Stock in compliance with paragraphs 2(a), (b) and (c) of this Section B (provided, however, that the failure of any such holders who are exercising their statutory rights to dissent from such Business Combination and receive payment of the fair value of their shares to exchange their shares in such Business Combination shall not be deemed to have prevented the condition set forth in this paragraph 2(g) from being satisfied).
C.
CERTAIN DEFINITIONS
For the purposes of this Article Ninth the following terms shall be deemed to have the meanings specified below:
1. The term “person” shall mean any individual, firm, Corporation or other entity.
2. The term “Interested Shareholder” shall mean any person (other than the Corporation or any Subsidiary) who or which:
(a) is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the then outstanding Voting Stock; or
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(b) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933.
3. A person shall be deemed a “beneficial owner” of any Voting Stock:
(a) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or
(b) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or
(c) which is beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock.
4. For the purpose of determining whether a person is an Interested Shareholder pursuant to paragraph 2 of this Section C of this Article Ninth, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of paragraph 3 of this Section C of this Article Ninth but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.
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5. The terms “Affiliate” or “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on November 28, 1984.
6. The term “Subsidiary” shall mean any Corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Shareholder set forth in paragraph 2 of this Section C of this Article Ninth, the term “Subsidiary” shall mean only a Corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.
7. The term “Fair Market Value” shall mean: (a) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the total number of Disinterested Directors in good faith, in each case with respect to any class of such stock, appropriately adjusted for any dividend or distri- bution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock; and (b) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the total number of Disinterested Directors in good faith.
8. The term “Institutional Voting Stock” shall mean any class of Voting Stock which was issued to and continues to be held solely by one or more
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insurance companies, pension funds, commercial banks, savings banks or similar financial institutions or institutional investors.
9. In the event of any Business Combination in which the Corporation survives, the phrase “consideration other than cash to be received” as used in clauses (a) and (b) of paragraph 2 of Section B of this Article Ninth shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares.
10. The term “Disinterested Director” shall mean any member of the Board of Directors of the Corporation who is unaffiliated with the Interested Shareholder and who was a member of the Board of Directors prior to the Determination Date, and any successor of a Disinterested Director who is unaffiliated with the Interested Shareholder and is recommended to succeed a Disinterested Director by a majority of the total number of Disinterested Directors then on the Board of Directors.
11. References to “highest per share price” shall in each case with respect to any class of stock reflect an appropriate adjustment for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock.
D.
POWERS OF THE BOARD OF DIRECTORS
A majority of the Board of Directors of the Corporation shall have the power and duty to determine for the purposes of this Article Ninth, on the basis of information known to them after reasonable inquiry, whether a person is an Interested Shareholder. Once the Board of Directors has made a determination, pursuant to the preceding sentence, that a person is an Interested Shareholder, a majority of the total number of Directors of the Corporation who would qualify as Disinterested Directors shall have the power and duty to interpret all of the terms and provisions of this Article Ninth, and to determine on the basis of information known to them after reasonable inquiry all facts necessary to ascertain compliance with this
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Article Ninth, including, without limitation, (A) the number of shares of Voting Stock beneficially owned by any person, (B) whether a person is an Affiliate or Associate of another, (C) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $1,000,000 or more and (D) whether all of the applicable conditions set forth in paragraph 2 of Section B of this Article Ninth have been met with respect to any Business Combination. Any determination pursuant to this Section D of this Article Ninth made in good faith shall be binding and conclusive on all parties.
E.
NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED SHAREHOLDERS
Nothing contained in this Article Ninth shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law.
F.
AMENDMENT, REPEAL, ETC.
Notwithstanding any other provisions of this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of 80% or more of the outstanding Voting Stock, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, this Article Ninth of this Certificate of Incorporation.
ARTICLE X.
