Court Opinion

ID: 4608785
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:43:24.478508+00
Date Added: 2024-06-11T07:53:46.046285
License: Public Domain

TRIBUNE COMPANY, AS AGENT OF AND SUCCESSOR BY MERGER TO THE FORMER THE TIMES MIRROR COMPANY, ITSELF AND ITS CONSOLIDATED SUBSIDIARIES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, RespondentTribune Co. v. Comm'rNo. 17443-02 United States Tax Court125 T.C. 110; 2005 U.S. Tax Ct. LEXIS 28; 125 T.C. No. 8; September 27, 2005, Filed *28  In 1998, Times Mirror's investment subsidiary, TMD, divested   itself of a legal publishing business through the Bender   transaction. The transaction was intended and designed to   qualify as a tax-free reorganization under sec. 368, I.R.C. R   determined that the transaction was a taxable sale by TMD to   Reed. Held: The primary consideration received in the   transaction was control over $ 1.375 billion paid by Reed.   Held, further, the Bender transaction did not   qualify as a tax-free reorganization because the terms and   provisions of the contractual documents, as interpreted and   implemented by Times Mirror and Reed, effected a sale.  Joel V. Williamson, Roger J. Jones, Gary S. Colton, Jr., Jeffrey Allan Goldman, Matthew C. Houchens, Daniel A. Dumezich, Patricia Anne Yurchak, Andrew R. Roberson, Thomas Lee Kittle-Kamp, Nathaniel Carden, and Monica Susana Melgarejo, for petitioner.Alan Summers, Cathy A. Goodson, William A. McCarthy, Usha Ravi, Robert H. Schorman, Jr., Gretchen A. Kindel, and M. Kendall Williams, for respondent.  Cohen, Mary AnnMARY ANN COHEN*112  CONTENTSFINDINGS OF FACTBackground*29     A. Times Mirror   B. Changes in the Legal Publishing LandscapeEvents Leading Up to the Bender Transaction   A. November 7, 1997, GS Presentation   B. November 17, 1997, Special Meeting of Times Mirror's Board of   Directors   C. Times Mirror's Announcement Sparks Interest by Reed and   Wolters Kluwer   D. February 5, 1998, Regular Meeting of Times Mirror's Board of   Directors   E. March 5, 1998, Regular Meeting of Times Mirror's Board of   Directors   F. Reed and Wolters Kluwer Call Off Merger   G. Melone, Sigler, and Walker Gain Access to the "Domestic   Sandwich" Structure    H. Reed and Wolters Kluwer Submit Preliminary Interest Letters   to Times Mirror   I. The Corporate Joint Venture Structure Is Tabbed as the   Structure of Choice for the Bender Transaction   J. April 14, 1998, Regular Meeting of Reed's Board of Directors   K. Wolters Kluwer and Reed Attend Times Mirror's Presentations   Regarding Bender   L. Wolters Kluwer and Reed Submit Offers to Times Mirror   M. Times Mirror*30  Responds to Wolters Kluwer's Offer   N. April 24, 1998, Special Meeting of Times Mirror's Board of   Directors   O. Organization of CBM Acquisition Parent Co. and CBM MergerSub   Corp.   P. Adoption of the Merger Agreement   Q. GS Prepares "Fairness Package" for Bender Transaction   R. Melone Drafts Memorandum Regarding the Bender Transaction for   E& Y's Files   S. May 7, 1998, Regular Meeting of Times Mirror's Board of   Directors   T. May 7, 1998, Annual Meeting of Times Mirror's Shareholders   U. Organization of Liberty Bell I   V. July 9, 1998, Regular Meeting of Times Mirror's Board of   Directors   W. Execution of the LBI Limited Liability Company Agreement (the   management authority)   X. Execution of MB Parent Stockholders Agreement and the   MergerSub Shareholders Agreement   Y. Filing of the Restated Certificates of Incorporation for MB   Parent and MergerSubThe Mechanics of the Bender Transaction   A. Capitalization of MergerSub and MB Parent   B. Merger of MergerSub and Bender*31     C. Capitalization of LBI (the LLC)   D. ClosingTimes Mirror's Management of LBI and the Development of TimesMirror's Investment Strategy Following the Closing of the BenderTransactionSummary of the LLC's Investment Activity During 1999Times Mirror's and MB Parent's Income Tax Returns for 1998Times Mirror's Financial Reporting Following the Close of the BenderTransactionThe LLC's Financial Statements for the Fiscal Years Ended December31, 1999 and 1998IRS DeterminationsULTIMATE FINDINGS OF FACTOPINIONFactual Analysis of the Bender TransactionTimes Mirror's View of the Bender TransactionFiduciary Obligations Among the PartiesConsideration for the Transfer of Bender to ReedValuation of MB Parent Common StockPertinent PrecedentsEvidentiary MattersCOHEN, Judge: Respondent determined a deficiency of $ 551,510,819 with respect to petitioner's Federal income tax for 1998. The notice of deficiency recharacterized as taxable two transactions treated by petitioner as tax-free reorganizations. This opinion addresses the so-called Bender transaction only. The principal issues for*32  decision are:(1) Whether the Bender transaction qualifies as a reorganization under either section 368(a)(1)(A) and (2)(E) or section 368(a)(1)(B) and, if so,(2) whether section 269 nonetheless dictates that gain be recognized on the Bender transaction.*113  Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue.FINDINGS OF FACTSome of the facts have been stipulated, and the stipulated facts are incorporated in our findings by this reference. Petitioner's principal place of business was in Chicago, Illinois, at the time that the petition was filed. Petitioner is a party to this case solely in its capacity as agent and successor of The Times Mirror Co., Inc. (Times Mirror).Background   A. Times MirrorBefore its merger with petitioner, Times Mirror was a Los Angeles-based news and information company. In June 1995, Times Mirror hired Mark H. Willes (Willes) to serve as its president and chief executive officer. Willes became chairman of Times Mirror's board of directors in January 1996. Willes's business philosophy favored a streamlined operation that concentrated on "core" businesses.After June 1995, Times*33  Mirror embarked on a program of restructuring its businesses, which included focusing on newspaper publishing. In late 1996, Times Mirror undertook a series of transactions that resulted in its owning 50 percent of the Shepard's McGraw-Hill legal publishing unit (Shepard's) in a joint venture with Reed Elsevier (Reed), a publishing and information enterprise not itself a legal entity but rather a collective reference to Reed Elsevier plc, a United Kingdom entity, and Reed Elsevier NV, a Dutch entity. Times Mirror held its 50-percent interest in Shepard's through one of its subsidiaries, Matthew Bender & Co., Inc. (Bender), a legal publishing company.As of December 31, 1997, Times Mirror comprised three business segments: Newspaper publishing, professional information, and magazine publishing. The professional information business segment included Bender and Mosby, Inc. (Mosby), a health sciences publishing company.Times Mirror engaged in the legal publishing business through Bender. TMD, Inc. (TMD), a wholly owned subsidiary *114  of Times Mirror, owned the only class of issued and outstanding stock of Bender until July 31, 1998.   B. Changes in the Legal Publishing Landscape*34  Between 1980 and 1997, the legal publishing industry experienced significant consolidation. During that period, the legal publishing market contracted from 20 companies to 5: Reed; Wolters Kluwer NV (Wolters Kluwer), a Dutch publishing and information company; West-Thomson; Bender; and the Bureau of National Affairs.On October 13, 1997, Reed and Wolters Kluwer announced a plan to merge. At the time of the announcement, Reed's holdings included Lexis-Nexis (Lexis), and Wolters Kluwer's holdings included Commerce Clearing House.Shortly after the Reed-Wolters Kluwer announcement, Times Mirror's management analyzed Bender's competitive position in the legal publishing market. Based upon its analysis, Times Mirror's management concluded that continued participation in the legal publishing market was not the most effective use of Times Mirror's assets. Accordingly, Times Mirror decided to divest itself of Bender.The law firm of Gibson, Dunn & Crutcher LLP (GD& C) acted as outside legal counsel for Times Mirror, TMD, and Bender in connection with the transaction pursuant to which Times Mirror divested itself of Bender (Bender transaction). Ernst & Young LLP (E& Y), which served as*35  independent auditor of Times Mirror's financial statements during 1994 through 1999, reviewed the tax and accounting treatment and reporting of the Bender transaction for Times Mirror. Sometime before November 7, 1997, Times Mirror engaged Goldman, Sachs & Co. (GS) as a financial adviser and facilitator for the Bender transaction.Events Leading Up to the Bender Transaction   A. November 7, 1997, GS PresentationGS prepared a document, dated November 7, 1997, entitled "Monetization of Medical/Publishing Assets", in connection with a presentation to Times Mirror's management regarding the Bender transaction (November 7, 1997, GS presentation). The following statements were included in the November 7, 1997, GS presentation:   o *115  Given the dramatic change in the competitive landscape of the    professional information publishing sector, this may be an    opportune time for TMC [Times Mirror] to monetize its * * *    legal [publishing] assets   o Monetization of the * * * legal publishing assets can be    executed through a simple, taxable sale for cash or through a    number of tax-advantaged structures *36    o The ultimate structure utilized will be a function of the type    of buyer (ie. Strategic or financial) as well as the    nationality of the buyer (ie. Domestic or foreign) as well as    the amount of cash proceeds TMC would like to receive upfrontThe November 7, 1997, GS presentation provided a summary of Bender's potential buyers as well as descriptions of several of GS's proprietary "tax-advantaged" structures for the Bender transaction. None of the tax-advantaged structures set forth in the November 7, 1997, GS presentation were ultimately recommended by Times Mirror's management or approved by Times Mirror's board of directors for the Bender transaction.   B. November 17, 1997, Special Meeting of Times Mirror's Board   of DirectorsA special meeting of Times Mirror's board of directors was convened on November 17, 1997. In connection with this special meeting, a document entitled "Briefing Packet On Mosby Matthew Bender" (November 17, 1997, briefing packet) was prepared. A memorandum dated November 14, 1997, from Willes to the board of directors was part of the November 17, 1997, briefing packet. The section of the November 17, 1997, briefing*37  packet entitled "Executive Summary" contained the following statements:   The major strategic alternatives, or some combination thereof,   that are open to Times Mirror are the following:   1. Hold   2. Divest   3. Swap           *   *   *   *   *   *   *   A key issue in any decision to divest or swap will be the   potentially large tax liability on the gain on the sale due to   our low basis in Matthew Bender. Our preliminary work indicates   that there may be a variety of transaction structures which   allow us to minimize this tax expense.           *   *   *   *   *   *   *  *116  Our preliminary analysis shows that with the very high premiums   currently being offered for legal * * * publishing operations,   more after-tax value could be created through divestiture than   by keeping these companies. This value is enhanced considerably   if the divestiture could be accomplished through a tax-   advantaged structure.           *   *   *   *   *   *   *  *38  The decision to explore strategic alternatives for Mosby Matthew   Bender is not easy nor a happy one. * * * However, the facts are   that the competitive environment for * * * legal * * *   publishing has changed dramatically * * *. Matthew Bender is a   very distant third in U.S. legal publishing with a weakening   future competitive position. * * *   Considering these recent developments, we recommend to the Board   that it authorize the exploration of the divestiture of Matthew   Bender, including Shepard's * * *Willes opened the special meeting of the board of directors by noting that market consolidation in legal publishing presented immediate strategic questions that needed to be evaluated fully. Willes and Kathryn M. Downing, a corporate officer of Times Mirror, then presented a lengthy review of the situation and the issues to be addressed. Following this presentation, there was a substantive discussion among the board of directors. At the conclusion of this discussion, the board of directors unanimously instructed Times Mirror's management to proceed with a formal review of the company's options with respect to its ownership*39  of Bender and its joint ownership of Shepard's.   C. Times Mirror's Announcement Sparks Interest by Reed and   Wolters KluwerOn November 24, 1997, Times Mirror released a statement to the public that announced the company's decision to explore strategic alternatives with respect to its ownership of Bender and its joint ownership of Shepard's. After Times Mirror made this announcement, Reed, Wolters Kluwer, and many others expressed an interest in acquiring Bender.Parties that indicated an interest in Bender were initially sent a standard confidentiality agreement. These confidentiality agreements set out the ground rules for obtaining confidential information in connection with a possible sale or other disposition of Bender. On December 26, 1997, Times Mirror and Reed executed a confidentiality agreement. On *117  January 9, 1998, GS sent a confidentiality agreement to Wolters Kluwer.On February 2, 1998, Reed signed an addendum to the confidentiality agreement that it had executed with Times Mirror and delivered that addendum to Times Mirror. The addendum expressed the desire of Reed and Times Mirror that Wolters Kluwer and Reed would jointly investigate and prepare*40  a bid for Bender and/or Mosby.   D. February 5, 1998, Regular Meeting of Times Mirror's Board   of DirectorsA regular meeting of Times Mirror's board of directors was convened on February 5, 1998. At this meeting, the board of directors reviewed and discussed, among other topics, Times Mirror's strategic business plan for 1998 through 2000 and the company's financial structure. These matters were also presented to the board of directors in the form of a written report. In particular, the section entitled "Strategic Three-Year Plan" contained the following statements:          Mosby Matthew Bender Process           *   *   *   *   *   *   *   Divestiture Process and Strategy   On November 17, 1997, the Board held a study session that   explored the changed strategic situation for Matthew Bender   legal publishing, including Shepard's, and Mosby health sciences   publishing. * * *           *   *   *   *   *   *   *   Following the study session with the Board, we began the   divestiture process. Since that time, Mosby Matthew*41  Bender   management and Times Mirror staff have been actively working   with Goldman Sachs to prepare financial statements and the   offering memorandum and to identify potential buyers.   In this process, we have adopted the following strategy:           *   *   *   *   *   *   *   o Acquaint all interested parties with our desire for a tax-    efficient result and explore the appropriate alternatives in    detail in advance of definitive bids with each party, because    different forms of transactions work with different bidders.   o Since it could be the case that a leveraged spin-off would    generate the same level of after-tax cash proceeds as an asset    sale, establish "straw-man" *118  values of a cash-for-assets sale    and a leveraged spin-off (much like our cable transaction) to    set a "floor" on the auction at a high level.           *   *   *   *   *   *   *   Alternative Structures   The specific structure for the divestiture will depend largely   on the financial and operating*42  profile of the likely purchaser.   With the assistance and advice of Goldman Sachs, Ernst & Young,   and Gibson, Dunn & Crutcher, this process is being integrated   with the overall sale process to deliver the highest after-tax   value to Times Mirror and its shareholders. * * *           *   *   *   *   *   *   *   Planning Issues   Since we are early in the process, it is not clear what the   impact of this divestiture will be on Times Mirror's financial   results. * * * The preferred tax-efficient structures we will   explore with potential buyers would significantly lessen any   potential dilution. * * * [I]t is important to remember that the   model we developed for 10% or greater growth in earnings per   share did not anticipate continuing contributions from Mosby   Matthew Bender, and the proceeds will give us a large body of   resources to invest to accelerate the Company's growth.           *   *   *   *   *   *   *              CAPITALIZATION   Introduction   The*43  new three year plan has five principal capitalization   policies:     1) Continue an active share repurchase plan, buying shares     when repurchase is the best investment of our financial     resources           *   *   *   *   *   *   *     5) Invest our cash flow and other capital resources     according to the following priorities:     o Internally in products and services that build our      established operations     o Attractive acquisitions that add to or are complimentary      [sic] to existing businesses     o Opportunistically in common stock repurchase     o Dividends   Our plan provides sufficient cash flow and other resources to   cover all of these applications. In practice (and in the absence   of a Mosby-Matthew Bender transaction) for the plan period, the   application of these policies is expected to result in the   following actions:   o Repurchases of * * * 4 million in 1998 and 3 million in each    of 1999 and*44  2000 for an aggregate of $ 570 million   o We expect to borrow approximately $ 250 million to use with our    free cash flow to finance internal development, acquisitions,    and share repurchase   o *119  Our common dividend will increase by 20% and then    approximately 10% per year   o We will maintain a reserve of borrowing capacity and cash flow    generation sufficient to fund our internal investment and    acquisition programs   If the form of the Mosby-Bender transaction is a cash sale, we   would undoubtedly increase the amount of the share repurchase   target and not borrow additional funds during the plan period.           *   *   *   *   *   *   *   Our plan going forward, unless the Mosby-Bender transaction   produces an unanticipated result, is to continue our repurchase   activity in the same manner [as pursued from 1995 through 1997].   * * *   Following the Mosby-Bender transaction we will, once again, look   at our repurchase volume target in light of what could be   significantly enhanced resources*45  for investment, and weigh the   same factors to guide our program. * * *   E. March 5, 1998, Regular Meeting of Times Mirror's Board of   DirectorsA regular meeting of Times Mirror's board of directors was convened on March 5, 1998. At this meeting, Thomas Unterman (Unterman), executive vice president and chief financial officer of Times Mirror, with the assistance of several GS representatives, reported on the status of the strategic review regarding Bender. These matters were also presented to the board of directors in a written report. In particular, the section entitled "Structural Alternatives" contained the following statements:   o Structuring Goals     o Maximize after-tax value to Times Mirror and its      shareholders     o Integrate structural considerations into sale process     o Achieve desired accounting results at time of sale (and      possibly on an ongoing basis)   F. Reed and Wolters Kluwer Call Off MergerOn March 9, 1998, Reed and Wolters Kluwer called off their previously announced merger. On March 18, 1998, Wolters Kluwer faxed to GS an executed*46  confidentiality agreement regarding Bender.  *120  G. Melone, Sigler, and Walker Gain Access to the "Domestic   Sandwich" StructureOn March 24, 1998, three members of E& Y, Martin R. Melone (Melone), Mary Ann Sigler (Sigler), and Kenneth M. Walker (Walker), entered into an agreement entitled "Nondisclosure and Confidentiality Agreement" with Price Waterhouse LLP (PW). At the time that they entered into the Nondisclosure and Confidentiality Agreement with PW, Melone was the "Partner-in-Charge" of E& Y's audit of Times Mirror, Sigler was a tax partner at E& Y, and Walker was an engagement partner at E& Y. The Nondisclosure and Confidentiality Agreement pertained to the following:   PW has in the course of its business developed a technique for   restructuring a corporate group (known within PW as the   "Domestic Sandwich") that is confidential to PW and has   substantial pecuniary value to PW (the "Proprietary Technique"),   which is the subject of this agreement.   PW desires to provide to Individuals [Sigler, Melone, and   Walker], and Individuals desire to obtain from PW, a full and   complete description of the*47  Proprietary Technique to enable   Individuals to review the Proprietary Technique and determine   whether it [sic] wishes to use the Proprietary Technique.As a result of entering into the Nondisclosure and Confidentiality Agreement with PW, Melone, Sigler, and Walker gained access to PW's "Domestic Sandwich" structure.   H. Reed and Wolters Kluwer Submit Preliminary Interest   Letters to Times MirrorOn April 7, 1998, Wolters Kluwer submitted a letter to Times Mirror that indicated Wolters Kluwer's preliminary interest in acquiring Bender and Times Mirror's 50-percent interest in Shepard's. In its preliminary interest letter, Wolters Kluwer made the following statement regarding the offer price and form of consideration for this acquisition: "Wolters Kluwer is prepared to acquire all of the outstanding stock of the Company [Bender and Times Mirror's 50- percent interest in Shepard's] for cash consideration of U.S. $ 1.5 billion."Reed also submitted a letter to Times Mirror on April 7, 1998, that indicated Reed's preliminary interest in acquiring Bender, Mosby, and Times Mirror's 50-percent interest in Shepard's. In its preliminary interest letter, *48  Reed made the *121  following statement regarding the offer price and form of consideration for this acquisition:   Based on the information contained in the information memorandum   on Matthew Bender and Mosby dated March 1998 and the   supplemental information delivered to us on April 2, 1998, and   in particular the actual and forecast financial results for the   Properties contained in those documents, our preliminary   evaluation of the Properties permits us to indicate that we %    would be prepared to pay at least $ 1.2 Billion, which amount is   assumed to be payable in cash on completion.The individuals involved in coordinating the Bender transaction for Times Mirror were referred to as the Project Philadelphia Group. As of April 7, 1998, the Project Philadelphia Group included officers, directors, and employees from the following entities: Times Mirror, Mosby, Bender, GS, GD& C, E& Y, and PW.   I. The Corporate Joint Venture Structure Is Tabbed as the   Structure of Choice for the Bender TransactionOn April 10, 1998, Daniel Shefter (Shefter), an associate at GS, faxed a revised copy of a document entitled "Presentation*49  Regarding Corporate Joint Venture Structure" (Shefter CJV presentation) to members of the Project Philadelphia Group. The "Corporate Joint Venture Structure" (CJV structure) depicted in this document was the transaction structure ultimately chosen to accomplish the Bender transaction.After Times Mirror had become comfortable with the CJV structure, it incorporated that structure into the draft agreements reflecting the details of the Bender transaction. Times Mirror also informed prospective bidders that any bids for Bender that did not incorporate the use of the CJV structure would be severely disadvantaged in comparison to those bids that did.   