The Corporation hereby designates the Secretary of State of the State of New York as its agent upon whom process in any action or proceeding against it may be served within the State of New York. The address to which the Secretary of State shall mail a copy of any process against the Corporation which may be served upon him pursuant to law is 1221 Avenue of the Americas, New York, New York.
- 27 -
The restatement of the Certificate of Incorporation was authorized by vote of the Board of Directors of the Corporation at a meeting of the Board of Directors held on July 31, 1985.
IN WITNESS WHEREOF, this certificate has been signed this 31st day of July, 1985.
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/s/ Robert N. Landes | |
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Robert N. Landes | |
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Executive Vice President | |
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/s/ Kurt D. Steele | |
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Kurt D. Steele | |
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Assistant Secretary |
- 28 -
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STATE OF NEW YORK
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COUNTY OF NEW YORK
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ROBERT N. LANDES, being duly sworn, deposes and says that he is an Executive Vice President of McGraw-Hill, Inc., the Corporation mentioned and described in the foregoing instrument; that he is one of the persons who signed the foregoing Restated Certificate of Incorporation; that he signed said Certificate in the capacity beneath his signature therein; that he has read the foregoing Certificate and knows the contents thereof; and that the statements contained therein are true to his knowledge.
| /s/ Robert N. Landes | ||||
| Robert N. Landes | ||||
Sworn to before me this 9
day of August, 1985.
| [ILLEGIBLE] | ||
| Notary Public |
[ILLEGIBLE STAMP]
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
McGRAW-HILL, INC.
Under Section 805 of the Business Corporation Law
Pursuant to the provisions of Sections 502 and 805 of the Business Corporation Law, the undersigned hereby certify:
1. The name of the Corporation is McGraw-Hill, Inc. The name under which the Corporation was formed is McGraw-Hill Publishing Company, Inc., which name was changed to McGraw-Hill, Inc. on January 2, 1964.
2. The Certificate of Incorporation of the Corporation was filed by the Department of State on the 29th of December, 1925.
3. The Certificate of Incorporation of the Corporation is hereby amended by the addition of the following provision stating the number, designations, relative rights, preferences and limitations of a series of Series Preferred Stock of the Corporation, designated as Series A Preferred Stock, as fixed by the Board of Directors of the Corporation pursuant to the authority vested in it by the Restated Certificate of Incorporation of the Corporation:
SERIES A PREFERRED STOCK
1. Designation and Amount. The shares of such series shall be designated as “Series A Preferred Stock”
(the “Series A Preferred Stock”) and the number of shares constituting such series shall be 600,000.
2. Dividends and Distributions.
(i) The holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the fifteenth day of March, June, September and December in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $25 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock of the Corporation or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time after the date hereof declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Serial A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(ii) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided
2
in subparagraph (i) of this paragraph 2 immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $25 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(iii) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights:
(i) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the shareholders of the Corporation. In the event the Corporation shall at any tine after the date hereof declare or pay any dividend on Common Stock payable in shares of Common Stock,
3
or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(ii) Except as otherwise provided herein or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation.
(iii) Except as set forth herein, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock and any other capital stock of the Corporation having general voting rights as set forth herein) for taking any corporate action.
4. Certain Restrictions.
(i) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in paragraph 2 of this Section are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not:
(a) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock;
(b) declare or pay dividends on or make any other distributions on any shares of stock ranking
4
on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;
(c) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior(either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or
(d) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.
(ii) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under subparagraph (i) of this paragraph 4, purchase or otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Series Preferred Stock and may be reissued as part of a new series of Series Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein.
5
6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation no distribution shall be made (a) to the holders of shares of stock ranking Junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock, or (b) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time after the date hereof declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (a) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at
6
any time after the date hereof declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable.
9. Amendment. The [ ] Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class.
The foregoing amendment to the [ ] Certificate of Incorporation was authorized by the Board of Directors of the Corporation, pursuant to the authority vested in it by the [Restated] Certificate of Incorporation of the Corporation and Section 502 of the Business Corporation Law, at a meeting of the Board duly held on the 29th day of January, 1986.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate of Amendment, and do affirm the foregoing as true, this 29th day of January , 1986.
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/s/ Robert N. Landes | |
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Robert N. Landes
Executive Vice President |
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/s/ Scott L. Bennett | |
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Scott L. Bennett
Assistant Secretary |
7
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF McGRAW-HILL, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
It is hereby certified that:
(1) The name of the Corporation is McGRAW-HILL, INC. The name under which the Corporation was formed was McGraw-Hill Publishing Company, Inc. which name was changed to McGraw-Hill, Inc. on January 2, 1964.
(2) The Certificate of Incorporation of the Corporation was filed by the Department of State on December 29, 1925.
(3) Article III of the Certificate of Incorporation of the Corporation is hereby amended to effect an increase in the number of authorized shares of Common Stock, par value $1 per share, from 80,000,000 shares to 150,000,000 shares. The first paragraph of Article III of the Certificate of Incorporation of the Corporation is hereby amended to read as follows:
“ARTICLE III. The aggregate number of shares which the Corporation shall have authority to issue shall be
1
152,891,256 shares, 891,256 shares of which shall have a par value of $10 per share and 152,000,000 shares of which shall have a par value of $1 per share. All of these shares are to be classified and the designations, number of shares in each class and the par value of the shares shall be as follows: $1.20 Convertible Preference Stock, 891,256 shares of the par value of $10 per share; Series Preferred Stock, 2,000,000 shares of the par value of $1 per share; and Common Stock, 150,000,000 shares of the par value of $1 per share.”
(4) The Certificate of the Incorporation of the Corporation is hereby amended with respect to the elimination of directors’ liability under certain circumstances. The Certificate of Incorporation is hereby amended to add a new Article XI to read in its entirety, as follows:
“ARTICLE ELEVENTH: No director of the Corporation shall be personally liable to the Corporation or its
2
shareholders for damages for any breach of duty in such capacity except to the extent that such elimination or limitation of liability is expressly prohibited by the Business Corporation Law of the State of New York as currently in effect or as the same may hereafter be amended. No amendment, modification or repeal of this Article shall adversely affect any right or protection of any director that exists at the time of such amendment, modification or repeal.”
(5) This amendment to the Certificate of Incorporation of the Corporation was properly authorized by vote at a meeting of the board of directors, followed by vote of the holders of a majority of all outstanding shares entitled to vote thereon at the Annual Meeting of Shareholders of the Corporation duly held on April 27, 1988.
IN WITNESS WHEREOF, this Certificate has been signed this 27th day of April, 1988.
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/s/ Robert N. Landes | |||
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Robert N. Landes, | |||
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Executive Vice President | |||
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/s/ Scott L. Bennett | |||
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Scott L. Bennett, | |||
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Assistant Secretary |
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STATE OF NEW YORK
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COUNTY OF NEW YORK
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) |
ROBERT N. LANDES, being duly sworn deposes and says that he is the person who signed the foregoing Certificate of Amendment; that he signed said Certificate in the capacity set forth beneath his signature thereon; that the has read said Certificate and knows the contents thereof; and that the statements contained therein are true to his own knowledge.
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/s/ Robert N. Landes | |||
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Robert N. Landes, | |||
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Executive Vice President |
Subscribed and sworn to
before me on April 27, 1988.
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/s/ Maureen E. Downey
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MAUREEN E. DOWNEY
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Notary Public, State of New York
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No.
31-4779812,
Qualified in New York County
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Commission Expires March 30, 1989
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4
| CERTIFICATE OF AMENDMENT | ||||
| OF THE | ||||
| CERTIFICATE OF INCORPORATION | ||||
| OF McGRAW-HILL, INC. | ||||
| UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW |
It is hereby certified that:
(1) The name of the Corporation is McGRAW-HILL, INC. The name under which the Corporation was formed was McGraw-Hill Publishing Company, Inc. which name was changed to McGraw-Hill, Inc. on January 2, 1964.