J. April 14, 1998, Regular Meeting of Reed's Board of   DirectorsA regular meeting of Reed's board of directors was convened on April 14, 1998, at which Herman S. Bruggink (Bruggink), co-chairman of Reed, discussed Reed's potential acquisition of Bender, Mosby, and Times Mirror's 50-percent interest in Shepard's. During this discussion, Bruggink noted *122  that Times Mirror was conducting a competitive bidding process for these businesses and that Reed's ability to respond on extremely short notice and Reed's willingness to*50  bid aggressively would be crucial to a successful outcome. Upon completing this discussion, Reed's board of directors approved resolutions regarding Reed's acquisition of Bender, Mosby, and Times Mirror's 50-percent interest in Shepard's for an aggregate purchase price not in excess of $ 2 billion. Reed's board of directors authorized this $ 2 billion purchase price based upon, inter alia, Reed's solid cash position at that time.   K. Wolters Kluwer and Reed Attend Times Mirror's   Presentations Regarding BenderBetween April 13 and 17, 1998, Times Mirror's management held discussions with and made separate presentations regarding Bender to Wolters Kluwer and to Reed at Times Mirror's offices in New York City. During these meetings, PW and GS made presentations regarding the CJV structure to Wolters Kluwer and to Reed. No other structures for potential acquisition of Bender were discussed during these meetings.The CJV structure presented to Wolters Kluwer and to Reed depicted Times Mirror as owning 100 percent of the stock of the "target", i.e., Bender, and described the following five steps by which the acquiror would acquire the target (with dollar amounts for*51  illustrative purposes only):   1. Acquiror capitalizes Newco at $ 1,000 with voting and   nonvoting common stock and preferred stock. The voting common   stock has a value of $ 950 and 20% of the vote and represents   approximately 98% of the total common equity of Newco. The   nonvoting common stock has a value of $ 20, is non-voting and   represents approximately 2% of the total common equity of Newco.   The Preferred stock has a value of $ 30 and 80% of the vote.   Combined, the Newco preferred and non-voting common will have a   value equal to 5% of the total equity value of Newco.           *   *   *   *   *   *   *   2. Acquiror contributes Newco preferred and Non-Voting Common   stock to MB Parent in exchange for MB Parent preferred.           *   *   *   *   *   *   *   3. Newco buys MB parent common with 20% of the vote for $ 1,000.           *   *   *   *   *   *   *  *123  4. Target merges with Newco with Target surviving.   (Alternatively, Newco could be surviving company.) In*52  exchange   for its Target Stock, Times Mirror will receive 100% of MB   Parent common stock.           *   *   *   *   *   *   *   5. [MB] Parent contributes $ 1,000 to LLC in exchange for non-   voting LLC interest.   Times Mirror is sole manager of LLC but is not a member of the   LLC.An April 22, 1998, memorandum from Charles P. Fontaine (Fontaine), director of taxes for Reed, to Ian Malcolm (" Mac") Highet, executive vice president of corporate development for Reed, posed the following questions regarding the dividend requirements of the CJV structure:   Are current dividends required to be paid on the MB preferred   stock or the MB Parent preferred stock?   Can dividends not be paid until the MB preferred stock is   redeemed?   Is a dividend rate of 5% acceptable?Shefter, for GS, and Hatef Behnia (Behnia), a partner at GD& C, responded to these questions in the following manner:   Current dividends are required to be paid on both classes of   preferred stock.   Dividends cannot be deferred until the preferred stocks are  *53  redeemed.   A dividend rate in the range of 5.0 to 5.5% is acceptable (5% is   likely to be used). The dividend rate will be some rate below   Treasuries * * *Fontaine posed the following questions regarding the restrictions on transfers:   Can the Target [Bender] after the merger contribute its assets   to a partnership joint venture with another Reed Elsevier   company?   After two (2) years, can Reed Elsevier dispose of the stock of   Target by transferring the entire merger structure to a third   party?   After five (5) years, can Reed Elsevier unwind the merger   structure and dispose of the Target in any manner?   Can Reed Elsevier dispose of certain assets and lines of   business within two (2) years without Seller's consent?Shefter and Behnia responded to these questions in the following manner:   The Target cannot contribute its assets to a partnership   following the merger.  *124  As described in the revised documents, after two years Reed   could dispose of the company by transferring the entire   structure.     Note, however, *54  that Reed must represent that at the time of     the acquisition it has no plan or intent to dispose of the     acquired company or its assets and will covenant that it     will not dispose of the acquired company or its assets     within two years   After five years Reed cannot "unwind" the structure. It will,   however have the ability to sell all the stock of Target,   provided however, that the sale cannot be to an affiliate of   Reed.   Reed cannot dispose of assets or certain lines of businesses   within two years.Fontaine posed the following questions regarding the terms of the LLC agreement:   Will the agreement contain some restrictions on the use of the   cash?   Will LLC be obligated to distribute cash to MB Parent in order   to permit MB Parent to pay its tax and any other liabilities?Shefter and Behnia responded to these questions in the following manner:   The LLC agreement will not contain any restrictions on the use   of the cash.   The LLC will be obligated to make cash distributions to MB   Parent in order*55  to permit MB Parent to pay tax liabilities,   dividends on the MB Parent preferred stock and other general   expenses of MB Parent.   L. Wolters Kluwer and Reed Submit Offers to Times MirrorBy letter dated April 22, 1998, Wolters Kluwer submitted to Times Mirror an offer to acquire Bender and Times Mirror's 50-percent interest in Shepard's for a total of $ 1.4 billion. In its offer letter, Wolters Kluwer made the following statement regarding the offer price and form of consideration for this acquisition:   Wolters Kluwer is prepared to acquire 100% of Matthew Bender and   TMC's [Times Mirror's] 50% interest in Shepard's for aggregate   consideration of US$  1.400 billion, which we would propose to   allocate US$  1.150 billion for Matthew Bender and US$  250   million for Shepard's * * *.Wolters Kluwer also stated that it was prepared to acquire Bender substantially in the form of the CJV structure. Wolters Kluwer's offer was conditioned on Times Mirror's negotiating exclusively with Wolters Kluwer.*125  After Times Mirror received Wolters Kluwer's offer but before Times Mirror entered into an exclusive negotiation period*56  with Wolters Kluwer, Times Mirror informed Reed that it had received a significant offer from another bidder that had accepted the use of the CJV structure for the Bender transaction. Times Mirror also informed Reed that Reed would have to respond promptly if it wished to remain in the running for Bender and Times Mirror's 50-percent interest in Shepard's.By letter dated April 23, 1998, Reed submitted to Times Mirror an offer to acquire Bender and Times Mirror's 50-percent interest in Shepard's "for a cash consideration of $ 1.65 billion and on the terms and conditions reflected in the mark-up of the Agreement and Plan of Merger." In its offer letter, Reed accepted the use of the CJV structure for its purchase of Bender. Reed's offer was conditioned on Times Mirror's acceptance of the offer by Friday, April 24, 1998, at 5 p.m. "(Los Angeles time)".   M. Times Mirror Responds to Wolters Kluwer's OfferOn April 23, 1998, Unterman sent a letter to Wolters Kluwer in response to Wolters Kluwer's offer to acquire Bender and Times Mirror's 50-percent interest in Shepard's. Unterman included the following statements in this letter:   there is one aspect of the proposal*57  which is structurally   defective, and precludes us from complying with the conditions   set forth in your letter. The insertion in your mark-up of a   guaranty by MB Parent of Matthew Bender's post-Merger   indebtedness to you materially changes the economic and risk   profile of the transaction in that it creates a significant   contingent liability for MB Parent, the repository of our sales   proceeds. While we assume that you did not intend this provision   as a mechanism to place our sales proceeds at risk, when   questioned on the point, your counsel did not withdraw it and   your counsel did indicate that it did represent an addition to   our proposed structure designed to create leverage for you in   other circumstances.In addition, Unterman made the following statements in an attachment to this letter:   1. Guaranty. The mark-up proposes that MB Parent guaranty   the secured debt of MergerSub to Acquiror. This proposal would   result in the assets of the LLC being placed at risk and is   unacceptable.  *126  N. April 24, 1998, Special Meeting of Times Mirror's Board of*58     DirectorsA special meeting of Times Mirror's board of directors was convened on April 24, 1998. A document entitled "Mosby Matthew Bender Update" was prepared for this meeting (April Bender update). The April Bender update listed the following as one of Times Mirror's major accomplishments since the March 5, 1998, meeting of Times Mirror's board of directors:   As part of our effort to minimize the tax liability on the   divestiture, we continued to look for tax-efficient structures.   A potential approach that is superior to the structures reviewed   at last month's Board meeting was brought to us by Price   Waterhouse through Goldman Sachs. This approach is proprietary   to Price Waterhouse and is subject to a confidentiality   agreement. * * *The April Bender update also included a section entitled "New Tax Minimization Approach" that contained the following:   The Price Waterhouse structure separates ownership and control   so that the acquiring company controls Matthew Bender and Times   Mirror controls an amount of cash equivalent to Matthew Bender's   value, but without having paid a tax for*59  the shift in control.   The steps in this structure * * * involve the creation of a   special purpose corporation (referred to as MB Parent * * *)   that is owned partly by Times Mirror and partly by the acquiring   company. This special purpose corporation is controlled by the   acquiring company through its ownership of relatively low value,   nonparticipating preferred stock with 80% voting control. MB   Parent in turn owns preferred stock and nonvoting common stock   in an acquisition subsidiary that will merge with Matthew Bender   and a nonvoting interest in a single member limited liability   company that holds the cash referred to above. As a result of   the merger of Matthew Bender into the acquisition subsidiary,   Times Mirror will own all of the common stock and remaining 20%   voting power of MB Parent, the special purpose corporation.   However, even though Times Mirror will not have voting control   over MB Parent, it will control the limited liability   corporation holding all of the cash by virtue of being the sole   (nonequity) manager of the LLC.  *60  The results are as follows:   o Times Mirror will control the LLC, thereby controlling the    cash in it and any assets or businesses acquired with such    cash.   o Times Mirror and the LLC will be consolidated for financial    reporting purposes.   o *127  The acquiring company will control Matthew Bender and will be    able to consolidate for financial reporting purposes.   o The merger of Matthew Bender into the acquisition subsidiary    in exchange for MB Parent common stock will qualify as a tax-    free reorganization for tax purposes (even though such common    stock does not carry with it voting control).   o MB Parent, the LLC and Matthew Bender will not be consolidated    for tax purposes with either Times Mirror or the acquiring    company.   o At some later date and upon mutual agreement, the Matthew    Bender and MB Parent preferred stock can be redeemed at face    value and the nonvoting common can be redeemed at a formula    price, which would leave the acquiring company as the sole    owner of Matthew Bender and*61  Times Mirror as the sole, and    controlling owner of MB Parent, with the ability to liquidate    MB Parent and the LLC without a tax cost.During the special meeting of the board of directors, Willes, Unterman, and Behnia made presentations concerning the proposed transaction and the competing bids received from Wolters Kluwer and Reed.At the conclusion of this discussion, the board approved resolutions related to the Bender transaction. As part of these resolutions, the board accepted Reed's offer for Bender and Times Mirror's 50-percent interest in Shepard's.   O. Organization of CBM Acquisition Parent Co. and CBM   MergerSub Corp.On April 24, 1998, two of Reed's wholly owned subsidiaries, Reed Elsevier Overseas BV (REBV), a Dutch private limited liability company, and Reed Elsevier U.S. Holdings, Inc. (REUS), a Delaware corporation, organized CBM Acquisition Parent Co. (MB Parent) by filing a certificate of incorporation with the secretary of state of the State of Delaware. MB Parent's bylaws included the following provisions:ARTICLE 2MEETINGS OF STOCKHOLDERS           *   *   *   *   *   *   * *62    SECTION 2.05. Quorum. Unless otherwise provided under the   certificate of incorporation or these bylaws and subject to   Delaware Law, the presence, in person or by proxy, of the   holders of a majority of the outstanding capital stock of the   Corporation entitled to vote at a meeting of stockholders shall   constitute a quorum for the transaction of business.   SECTION 2.06. Voting. (a) Unless otherwise provided in   the certificate of incorporation and subject to Delaware Law,   each stockholder shall be *128  entitled to one vote for each   outstanding share of capital stock of the Corporation held by   such stockholder. Unless otherwise provided in Delaware Law, the   certificate of incorporation or these bylaws, the affirmative   vote of a majority of the shares of capital stock of the   Corporation present, in person or by proxy, at a meeting of   stockholders and entitled to vote on the subject matter shall be   the act of the stockholders.           *   *   *   *   *   *   *   SECTION 2.07. Action by Consent. (a) Unless otherwise   provided*63  in the certificate of incorporation, any action   required to be taken at any annual or special meeting of   stockholders, or any action which may be taken at any annual or   special meeting of stockholders, may be taken without a meeting,   without prior notice and without a vote, if a consent or   consents in writing, setting forth the action so taken, shall be   signed by the holders of outstanding capital stock having not   less than the minimum number of votes that would be necessary to   authorize or take such action at a meeting at which all shares   entitled to vote thereon were present and voted and shall be   delivered to the Corporation by delivery to its registered   office in Delaware, its principal place of business, or an   officer or agent of the Corporation having custody of the book   in which proceedings of meetings of stockholders are recorded. *   * * Prompt notice of the taking of the corporate action without   a meeting by less than unanimous written consent shall be given   to those stockholders who have not consented in writing.          *64   *   *   *   *   *   *   *ARTICLE 3DIRECTORS           *   *   *   *   *   *   *   SECTION 3.03. Quorum and Manner of Acting. Unless the   certificate of incorporation or these bylaws require a different   number, a majority of the total number of directors shall   constitute a quorum for the transaction of business, and the   affirmative vote of a majority of the directors present at [a]   meeting at which a quorum is present shall be the act of the   Board of Directors. * * *As of the time of trial of this case, MB Parent's bylaws had never been amended.On April 27, 1998, REBV and REUS organized CBM MergerSub Corp. (MergerSub) by filing a certificate of incorporation with the secretary of state of the State of New York.   P. Adoption of the Merger AgreementOn April 26, 1998, a document entitled "Agreement and Plan of Merger", prepared by GD& C, was presented to representatives of Times Mirror, TMD, Bender, REUS, REBV, MB Parent, and CBM Acquisition Corp. The Agreement and Plan *129  of Merger set forth the terms and details of the Bender transaction. On that same date, the boards*65  of directors of TMD, Bender, REUS, REBV, and MB Parent adopted resolutions that approved each of those corporation's engaging in the Bender transaction.On April 27, 1998, representatives of Times Mirror, TMD, Bender, REUS, REBV, MB Parent, and MergerSub executed an agreement entitled "Amended and Restated Agreement and Plan of Merger" (the Bender agreement). Through the Bender agreement, MergerSub replaced CBM Acquisition Corp. as a party to the Bender transaction. The Bender agreement superseded the Agreement and Plan of Merger in its entirety.The recitals to the Bender agreement stated, in pertinent part, the following:   WHEREAS, the TM Parties [Times Mirror, TMD, and Bender,   collectively], Acquiror [REUS and REBV, collectively], MB   Parent, and CBM Acquisition Corp. have entered into an Agreement   and Plan of Merger dated as of April 26, 1998 (the "Existing   Merger Agreement");   WHEREAS, the TM Parties and the Reed Parties [REUS, REBV, MB   Parent, and MergerSub, collectively] desire to amend and restate   the Existing Merger Agreement on the terms and subject to the   conditions set forth in this Agreement; *66     WHEREAS, in anticipation of the Merger (as defined in Section   1.1), MB Parent will file a Restated Certificate of   Incorporation of MB Parent * * * with the Secretary of State of   the State of Delaware;   WHEREAS, in anticipation of the Merger, MergerSub will file a   Restated Certificate of Incorporation of MergerSub * * * with   the Secretary of State of the State of New York;   WHEREAS, immediately prior to the Effective Time (as defined   below), in consideration of an amount in cash equal to  $ 1,375,000,000 less the net proceeds received by MergerSub from   the MergerSub Debt (as defined below) from REUS and REBV,   MergerSub will issue to REUS (i) seven hundred and ninety-two   (792) shares of Common Stock, par value $ . 01 per share, of   MergerSub ("MergerSub Common Stock"), which MergerSub   Common Stock will have 16% of the voting power of all of the   outstanding shares of capital stock entitled to vote in an   election of directors (" Voting Power") and such other   designations, preferences, voting powers, rights and   qualifications as are*67  set forth in the MergerSub Certificate of   Incorporation, (ii) 75% of the authorized shares of Nonvoting   Participating Preferred Stock, par value $ . 01 per share, of   MergerSub (" MergerSub Participating Preferred Stock"),   and (iii) 75% of the authorized shares of Voting Preferred   Stock, par value $ . 01 per share, of MergerSub ("MergerSub   Preferred Stock"), which MergerSub Preferred Stock will have   60% of the Voting Power and such other designations,   preferences, voting powers, rights and qualifications as are set   forth in the MergerSub Certificate of Incorporation *130  and   MergerSub will issue to REBV (i) one hundred and ninety-eight   (198) shares of MergerSub Common Stock, which MergerSub Common   Stock will have 4% of the Voting Power and such other   designations, preferences, voting powers, rights and   qualifications as are set forth in the MergerSub Certificate of   Incorporation, (ii) 25% of the authorized shares of MergerSub   Participating Preferred Stock, which MergerSub Participating   Preferred Stock will have no Voting Power and such other   designations, *68  preferences, voting powers, rights and   qualifications as are set forth in the MergerSub Certificate of   Incorporation and (iii) 25% of the authorized shares of   MergerSub Preferred Stock, which MergerSub Preferred Stock will   have 20% of the Voting Power and such other designations,   preferences, voting powers, rights and qualifications as are set   forth in the MergerSub Certificate of Incorporation;   WHEREAS, immediately prior to the Effective Time (as defined in   Section 1.3), MergerSub will borrow $ 600,000,000 on terms not   inconsistent with the terms set forth in Section 7.8   ("MergerSub Debt") from an affiliate of Acquiror;   WHEREAS, immediately prior to the Effective Time, in   consideration for 75% of the authorized and outstanding shares   of MergerSub Participating Preferred Stock held by REUS, MB   Parent will issue to REUS 75% of the authorized shares of Voting   Preferred Stock, par value $ . 01 per share, of MB Parent ("   MB Parent Preferred Stock"), which MB Parent Preferred   Stock will have 60% of the Voting Power and such other   designations, *69  preferences, voting powers, rights and   qualifications as are set forth in the MB Parent Certificate of   Incorporation;   WHEREAS, immediately prior to the Effective Time, in   consideration for 25% of the authorized and outstanding shares   of MergerSub Preferred Stock and 25% of the authorized and   outstanding shares of MergerSub Participating Preferred Stock   held by REBV, MB Parent will issue to REBV 25% of the MB Parent   Preferred Stock, which MB Parent Preferred Stock will have 20%   of the Voting Power and such other designations, preferences,   voting powers, rights and qualifications as are set forth in the   MB Parent Certificate of Incorporation;   WHEREAS, immediately prior to the Effective Time, in   consideration for $ 1,375,000,000, MB Parent will issue to   MergerSub 100% of the authorized shares of Common Stock, par   value $ . 01 per share, of MB Parent ("MB Parent Common   Stock"), which MB Parent Common Stock will have 20% of the   Voting Power and such other designations, preferences, voting   powers, rights and qualifications as are set forth*70  in the MB   Parent Certificate of Incorporation;   WHEREAS, in anticipation of the Merger, MB Parent will cause   Liberty Bell I, LLC, a single-member Delaware limited liability   company ("LLC") to be formed under the laws of the State   of Delaware prior to the Effective Time by filing with the   Secretary of State of the State of Delaware the Certificate of   Formation of LLC * * *;   WHEREAS, in anticipation of the Merger, MB Parent, an affiliate   of MB Parent and Times Mirror will enter into a Limited   Liability Company Agreement of LLC pursuant to which the   affiliate of MB Parent shall be *131  appointed the initial manager of   LLC and, immediately after the Effective Time, Times Mirror   shall be appointed the manager of LLC * * *;   WHEREAS, immediately after the Effective Time, in accordance   with the terms of the LLC Agreement, MB Parent will make a   contribution to LLC in the amount of $ 1,375,000,000;In the Bender agreement, Reed and Times Mirror agreed, in pertinent part, to the following:   SECTION 1.1. The Merger. At the Effective Time (as  *71  defined in Section 1.3) and upon the terms and subject to the   conditions of this Agreement and in accordance with the New York   Business Corporation Law * * *, MergerSub shall be merged with   and into * * * [Bender] (the "Merger"). Following the   Merger, * * * [Bender] shall continue as the surviving   corporation (the "Surviving Corporation") and the   separate corporate existence of MergerSub shall cease. The   Merger is intended to qualify as a tax-free reorganization under  Section 368 of the Code.           *   *   *   *   *   *   *   SECTION 1.8. Conversion of Shares.   (a) Merger Consideration. At the Effective Time, each   share of common stock, par value $ 100.00 per share, of * * *   [Bender] (individually a "Share" and collectively the   "Shares") issued and outstanding immediately prior to the   Effective Time (other than Shares held in * * * [Bender's]   treasury or by any of * * * [Bender's] Subsidiaries), all of   which are owned by TMD, shall, by virtue of the Merger and   without any action on the part of MergerSub, *72  * * * [Bender] or   the holder thereof, be converted into and shall become the right   to receive a number of the fully paid and nonassessable shares   of MB Parent Common Stock held by MergerSub immediately prior to   the Effective Time equal to a fraction, the numerator of which   is the number of shares of MB Parent Common Stock held by   MergerSub immediately prior to the Effective Time and the   denominator of which is the number of Shares outstanding   immediately prior to the Effective Time (the "Merger   Consideration").           *   *   *   *   *   *   *   SECTION 1.10. Exchange of Certificates.           *   *   *   *   *   *   *   (c) Effect of Exchange. All shares of MB Parent Common   Stock issued upon the surrender of certificates representing   Shares in accordance with the terms hereof shall be deemed, to   the fullest extent permitted by applicable law, to have been   issued in full satisfaction of all rights pertaining to such   Shares * * *           *   *   *  *73  *   *   *   *   SECTION 2.4. Conditions to TM Parties' Obligations. The   obligations of the TM Parties to consummate the Merger are   subject to the satisfaction*132  (or waiver by each of the TM   Parties) as of the Effective Time of the following conditions:           *   *   *   *   *   *   *   (f) Legal Opinions.           *   *   *   *   *   *   *   (ii) Times Mirror shall have received a favorable opinion of its   legal counsel, in form and substance reasonably satisfactory to   it, as to the qualification of the Merger as a reorganization   under the provisions of Section 368 of the Code.   SECTION 2.5. Substitution Transaction. In the event that   the condition to the obligations of Times Mirror, TMD and * * *   [Bender] to consummate the Closing contained in Section   2.4(f)(ii) is not satisfied or waived by October 31, 1998 or   such earlier date on which all other conditions in Sections 2.1,   2.2 and 2.4 have been satisfied or waived (the "Revision   Date") then * * * (iii) for a period of 45*74  days from the   Revision Date (the "Renegotiation Period"), Acquiror and   Times Mirror shall enter into bona-fide negotiations with a view   to determining whether agreement can be reached as to the terms   and conditions upon which the transactions contemplated by this   Agreement may be structured so as to replicate as much as   practicable the relative economic benefits that each party and   their Affiliates would have derived from the transactions   contemplated by the Agreement (any such restructured transaction   hereafter referred to as the "Substitution Transaction"),   (iv) unless the parties agree to the terms and conditions of a   Substitution Transaction during the Renegotiation Period, as   soon as practicable following the expiration of such period,   Times Mirror shall sell to REUS and REUS shall purchase from   Times Mirror, all the outstanding shares of * * * [Bender] for a   cash purchase price of $ 1,375,000,000 * * *           *   *   *   *   *   *   *   SECTION 7.7. Enforceability of LLC Agreement. The Reed   Parties will*75  not commence, maintain, or join any action (at law   or otherwise) that asserts that the LLC Agreement is   unenforceable.On April 28, 1998, the board of directors of MergerSub adopted resolutions that approved MergerSub's engaging in the Bender transaction.   Q. GS Prepares "Fairness Package" for Bender TransactionOn or about April 27, 1998, GS prepared a document entitled "Fairness Package" with respect to the Bender transaction and Times Mirror's sale of its 50-percent interest in Shepard's. The Fairness Package included a page entitled "Summary of Proposed Transaction" that described the structure and consideration for the Bender transaction and Times *133  Mirror's sale of its 50-percent interest in Shepard's in the following manner:   o Purchase of 100% of the stock of * * * [Bender] and Times    Mirror's 50% partnership interest in * * * [Shepard's] for   $ 1.65 billion in cash     o Purchase of * * * [Bender] for $ 1.4 billion using the PW      tax-advantaged structure ("PW Structure")     o Purchase of * * * [Shepard's] for $ 250 million with a      section 338(h)(10)*76  electionThe Fairness Package also included a page entitled "Summary of Financial Impact" that listed Times Mirror's "After-tax Cash Proceeds from Sale" using the CJV structure as $ 1,641,500,000. GS determined this $ 1,641,500,000 amount by assuming (1) a $ 1.4 billion "tax-free" purchase of Bender and (2) that the sale of Times Mirror's 50-percent interest in Shepard's would generate $ 241.5 million in after-tax proceeds.   R. Melone Drafts Memorandum Regarding the Bender Transaction   for E& Y's FilesOn or about April 29, 1998, Melone drafted a memorandum entitled "Times Mirror Matthew Bender Sale" for E& Y's files. Melone included the following statements regarding the Bender transaction and Times Mirror's sale of its 50-percent interest in Shepard's in this memorandum:   Times Mirror has entered into an agreement with Reed Elsevier   for the sale of Matthew Bender for $ 1,375,000,000 and the sale   of Times Mirror's interest in Shepard's Inc. for $ 225,000,000.   The sale of Matthew Bender is structured as a reorganization in   which the $ 1,375 million proceeds from the sale will end up in   an LLC whose ownership is*77  as shown in the attached chart.   Through the various shareholder agreements, certificates of   incorporation and the LLC management agreement, Times Mirror has   total control over the assets and operations of the LLC and Reed   Elsevier has total control over the assets and operations of   Matthew Bender. The structure is designed to result in no tax   due by Times Mirror on the profit from the sale of Matthew   Bender.           *   *   *   *   *   *   *   Consolidation   * * * Times Mirror controls the assets of the LLC through the   management agreement, which specifically states that Times   Mirror has no fiduciary duty to the holder of Acquisition Parent   [MB Parent] and may use its discretion as to the use of the   assets. Times Mirror may have the LLC buy its own debt   instruments or Times Mirror stock, make business*134  acquisitions or   any other transaction to the benefit of Times Mirror. The only   limitation is that Times Mirror may not upstream LLC assets to   itself.   Times Mirror owns all of the common stock of Acquisition*78  Parent   and the 20% vote it carries. The ownership of the common stock   provides Times Mirror with 100% of the residual ownership and   value of Acquisition Parent following redemption of the   preferred stock, which is virtually assured in at least 20 years   due to the redemption rights and certain put and call options.   The equity value of the preferred stock is limited to its stated   (redemption) value and fixed dividend payments.   Times Mirror has the ability to ensure that the Board of   Directors of Acquisition Parent may not do anything that may   affect the control or viability of the LLC. Certain board   actions require the unanimous vote of the Board. These include:   o the incurrence of indebtedness or guarantees of indebtedness    of Acquisition Parent   o the sale, transfer or other disposition, pledge or assignment    of any portion or all of its LLC interest   o the issuance of any other securities of Acquisition Parent   All of these factors indicate that Times Mirror not only   controls the assets of the LLC, but also is the beneficiary*79  of   all of the ownership risks and rewards of the LLC. * * *   S. May 7, 1998, Regular Meeting of Times Mirror's Board of   DirectorsA regular meeting of Times Mirror's board of directors was convened on May 7, 1998. A document entitled "Mosby Matthew Bender Divestiture Update" was presented to Times Mirror's board of directors at this meeting (May Bender update). The May Bender update included the following statements:   Following the special Board meeting on Friday, April 24, we   began exclusive negotiations with Reed Elsevier for the   divestiture of Matthew Bender and our 50% interest in Shepard's.   Negotiations started Friday afternoon and continued for most of   the day Saturday. Contracts and press releases were finalized   Saturday night and signed on Sunday, after all corrections to   the contracts had been made. The transaction was in line with   the parameters reviewed with the Board, with a total value of  $ 1.65 billion. Matthew Bender will be divested through a merger   that takes advantage of the proprietary tax structure that was   presented to the Board. Pending the customary*80  regulatory review,   the transaction is expected to be completed this summer.  *135  T. May 7, 1998, Annual Meeting of Times Mirror's   ShareholdersTimes Mirror's annual shareholder meeting was convened on May 7, 1998. At this meeting, Willes discussed, among other topics, Times Mirror's "decision to sell * * * [Mosby and Matthew Bender] for strategic reasons." Willes made the following remarks with respect to this topic: "You have read in recent days that we have reached agreements to sell Matthew Bender, and our 50% interest in Shepard's for $ 1.65 billion. We have also agreed to sell Mosby for $ 415 million. This is a phenomenal amount of money for some phenomenal businesses."   U. Organization of Liberty Bell IOn May 22, 1998, Michael S. Udovic (Udovic), assistant general counsel for Times Mirror, filed the Certificate of Formation for Liberty Bell I, LLC (LBI), with the secretary of state of the State of Delaware. On May 26, 1998, Udovic resigned from his position as the authorized person of LBI. LBI did not have an authorized person between the time of Udovic's resignation and July 28, 1998.   V. July 9, 1998, Regular Meeting of Times*81  Mirror's Board of   DirectorsA regular meeting of Times Mirror's board of directors was convened on July 9, 1998, at which the board of directors discussed, among other topics, the pending Bender transaction. According to the minutes of this meeting, Unterman discussed the following matters with the board of directors:   Thomas Unterman * * * reviewed the pending transactions   involving Mosby and Matthew Bender and their impact upon the   Company's financial projections, concluding that Times Mirror   remained on target to meet each of its major financial   objectives for the year. He noted that the proceeds from the   dispositions of these businesses will be received by two limited   liability companies and, utilizing materials previously   furnished to the Board of Directors, discussed the short-term   investment strategies Times Mirror will follow in connection   with its management of those companies.These matters were also presented to the board of directors in a written report. In particular, the section entitled "Finance Report" contained the following statements:*136  FINANCE REPORT   INTRODUCTION*82     Our financial objectives for this year included:     a) earnings growth of 20%,     b) continued use of every available opportunity to finance     investment in the growth of our businesses * * *,     c) optimization of the proceeds from the Mosby Matthew     Bender disposition so that future year dilution is     minimized, and     d) continuation of return on capital in excess of 12%.   At mid-year we can report that we are still on this course and   all of our corporate objectives for the year are both in sight   and within reach. While there are more "moving pieces" than   usual, there are four major items to note:   o First, as expected, following the Mosby Matthew Bender (MMB)    agreements, we are required to treat MMB as discontinued    operations and the "street" has recalibrated our performance    to a continuing earnings basis and will track us this way from    now on.           *   *   *   *   *   *   *   o Third, in light of the very large MMB gain on sale, *83  we have    begun to review our entire balance sheet, our work processes,    and all of our systems to determine if appropriate charges,    write-offs, or buy-down/buy-outs of contracts might prove    beneficial. * * *   o Fourth, as is discussed under a separate tab entitled    Capitalization/Investment, following the MMB sale, we will    have a very substantial level of resources for redeployment    over time in operating assets and for recapitalization.           *   *   *   *   *   *   *   GAIN ON SALE AND DISCONTINUED EARNINGS REPORTING   * * * By divesting MMB, we are completely exiting the legal and   health sciences publishing business, and are required to   separately report MMB earnings as discontinued operations.   Similarly, the gain on sale appears in the discontinued line.           *   *   *   *   *   *   *   * * * We will receive over $ 2.0 billion in cash from the sale. *   * *           *   *   *   *   *   *   *   BALANCE SHEET REVIEW*84     After the magnitude of the gain on the MMB sale became apparent,   we decided to use this opportunity to conduct a thorough   examination of our balance sheet, operations and investments to   see what actions we could take to benefit the businesses in   future years.           *   *   *   *   *   *   *            *137  CAPITALIZATION AND INVESTMENT STRATEGY   Introduction   The disposition of Mosby Matthew Bender (MMB) will produce an   unprecedented level of investible [sic] capital for Times   Mirror. Net proceeds of approximately $ 2.0 billion will be   deposited into our accounts requiring immediate rigorous   management.   The net proceeds of the MMB disposition, in conjunction with our   annual operating cash flow will provide the company with   enormous investment capacity over the next few years. If we can   successfully deploy this investment capacity in assets that meet   our return criteria, our total 5 year investment capacity would   be as much as $ 5 billion. Investment at this level would still*85     enable us to retain our current solid credit ratings and   associated financial flexibility.   Our first responsibility upon receipt of the disposition   proceeds is to establish a short term portfolio management   framework. The primary objective of this activity is to preserve   principal value while earning a return commensurate with the   risk parameters we establish through our investment policy.   Second, we will begin to redeploy these resources into operating   assets to drive revenue growth and into share repurchases to   start to return towards our target capitalization. In the   current high asset valuation environment, in view of our well   developed return discipline, this program could require several   years.   Most significantly, we are not looking at our resources as a war   chest for a big cash acquisition. Instead, we are expecting   increases of approximately 25%, a doubling of our recent   spending rate on acquisitions of businesses that are closely   related to or fill in gaps in our core businesses, acceleration   of our share repurchase*86  plans and, in general, an acceleration   of investments in our base businesses.   This stance leaves us with ample resources for pursuing   unexpected opportunities and will position us to try to "make   things happen" as important strategic initiatives are   identified. It also means that we will allocate a portion of our   surplus cash investment portfolio to investments with medium   term horizons in order to increase the overall return on our   cash. Examples of this type of investing include the investment   we made in Target Media Partners in connection with the Recycler   purchase, and the Latin Communications Group opportunity we   discussed at the last meeting, as well as increases in "new   media" venture capital investments. We will also allocate a   portion of the funds for tax-advantaged investments to enhance   yield and for "pre-funding" our charitable commitments with   contributions to our tax-exempt affiliates.           *   *   *   *   *   *   *  *138  Short Term Portfolio Strategy   The following shows the gross amount of*87  disposition proceeds the   company will be receiving:($  Millions)Company Sold     Entity Receiving Funds        Amount (Gross)____________     ______________________        ______________Shepards       Corporate                $ 275Bender        Liberty Bell I L.L.C.          1,375Mosby         Liberty Bell II L.L.C.           415                             ______                   Total:        $ 2,065   Immediately we will utilize the funds to pay necessary   transaction expenses, pay down short-term corporate debt, and   then invest the remaining funds under our short-term investment   policy * * *. This policy ensures preservation of capital and   maintenance of liquidity through prudent standards for credit   quality, instrument type and overall portfolio limitations. At   the same time, it provides for sufficient flexibility to allow   us to search for yield*88  advantages where possible. The following   table shows the net investible [sic] funds that should be   available to deploy in short-term instruments:($  Millions)                Estimated Cash                 Transaction   Short-Term                  Fees and     DebtFunds Location    Gross Funds    Expenses    Reduction   Net Funds______________    ___________ _______________ ___________   _________Corporate        $ 275       --      ($ 275)      $ 0Liberty Bell I     1,375      (64)       --      1,311Liberty Bell II     415       (22)       --       393                        Total:      $ 1,704   W. Execution of the LBI Limited Liability Company Agreement   (the management authority)On July 28, 1998, representatives of Times Mirror, Lexis, and MB Parent executed an agreement entitled "Limited Liability Company Agreement of Liberty Bell I, *89  LLC" (LBI LLC agreement). The terms of the LBI LLC agreement included the following:   This Limited Liability Company Agreement (together with the   schedules attached hereto, this "Agreement") of LIBERTY BELL I,   LLC (the "Company"), is etered into by CBM ACQUISITION PARENT   CO., a Delaware corporation, as the sole member (the "Initial   Member"), LEXIS, INC., a Delaware corporation, as the initial   manager of the Company (the "Initial Manager"), and THE TIMES   MIRROR COMPANY, in its corporate capacity *139  and as the manager of   the Company appointed pursuant to Section 9(b) ("TMC"). * * *   The Initial Member, the Initial Manager and TMC, by execution of   this Agreement, hereby agree as follows:   1. Name; Formation; Tax Treatment.   The name of the limited liability company shall be LIBERTY BELL   I, LLC or such other name as the Manager may from time to time   hereafter designate. * * * The parties hereto intend that   pursuant to Treasury Regulations Sections 301.7701-3, the   Company be disregarded as an entity and not be treated as*90     separate from the Initial Member. * * *           *   *   *   *   *   *   *   5. Members; Member Rights; Meetings.           *   *   *   *   *   *   *   c. No Member shall have any right, power, or duty, including the   right to approve or vote on any matter (including, without   limitation, any vote, approval or consent relating to the merger   of the Company with or into an "other business entity" (as   defined in the Act), the consolidation of the Company with or   into an other business entity, the domestication of the Company   to an other business entity, the conversion of the Company to an   other business entity, the transfer of the Company to any other   jurisdiction or, to the fullest extent permitted by law, the   dissolution of the Company), except as expressly required by   this Agreement, the Act or other applicable law.           *   *   *   *   *   *   *   7. Purposes.   The purpose of the Company is to invest in such property or   securities and to conduct*91  such businesses and other legal   activities as the Manager determines is in the best interests of   the Company.           *   *   *   *   *   *   *   9. Management.   a. The Manager shall have the sole right to manage the business   of the Company and shall have all powers and rights necessary,   appropriate or advisable to effectuate and carry out the   purposes and business of the Company, and no Member or other   person other than the Manager shall have any authority to act   for or bind the Company or to vote on or approve any of the   actions to be taken by the Company (unless otherwise expressly   required by the Act or other applicable law). Notwithstanding   the foregoing, the Initial Manager shall not take any action in   respect of or on behalf of the Company, other than the opening   of one or more bank accounts in the name of the Company, the   appointment of an agent for service of process for the Company   and the performance of other ministerial duties in connection   with the organization and formation of the Company. Accordingly, *92     as of the Effective Time of the Merger, the Company shall have   no liabilities or obligations other than pursuant to this   Agreement.  *140  b. The Manager shall serve until an Event of Withdrawal has   occurred [the resignation or dissolution of the Manager]. The   removal of the Manager shall be only at the request and   direction of the Manager and under no other circumstances,   including, without limitation, for cause. Upon any such Event of   Withdrawal, a new Manager shall be selected by the old Manager   prior to such resignation or dissolution, provided that if the   Manager does not make such selection, Members holding a Majority   in Interest shall be entitled to select a new Manager.   Notwithstanding anything contained herein, immediately after the   Effective Time of the Merger and without any action on the part   of TMC, the Initial Manager or any Member, the Initial Manager   (or any other Manager, if applicable) shall be automatically   removed as Manager and TMC shall become the Manager hereunder.   c. The Manager may appoint the Officers of the Company, *93  who need   not be Members, to such terms and to perform such functions as   the Manager shall determine in its sole discretion as set forth   in Section 10. The Manager may appoint, employ or otherwise   contract with such other persons or entities for the transaction   of the business of the Company or the performance of services   for or on behalf of the Company as it shall determine in its   sole discretion. The Manager may delegate to any such Officer,   person or entity such authority to act on behalf of the Company   as the Manager may from time to time deem appropriate in its   sole discretion.           *   *   *   *   *   *   *   e. Without limiting the generality of the foregoing, to the   fullest extent permitted by law, including Section 18-1101(c) of   the Act, and without creating any duties or obligations of the   Manager by implication or otherwise, it is expressly   acknowledged and agreed that to the extent the Manager owes any   fiduciary duties or similar obligations to the Initial Member   under any principles of law or equity*94  or otherwise, such duties   and obligations shall be owed solely to the holders of the   Initial Member's common equity and not to the holders of any   other class of the Initial Member's equity.           *   *   *   *   *   *   *   10. Officers.   