(2) The Certificate of Incorporation of the Corporation was filed by the Department of State on December 29, 1925.
(3) Article I of the Certificate of Incorporation of the Corporation is hereby amended to effect a change in the Corporation’s name from “McGraw-Hill, Inc.” to “The McGraw-Hill Companies, Inc.” Article I of the Certificate of Incorporation of the Corporation is hereby amended to read as follows:
“ARTICLE I. The Corporate name shall be:
The McGraw-Hill Companies, Inc.”
1
(4) This Amendment to the Certificate of Incorporation of the Corporation was properly authorized by vote at a meeting of the board of directors, duly held on January 25, 1995, followed by the vote of the holders of at least a majority of all outstanding shares of Common Stock and $1.20 Convertible Preference Stock, voting together as a single class, entitled to vote thereon on the Annual Meeting of Shareholders of the Corporation duly held on April 26, 1995.
IN WITNESS WHEREOF, this Certificate has been signed this 26th day of April, 1995.
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/s/ Robert N. Landes | |||
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Robert N. Landes | |||
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Executive Vice President | |||
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/s/ Scott L. Bennett | |||
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Scott L. Bennett | |||
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Assistant Secretary |
2
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STATE OF NEW YORK
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COUNTY OF NEW YORK
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ROBERT N. LANDES, being duly sworn deposes and says that he is the person who signed the foregoing Certificate of Amendment; that he signed said Certificate in the capacity set forth beneath his signature thereon; that he has read said Certificate and knows the contents thereof; and that the statements contained therein are true to his own knowledge.
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/s/ Robert N. Landes | |||
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Robert N. Landes | |||
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Executive Vice President |
Subscribed and sworn to
before me on April 26, 1995
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/s/ Peter J. O’Conor
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PETER J. O’CONOR
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Notary Public, State of New York
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No. 41-4816506, Qual in Queens County
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Certificate Filed in New York County
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Commission Expires May 31, 1996
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2166 SLB
3
CERTIFICATE OF AMENDMENT
It is hereby certified that:
(1) The name of the Corporation is THE McGRAW-HILL COMPANIES, INC. The name under which the Corporation was formed was McGraw-Hill Publishing Company, Inc. which name was changed to McGraw-Hill, Inc. on January 2,1964 and to The McGraw-Hill Companies, Inc. on April 26,1995.
(2) The Certificate of Incorporation of the Corporation was filed by the Department of State on December 29, 1925.
(3) Article III of the Certificate of Incorporation of the Corporation is hereby amended to effect an increase in the number of authorized shares of Common Stock, par value $1 per share, from 150,000,000 shares to 300,000,000 shares. The first paragraph of Article III of the Certificate of Incorporation of the Corporation is hereby amended to read as follows:
“ARTICLE III. The aggregate number of shares which the Corporation shall have authority to issue shall be 302,891,256 shares, 891,256 shares of which shall have a par value of $10 per share and 302,000,000 shares of which shall have a par value of $1 per share. All of these shares are to be classified and the designations, number of shares in each class and the par value of the shares shall be as follows: $1.20 Convertible Preference Stock, 891,256 shares of the par value of $10 per share; Series Preferred Stock, 2,000,000 shares of the par value of $1 per share; and Common Stock, 300,000,000 shares of the par value of $1 per share.”
1
(4) This Amendment to the Certificate of Incorporation of the Corporation was properly authorized by vote at a meeting of the board of directors, duly held on February 25, 1998, followed by the vote of at least a majority of all outstanding shares of Common Stock and $1.20 Convertible Preference Stock, voting together as a single class, entitled to vote thereon at the Annual Meeting of Shareholders of the Corporation duly held on April 29, 1998.
IN WITNESS WHEREOF, this Certificate has been signed this 29 th day of April, 1998.
| /s/ Kenneth M. Vittor | ||||
| Kenneth M. Vittor | ||||
| Senior Vice President | ||||
| /s/ Scott L. Bennett | ||||
| Scott L. Bennett | ||||
| Secretary | ||||
2
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STATE OF NEW YORK
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COUNTY OF NEW YORK
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KENNETH M. VITTOR, being duly sworn deposes and says that he is the person who signed the foregoing Certificate of Amendment; that he signed said Certificate in the capacity set forth beneath his signature thereon; that he has read said Certificate and knows the contents thereof; and that the statements contained therein are true to his own knowledge.
| /s/ Kenneth M. Vittor | ||||
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Kenneth M. Vittor,
Senior Vice President |
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Subscribed and sworn to
Before me on
April 29, 1998.
| /s/ LINDA WIDMER | ||
| LINDA WIDMER | ||
| Notary Public, State of New York | ||
| No. 31-4985714 | ||
| Qualified in New York County | ||
| Commission Expires August 26, 1999 |
3
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF THE McGRAW-HILL COMPANIES, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
It is hereby certified that:
(1) The name of the Corporation is THE McGRAW-HILL COMPANIES, INC. The name under which the Corporation was formed was McGraw-Hill Publishing Company, Inc. which name was changed to McGraw-Hill, Inc. on January 2,1964 and to The McGraw-Hill Companies, Inc. on April 26, 1995.
(2) The Certificate of Incorporation of the Corporation was filed by the Department of State on December 29, 1925.
(3) Article III of the Certificate of Incorporation of the Corporation is hereby amended to effect an increase in the number of authorized shares of Common Stock, par value $1 per share, from 300,000,000 shares to 600,000,000 shares. The first paragraph of Article III of the Certificate of Incorporation of the Corporation is hereby amended to read as follows:
“ARTICLE III. The aggregate number of shares which the Corporation shall have authority to issue shall be 602,891,256 shares, 891,256 shares of which shall have a par value of $10 per share and 602,000,000 shares of which shall have a par value of $1 per share. All of these shares are to be classified and the designations, number of shares in each class and the par value of the shares shall be as follows: $1.20 Convertible Preference Stock, 891,256 shares of the par value of $10 per share; Series Preferred Stock, 2,000,000 shares of the par value
1
of $1 per share; and Common Stock, 600,000,000 shares of the par value of $1 per share.”
(4) This Amendment to the Certificate of Incorporation of the Corporation was properly authorized by vote at a meeting of the board of directors, duly held on January 26, 2005, followed by the vote of at least a majority of all outstanding shares of Common Stock entitled to vote thereon at the Annual Meeting of Shareholders of the Corporation duly held on April 27, 2005.
IN WITNESS WHEREOF, this Certificate has been signed this 27 th day of April, 2005.
| /s/ Kenneth M. Vittor | ||||
| Kenneth M. Vittor | ||||
| Executive Vice President | ||||
| /s/ Scott L. Bennett | ||||
| Scott L. Bennett | ||||
| Secretary | ||||
2
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STATE OF NEW YORK
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) | |||||||||
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) | SS.: | ||||||||
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COUNTY OF NEW YORK
|
) |
KENNETH M. VITTOR, being duly sworn deposes and says that he is the person who signed the foregoing Certificate of Amendment; that he signed said Certificate in the capacity set forth beneath his signature thereon; that he has read said Certificate and knows the contents thereof; and that the statements contained therein are true to his own knowledge.
| /s/ Kenneth M. Vittor | ||||
| Kenneth M. Vittor, | ||||
| Executive Vice President | ||||
Subscribed and sworn to
Before me
on April 27, 2005.
| /s/ Linda Widmer | ||
| Linda Widmer | ||
| Notary Public, State of New York | ||
| No. 31-4985714 | ||
| Qualified in New York County | ||
| Commission Expires August 26, 2005 |
3
Exhibit 10
FIRST AMENDMENT
FIRST AMENDMENT, dated as of July 5, 2005 (this “ Amendment ”), to the FIVE-YEAR CREDIT AGREEMENT dated as of July 20, 2004 (the “ Credit Agreement ”), among THE McGRAW-HILL COMPANIES, INC. (the “ Borrower ”), the several banks and other financial institutions from time to time parties thereto (the “ Lenders ”) and JPMORGAN CHASE BANK, N.A., as administrative agent (in such capacity, the “ Administrative Agent ”).