a. Officers. The Officers of the Company shall be chosen   by the Manager and shall consist of at least a President, a   Secretary and a Treasurer. * * * The Manager may appoint such   other Officers and agents as it shall deem necessary or   advisable who shall hold their offices for such terms and shall   exercise such powers and perform such duties as shall be   determined from time to time by the Manager. The salaries of all   Officers and agents of the Company shall be fixed by or in the   manner prescribed by the Manager. * * * Any Officer elected or   appointed by the Manager may be removed at any time, with or   without cause, by the Manager. Any vacancy occurring in any   office of the Company shall be filled by the Manager.           *   *   *   *   *   *  *95  *  *141  11. Books and Records.   a. The Manager shall keep or cause to be kept complete and   accurate books of account and records with respect to the   Company's business. The Company's books of account shall be kept   using the method of accounting determined by the Manager. The   Company's independent auditor shall be an independent public   accounting firm selected by the Manager. The Manager shall give   each Member reasonable access during normal business hours to   the books and records of the Company.           *   *   *   *   *   *   *   12. Capital Contributions.   The Initial Member was deemed admitted as the sole Member of the   Company upon the execution and delivery of this Agreement. After   the Effective Time of the Merger and immediately after TMC shall   have been appointed Manager pursuant to Section 9(b), the   Initial Member will contribute the amount of cash to the Company   listed on Schedule B attached hereto [$  1.375 billion].           *   *   *   *   *   *   *   15. Distributions. *96     Distributions of cash or other assets of the Company shall be   made at such times and in such amounts as the Manager may   determine in its sole discretion; provided,   however, that notwithstanding the foregoing, the Initial   Member shall be entitled to receive, and the Company and the   Manager shall make, distributions of cash (or other assets of   the Company acceptable to the Member) to the Initial Member in   the amounts and at the times sufficient to enable the Initial   Member (a) to pay all of its liabilities, obligations and   expenses as and when they come due and (b) to make any payments   on, or distributions in respect of, the issued and outstanding   shares of the Voting Preferred Stock of the Initial Member in   accordance with the terms thereof. * * *   16. Return of Capital.   The Manager shall not have any liability for the return of each   Member's capital contribution, which return shall be payable   solely from the assets of the Company at the absolute discretion   of the Manager, subject to the requirements of the Act and   Section*97  15 hereof.           *   *   *   *   *   *   *   18. Exculpation and Indemnification.   a. No Member, Manager, Officer, employee or agent of the Company   and no employee, representative, agent, shareholder or Affiliate   of the Member or the Manager (collectively, the "Covered   Persons") shall be liable to the Company or any other Person who   has an interest in or claim against the Company for any loss,   damage or claim incurred by reason of any act or omission   performed or omitted by such Covered Person in good faith on   behalf of the Company and in a manner reasonably believed to be   within the scope of the authority conferred on such Covered   Person by this Agreement, except that a Covered Person shall be   liable for any such loss, damage *142  or claim incurred by reason of   such Covered Person's gross negligence or willful misconduct.   Notwithstanding anything herein to the contrary, "Covered   Person" shall include any person that was a Member, Manager,   Officer, employee or agent of the Company or an employee,   representative, *98  agent, shareholder or Affiliate of the Member or   the Manager at the time the act or omission described in this   Section 18(a) was performed or omitted even if such person is no   longer a Member, Manager, Officer, employee or agent of the   Company or an employee, representative, agent, shareholder or   Affiliate of a Member or the Manager at the time the loss,   damage or claim is incurred as a result of such act or omission.           *   *   *   *   *   *   *   e. To the extent that, at law or in equity, a Covered Person has   duties (including fiduciary duties) and liabilities relating   thereto to the Company or to any other Covered Person, a Covered   Person acting under this Agreement shall not be liable to the   Company or to any other Covered Person for its good faith   reliance on the provisions of this Agreement or any approval or   authorization granted by the Company or any other Covered   Person. The provisions of this Agreement, to the extent that   they restrict the duties and liabilities of a Covered Person   otherwise existing at*99  law or in equity, are agreed by the Member   and the Manager to replace such other duties and liabilities of   such Covered Person.   f. The foregoing provisions of this Section 18 shall survive any   termination of this Agreement.   19. Resignation.   No Member shall have the right to resign from the Company except   with the consent of the Manager and upon such terms and   conditions as may be specifically agreed upon between the   Manager and the resigning Member.           *   *   *   *   *   *   *   21. Dissolution.   Subject to the provisions of Section 22 of this Agreement, the   Company shall be dissolved and its affairs wound up upon the   first to occur of the following:   a. The determination of the Manager to dissolve the Company;   b. The occurrence of an Event of Withdrawal;   c. The occurrence of any event which terminates the membership   of the last remaining Member of the Company unless the business   of the Company is continued in a manner permitted by the Act   including, without limitation, *100  the appointment by the Manager of   a member of this Company within ninety (90) days after the   occurrence of such an event; or   d. The entry of a decree of judicial dissolution under Section   18-802 of the Act.           *   *   *   *   *   *   **143  23. Assignments of Percentage Interest.   No Member may, directly or indirectly, sell, assign, pledge or   otherwise transfer or encumber any portion of such Member's   Percentage Interest (a "Transfer") to any other person   without the prior written consent of the Manager, which may be   given or withheld in its sole discretion and which consent may   be subject to such terms and conditions as the Manager may   determine. Any purported Transfer in violation of Section 23   shall be null and void and shall not be recognized by the   Company.   24. Waiver of Partition; Nature of Interest.   Except as otherwise expressly provided in this Agreement, to the   fullest extent permitted by law, each Member hereby irrevocably   waives any right or power that such Member might have*101  to cause   the Company or any of its assets to be partitioned, to cause the   appointment of a receiver for all or any portion of the assets   of the Company, to compel any sale of all or any portion of the   assets of the Company pursuant to any applicable law or to file   a complaint or to institute any proceeding at law or in equity   to cause the dissolution, liquidation, winding up or termination   of the Company. No Member shall have any interest in any   specific assets of the Company. The interest of each Member in   the Company is personal property.           *   *   *   *   *   *   *   29. Amendments.   This Agreement may be amended by the Manager at any time in its   sole discretion, provided that (a) any amendment to   Section 9(d), Section 11, the first sentence of Section 13,   Section 14, the proviso to the first sentence of Section 15,   Section 17, Section 18, Section 20, Section 24, this Section 29   or Section 34 hereof shall not be effective without the Initial   Member's prior written consent, which consent shall not be*102     unreasonably withheld and (b) any amendment which materially and   adversely affects the rights of any Member shall not be   effective without such Member's consent, such consent not to be   unreasonably withheld; provided further that, in addition   to any consent or approval otherwise required under this Section   29 or applicable law, any amendment which materially and   adversely affects the rights of all the Members in the same or   similar manner shall only be effective if such amendment has   been approved by Members holding a Majority in Interest, such   approval not to be unreasonably withheld; and provided   further that any amendment to Section 9 must be approved by   TMC in its sole discretion.           *   *   *   *   *   *   *   33. Enforceability by TMC.   Notwithstanding any other provision of this Agreement, the   Member agrees that this Agreement constitutes a legal, valid and   binding agreement of the Member, and is enforceable against the   Member by *144  TMC (both in its corporate capacity, prior to the   Effective Time*103  of the Merger, and in its capacity, as of   immediately after the Effective Time of the Merger, as the   Manager of the Company), in accordance with its terms. In   addition, TMC (both in its corporate capacity, prior to the   Effective Time of the Merger, and in its capacity, as of   immediately after the Effective Time of the Merger, as the   Manager of the Company) is an intended beneficiary of this   Agreement.   X. Execution of MB Parent Stockholders Agreement and the   MergerSub Shareholders AgreementOn July 28, 1998, representatives of Times Mirror, TMD, REUS, REBV, and MB Parent executed an agreement entitled "CBM Acquisition Parent Co. Stockholders Agreement" (MB Parent stockholders agreement). Under the terms of the MB Parent stockholders agreement, Times Mirror, TMD, REUS, REBV, and MB Parent agreed, in pertinent part, to the following:   Section 1. Call Option with Respect to Voting Preferred Stock.   (a) Grant of Call Option. Acquirors [REUS and REBV]   hereby grant to TMD an option, exercisable by TMD no earlier   than fifteen (15) days after the occurrence of any Call Event*104     (as defined below), to purchase, in the manner provided in   Section 1(d), all, but not less than all, of the outstanding   shares of [MB Parent] Voting Preferred Stock, at a purchase   price per share equal to 100% of the Stated Value thereof on the   date of purchase, payable in cash.   (b) Definition of Call Event. A "Call Event" shall   mean (i) June 30, 2018, (ii) any voluntary transfer or other   disposition by the Company [MB Parent] of all or any portion of   the shares of MergerSub Participating Preferred Stock or (iii)   any voluntary transfer or other disposition by the Company of   all or any portion of the shares of MergerSub Voting Preferred   Stock.   (c) Call Option Subject to the Company's Right of   Redemption. Notwithstanding the foregoing, the right of TMD   to exercise the option granted pursuant to Section 1(a) shall be   subject to the Company's right to redeem the Voting Preferred   Stock pursuant to Section 3(g)(i) of Article V of the Restated   Certificate of Incorporation of the Company upon the occurrence   of a Redemption Event (as*105  defined therein) and to the Company's   obligation to redeem the Voting Preferred Stock of a holder of   Voting Preferred Stock at the option of such holder pursuant to   Section 3(g)(ii) of Article V of the Restated Certificate of   Incorporation of the Company upon the occurrence of an event   specified therein.           *   *   *   *   *   *   *   Section 2. Put Option with Respect to Voting Preferred Stock.   (a) Grant of Put Option. TMD hereby grants to each   Acquiror an option, exercisable after (i) June 30, 2018 or (ii)   upon the occurrence of any failure of Liberty Bell I, LLC (or a   successor thereof) or its manager to make distributions   contemplated by Section 15 of the Limited Liability Company   Agreement of Liberty Bell I, LLC, dated as of July 28, 1998 * *   *, to*145  require TMD to purchase, in the manner provided in Section   2(b), the shares of the [MB Parent] Voting Preferred Stock held   by each Acquiror, at a purchase price per share equal to 100% of   the Stated Value thereof on the date of purchase, payable in   cash. *106     Section 3. Restrictions on Transfer.   (a) General. No holder of shares of [MB Parent] Voting   Preferred Stock shall, directly or indirectly, transfer or   otherwise dispose of any shares of [MB Parent] Voting Preferred   Stock owned by such holder or any interest therein prior to June   30, 2000. * * *Also on July 28, 1998, representatives of REUS, REBV, MB Parent, and MergerSub executed an agreement entitled "CBM MergerSub Corp. Shareholders Agreement" (MergerSub shareholders agreement). Under the terms of the MergerSub shareholders agreement, REUS, REBV, MB Parent, and MergerSub agreed, in pertinent part, to the following:   Section 1. Call Option with Respect to Voting Preferred Stock.   (a) Grant of Call Option. MB Parent hereby grants to   Acquirors [REUS and REBV] an option, exercisable by Acquirors on   or after July 15, 2018, to purchase, in the manner provided in   Section 1(c), all, but not less than all, of the outstanding   shares of [MergerSub] Voting Preferred Stock, at a purchase   price per share equal to 100% of the Stated Value thereof on the   date of*107  purchase.   (b) Call Option Subject to the Company's Right of Redemption.   Notwithstanding the foregoing, the right of Acquirors to   exercise the option granted pursuant to Section 1(a) shall be   subject to the Company's [MergerSub's] right or obligation, as   the case may be, to redeem the Voting Preferred Stock pursuant   to Section 4(g)(i) of Article V of the Restated Certificate of   Incorporation of the Company upon the occurrence of an event   specified therein and the Company's obligation to redeem the   Voting Preferred Stock of a holder of Voting Preferred Stock at   the option of such holder pursuant to Section 4(g)(ii) of   Article V of the Restated Certificate of Incorporation of the   Company upon the occurrence of an event specified therein.           *   *   *   *   *   *   *   Section 2. Put Option with Respect to Voting Preferred Stock.   (a) Grant of Put Option. Acquiror[s] hereby grants [sic]   to MB Parent an option, exercisable after June 30, 2018, to   require Acquirors to purchase, in the manner provided in Section*108     2(b), all, but not less than all, of the outstanding shares of   the [MergerSub] Voting Preferred Stock, at a purchase price per   share equal to 100% of the Stated Value thereof on the date of   purchase.           *   *   *   *   *   *   *  *146  Section 3. Call Option with Respect to Participating Preferred   Stock.   (a) Grant of Call Option. MB Parent hereby grants to   Acquirors an option, exercisable by Acquirors on or after July   15, 2018, to purchase, in the manner provided in Section 3(c),   all, but not less than all, of the outstanding shares of   [MergerSub] Participating Preferred Stock, at a purchase price   per share equal to the dollar amount derived from the EBITDA   Formula (as defined in Section 3(g)(i)(B) of Article V of the   Restated Certificate of Incorporation of the Company).   (b) Call Option Subject to the Company's Right of   Redemption. Notwithstanding the foregoing, the right of   Acquirors to exercise the option granted pursuant to Section   3(a) shall be subject to the Company's right to redeem the*109     Participating Preferred Stock pursuant to Section 3(g)(i) of   Article V of the Restated Certificate of Incorporation of the   Company upon the occurrence of an event specified therein and   the Company's obligation to redeem the Participating Preferred   Stock pursuant to Section 3(g)(ii) of Article V of the Restated   Certificate of Incorporation of the Company upon the occurrence   of an event specified therein.           *   *   *   *   *   *   *   Section 4. Put Option with Respect to Participating Preferred   Stock.   (a) Grant of Put Option. Acquirors hereby grant to MB   Parent an option, exercisable after June 30, 2018, to require   Acquirors to purchase, in the manner provided in Section 2(b),   all, but not less than all, of the outstanding shares of the   [MergerSub] Participating Preferred Stock, at a purchase price   per share equal to the dollar amount derived from the EBITDA   Formula.           *   *   *   *   *   *   *   Section 5. Certain Additional Call Options.   (a) Grant*110  of Call Option. MB Parent hereby grants to Acquirors   an option, exercisable by Acquirors upon the occurrence of a   Call Event (as defined * * * below) to purchase in the manner   provided in Section 5(c), all, but not less than all, of either   or both of (i) the shares of [MergerSub] Voting Preferred Stock,   at a purchase price per share equal to 100% of the Stated Value   thereof on the date of purchase and (ii) the shares of   [MergerSub] Participating Preferred Stock, at a purchase price   per share equal to the dollar amount derived from the EBITDA   Formula.   (b) Definition of Call Event. For purposes of Section 5,   a "Call Event" shall mean (i) that the Net Worth of   Liberty Bell I, LLC is less than $ 275 million, (ii) the   insolvency, liquidation, bankruptcy, or any similar event, of MB   Parent, (iii) any threatened or actual involuntary transfer or   disposition by MB Parent of any shares of Participating   Preferred Stock, (iv) any threatened or actual involuntary   transfer or disposition by MB Parent of any shares of Voting   Preferred Stock or (v) *111  any failure of Liberty Bell I, LLC (or a   successor thereof) or its manager to make distributions   contemplated by Section 15 of the Limited Liability Company   Agreement of Liberty Bell I, LLC dated as of July 28, 1998 * * *           *   *   *   *   *   *   *  *147  Section 6. Drag-Along Rights.   (a) The Drag-Along Right. After June 30, 2003, if   Acquirors (together with any of their successors, transferees   and assigns, the "Selling Shareholders") propose to sell   all of the shares of [MergerSub] Common Stock to a single person   or to any group of related persons (the "Prospective   Purchaser"), then such Selling Shareholders shall have the   right (the "Drag-Along Right") to compel MB Parent   (together with its successors, transferees and assigns, the   "Drag-Along Shareholders") to sell all of the shares of   [MergerSub] Participating Preferred Stock and [MergerSub] Voting   Preferred Stock owned by them to the Prospective Purchaser at,   in the case of Voting Preferred Stock, a price per share equal   to 100% of the Stated Value*112  of the Voting Preferred Stock on the   date of purchase and, in the case of the Participating Preferred   Stock, a price per share equal to the dollar amount derived from   the EBITDA Formula, and otherwise on the same terms and subject   to the same conditions, as the Selling Shareholders are able to   obtain with respect to the Common Stock. * * *           *   *   *   *   *   *   *   Section 7. Restrictions on Transfer.   (a) General. Except as otherwise permitted or required   hereby, no holder of shares of Voting Preferred Stock shall,   directly or indirectly, transfer or otherwise dispose of any   shares of Voting Preferred Stock owned by such holder or any   interest therein prior to June 30, 2003. Except as otherwise   permitted or required hereby, no holder of shares of   Participating Preferred Stock shall, directly or indirectly,   transfer or otherwise dispose of any shares of Participating   Preferred Stock owned by such holder, or any interest therein   prior to June 30, 2003. * * *   Y. Filing of the Restated Certificates*113  of Incorporation for   MB Parent and MergerSubOn July 29, 1998, a restated certificate of incorporation for MB Parent was filed with the Secretary of State of the State of Delaware. The restated certificate of incorporation for MB Parent established five directors, of whom three would constitute a quorum, and included the following provisions:               ARTICLE V           AUTHORIZED CAPITAL STOCK   Section 1. Authorized Shares.   The total number of shares of all classes of capital stock which   the corporation shall have the authority to issue is Five   Thousand (5,000) shares, of which (1) One Thousand (1,000)   shares, having a par value of $ . 01 per share, shall be Common   Stock (" Common Stock") and (ii) Four Thousand (4,000) shares,   having a par value of $ . 01 per share, shall be Voting Preferred   Stock (" Voting Preferred Stock").  *148  Section 2. Common Stock.           *   *   *   *   *   *   *   (b) Voting Rights.   (i) Voting Power. Except as otherwise provided in Section *114    (3)(i)(ii) of this Article V, the holders of shares of Common   Stock shall be entitled to vote on all matters presented to the   stockholders of the corporation. Except as otherwise provided   herein or required by law, the holders of Common Stock shall   vote together with the holders of shares of Voting Preferred   Stock. Each share of Common Stock shall be entitled to one (1)   vote per share.   (ii) Voting Rights with Respect to Election or Removal of   Directors. The holders of shares of Common Stock shall be   entitled, voting as a separate class, to elect one (1) director   of the corporation (the "Common Stock Director"). The Common   Stock Director shall be removed only by a vote of the holders of   a majority of the shares of Common Stock, voting as a separate   class.   Section 3. Voting Preferred Stock.           *   *   *   *   *   *   *   (b) Issuance and Stated Value. The shares of Voting   Preferred Stock shall be issued by the corporation for their   Stated Value (as defined below), in such amounts, at such times*115     and to such persons as shall be specified by the corporation's   Board of Directors, from time to time. For the purposes hereof,   the "Stated Value" of each share of Voting Preferred Stock   (regardless of its par value) shall be $ 17,187.50 per share plus   the Unpaid Dividend Amount (as defined below), which Stated   Value shall be proportionately increased or decreased for any   subdivision, combination, reclassification or stock split,   respectively, of the outstanding shares of Voting Preferred   Stock. For the purposes hereof, the "Unpaid Dividend Amount"   with respect to each share of the Voting Preferred Stock shall   be equal to the aggregate of all Quarterly Dividends (as defined   below) that the holder of such share shall have theretofore   become entitled to receive for such share but that shall not   have been declared and paid by the Board of Directors of the   corporation.   (c) Rank. The Voting Preferred Stock shall, with respect   to dividend rights and rights on liquidation, winding up and   dissolution, rank (i) senior to the Common Stock and all other*116     classes or series of stock of the corporation now or hereafter   authorized, issued or outstanding that by their terms expressly   provide that they are junior to the Voting Preferred Stock or   which do not specify their rank with respect to the Voting   Preferred Stock (collectively with the Common Stock, "Junior   Securities") and (ii) on a parity with all classes or series of   stock of the corporation now or hereafter authorized, issued or   outstanding that by their terms expressly provide that they will   rank on parity with the Voting Preferred Stock as to dividend   distributions and distributions upon liquidation, winding up and   dissolution of the corporation (collectively, "Parity   Securities").  *149  (d) Dividends.   (i) Amount of Dividends. On the last business day of each   March, June, September and December in each calendar year (the   "Dividend Accrual Date"), each holder of record as of the close   of business on the Dividend Accrual Date of shares of the Voting   Preferred Stock as their names appear in the stock register of   the corporation on*117  such date shall become entitled to receive   (when, as and if declared by the Board of Directors of the   corporation) a dividend (the "Quarterly Dividend") equal to one   and three hundred seventy-five thousands percent (1.375%) of the   Stated Value of such share (pro-rated for any portion of the   full calendar quarter that such share shall have been issued and   outstanding).           *   *   *   *   *   *   *   (e) Restrictions on Junior Payments. So long as any   shares of Voting Preferred Stock are outstanding, the   corporation shall not (i) declare, pay or set apart for payment   any dividend on, or make any distribution in respect of, Junior   Securities or any warrants, rights, calls or options exercisable   or convertible into any Junior Securities, either directly or   indirectly, whether in cash, obligations or shares of the   corporation or other property * * *, (ii) make any payment on   account of, or set apart for payment money for a sinking or   other similar fund for, the purchase, redemption, retirement or   other acquisition*118  for value of any of, or redeem, purchase,   retire or otherwise acquire for value any of, the Junior   Securities * * * or any warrants, rights, calls or options   exercisable for or convertible into any of the Junior   Securities, or (iii) permit any corporation or other entity   directly or indirectly controlled by the corporation to   purchase, redeem, retire, or otherwise acquire for value any of   the Junior Securities or any warrants, rights, calls or options   exercisable for or convertible into any Junior Securities.   (f) Liquidation Preference.   (i) Liquidation Preference. In the event of any voluntary   or involuntary liquidation, dissolution or winding up of the   affairs of the corporation, the holders of shares of Voting   Preferred Stock then outstanding shall be entitled to be paid   out of the assets of the corporation available for distribution   to its stockholders, whether such assets are capital or surplus   and whether or not any Quarterly Dividends are declared, an   amount equal to the Stated Value for each share outstanding on   the date fixed*119  for liquidation, dissolution or winding up (the   "Liquidation Preference"), before any payment shall be made or   any assets distributed to the holders of Junior Securities. * *   *           *   *   *   *   *   *   *   (g) Redemption.   (i) Redemption by the Corporation.   (A) The corporation may, at its option upon or after the   occurrence of any Redemption Event (as defined below), redeem,   out of funds legally available therefor, in the manner provided   in Section 3(g)(ii)(A) of this Article V, all, but not less than   all, of the shares of Voting Preferred Stock, *150  at a redemption   price equal to 100% of the Stated Value thereof on the date of   redemption payable in cash.   (B) For purposes of this Section 3(g)(i), a "Redemption Event"   shall mean (x) June 30, 2018, (y) any transfer or other   disposition by the corporation of shares of Participating   Preferred Stock, par value $ . 01 per share, of CBM MergerSub   Corp., a New York corporation (hereinafter "CBM MergerSub   Corp.") [MergerSub], or the comparable securities*120  of any   successor corporation to CBM MergerSub Corp. (the "MergerSub   Participating Preferred Stock") or (z) any transfer or other   disposition by the corporation of shares of Voting Preferred   Stock, par value $ . 01 per share, of CBM MergerSub Corp. or the   comparable securities of any successor corporation to CBM   MergerSub Corp. (the "MergerSub Voting Preferred Stock").   (ii) Redemption at Option of Holders. (i) After June 30,   2018 or (ii) upon the occurrence of any failure of Liberty Bell   I, LLC (or a successor thereof) or its manager to make   distributions contemplated by Section 15 of the Limited   Liability Company Agreement of Liberty Bell I, LLC dated as of   July 28, 1998 * * *, any holder of shares of Voting Preferred   Stock shall be entitled at its option, to require the   corporation to redeem, out of funds legally available therefor,   in the manner provided in Section 3(g)(iii)(B) of this Article   V, all of the shares of the Voting Preferred Stock held by such   holder, at a redemption price per share equal to 100% of the   Stated Value thereof*121  on the date of redemption payable in cash.           *   *   *   *   *   *   *   (i) Voting Rights.   (i) Voting Power. Except as otherwise provided in Section   2(b)(ii) of this Article V or as required by law, the holders of   Voting Preferred Stock shall be entitled to vote on all matters   presented to the stockholders of the corporation. Except as   otherwise provided herein or required by law, the holders of   Voting Preferred Stock shall vote together with the holders of   shares of Common Stock. Each share of Voting Preferred Stock   shall be entitled to one (1) vote per share.   (ii) Voting Rights with Respect to Election of Directors.   The holders of shares of Voting Preferred Stock shall be   entitled, voting as a separate class, to elect four (4)   directors of the corporation (the "Preferred Stock Directors").   A Preferred Stock Director shall be removed only by the vote of   the holders of a majority of the shares of Voting Preferred   Stock, voting as a separate class.           *   *   *   *  *122  *   *   *   (j) Transfer Restrictions.   (i) General. No holder of shares of Voting Preferred   Stock shall, directly or indirectly, transfer or otherwise   dispose of any shares of Voting Preferred Stock owned by such   holder, or any interest therein prior to June 30, 2000. * * *           *   *   *   *   *   *   *              *151  ARTICLE VI         POWERS OF THE BOARD OF DIRECTORS   Except as otherwise provided by law, the Board of Directors is   expressly authorized and empowered by majority vote to determine   all matters relating to the business and management of the   corporation; provided, however, the following actions   shall be taken by the corporation only upon the unanimous vote   of the Board of Directors including, in each case, the Common   Stock Director: (a) the incurrence of indebtedness or any other   similar obligation, including in the form of any guaranty of the   indebtedness of another person; (b) the sale, transfer or other   disposition, pledge, encumbering or assignment*123  by the   corporation of all or any portion of its limited liability   company interest in Liberty Bell I, LLC; (c) the amendment of   this Restated Certificate of Incorporation; (d) the issuance by   the corporation of any shares of capital stock, or any other   securities or options or warrants to purchase any shares of   capital stock or other securities; (e) the declaration of any   dividends with respect to the Common Stock; (f) the sale or   redemption of the shares of MergerSub Participating Preferred   Stock held by the corporation prior to June 30, 2003 other than   in accordance with the terms thereof or of the CBM MergerSub   Corp. Shareholders Agreement among CBM MergerSub Corp., Reed   Elsevier U.S. Holdings Inc., Reed Elsevier Overseas BV and the   corporation dated as of July 28, 1998 * * * (the "MergerSub   Shareholders Agreement"); (g) the sale or redemption of the   shares of MergerSub Voting Preferred Stock held by the   corporation prior to June 30, 2003 other than in accordance with   the terms of the Shareholder Agreement; (h) the approval by the   Board*124  of Directors of any action taken by the corporation with   respect to any shareholder resolution relating to a change in   the Restated Certificate of Incorporation of CBM MergerSub Corp.   or any successor entity, or a modification of the terms of the   MergerSub Participating Preferred Stock or the MergerSub Voting   Preferred Stock, except for an increase in the authorized shares   of Common Stock of CBM MergerSub Corp., (i) the approval by the   Board of Directors of any action taken by the corporation with   respect to any shareholder resolution relating to the   liquidation or dissolution of CBM MergerSub Corp. or any   successor corporation, the merger into or consolidation with   another entity of CBM MergerSub Corp. or any successor   corporation unless the certificate of incorporation of the   surviving corporation in such merger or consolidation is the   Restated Certificate of Incorporation of Matthew Bender &   Company, Incorporated, immediately after giving effect to the   merger of CBM MergerSub Corp. with and into Matthew Bender &   Company, Incorporated, without any*125  amendment or restatement; (j)   the amendment of the Stockholders Agreement or (k) the amendment   of the MergerSub Shareholders Agreement.(On August 6, 1998, a certificate of correction was filed with the secretary of state of the State of Delaware with respect to MB Parent's restated certificate of incorporation. The minor corrections that were made to MB Parent's restated *152  certificate of incorporation as a result of this filing are reflected in the preceding excerpt.)Also on July 29, 1998, a restated certificate of incorporation for MergerSub was filed with the Department of State of the State of New York. The restated certificate of incorporation for MergerSub established five directors, of whom three would constitute a quorum, and included the following provisions:               ARTICLE V           AUTHORIZED CAPITAL STOCK   Section 1. Authorized Shares.   The total number of shares of all classes of capital stock which   the corporation shall have authority to issue is Twenty-Three   Thousand Nine Hundred Seventy (23,970) shares, of which (i)   Twenty Thousand*126  (20,000) shares, having a par value of $ . 01 per   share, shall be Common Stock (" Common Stock") having the   rights, preferences and privileges set forth in Section 2 of   this Article V, (ii) Ten (10) shares, having a par value of $ .   01 per share, shall be Nonvoting Participating Preferred Stock   (" Participating Preferred Stock") having the rights,   preferences and privileges set forth in Section 3 of this   Article V and (iii) Three Thousand Nine Hundred Sixty (3,960)   shares, having a par value of $ . 01 per share, shall be Voting   Preferred Stock ("Voting Preferred Stock" and, together with   the Participating Preferred Stock, "Preferred Stock") having the   rights, preferences and privileges set forth in Section 4 of   this Article V.   Section 2. Common Stock.           *   *   *   *   *   *   *   (i) Voting Power. Except as otherwise provided in   Sections 4(i)(ii) of this Article V, the holders of shares of   Common Stock shall be entitled to vote on all matters presented   to the shareholders of the corporation. Except as*127  otherwise   provided herein or required by law, holders of shares of Common   Stock shall vote together with holders of shares of Voting   Preferred Stock. Except as otherwise provided in Section   2(a)(ii), the shares of Common Stock shall represent, in the   aggregate, twenty (20) votes and each share of Common Stock   outstanding on the relevant record date shall have a vote equal   to twenty (20) divided by the number of shares of Common Stock   outstanding on such record date.   (ii) Voting Rights with Respect to Election or Removal of   Directors and Certain Other Matters. The holders of shares   of Common Stock shall be entitled, voting as a separate class,   to elect one (1) director of the corporation (the "Common Stock   Director"). The Common Stock Director shall be removed only by   the vote of the holders of a majority of the shares of Common   Stock, voting as a separate class. In voting for the election or   removal of the Common Stock Director or in any other matter on   which the Common Stock shall vote as a separate class, each   share of Common Stock shall*128  be entitled to one vote per share.  *153  Section 3. Participating Preferred Stock.   (a) Issuance. The shares of Participating Preferred Stock   shall be issued by the corporation for their par value, without   stated value.   (b) Rank. The Participating Preferred Stock shall, (i)   with respect to rights with respect to the Quarterly Preferred   Dividends (as defined below) and rights with respect to the   Participating Preferred Liquidation Preference (as defined   below) upon liquidation, winding up and dissolution, rank (x)   senior to the Common Stock and all other classes or series of   stock of the corporation now or hereafter authorized, issued or   outstanding that by their terms expressly provide that they are   junior to the Participating Preferred Stock as to Quarterly   Preferred Dividend distributions or as to the Participating   Preferred Liquidation Preference upon liquidation, winding up or   dissolution or which do not specify their rank with respect to   the Participating Preferred Stock (collectively with the Common   Stock, "Participating Junior Securities") *129  and (y) on a parity   with the Voting Preferred Stock and all other classes or series   of stock of the corporation now or hereafter authorized, issued   or outstanding that by their terms expressly provide that they   will rank on parity with the Voting Preferred Stock as to the   dividend distributions and distributions upon liquidation,   winding up and dissolution of the corporation (collectively with   the Voting Preferred Stock, "Preferred Parity Securities") and   (ii) with respect to the Participating Dividends (as defined   below) and all other rights with respect to distributions upon   liquidation, winding up or dissolution, on a parity with the   Common Stock.   (c) Quarterly Preferred Dividends.   (i) Amount of Quarterly Preferred Dividends. On the last   business day of each March, June, September and December in each   calendar year (the "Preferred Dividend Accrual Date"), each   holder of record as of the close of business on the Preferred   Dividend Accrual Date of shares of the Participating Preferred   Stock as their names appear in the stock register*130  of the   corporation on such date shall become entitled to receive (when,   as and if declared by the Board of Directors of the corporation)   a dividend (the "Quarterly Preferred Dividend") equal to one   cent ($ . 01) per share (pro-rated for any portion of a full   calendar quarter that such share shall have been issued and   outstanding).           *   * ? *   *   *   *   *   (d) Restrictions on Participating Junior Payments. So   long as any shares of Participating Preferred Stock are   outstanding, the corporation shall not (i) declare, pay or set   apart for payment any dividend on, or make any distribution in   respect of, Participating Junior Securities or any warrants,  rights, calls or options exercisable or convertible into any   Participating Junior Securities, either directly or indirectly,   whether in cash, obligations or shares of the corporation or   other property * * *, (ii) make any payment on account of, or   set apart for payment money for a sinking or other similar fund   for, the purchase, redemption, retirement or other*131  acquisition   for value of any of, or redeem, purchase, retire or otherwise   acquire for value any of, the Participating Junior Securities *   * * or any warrants, *154  rights, calls or options exercisable for or   convertible into any of the Participating Junior Securities, or   (iii) permit any corporation or other entity directly or   indirectly controlled by the corporation to purchase, redeem,   retire or otherwise acquire for value any of the Participating   Junior Securities or any warrants, rights, calls or options   exercisable for or convertible into any Participating Junior   Securities, in each case, at any time when there is an Unpaid   Preferred Dividend Amount. For the purposes hereof, the "Unpaid   Preferred Dividend Amount" with respect to each share of the   Participating Preferred Stock shall be equal to the aggregate of   all Quarterly Preferred Dividends that the holder of such share   shall have theretofore become entitled to receive for such share   but that shall not have been declared and paid by the Board of   Directors of the corporation.   Participating*132  Dividends. Each holder of record as of the   close of business on the record date set therefor of shares of   Participating Preferred Stock * * * shall become entitled to   receive on a pro rata basis with the holders of shares of Common   Stock any dividend (when, as and if declared by the Board of   Directors of the corporation) with respect to the Common Stock   (the "Participating Dividend").   (f) Participating Preferred Liquidation Preference.   (i) Participating Preferred Liquidation Preference. In   the event of any voluntary or involuntary liquidation,   dissolution or winding up of the affairs of the corporation, the   holders of shares of Participating Preferred Stock then   outstanding shall be entitled to be paid out of the assets of   the corporation available for distribution to its shareholders,   whether such assets are capital or surplus and whether or not   any Quarterly Preferred Dividends are declared, an amount equal   to the par value for each share outstanding on the date fixed   for liquidation, dissolution or winding up (the "Participating  *133  Preferred Liquidation Preference"), before any payment shall be   made or any assets distributed to the holders of Participating   Junior Securities. * * *   (ii) Additional Rights Upon Liquidation. In addition to   the Participating Preferred Liquidation Preference, each holder   of shares of Participating Preferred Stock will be entitled to   participate on a pro rata basis with holders of shares of the   Common Stock in any distribution of the assets of the   corporation upon liquidation, winding up or dissolution.           *   *   *   *   *   *   *   (g) Redemption.   (i) Redemption by the Corporation.   (A) After (i) June 30, 2018, (ii) the insolvency, liquidation,   bankruptcy or any similar event, of CBM Acquisition Parent Co.   (hereinafter referred to as "MB Parent"), (iii) any threatened   or actual involuntary transfer or disposition by MB Parent of   any shares of Participating Preferred Stock, (iv) any threatened   or actual involuntary transfer or disposition by MB Parent of   any shares of Voting Preferred Stock or (v) *134  any failure of   Liberty Bell I, LLC (or a successor thereof) or its manager to   make distributions contemplated by Section 15 of the Limited   Liability Company Agreement of Liberty Bell I, LLC dated as of   July __, 1998 * * * (each of the events *155  described in clauses   (ii) through (v), a "Trigger Event"), the corporation may, at   its option, redeem, out of funds legally available therefor, in   the manner provided in Section 3(g)(iii)(A) of Article V, all,   but not less than all, of the shares of Participating Preferred   Stock, at a redemption price per share, payable in cash, equal   to the dollar amount derived from the EBITDA Formula (as defined   below).   (B) "EBITDA Formula" means (x)(I) 8.5 multiplied by Trailing   Four Quarter EBITDA less (II) Debt less (III) the aggregate   Stated Value of the Voting Preferred Stock multiplied by   (y). 01 divided by (z) the number of shares of   Participating Preferred Stock then outstanding or, expressed   algebraically.01 x (8.5 x Trailing Four Quarter EBITDA - Debt - Aggregate Stated        Value of*135  the Voting Preferred Stock)______________________________________________________________________number of shares of Participating Preferred Stock then outstanding   "Trailing Four Quarter EBITDA" means the sum of the earnings   before interest, taxes, depreciation and amortization of the   corporation as of the last day of each of the preceding four   fiscal quarters of the corporation ended prior to the date of   determination * * *. "Debt" means all indebtedness for borrowed   money of the corporation * * *   (ii) Redemption at Option of Holders. After June 30,   2018, any holder of shares of Participating Preferred Stock   shall be entitled, at its option, to require the   corporation to redeem, out of funds legally available therefor,   in the manner provided in Section 3(g)(iii)(B) of this Article   V, all of the shares of the Participating Preferred Stock held   by it, at a redemption price per share, payable in cash, equal   to the dollar amount derived from the EBITDA Formula.           *   *   *   *   *   *   *   (i) Voting Rights. Except*136  as specifically set forth in   the NYBCL [the Business Corporation Law of the State of New   York], the holders of shares of Participating Preferred Stock   shall not be entitled to any voting rights with respect to any   matters voted upon by shareholders of the corporation.   (j) Restrictions on Transfer.   (i) No holder of shares of Participating Preferred Stock shall,   directly or indirectly, transfer or otherwise dispose of any   shares of Participating Preferred Stock owned by such holder, or   any interest therein prior to June 30, 2003. * * *           *   *   *   *   *   *   *   Section 4. Voting Preferred Stock.           *   *   *   *   *   *   *   (b) Issuance and Stated Value. The shares of Voting   Preferred Stock shall be issued by the corporation for their   Stated Value (as defined below), in such amounts, at such times   and to such persons as shall be specified by the corporation's   Board of Directors, from time to time. For the*156  purposes hereof,   the "Stated Value" of each share of*137  Voting Preferred Stock   (regardless of its par value) shall be $ 15,559.6369 per share   plus the Unpaid Dividend Amount (as defined below), which Stated   Value shall be proportionately increased or decreased for any   subdivision, combination, reclassification, or stock split,   respectively, of the outstanding shares of Voting Preferred   Stock. For the purposes hereof, the "Unpaid Dividend Amount"   with respect to each share of Voting Preferred Stock shall be   equal to the aggregate of all Quarterly Dividends (as defined   below) that the holder of such share shall have theretofore   become entitled to receive for such share but that shall not   have been declared and paid by the Board of Directors of the   corporation.   (c) Rank. The Voting Preferred Stock shall, with respect   to dividend rights and rights on liquidation, winding up and   dissolution, rank (i) senior to the Common Stock, the   Participating Preferred Stock with respect to the Participating   Dividend rights of the Participating Preferred Stock, and all   other classes or series of stock of the corporation*138  now or   hereafter authorized, issued or outstanding that by their terms   expressly provide that they are junior to the Preferred Stock or   which do not specify their rank with respect to the Voting   Preferred Stock (collectively with the Common Stock, "Junior   Securities") and (ii) on a parity with the Participating   Preferred Stock with respect to the Preferred Dividend rights of   the Participating Preferred Stock and all other classes or   series of stock of the corporation now or hereafter authorized,   issued or outstanding that by their terms expressly provide that   they will rank on parity with the Voting Preferred Stock as to   dividend distributions and distributions upon the liquidation,   winding up and dissolution of the corporation (collectively,   "Parity Securities").   (d) Quarterly Dividends.   (i) Amount of Quarterly Dividends. On the last business   day of each Preferred Dividend Accrual Date, each holder of   record as of the close of business on the Preferred Dividend   Accrual Date of shares of the Voting Preferred Stock as their   names*139  appear in the stock register of the corporation on such   date shall become entitled to receive (when, as and if declared   by the Board of Directors of the corporation) a dividend (the   "Quarterly Dividend") equal to one and one-quarter percent (1   1/4%) of the Stated Value of such share (pro-rated for any   portion of a full calendar quarter that such share shall have   been issued and outstanding).           *   *   *   *   *   *   *   (e) Restrictions on Junior Payments. So long as any   shares of Voting Preferred Stock are outstanding, the   corporation shall not (i) declare, pay or set apart for payment   any dividend on, or make any distribution in respect of, Junior   Securities or any warrants, rights, calls or options exercisable   or convertible into any Junior Securities, either directly or   indirectly, whether in cash, obligations or shares of the   corporation or other property * * * (ii) make any payment on   account of, or set apart for payment money for a sinking or   other similar fund for, the purchase, redemption, retirement or*140     other acquisition for value of any of, or redeem, purchase,  *157  retire or otherwise acquire for value any of, the Junior   Securities * * * or any warrants, rights, calls or options   exercisable for or convertible into any of the Junior   Securities, or (iii) permit any corporation or other entity   directly or indirectly controlled by the corporation to   purchase, redeem, retire or otherwise acquire for value any of   the Junior Securities or any warrants, rights, calls or options   exercisable for or convertible into any Junior Securities at any   time when there is an Unpaid Dividend Amount with respect to the   Voting Preferred Stock. * * *   (f) Liquidation Preference.   (i) Liquidation Preference. In the event of any voluntary   or involuntary liquidation, dissolution or winding up of the   affairs of the corporation, the holders of shares of Voting   Preferred Stock then outstanding shall be entitled to be paid   out of the assets of the corporation available for distribution   to its shareholders, whether such assets are capital or surplus   and whether*141  or not any Quarterly Dividends are declared, an   amount equal to the Stated Value for each share outstanding on   the date fixed for liquidation, dissolution or winding up (the   "Liquidation Preference"), before any payment shall be made or   any assets distributed to the holders of Junior Securities. * *   *           *   *   *   *   *   *   *   (g) Redemption.   (i) Redemption by the Corporation. After (A) June 30,   2018, the corporation may, at its option, in the manner provided   in Section 4(g)(iii)(A), and (B) upon the occurrence of a   Trigger Event, the corporation shall, in the manner provided in   Section 4(g)(iii)(B) of this Article V, redeem, out of funds   legally available therefor, all, but not less than all, of the   shares of Voting Preferred Stock, at a redemption price per   share equal to 100% of the Stated Value thereof on the date of   redemption payable in cash.   (ii) Redemption at Option of Holders. After June 30,   2018, any holder of shares of Voting Preferred Stock shall be   entitled, at its option, *142  to require the corporation to redeem,   out of funds legally available therefor, in the manner provided   in Section 4(g)(iii)(C) of this Article V, the shares of the   Preferred Stock held by it, at a redemption price per share   equal to 100% of the Stated Value thereof on the date of   redemption payable in cash.           *   *   *   *   *   *   *   (i) Voting Rights.   (i) Voting Power. Except as otherwise provided in Section   2(a)(ii) of this Article V or as required by law, the holders of   Voting Preferred Stock shall be entitled to vote on all matters   presented to the shareholders of the corporation. Except as   otherwise provided herein or required by law, the holders of   shares of Voting Preferred Stock shall vote together with the   holders of shares of Common Stock. Except as otherwise provided   in Section 4(i)(ii) and 4(i)(iii) of this Article V, the shares   of Voting Preferred Stock shall represent, in the aggregate,   eighty (80) votes * * *   (ii) Voting Rights With Respect to Election or Removal of   Directors*143  and Certain Other Matters. The holders of Voting   Preferred Stock shall be entitled, *158  voting as a separate class,   to elect four (4) directors of the corporation (the "Preferred   Stock Directors"). A Preferred Stock Director shall be removed   only by the vote of the holders of a majority of the shares of   Voting Preferred Stock, voting as a separate class. In voting   for the election or removal of a Preferred Stock Director or in   any other matter on which the Voting Preferred Stock shall vote   as a separate class, each share of Voting Preferred Stock shall   be entitled to one vote per share.           *   *   *   *   *   *   *   (j) Restrictions on Transfer. No holder of shares of   Voting Preferred Stock shall, directly or indirectly, transfer   or otherwise dispose of any shares of Voting Preferred Stock   owned by such holder, or any interest therein prior to June 30,   2003. * * *           *   *   *   *   *   *   *               ARTICLE X          RESTRICTIONS*144  ON MERGERS, ETC.   The corporation may not be liquidated, dissolved, merged into or   consolidated with another entity and no other entity may be   merged into or consolidated with the corporation without the   unanimous approval of all of the shareholders of the corporation   entitled to vote.               ARTICLE XI              CERTAIN WAIVERS   The holders of the Preferred Stock hereby acknowledge and agree   that their rights against the corporation, the directors of the   corporation and holders of Common Stock are only those   explicitly provided by this Restated Certificate of   Incorporation or in any shareholders agreement executed among   the shareholders of this corporation and to the extent that, at   law or in equity, the corporation, the directors of the   corporation or holders of Common Stock would otherwise have any   other duties (including fiduciary duties) or obligations to the   holders of the Preferred Stock, either at law or in equity, such   duties and obligations are waived.The Mechanics*145  of the Bender TransactionThe mechanics of the Bender transaction are set forth below. All of the events described in this section occurred on July 31, 1998, in accordance with detailed instructions prepared by GD& C.   A. Capitalization of MergerSub and MB ParentAs the first step in the capitalization of MergerSub, MergerSub borrowed $ 600 million from the Luxembourg branch of Elsevier, S. A., an affiliate of Reed. The Luxembourg branch of Elsevier, S. A., transferred the $ 600 million *159  to a bank account that MergerSub maintained at Citibank (MergerSub Citibank account).In addition to MergerSub's borrowing $ 600 million from the Luxembourg branch of Elsevier, S. A., REUS and REBV contributed $ 616,562,500 and $ 158,437,500, respectively, to MergerSub. REUS and REBV transferred their respective contributions to MergerSub to the MergerSub Citibank account.After making their respective contributions to MergerSub, REUS and REBV owned all of the issued and outstanding common stock of MergerSub, all of the voting preferred stock of MergerSub, and all of the participating preferred stock of MergerSub.After the capitalization of MergerSub was completed, REUS and REBV contributed*146  all of their shares of MergerSub voting preferred stock and MergerSub participating preferred stock to MB Parent in exchange for 100 percent of MB Parent voting preferred stock. As a class, the MB Parent voting preferred stock held by REUS and REBV was entitled to 80 percent of the voting power of MB Parent and had the power to elect four of the five directors of MB Parent.In addition to REUS and REBV's contributions to MB Parent, MergerSub contributed $ 1.375 billion to MB Parent. In return, MB Parent issued 1,000 shares, i.e., all, of its common stock to MergerSub. The 1,000 shares of MB Parent common stock received by MergerSub were entitled to 20 percent of the voting power of MB Parent. As a class, the MB Parent common stock held by MergerSub had the power to elect one of the five directors of MB Parent. MergerSub transferred the $ 1.375 billion from the MergerSub Citibank account to a bank account that MB Parent maintained at Citibank (MB Parent Citibank account).After the capitalization transactions described above had been completed, REUS, REBV, and MB Parent together owned all of the issued and outstanding common stock of MergerSub, all of the voting preferred stock of*147  MergerSub, and all of the participating preferred stock of MergerSub. In addition, REUS, REBV, and MergerSub together owned all of the issued and outstanding common stock of MB Parent and all of the voting preferred stock of MB Parent.  *160  B. Merger of MergerSub and BenderAfter the capitalization transactions described above had been completed, MergerSub merged with and into Bender under the relevant provisions of the New York Business Corporation Law, with Bender continuing as the surviving corporation. At the time that the merger of MergerSub with and into Bender became effective, all outstanding MergerSub stock was converted into Bender stock, in the same number of shares, in the same classes, and with the same voting power, rights, and qualifications as the previously issued MergerSub common stock, Mergersub voting preferred stock, and MergerSub participating preferred stock.After the merger of MergerSub with and into Bender, REUS, REBV, and TMD held the following interests in MB Parent:MB Parent Stock           REUS     REBV     TMD_______________           ____     ____     ___Common stock  *148  Shares owned           --      --     1,000   Percentage of class       --      --      100%   Percentage of vote        --      --      20%Voting preferred stock   Shares owned          3,000     1,000     --   Percentage of class       75%      25%     --   Percentage of vote       60%      20%     --In addition, REUS, REBV, and MB Parent held the following interests in Bender:Bender Stock             REUS     REBV    MB Parent____________             ____     ____    __________Common stock   Shares owned           792     198      --   Percentage of class       80%     20%      --   Percentage of vote        16%      4%      --Voting preferred stock   Shares owned           --      --     3,960   Percentage of class        --      --     100%   Percentage*149  of vote        --      --      80%Participating preferred stock   Shares owned           --      --      10   Percentage of class        --      --     100%   Percentage of vote        --      --      --  *161  C. Capitalization of LBI (the LLC)Pursuant to section 9. b. of the LBI LLC agreement, Times Mirror became the manager of LBI immediately following when the merger of MergerSub with and into Bender became effective. As of that time, Lexis informed Mellon Trust and Bank of America that Times Mirror had replaced Lexis as manager of LBI and that they were to take instructions directly from Times Mirror on any administrative and operational aspects relating to LBI's bank accounts.Immediately following Times Mirror's appointment as manager of LBI, MB Parent contributed $ 1.375 billion to LBI. MB Parent transferred the $ 1.375 billion from the MB Parent Citibank account to a bank account that LBI maintained at Citibank (LBI Citibank account). The $ 1.375 billion was then transferred from the LBI Citibank account to a bank account that LBI*150  maintained at Bank of America. Times Mirror maintained its bank accounts at Bank of America as well.   D. ClosingThe Bender transaction closed on July 31, 1998. Times Mirror's sale of its 50-percent interest in Shepard's also closed on that date.From the time that the Bender transaction closed to the time of trial of this case, Bender continued as a going concern in the legal publishing business. The parties have agreed that the merger of MergerSub with and into Bender, with Bender as the surviving corporation, under the terms of the Bender agreement and in accordance with New York Business Corporation Law, satisfied the continuity of business enterprise requirement for qualification as a tax-free reorganization under section 368.Times Mirror's Management of LBI and the Development of Times Mirror's Investment Strategy Following the Closing of the Bender TransactionOn July 31, 1998, the law firm of Richards, Layton & Finger (RL& F) prepared an opinion regarding LBI for Times Mirror, MB Parent, REUS, and REBV. With respect to the LBI LLC agreement, RL& F was of the opinion that:  *162  2. The LLC Agreement constitutes a legal, valid and binding   agreement*151  of the Member [MB Parent] and Manager [Times Mirror],   and is enforceable against the Member and the Manager, in   accordance with its terms.   3. If properly presented to a Delaware court, a Delaware court   applying Delaware law, would conclude that (i) the removal of   the Manager shall be only at the request and direction of the   Manager and under no other circumstances, including, without   limitation, for cause, as provided for in Section 9(b) of the   LLC Agreement and (ii) such provision, contained in Section 9(b)   of the LLC Agreement, that requires the removal of the Manager   to be only at the request and direction of the Manager,   constitutes a legal, valid and binding agreement of the Member,   and is enforceable against the Member, in accordance with its   terms.On September 1, 1998, Times Mirror, acting in its capacity as manager of LBI, approved a purchase agreement into which LBI had entered with Merrill Lynch International on August 17, 1998 (LBI-MLI purchase agreement). Pursuant to the LBI-MLI purchase agreement, LBI agreed to purchase 1.5 million shares of Series A common*152  stock of Times Mirror from Merrill Lynch International for an initial price of approximately $ 92 million.On September 30, 1998, Times Mirror, acting in its capacity as manager of LBI, approved the change of LBI's name to Eagle New Media Investments, LLC (hereinafter referred to as the LLC).A meeting of the officers of the LLC was convened on October 5, 1998. As of that date, the officers of the LLC were Unterman; Debra A. Gastler (Gastler), vice president of taxes for Times Mirror; Steven J. Schoch, vice president and treasurer of Times Mirror; William A. Niese (Niese); Kay D. Leyba; Anne M. Bacher; and Udovic. At this meeting, Unterman informed the other LLC officers of plans to invest the LLC's funds in shares of Series A common stock of Times Mirror and in three companies: Northern Lights, Sinanet, and Homeshark. com.A regular meeting of Times Mirror's board of directors was convened on October 8, 1998. A written report for this meeting contained the following statements:          Mosby and Matthew Bender Update   Since our last Board meeting in July, substantial progress has   been made in the divestiture of Mosby and Matthew Bender. *153     The divestiture of Matthew Bender/Shepard's * * * closed on July   31. Times Mirror received $ 275 million in cash for the sale of   our 50% interest in Shepard's and Liberty Bell I was funded with  $ 1,375 million through *163  the merger of Matthew Bender. As   indicated at the last Board meeting, the cash received by Times   Mirror was used to repay short-term debt and the funds held by   Liberty Bell will be invested in the repurchase of Times Mirror   stock and in high-quality short-term investments.In addition, the section of the October 8, 1998, board report entitled "Capital Planning Discussion" contained the following statements:   Introduction   Since the July Board meeting, we have continued to sharpen our   focus on our intended use of the proceeds from the Mosby and   Matthew Bender dispositions as well as our continuing   significant free cash flow. It had not been our assumption that   we would immediately turn around and use these resources as a   war chest to finance a major acquisition program, and over the   past several months we tested this presumption by examining*154  in   detail the prospect for value creation and the acceleration of   earnings growth through acquisitions. * * *            *   *   *   *   *   *   *   Background    In August, with the closing of the Matthew Bender and Shepards   divestitures, we began what we expect will be an extensive   period of managing surplus capital. * * *   Ultimately, our   planning challenge is to assess realistically what the levels of   spending might be in the primary areas of priority which we have   stated to the Board before:   o Capital investments in existing businesses to drive growth   o Acquisitions that enhance our existing lines of business    o Dividends necessary to maintain a payout ratio commensurate    with our peer group average    o Consistent with long-term capitalization goals, opportunistic    stock repurchase            *   *   *   *   *   *   *   Sizing Our Resources   In August, the closing of the divestiture of Matthew Bender   resulted in the deposit of $ 1,375 million of gross*155  proceeds into   the account of Liberty Bell I, L. L. C., an investment affiliate   of Times Mirror. Additionally, the divestiture of our share of   the Shepards joint venture resulted in the deposit in Times   Mirror's account of $ 275 million. While the cash received by   Times Mirror has all been used to retire short-term debt, the   following approximately depicts the current deployment of   capital within Liberty Bell:   $ Millions                         __________   Short-term Money Market Assets          $ 1,000   Times Mirror Common Stock 1              384   Other                         2                         __________     Total Liberty Bell Assets          $ 1,386*156             *   *   *   *   *   *   *  *164  Looked at from a spending capacity viewpoint, the following   shows our 1999-2001 total resources for investment:   $ Millions   Current Surplus Balance 1            $ 1,400   1999-2001 Capex                   375   1999-2001 Acquisitions               900   Excess Debt Capacity Estimate            500                         ___ ______     Total 3-year Resources           $ 3,175            *   *   *   *   *   *   *    Share Repurchase Status and Outlook   As previously discussed, we expect to have approximately $ 3.2 *157    billion of investment capacity over the next few years. Because   our realistic expectations are to spend about $ 1.5 billion on   acquisitions, capital projects and dividends, this leaves $ 1.5-$    2 billion to be deployed in share repurchase, which is our   highest return alternative in the absence of additional high-   return acquisitions or capital projects.            *   *   *   *   *   *   *   Investment Plans   Most immediately, we have concerned ourselves with establishing   a short-term investment plan that emphasizes safety and   liquidity. Over time, any L. L. C. funds not deployed in   acquisitions, capital investments or Times Mirror stock shall be   managed under our Short-Term Investment Policy.After the board of directors had considered the materials that had been presented to it regarding the LLC and Eagle Publishing (an LLC created for the Mosby transaction), the board approved resolutions with respect to the use of the LLC and Eagle Publishing in Times Mirror's share repurchase program and in transactions involving the purchase of Times Mirror's outstanding*158  debt securities.During the period August 1 through December 31, 1998, Times Mirror directed the LLC to purchase (1) approximately *165  13.3 million shares of Times Mirror for between $ 750 million and $ 760 million and (2) interests in several Internet media companies for approximately $ 9 million.In a finance report presented to the Times Mirror board of directors on February 4, 1999, the following statement appeared:    Resources-Background  In 1998, with the closing of the Matthew Bender, Mosby and   Shepards divestitures, we began what we expect will be an   extensive period of managing surplus capital. As we have   articulated in the past, our initial responsibility is to manage   this cash under a short-term investment policy, which stresses   preservation of capital. This naturally results in returns   commensurate with the low tolerance for risk.   Ultimately, our planning challenge is to assess realistically   what the levels of spending might be in the primary areas of   priority, which we have articulated before:    o Capital investments in existing businesses to drive growth  *159  o Acquisitions that enhance our existing lines of business    o Dividends necessary to maintain a payout ratio commensurate    with our peer group average    o Consistent with long-term capitalization goals, opportunistic    stock repurchase            *   *   *   *   *   *   *    Sizing Our Resources   In the second half of 1998, the closing of the divestiture of   Matthew Bender and Mosby resulted in the deposit of $ 1,790   million of gross proceeds into the accounts of the two Eagle   LLC's, both investment affiliates of Times Mirror. Additionally,   the divestiture of our share of the Shepards joint venture   resulted in the deposit in Times Mirror's account of $ 275   million. While the cash received by Times Mirror has all been   used to retire short-term debt, the following approximately   depicts the 1/12/99 deployment of capital within the Eagle   LLC's:*160  $ Millions   Short-term Money Market Assets         $ 1,025   Times Mirror Common Stock (13.3M shares)      780   Tax Credit Partnerships 1               19   New Media Investments 1               7                         ___________     Total Eagle Assets             $ 1,831   A preliminary cash flow analysis for the 1999-2001 period   enables us to forecast total resources available to us. The   following table shows how *166  much net cash is used under our plans   for spending in our major investment categories:   ($  Millions)                 1999    2000    2001   3-year Total                 ____    ____    ____   ____________   Cash From Operations     $ 383   $ 401   $ 434     $ 1,218*161     Capital Expenditures      (201)   (131)   (120)      (452)   Acquisitions, Net       (300)   (300)   (300)      (900)   Dividends            (80)    (83)    (89)      (252)                _______  _______   _______   _________    Annual Surplus/(deficit) ($  198)  ($  113)   ($  75)     ($  386)   Thus over the 3 years of our plan, before repurchase, our total   spending would be around $ 400 million out of the $ 1.0 billion   held by the investment LLCs.           *   *   *   *   *   *   *   Conclusion   In consideration of the resources we have available and the   capital and acquisition spending we anticipate, we are   recommending a gross repurchase level of approximately 4-5   million shares per year for the plan period. With approximately   3-4 million shares expected to be issued each year through   options and other equity incentive programs, our planned   repurchase level should result in a net retirement of 1-2*162     million shares per year in each of the next 3 years. This will   allow us to invest for our continued growth while returning us   to an optimal capital mix.After the board of directors had considered the materials that had been presented regarding these matters, the board approved resolutions regarding the use of the LLC and Eagle Publishing in Times Mirror's share repurchase program.On May 3, 1999, Udovic distributed a memorandum to, among others, Unterman, Gastler, Niese, and Behnia regarding the amendment of MB Parent's restated certificate of incorporation to permit the payment of dividends on the shares of MB Parent's common stock. Udovic's memorandum contained the following statements:   In connection with distributing to Times Mirror the income of   Eagle New Media Investments, LLC, attached is a draft of a   Restated Certificate of Incorporation of CBM Acquisition Parent   Co., Section 3(e) of Article V of which has been amended to   permit the payment of dividends on shares of common stock. * * *   Also attached are drafts of Board and shareholder resolutions   approving the Restated Certificate of Incorporation.