W I T N E S S E T H:
WHEREAS, the Borrower, the Administrative Agent and the Lenders are parties to the Credit Agreement;
WHEREAS, the Borrower has requested that a certain provision of the Credit Agreement be amended as set forth herein; and
WHEREAS, the Lenders are willing to agree to such amendment on the terms set forth herein;
NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, the undersigned hereby agree as follows:
I. Defined Terms . Terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
II. Amendment to Section 1.01 . The definition of “Consolidated Cash Flow” is hereby amended by deleting the definition therein in its entirety and substituting, in lieu thereof, the following new definition:
“ Consolidated Cash Flow ” of the Borrower and the Subsidiaries for any period (the “Determination Period”) means the sum of (i) Consolidated Net Income for the Determination Period, plus (ii) all amounts deducted in the determination of such Consolidated Net Income in respect of (a) depreciation and amortization (including without limitation amortization of assets held under Capitalized Leases) excluding amortization relating to prepublication costs, (b) Consolidated Interest Expense, and (c) provisions for taxes based on or measured by income; provided , however , that (A) if during the Determination Period the Borrower disposes of any asset and such disposition constitutes a Material Disposition, the sum of (x) the net income (loss) produced by such asset, before extraordinary items, during the portion of the Determination Period prior to the date on which such asset was disposed of, plus (y) all amounts deducted in determining such net income (loss) for such period in respect of depreciation and amortization (including without limitation amortization of assets held under Capitalized Leases), interest on Indebtedness, and provisions for taxes based on or measured
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2 |
by income shall be excluded on a pro forma adjusted and consolidated basis in Consolidated Cash Flow for the Determination Period (to the extent they would otherwise have been included thereto), and (B) if during the Determination Period the Borrower makes an investment in any asset and such investment constitutes a Material Investment, the sum of (x) the net income (loss) produced by such asset, before extraordinary items, during the portion of the Determination Period prior to the date on which such investment in such asset was made, plus (y) all amounts deducted in determining such net income (loss) for such period in respect of depreciation and amortization (including, without limitation, amortization of assets held under Capitalized Leases), interest on Indebtedness, and provisions for taxes based on or measured by income shall be included on a pro forma adjusted and consolidated basis in Consolidated Cash Flow for the Determination Period (to the extent they would have otherwise been excluded therefrom). As used in this definition, “Material Disposition” means any disposition of assets or series of related dispositions of assets that yield gross proceeds to the Borrower or any of its Subsidiaries in excess of $100,000,000, provided that such proceeds, together with the proceeds received by the Borrower or such Subsidiary in any other such disposition of assets that yield gross proceeds to the Borrower or such Subsidiary in excess of $100,000,000 during the Determination Period, exceeds $200,000,000; and “Material Investment” means any acquisition of assets or series of related acquisitions of assets by the Borrower or any of its Subsidiaries that (a) constitutes assets comprising all or substantially all of an operating unit of a business or constitutes all or substantially all of the common stock of a Person and (b) involves the payment of consideration by the Borrower or such Subsidiary in excess of $100,000,000, provided that such consideration, together with the consideration paid in any other such acquisitions of assets that involves the payment of consideration by the Borrower or such Subsidiary in excess of $100,000,000 during the Determination Period, exceeds $200,000,000.
III. Effective Date . This Amendment shall become effective on the date (the “ Effective Date ”) on which the Borrower, the Administrative Agent and the Required Lenders under the Credit Agreement shall have duly executed and delivered to the Administrative Agent this Amendment.
IV. Representations and Warranties . The Borrower hereby represents and warrants that (a) each of the representations and warranties in Article III of the Credit Agreement shall be, after giving effect to this Amendment, true and correct in all material respects as if made on and as of the Effective Date (unless such representations and warranties are stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date) and (b) after giving effect to this Amendment, no Default or Event of Default shall have occurred and be continuing.
V. No Other Amendments; Confirmation . Except as expressly amended hereby, the provisions of the Credit Agreement are and shall remain in full force and effect.
VI. Governing Law . This Amendment and the rights and obligations of the parties hereto shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York.
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3 |
VII. Counterparts . This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Amendment may be delivered by facsimile transmission of the relevant signature pages hereof.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed and delivered by their duly authorized officers as of the date first above written.
| THE McGRAW-HILL COMPANIES, INC. | ||||||
|
|
||||||
| By: | /s/ John C. Weisenseel | |||||
|
|
Name: | John C. Weisenseel | ||||
|
|
Title: | Senior Vice President & Treasurer | ||||
| JPMORGAN CHASE BANK, N.A. | ||||||
| as Administrative Agent and as a Lender | ||||||
|
|
||||||
| By: | /s/ Peter B. Thauer | |||||
|
|
Name: | Peter B. Thauer | ||||
|
|
Title: | Vice President | ||||
| BANK OF AMERICA, N.A., | ||||||
| as Co-Syndication Agent and as a Lender | ||||||
|
|
||||||
| By: | /s/ Amy Peden | |||||
|
|
Name: | Amy Peden | ||||
|
|
Title: | Vice President | ||||
| CITIBANK, N.A., | ||||||
| as Co-Syndication Agent and as a Lender | ||||||
|
|
||||||
| By: | /s/ Maureen Maroney | |||||
|
|
Name: | Maureen Maroney | ||||
|
|
Title: | Director | ||||
| DEUTSCHE BANK SECURITIES INC., | ||||||
| as Co-Syndication Agent | ||||||
|
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||||||
| By: | /s/ Yvonne Preil | |||||
|
|
Name: | Yvonne Preil | ||||
|
|
Title: | Vice President | ||||
|
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||||||
| By: | /s/ Andreas Neumeier | |||||
|
|
Name: | Andreas Neumeier | ||||
|
|
Title: | Director | ||||
|
|
||||||
| DEUTSCHE BANK AG NEW YORK BRANCH, | ||||||
| as a Lender | ||||||
|
|
||||||
| By: | /s/ Yvonne Preil | |||||
|
|
Name: | Yvonne Preil | ||||
|
|
Title: | Vice President | ||||
|
|
||||||
| By: | /s/ Andreas Neumeier | |||||
|
|
Name: | Andreas Neumeier | ||||
|
|
Title: | Director | ||||
| ROYAL BANK OF SCOTLAND PLC, | ||||||
| as Co-Syndication Agent and as a Lender | ||||||
|
|
||||||
| By: | /s/ Andrew Wynn | |||||
|
|
Name: | Andrew Wynn | ||||
|
|
Title: | Senior Vice President | ||||
| THE BANK OF NEW YORK | ||||||
|
|
||||||
| By: | /s/ Kristen E. Talaber | |||||
|
|
Name: | Kristen E. Talaber | ||||
|
|