*163     I have sent these drafts to Charlie Fontaine at Reed who has   agreed to coordinate having the Restated Certificate approved   and filed and dividends paid to Times Mirror. The amounts   currently proposed to be paid to Times Mirror as dividends are  $ 14,808,000 for the period ended December*167  31, 1998 and  $ 4,536,000 (which is 65% of Eagle New Media's post-preferred   dividend net income) for the quarter ended March 31, 1999. * * *Reed agreed to the proposed amendment to MB Parent's restated certificate of incorporation because (1) Reed had no interest in the profits generated by the LLC and (2) Reed understood that none of the $ 1.375 billion that had been contributed to the LLC would ever be returned to Reed.On June 24, 1999, the board of directors of MB Parent adopted resolutions that approved (1) the amendment of MB Parent's restated certificate of incorporation to permit the payment of dividends on the shares of MB Parent's common stock and (2) the declaration and payment of dividends on MB Parent's common stock and voting preferred stock. These resolutions stated, in pertinent part, the following:   4. Amendment of*164  the Restated Certificate of Incorporation of   the Corporation.            *   *   *   *   *   *   *   RESOLVED, that the Restated Certificate of Incorporation of the   Corporation be further amended by changing subsection (e) of   Section 3 of the Article thereof numbered "Article V" so that,   as amended, said subsection of said Article shall be and read as   follows:     "(e) Restrictions on Junior Payments. So long as any     shares of Voting Preferred Stock are outstanding, the     corporation shall not, except only upon the unanimous vote     of the Board of Directors, (i) declare, pay or set apart     for payment any dividend on, or make any distribution in     respect of, Junior Securities or any warrants, rights,     calls or options exercisable for, or convertible into, any     Junior Securities, either directly or indirectly, whether     in cash, obligations or shares of the corporation or other     property (other than distributions or dividends solely in     the form*165  of a particular class or series of Junior     Securities, or warrants, rights, calls or options     exercisable for, or convertible into, such Junior     Securities, to holders of such Junior Securities), (ii)     make any payment on account of, or set apart for payment     money for a sinking or other similar fund for the purchase,     redemption, retirement or other acquisition for value of     any of, or redeem, purchase, retire or otherwise retire for     value any of, Junior Securities (other than as a result of     a reclassification of Junior Securities or the exchange or     conversion of one class or series of Junior Securities for     or into another class or series of Junior Securities) or     any warrants, rights, calls or options exercisable for, or     convertible into, any of the Junior Securities, or (iii)     permit any corporation or other entity directly or     indirectly controlled by the corporation to purchase,     redeem, retire or otherwise acquire for value any of the*166       Junior Securities or any warrants, rights, calls or options     exercisable for, or convertible into, any Junior     Securities."           *   *   *   *   *   *   *  *168  5. Declaration of Dividends.   RESOLVED, that, subject to the receipt of dividends due to the   Corporation upon the shares of capital stock of MB held by the   Corporation in respect of the period from August 1, 1998 through   June 30, * * * [1999], the Corporation declare and pay dividends   upon its capital stock in respect of the period from August 1,   1998, through June 30, 1999 as set forth below:Class of Shares        Gross Amount    Amount per Share_______________        ____________    ________________Common Stock, par value   $ 21,160,000.00    $ 21,160.00   $ 0.01 per shareVoting Preferred Stock,    $  3,466,145.20     $  866.5653    par value $ 0.01    per share   ; and further   RESOLVED, that, in accordance with Section 15 of that certain   Limited Liability Company Agreement*167  dated as of July 28, 1998   (the "LLC Agreement") among CBM Acquisition Parent Co., LEXIS   Inc. and The Times Mirror Company (" TMC"), all Delaware   corporations, the Corporation demand from Eagle New Media   Investments, LLC, a Delaware limited liability company, a   distribution in the amount of Twenty-One Million Eight Hundred   Two Thousand Seventy Dollars and Eighty-Seven Cents ($    21,802,070.87), to be paid not later than July 1, 1999 to   partially fund the aforesaid dividends; * * *Also on June 24, 1999, MB Parent's stockholders, i.e., REUS, REBV, and TMD, adopted resolutions that approved of the amendment to MB Parent's restated certificate of incorporation.On June 30, 1999, Times Mirror, acting in its capacity as manager of the LLC, approved a distribution of $ 21,802,070.87 from the LLC to MB Parent. MB Parent used this distribution to pay the dividends that had been declared on its common stock and its preferred stock on June 24, 1999. In this regard, MB Parent distributed $ 21,160,000 to TMD and $ 642,070.87 (i.e., the difference between the $ 3,466,145.20 dividend that MB Parent had declared on its preferred stock*168  and the $ 2,824,074.33 dividend that had accumulated on the Bender participating preferred stock owned by MB Parent between August 1, 1998, and June 30, 1999) to REUS and REBV. MB Parent neither declared nor made any other dividend distributions from the time of MB Parent's organization to the end of 2000.*169  Summary of the LLC's Investment Activity During 1999During 1999, Times Mirror directed the LLC to purchase (1) approximately 2.1 million shares of Times Mirror common stock for between $ 125 million and $ 135 million; (2) interests in several Internet media companies; (3) Newport Media, Inc., for $ 132 million; (4) Airspace Safety Analysis Corp. and ASAC International, LLC, for $ 14.5 million; and (5) ValuMail, Inc. Times Mirror also directed the LLC to contribute $ 233,252,000 to TMCT II, LLC, an entity formed for the purpose of retiring stock held by the Chandler Trusts.Times Mirror's and MB Parent's Income Tax Returns for 1998On September 14, 1999, Gastler signed Times Mirror's Form 1120, U.S. Corporation Income Tax Return, for 1998. Times Mirror did not disclose any information concerning the Bender transaction on this Form 1120 or on any attachments to this Form 1120. *169  On September 15, 1999, Vera Lang, treasurer of MB Parent, signed MB Parent's Form 1120 for 1998. Attached to MB Parent's Form 1120 for 1998 was Schedule L, Balance Sheet per Books, on which MB Parent reported its total assets. According to the Schedule L, the following amounts comprised MB Parent's total assets as of the end of 1998: (1) $ 1,613,268 of "Other current assets" and (2) $ 1,457,251,204 of "Other investments". Furthermore, the following amounts comprised MB Parent's "Other investments" as of the end of 1998: (1) $ 61,616,016 of "OTHER INVESTMENTS" held by MB Parent; (2) $ 867,197,048 of "OTHER INVESTMENTS" held by the LLC; and (3) $ 528,438,140 of "Marketable securities" held by the LLC. MB Parent also reported the value of its capital stock on this Schedule L. According to the Schedule L, $ 68,750,000 of preferred stock comprised the total value of MB Parent's capital stock as of the end of 1998. MB Parent did not report a value for its common stock on this Schedule L. In addition, MB Parent reported its additional paid-in capital on this Schedule L. According to the Schedule L, the value of MB Parent's additional paid-in capital was $ 1.375 billion as of the end of 1998. *170  The Internal Revenue Service (IRS) began its audit of Times Mirror's Form 1120 for 1998 sometime during February *170  2000. On March 15, 2000, Gastler signed the cover sheet to a packet of documents that Times Mirror provided to the IRS as part of this audit. Included in this packet of documents was Form 8275, Disclosure Statement, for the period January 1, 1997, through December 31, 1998, for Times Mirror and its subsidiaries. Referenced in an attachment to the Form 8275 were "Statements previously submitted on February 18, 2000, indicating reorganization of Matthew Bender and Company, per IRC Section 368." These statements included the following:           MATTHEW BENDER & COMPANY           STATEMENT PURSUANT TO IRC              REG. 1.368-3   Matthew Bender & Company was disposed of pursuant to an   agreement and plan of merger dated April 27, 1998 by and between   The Times Mirror Company, TMD Inc, a wholly owned subsidiary of   Times Mirror and Reed Elsevier U.S. Holdings Inc., Reed Elsevier   Overseas BV, CBM Acquisition Parent Co, MB Parent and*171 CBM   MergerSub Corp. The transactions are fully described in the plan   of merger attached. The purpose of the transaction was to   dispose of Matthew Bender in a transaction that would qualify as   reorganization under Section 368 of the Internal Revenue Code of   1986 as amended.Times Mirror's Financial Reporting Following the Close of the Bender TransactionOn August 13, 1998, Unterman signed Times Mirror's Form 10-Q, Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934, for the company's quarterly period ended June 30, 1998 (August 13, 1998, Form 10-Q). Included in the August 13, 1998, Form 10-Q were condensed consolidated financial statements for Times Mirror, notes to the condensed consolidated financial statements, all of which were unaudited, and management's discussion and analysis of the company's financial condition and the results of the company's operations. The notes to these financial statements contained, in pertinent part, the following comments:   Note 3 -- Discontinued Operations   The Company signed definitive agreements with Reed Elsevier plc   on*172  April 26, 1998 for the disposition of Matthew Bender &   Company, Incorporated (Matthew Bender), the Company's legal   publisher, in a tax-free reorganization and the sale of Times   Mirror's 50% ownership interest in *171 Shepard's. The two   transactions were valued at $ 1.65 billion in the aggregate and   were completed on July 31, 1998. The disposition of Matthew   Bender was accomplished through the merger of an affiliate of   Reed Elsevier with and into Matthew Bender with Matthew Bender   as the surviving corporation in the merger. As a result of the   merger, TMD, Inc., a wholly owned subsidiary of Times Mirror,   received all of the issued and outstanding common stock of CBM   Acquisition Parent Co. (MB Parent). MB Parent is a holding   company that owns controlling voting preferred stock of Matthew   Bender with a stated value of $ 61,616,000 and participating   stock of Matthew Bender. MB Parent is also the sole member of   Liberty Bell I, LLC (Liberty Bell I). Affiliates of Reed   Elsevier own voting preferred stock of MB Parent with a stated   value of $ 68,750,000 which affords*173  them voting control over MB   Parent, subject to certain rights held by Times Mirror with   respect to Liberty Bell I. Concurrently with the closing of the   merger, the Company became the sole manager of Liberty Bell I   and controls its operations and assets. At the time of the   merger, the principal asset of Liberty Bell I was $ 1,375,000,000   of cash. The consolidated financial statements of Times Mirror   will include the accounts of Liberty Bell I.The portion of the August 13, 1998, Form 10-Q entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included the following statements:   General   In the second quarter of 1998, the Company reached agreements to   divest its legal publisher Matthew Bender & Company,   Incorporated (Matthew Bender), its 50% ownership interest in   legal citation provider Shepard's, and its health sciences   publisher Mosby, Inc. (Mosby). On July 31, 1998, the Company   completed the divestiture of Matthew Bender in a tax-free   reorganization and the sale of the Company's interest in   Shepard's to Reed*174  Elsevier plc. The two transactions were valued   at $ 1.65 billion in the aggregate. * * *   In anticipation of the expected impact of the divestitures, the   Company has begun a comprehensive review of its business   configurations, operating systems and other investments to   determine economically attractive actions it can take to prepare   for future growth. * * *   In addition, the pace of share repurchase activity will be   accelerated to result in the repurchase of approximately 9.0   million shares of Series A common stock in 1998. The Company   purchased 2.1 million shares through the 1998 second quarter. On   July 27, 1998, the Company entered into a forward purchase   contract to purchase 2.0 million shares of Series A common   stock. Additionally, 2.7 million shares of Series A common stock   were purchased subsequent to June 30, 1998.           *   *   *   *   *   *   *  *172  Liquidity and Capital Resources           *   *   *   *   *   *   *   Acquisitions and Dispositions      *175       *   *   *   *   *   *   *   * * * Concurrently with the closing of the Matthew Bender   transaction, the Company became the sole manager of Liberty Bell   I, LLC (Liberty Bell I), the principal asset of which was   approximately $ 1.38 billion of cash. Subsequent to such closing,   Liberty Bell I purchased 2.7 million shares of the Company's   Series A common stock. The Company intends to deploy the   remaining assets of Liberty Bell I to finance acquisitions and   investments, including purchases of the Company's common stock,   and does not intend to use those funds for the Company's working   capital purposes or to retire the Company's debt. * * *           *   *   *   *   *   *   *   Common Share Repurchases   The Company repurchased 2.1 million and 6.5 million shares of   its Series A common stock during the year to date periods ended   June 30, 1998 and 1997, respectively. On July 27, 1998, the   Company entered into a forward purchase contract to purchase 2.0   million shares of Series A common stock. Additionally, *176  Liberty   Bell I purchased 2.7 million shares of Series A common stock   subsequent to June 30, 1998. The Company believes that the   purchase of shares of its common stock by Liberty Bell I is an   attractive investment for Liberty Bell I that will also enhance   Times Mirror shareholder value as well as offset dilution from   the shares of common stock issued under the Company's stock-   based employee compensation and benefit programs. * * *On August 17, 1998, Unterman signed Times Mirror's Form 8-K, Current Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934, which reported the events of July 31, 1998, to the Securities and Exchange Commission (SEC) (August 17, 1998, Form 8-K). Included in the August 17, 1998, Form 8-K was an unaudited pro forma condensed consolidated balance sheet that reflected Times Mirror's disposition of Bender and its 50-percent interest in Shepard's. The adjustments shown in the pro forma condensed consolidated balance sheet gave effect to Times Mirror's disposition of Bender and its 50-percent interest in Shepard's as if those transactions had occurred on June 30, 1998. In so doing, the*177  pro forma condensed consolidated balance sheet recorded the gain on Times Mirror's disposition of Bender and its 50-percent interest in Shepard's by debiting "Cash and cash equivalents", an asset category, $ 1,649,650,000.*173  On February 22, 1999, Willes signed Times Mirror's annual shareholder report for 1998. In the section entitled "Letter to Shareholders", Willes made the following statements:   1998 was a record year for Times Mirror. * * * Clearly our   biggest accomplishment last year was the divestiture of Matthew   Bender and Mosby for over $ 2 billion in value, a whopping 17   times cash flow. These transactions eliminated a major strategic   vulnerability for the company. And because they were done in a   tax-efficient way, we can redeploy the resources in ways that   will enhance the earnings power of Times Mirror.In addition, the section entitled "A Crisis of Growth" contained the following statements:  In 1998 * * * [Newsday] again increased circulation and revenue,   partly because it employed innovative ventures to do so. * * *   It has organized a separate effort to distribute advertising  *178  shoppers throughout Long Island and New York City and a Times   Mirror affiliate just recently acquired a chain of weekly papers   to increase Newsday's role in printed advertising in its   circulation area.           *   *   *   *   *   *   *   Fortunately for a company responding to a changing world, Times   Mirror has immense resources. The sale in 1998 of the Matthew   Bender and Mosby legal and medical publishing units has given   Times Mirror a gain of $ 1.35 billion.   That enormous chunk of capital awaits redeployment in Times   Mirror operations or in acquisition of other companies. * * *   * * * Times Mirror is budgeting $ 300 million for acquisitions in   1999. * * *   * * * Chains of small newspapers are being acquired in the   circulation areas of Newsday and The Baltimore Sun. Up to $ 50   million a year is being invested in venture capital backing for   Internet start-ups to gain expertise and give the company   expertise and participation in developing technologies.   * * * The big $ 1.3-billion proceeds from the*179  Mosby-Bender sale   would be brought into play if newspaper acquisition opportunity   came up in adjacent markets, such as San Diego or Las Vegas.   Times Mirror could swing a very big acquisition: With its own   capital plus borrowing power, the company could easily finance a  $ 4-billion, even a $ 5-billion acquisition.The section entitled "Financial Questions and Answers" contained the following statements:   Following the 1998 divestitures, Times Mirror has considerable   cash resources. What are your priorities for reinvestment?  *174  Times Mirror has significant financial flexibility as we enter   1999. With control over more than $ 1 billion of cash resources   and further debt capacity available, we are very well positioned   to pursue new opportunities.Unterman and Times Mirror's board of directors signed Times Mirror's 1998 Form 10-K on March 4, 1999. Part I contained the following statements:   During 1998, Times Mirror engaged in several strategic   transactions including the divestiture of Matthew Bender &   Company, Incorporated, a publisher of legal information, the  *180  Company's 50% interest in Shepard's, a legal citation provider,   and Mosby, Inc., a publisher of health science information. * *   * In February 1999, an investment affiliate of the Company   acquired Newport Media, Inc., a publisher of shopper   publications in the Long Island and New Jersey areas.   The Company continued to have an active share purchase program   with a total of 16.7 million shares of Series A Common Stock   acquired by the Company or its affiliates during 1998 * * *. In   1998, the Company, in anticipation of the expected impact of   divestitures, also began a comprehensive review of its business   configurations, operating systems and other investments to   determine economic actions it could take to prepare for future   growth. * * *Part II contained, among other information, management's discussion and analysis of the company's financial condition and results of operations, the audited consolidated financial statements for Times Mirror, and the notes to the company's consolidated financial statements. According to Times Mirror's consolidated balance sheets, the company's current assets*181  totaled $ 1,629,259,000 as of December 31, 1998, and its total assets amounted to $ 4,218,306,000 as of that time. Both of these amounts included the "proceeds of reorganization", i.e., the proceeds from (1) the Bender transaction, (2) the sale of Times Mirror's 50-percent interest in Shepard's, and (3) the Mosby transaction.The portion of part II of Times Mirror's 1998 Form 10-K that comprised management's discussion and analysis of Times Mirror's financial condition and results of operations contained the following statements:   OVERVIEW   The Company achieved record earnings in 1998 with net income of  $ 1.42 billion, or $ 16.06 per share on a diluted basis, compared   with 1997 net income of $ 250.3 million, or $ 2.29 per share. The   1998 results reflect:   o An after-tax gain of $ 1.35 billion, or $ 15.50 per share, on    the disposition of Matthew Bender/Shepard's and Mosby and   $ 30.8 million, or $ . 35 per *175  share, of after-tax losses    associated with discontinuance of certain other businesses.           *   *   *   *   *   *   *   o Share purchases in 1998*182  which reduced the number of shares of    common stock outstanding for financial reporting purposes to    73.4 million at December 31, 1998 compared with 87.9 million    at December 31, 1997.           *   *   *   *   *   *   *   Discontinued Operations   On July 31, 1998, the Company completed the divestiture of   Matthew Bender & Company, Incorporated and its 50% ownership in   legal citation provider Shepard's to an affiliate of Reed   Elsevier, Inc. in a transaction valued at $ 1.65 billion.   Additionally, on October 9, 1998, the Company completed the   divestiture of Mosby, Inc., its health science and medical   publisher, to Harcourt General, Inc. in a transaction valued at  $ 415.0 million.           *   *   *   *   *   *   *   Share Purchases   Share purchases continued in 1998 through open market   transactions, accelerated purchases and purchases by an   affiliated limited liability company. A total of 16.7 million   Series A common shares were acquired during 1998 which more than*183     offset 2.1 million shares issued as a result of the exercise of   stock options.   CONSOLIDATED RESULTS OF OPERATIONS           *   *   *   *   *   *   *   1998 Compared with 1997           *   *   *   *   *   *   *   Earnings per share for 1998 benefited principally from the net   gain on divestitures as well as a reduction in the average   number of common shares outstanding and lower preferred dividend   requirements. * * *   Net interest expenses declined in 1998 due to an increase in   interest income resulting from investment activity of the   affiliated limited liability companies created as part of the   Matthew Bender and Mosby transactions. Higher interest income   more than offset a rise in interest expense primarily due to   increased debt levels attributable to common stock purchases,   the 1997 third quarter recapitalization and new acquisitions.           *   *   *   *   *   *   *   LIQUIDITY AND CAPITAL RESOURCES           * *184    *   *   *   *   *   *   Acquisitions           *   *   *   *   *   *   *   In February 1999, Eagle New Media Investments, LLC, an   investment affiliate of the Company, acquired Newport Media,   Inc., a publisher of *176  shopper publications in the Long Island and   New Jersey areas, for $ 132 million.   