Title: | Vice President | ||||
| BARCLAYS BANK PLC | ||||||
|
|
||||||
| By: | /s/ David Barton | |||||
|
|
Name: | David Barton | ||||
|
|
Title: | Associate Director | ||||
| KEYBANK NATIONAL ASSOCIATION | ||||||
|
|
||||||
| By: | /s/ Francis W. Lutz | |||||
|
|
Name: | Francis W. Lutz | ||||
|
|
Title: | Vice President | ||||
| LLOYDS TSB BANK, PLC | ||||||
|
|
||||||
| By: | /s/ Windsor R. Davies | |||||
|
|
Name: | Windsor R. Davies | ||||
|
|
Title: | Director, Corporate Banking, USA | ||||
|
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||||||
| By: | /s/ Deborah Carlson | |||||
|
|
Name: | Deborah Carlson | ||||
|
|
Title: | VP & Manager – Business | ||||
|
|
Development C.B. | |||||
| THE NORTHERN TRUST COMPANY | ||||||
|
|
||||||
| By: | /s/ Preeti Jain | |||||
|
|
Name: | Preeti Jain | ||||
|
|
Title: | Vice President | ||||
| UFJ BANK LIMITED | ||||||
|
|
||||||
|
|
By: | |||||
|
|
Name: | |||||
|
|
Title: | |||||
| BANCO BILBAO VIZCAYA ARGENTARIA | ||||||
|
|
||||||
|
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By: | |||||
|
|
Name: | |||||
|
|
Title: | |||||
|
|
||||||
|
|
By: | |||||
|
|
Name: | |||||
|
|
Title: | |||||
| SUMITOMO MITSUI BANKING CORPORATION | ||||||
|
|
||||||
| By: | /s/ David A. Buck | |||||
|
|
Name: | David A. Buck | ||||
|
|
Title: | Senior Vice President | ||||
| UNION BANK OF CALIFORNIA, N.A. | ||||||
|
|
||||||
|
|
By: | |||||
|
|
Name: | |||||
|
|
Title: | |||||
| NATIONAL AUSTRALIA BANK LIMITED | ||||||
|
|
||||||
| By: | /s/ Eduardo Salazar | |||||
|
|
Name: | Eduardo Salazar | ||||
|
|
Title: | Senior Vice President | ||||
| UBS LOAN FINANCE LLC | ||||||
|
|
||||||
| By: | /s/ Wilfred V. Saint | |||||
|
|
Name: | Wilfred V. Saint | ||||
|
|
Title: | Director – Banking | ||||
|
|
Products Services, US | |||||
|
|
||||||
| By: | /s/ Joselin Fernandes | |||||
|
|
Name: | Joselin Fernandes | ||||
|
|
Title: | Associate Director – Banking | ||||
|
|
Products Services, US | |||||
June 30, 2005
June 30, 2004
Six
Twelve
Six
(in thousands)
Months
Months
Months
$
435,437
$
1,252,132
$
352,210
41,587
78,509
38,934
$
477,024
$
1,330,641
$
391,144
$
10,802
$
18,458
$
7,985
30,785
60,051
30,949
$
41,587
$
78,509
$
38,934
11.5x
16.9x
10.0x
(Note)
“Fixed charges” consist of (1) interest on debt and interest related to the sale leaseback
of Rock-McGraw, Inc. (See Note 11 to the Company’s consolidated financial statements); and
(2) the portion of the Company’s rental expense deemed representative of the interest factor
in rental expense.
| 1. | I have reviewed this quarterly report on Form 10-Q of The McGraw-Hill Companies, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ Harold W. McGraw III | ||||
| Harold W. McGraw III | ||||
|
Chairman, President and
Chief Executive Officer |
||||
| 1. | I have reviewed this quarterly report on Form 10-Q of The McGraw-Hill Companies, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ Robert J. Bahash | ||||
| Robert J. Bahash | ||||
|
Executive Vice President
and Chief Financial Officer |
||||
|
Dated: July 29, 2005
|
/s/ Harold W. McGraw III | |
|
|
||
|
|
Harold W. McGraw III
Chairman, President and Chief Executive Officer |
|
|
|
||
|
Dated: July 29, 2005
|
/s/ Robert J. Bahash | |
|
|
||
|
|
Robert J. Bahash
Executive Vice President and Chief Financial Officer |