Dispositions   On July 31, 1998, the Company completed the divestiture of   Matthew Bender in a tax-free reorganization and the sale of the   Company's 50% ownership interest in Shepard's to Reed Elsevier   plc. The two transactions were valued at $ 1.65 billion in the   aggregate. Proceeds from the sale of Shepard's were used to pay   down commercial paper and short-term borrowings of $ 222.4   million. Concurrently with the closing of the Matthew Bender   transaction, the Company became the sole manager of Eagle New   Media Investments, LLC (Eagle New Media). At December 31, 1998,   the assets of Eagle New Media were $ 605.8 million of cash and   cash equivalents, $ 753.0 million of Times Mirror stock, $ 15.0   million of*185  marketable securities and $ 22.3 million of other   assets. On October 9, 1998, the Company completed the   divestiture of Mosby, Inc. to Harcourt General, Inc. in a   transaction valued at $ 415.0 million. Concurrently with the   closing of the Mosby, Inc. transaction, the Company became the   sole manager of Eagle Publishing Investments, LLC (Eagle   Publishing). At December 31, 1998, the assets of Eagle   Publishing were $ 377.2 million of cash and cash equivalents,  $ 34.5 million of marketable securities and $ 20.1 million of   other assets. * * * The Company intends to deploy the assets of   both LLCs to finance acquisitions and investments, including   purchases of the Company's common stock, and does not intend to   use those funds for the Company's general working capital   purposes. For financial reporting purposes, Eagle New Media and   Eagle Publishing are consolidated with the financial results of   the Company.The portion of part II of Times Mirror's 1998 Form 10-K that comprised the notes to the company's consolidated financial statements included the following:   Note*186  4 -- Reorganization   During the third quarter of 1998, the Company completed the   disposition of Matthew Bender in a tax-free reorganization with   Reed Elsevier plc. The disposition of Matthew Bender was   accomplished through the merger of an affiliate of Reed Elsevier   with and into Matthew Bender with Matthew Bender as the   surviving corporation in the merger. As a result of the merger,   TMD, Inc., a wholly-owned subsidiary of Times Mirror, received   all of the issued and outstanding common stock of CBM   Acquisition Parent Co. (MB Parent). MB Parent is a holding   company that owns controlling voting preferred stock of Matthew   Bender with a stated value of $ 61,616,000 and participating   stock of Matthew Bender. MB Parent is also the sole member of   Eagle New Media Investments, LLC (Eagle New Media). Affiliates   of Reed Elsevier owned voting preferred stock of MB Parent with   a stated value of $ 68,750,000 which affords them voting control   over MB Parent, subject to certain rights held by Times Mirror   with respect to Eagle New Media. Concurrently, with the*187  closing   of the merger, the Company became the sole manager of Eagle New   Media and controls *177  its operations and assets. At December 31,   1998, the assets of Eagle New Media were $ 605,786,000 of cash   and cash equivalents, $ 752,956,000 (13,362,000 shares) of Series   A common stock of Times Mirror, $ 14,952,000 of marketable   securities and $ 22,270,000 of other assets. The consolidated   financial statements of the Company include the accounts of   Eagle New Media.           *   *   *   *   *   *   *   The Company intends to deploy the assets of both LLCs to finance   acquisitions and investments, including purchases of the   Company's common stock, and does not intend to use those funds   for the Company's general working capital purposes.           *   *   *   *   *   *   *   Note 13 -- Capital Stock and Stock Purchase Program           *   *   *   *   *   *   *   Treasury Stock. Treasury stock includes shares of Series   A common stock and Series A preferred stock owned by*188  affiliates   as well as Series A common stock purchased by the Company as   part of the stock purchase program. Approximately 13,262,000 * *   * shares of Series A common stock included in treasury stock are   owned by Eagle New Media * * *   Stock Purchases. During 1998, the Company and Eagle New   Media purchased 16,355,000 common shares for a total cost of  $ 947,203,000. * * *           *   *   *   *   *   *   *   In connection with the Company's ongoing stock purchase program,   in October 1998, the Company's Board of Directors authorized the   purchase over the next two years of an additional 6,000,000   shares of common stock. The aggregate remaining shares   authorized for purchase at December 31, 1998 was approximately   1,100,000 shares. The Company believes that the purchase of   shares of its common stock is an attractive investment for Eagle   New Media which will enhance Times Mirror shareholder value as   well as to offset dilution from shares of common stock issued   under the Company's stock-based employee compensation and*189     benefit program. In February 1999, the Board of Directors   authorized the purchase of an additional amount of up to   6,000,000 shares of its Series A common stock.           *   *   *   *   *   *   *   Note 21 -- Subsequent Events           *   *   *   *   *   *   *   In February 1999, Eagle New Media Investments, * * * LLC, an   investment affiliate of the Company, acquired Newport Media,   Inc., a publisher of shopper publications in the Long Island and   New Jersey areas, for approximately $ 132,000,000.Efrem Zimbalist III, who had succeeded Unterman as chief financial officer of Times Mirror, signed Times Mirror's 1999 *178  Form 10-K on March 29, 2000. Part I contained the following statements:   ITEM 1. BUSINESS.   GENERAL           *   *   *   *   *   *   *   During 1999, Times Mirror engaged in several strategic   transactions including the acquisition by an investment   affiliate of Newport Media, Inc., a publisher of shopper   publications in the New York and New Jersey areas, *190  ValuMail,   Inc., a shared mail company that distributes preprinted   advertising in Connecticut and Massachusetts, and Airspace   Safety Analysis Corporation, a provider of airspace utilization   and Federal Aviation Administration compliance services for the   telecommunications and aviation industries. * * *   In September 1999, Times Mirror, its affiliates and its largest   stockholders, the Chandler Trusts, completed a transaction that,   for financial reporting purposes, reduced Times Mirror's   outstanding common stock by 12.4 million shares and reduced   Times Mirror's then outstanding Series C Preferred Stock by   501,000 shares. * * *The annual report referred to various investment activities in newspaper publishing as directly engaged in by Times Mirror. The annual report contained no reference to Reed as having any interest in the "affiliate" actually engaged in the investment activity.Part II of Times Mirror's 1999 Form 10-K contained, among other information, management's discussion and analysis of the company's financial condition and results of operations, audited consolidated financial statements*191  for Times Mirror, and the notes to the company's consolidated financial statements. The portion of part II that comprised management's discussion and analysis of Times Mirror's financial condition and results of operations contained the following statements:   Overview           *   *   *   *   *   *   *   1999 Recapitalization   In September 1999, the Company completed a recapitalization   transaction with its largest shareholders, the Chandler Trusts,   in which the Company, including certain of its affiliates, and   the Chandler Trusts each contributed assets worth $ 1.24 billion   to TMCT II, LLC, a newly formed limited liability company. The   1999 recapitalization resulted in a net effective reduction, for   financial reporting purposes, in the number of shares of*179  the   Series A and C common stocks by 12.4 million shares and in the   Company's Series C-1 and C-2 preferred stocks by 501,000 shares.   * * *           *   *   *   *   *   *   *   Liquidity and Capital Resources   * * * In 1999, funds from the Company's*192  investment affiliates   created as part of the 1998 divestitures of the Company's legal   and medical publishing businesses, as well as proceeds from new   debt issuances were used to finance the 1999 recapitalization   and acquisitions. In the second half of 1998, the company   utilized a portion of the investment affiliates resources for   share purchases and acquisitions. * * *           *   *   *   *   *   *   *   Dispositions           *   *   *   *   *   *   *   In July 1998, the Company completed the divestiture of Matthew   Bender in a tax-free reorganization and the sale of the   Company's 50% ownership interest in Shepard's to Reed Elsevier   plc. The two transactions were valued at $ 1.65 billion in the   aggregate. In October 1998, the Company completed the   divestiture of Mosby, Inc. to Harcourt General, Inc. in a   transaction valued at $ 415.0 million. Concurrently with the   closing of the Matthew Bender and Mosby, Inc. transactions, the   Company became the sole manager of Eagle New Media Investments, *193     LLC (Eagle New Media) and Eagle Publishing Investments, LLC   (Eagle Publishing). A substantial portion of the assets of Eagle   New Media and Eagle Publishing were utilized in connection with   the 1999 recapitalization (see Note 2). The Company intends to   deploy the assets of both Eagle New Media and Eagle Publishing   to finance acquisitions and investments, including purchases of   the Company's common stock, and does not intend to use those   funds for the Company's general working capital purposes.   Common Share Purchases   During 1999, the Company and Eagle New Media purchased 3.2   million shares of the Company's Series A common stock which more   than offset 2.0 million shares issued as a result of the   exercise of stock options * * *.   The Company believes that the purchase of shares of its common   stock is an attractive investment for Eagle New Media which will   also enhance Times Mirror shareholder value as well as offset   dilution from shares of common stock issued under the Company's   stock-based employee compensation and benefit programs. *194  The   Company and its affiliates expect to make share purchases   primarily to offset stock option exercises, during the next two   years in the open market or in private transactions, depending   on market conditions, and such purchases may be discontinued at   any time. * * * As of December 31, 1999, the Company and its   affiliates are authorized to purchase 3.9 million shares of   Series A common stock.*180  The LLC's Financial Statements for the Fiscal Years Ended December 31, 1999 and 1998On April 6, 2000, Udovic faxed to Fontaine a copy of the LLC's unaudited financial statements for the fiscal years ended December 31, 1999 and 1998. A statement of operations was part of these financial statements. On the statement of operations, the LLC reported $ 2,435,000 and $ 10,132,000 of dividend income attributable to its Times Mirror stock for 1998 and 1999, respectively.Included with the LLC's financial statements were notes that contained, in pertinent part, the following comments:   Note 1 -- Basis of Preparation   * * * The Company's sole manager is The Times Mirror Company who   controls its operations and assets. *195  The Company began operations   on July 31, 1998.           *   *   *   *   *   *   *   Note 2 -- Cash and Cash Equivalents, Marketable Securities,   Available-for-sale Securities and Investments           *   *   *   *   *   *   *   Investments in Times Mirror stock are reported at cost, as they   are restricted from sale because the Company is considered an   affiliate of Times Mirror. The fair value of the Times Mirror   stock based on its quoted market price was $ 1,015,186,000 and  $ 742,666,000 at December 31, 1999 and 1998, respectively. * * *           *   *   *   *   *   *   *   Note 4 -- 1999 Recapitalization   In September 1999, the Company and certain of its affiliates   participated in a transaction (1999 recapitalization) involving   agreements with Times Mirror Company's largest shareholders,   Chandler Trust No. 1 and Chandler Trust No. 2. The 1999   recapitalization resulted in the formation of a new limited   liability company, TMCT II, LLC (TMCT II). *196    Pursuant to the TMCT II contribution agreement, the Company   contributed a total of $ 233,252,000 in cash and cash   equivalents.On May 31, 2000, the board of directors of MB Parent accepted and approved the LLC's financial statements for the fiscal years ended December 31, 1999 and 1998.IRS DeterminationsOn August 14, 2002, the IRS sent to petitioner a statutory notice of deficiency with respect to petitioner's Federal *181  income tax for 1998. In the statutory notice of deficiency, the IRS made the following determinations regarding the Bender transaction:   1. $ 1,375,000,000 is the amount realized in 1998 under Code   section 1001 by TMD in exchange for the 100% common stock   interest in MB [Bender].   2. In 1998, TMD must recognize capital gain in the amount of  $ 1,322,035,840, as computed below. * * * TMD's exchange of its   100% common stock interest in MB is ineligible for   nonrecognition treatment under Code section 354 because the   series of prearranged transactions that included the merger of   Bender Mergersub into MB failed to qualify as a "reorganization"   under section 368 of*197  the Code.In addition, the IRS explained the basis for its determinations under the following headings: "A. TMD CASHED OUT ITS INVESTMENT IN MB", "B. TMD FAILED TO EXCHANGE ITS MB COMMON STOCK FOR STOCK OF MB PARENT WORTH AT LEAST $ 1.1 BILLION", and "C. AFTER THE MERGER, POST-MERGER MB, THE SURVIVING CORPORATION FAILED TO HOLD 'SUBSTANTIALLY ALL' OF ITS PROPERTIES AND THE PROPERTIES OF THE 'MERGED' CORPORATION". Under the last heading, the notice elaborated:   D. TMD RECEIVED CONSIDERATION OTHER THAN VOTING STOCK.   To qualify as a reorganization under Code section 368(a)(1)(B),   only voting stock may be used by the acquiring corporation. The   merger of Bender Mergersub into MB could not qualify as a "B"   reorganization if TMD received, in exchange for its MB common   stock, any consideration other than voting stock (" boot").   In exchange for its MB common stock, TMD received MB Parent   common stock and constructively received the rights to manage   Eagle I, which it assigned to TM. Immediately after the merger,   Eagle I's sole asset was $ 1.375 billion in cash. The provisions   of the Eagle I LLC*198  Agreement, coupled with the broad powers   granted to the manager, gave TM direct access to and control   over the $ 1.375 billion.   The rights to manage Eagle I were not voting stock, had   substantial value, and were constructively received by TMD in   exchange for its MB common stock. Since TMD received boot in   exchange for its interest in MB, the merger of Bender Mergersub   into MB failed to qualify as a reorganization under Code section   368(a)(1)(B).The notice also determined that section 269 applies to deny nonrecognition treatment of the Bender transaction.During trial of this case, the parties agreed that TMD's adjusted basis in its Bender common stock was $ 78,454,130 as of July 31, 1998, rather than the $ 52,964,160 amount that *182  had been determined by the IRS in the statutory notice of deficiency.           ULTIMATE FINDINGS OF FACTThe primary consideration received by Times Mirror, through TMD, for transferring control over the operations of Bender to Reed was control over $ 1.375 billion paid by Reed, through MB Parent, to the LLC.The agreements and corporate organization documents*199  entered into by Times Mirror and Reed negated any meaningful fiduciary obligations between Times Mirror and Reed with respect to Times Mirror's control over the cash or Reed's operation of Bender.The MB Parent common stock held by TMD had a value of less than $ 1.1 billion and less than 80 percent of the $ 1.375 billion paid by Reed.The Bender transaction effected a sale of Bender by TMD to Reed.OPINIONSection 354(a) states the general rule that "No gain or loss shall be recognized if stock or securities in a corporation a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization." Section 356 requires recognition of gain from an exchange in which property other than that permitted under section 354 (or section 355) (i.e., boot) is received; the gain recognized is not in excess of the sum of money or the fair market value of other property received in the exchange. Section 368 sets forth definitions of corporate reorganizations that qualify for nontax treatment under section 354(a).Times Mirror and its advisers intended that the Bender transaction*200  qualify as a tax-free "reverse triangular merger" under section 368(a)(1)(A) and (2)(E). As described by petitioner, a reverse triangular merger is a statutory merger in which the merged corporation (MergerSub) merges with and into the target corporation (Bender) in exchange for stock of a corporation (MB Parent), which, immediately prior to the merger, controlled the merged corporation.*183  Respondent contends that the Bender transaction does not qualify as a reverse triangular merger because TMD received more than qualifying stock of MB Parent and the transaction thus fails to satisfy the "exchange" requirement of section 368(a)(2)(E)(ii), that is: "in the transaction, former shareholders of the surviving corporation exchanged, for an amount of voting stock of the controlling corporation, an amount of stock in the surviving corporation which constitutes control of such corporation." Section 368(c) defines "control" as "the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation." Respondent argues that TMD's gain*201  on the Bender transaction is taxable unless the fair market value of qualifying consideration, the MB Parent common stock, was at least equal in value to a "controlled block" (80 percent) of Bender stock. The parties agree that this requirement means that the MB Parent common stock must have had a value of $ 1.1 billion for the transaction to qualify as a reverse triangular merger.Alternatively, and in order to assert reliance on certain rulings of respondent, petitioner argues that the Bender transaction qualifies under section 368(a)(1)(B), which provides:  SEC. 368(a). Reorganization. --   (1) In general. -- For purposes of parts I and II and this part,   the term "reorganization" means --           *   *   *   *   *   *   *     (B) the acquisition by one corporation, in exchange solely     for all or a part of its voting stock (or in exchange     solely for all or a part of the voting stock of a     corporation which is in control of the acquiring     corporation), of stock of another corporation if,     immediately after the acquisition, the*202  acquiring     corporation has control of such other corporation (whether     or not such acquiring corporation had control immediately     before the acquisition);Petitioner's alternative position would not require valuation of the MB Parent common stock. It would, however, require us to conclude that Times Mirror's control over the cash in the LLC was not part of the consideration received in the Bender transaction because it was not intended by Times Mirror or Reed to be a "separate asset".*184  Respondent argues that the Bender transaction did not qualify under section 368(a)(1)(B) because TMD did not exchange its Bender stock solely for voting stock. In addition, respondent argues that petitioner has belatedly changed its theory and should be precluded from doing so.In form, at the conclusion of the Bender transaction, TMD was the holder of MB Parent common stock and no longer owned Bender common stock. Determination of whether the MB Parent common stock had a value of $ 1.1 billion or, in the alternative, whether the sole consideration exchanged for the Bender common stock was the MB Parent common stock requires a factual analysis of the totality*203  of the Bender transaction. Because the same facts lead us to our conclusions on both theories, we do not need to decide whether petitioner is too late in asserting its section 368(a)(1)(B) argument.Factual Analysis of the Bender TransactionNot surprisingly, the parties differ significantly in their descriptions of the Bender transaction. While paraphrasing portions of the record, the parties cannot resist characterizing events in a manner consistent with their respective positions. Petitioner emphasizes the formalities of the multicorporate structure, which undeniably was intended and carefully designed to comply with the requirements for a tax-free reorganization under section 368. Petitioner asserts that "respondent erroneously substitutes his version of the Bender transaction for what actually transpired."Respondent does not deny that there was a business purpose for the Bender transaction, i.e., the desire of Times Mirror to get out of the legal publishing business because of the trends in that market. Pointing to specific aspects and results of the transaction, however, respondent argues:   All of the unusual features of the Bender Transaction structure,  *204  the creation of a dormant intermediary company (MB Parent) and   an enslaved LLC (Eagle I), the interlocking tiers of redeemable   Bender and MB Parent voting preferred stock that transferred   virtually complete control over Bender to Reed, and the   provisions of the LLC Agreement, that transferred absolute   control over the cash to the manager (TM), were united to a   single purpose: segregate and seal off TM's interest in the cash   and Reed's interest in Bender, one from the other.   The substance of the Bender Transaction is a swap. TM gave up   Bender for the right to control and distribute to itself at will  $ 1.375 billion of cash. *185  Reed gave up $ 1.375 billion of cash for   ownership and control of Bender. This is hardly the kind of   readjustment of continuing interests in property under modified   corporate form that marks a real reorganization. * * *The proposed findings of fact set forth in the briefs of the parties cannot be adopted as our findings because they lack objectivity either by omission or in argumentative descriptions. Rather than attempting to reconcile the parties' characterizations*205  of particular events, we have reviewed the entire record and related in great detail the contemporaneous statements of the parties to the Bender transaction, the contractual terms, the subsequent conduct of the parties to the transaction, and the representations of Times Mirror to shareholders and to regulatory bodies. The form of the transaction includes the totality of the contractual arrangements and is not limited to the design, characterization, and labels put on the arrangements by the Times Mirror tax advisers. In analyzing the terms and provisions of the contractual arrangements, we have considered the interpretation of the parties to them, as demonstrated by their conduct.Times Mirror's View of the Bender TransactionTimes Mirror, for good business reasons, decided to take advantage of the existing trends in legal publishing and the strong desire of Wolters Kluwer and Reed to acquire Times Mirror's interest in Bender and Shepard's. The bidders agreed to the CJV "reorganization" structure promoted by PW and GS and endorsed by GD& C and E& Y because that was the only way they could acquire their target.Times Mirror was anxious to have the significant proceeds of its divestiture*206  of Bender to spend on repurchasing its own stock and diversifying into other emerging areas. After the proposed structure of the divestiture was presented to the competing bidders, at the board meeting on April 24, 1998, the board of directors was told:   The Price Waterhouse structure separates ownership and control   so that the acquiring company controls Matthew Bender and Times   Mirror controls an amount of cash equivalent to Matthew Bender's   value, but without having paid a tax for the shift in control.   The steps in this structure * * * involve the creation of a   special purpose corporation (referred to as MB Parent * * *)   that is owned partly by Times Mirror and partly by the acquiring   company. This special purpose corporation is controlled by the   acquiring company through its ownership *186  of relatively low value,   nonparticipating preferred stock with 80% voting control. MB   Parent in turn owns preferred stock and nonvoting common stock   in an acquisition subsidiary that will merge with Matthew Bender   and a nonvoting interest in a single member limited liability   company*207  that holds the cash referred to above. As a result of   the merger of Matthew Bender into the acquisition subsidiary,   Times Mirror will own all of the common stock and remaining 20%   voting power of MB Parent, the special purpose corporation.   However, even though Times Mirror will not have voting control   over MB Parent, it will control the limited liability   corporation holding all of the cash by virtue of being the sole   (nonequity) manager of the LLC.   The results are as follows:   o Times Mirror will control the LLC, thereby controlling the    cash in it and any assets or businesses acquired with such    cash.   o Times Mirror and the LLC will be consolidated for financial    reporting purposes.   o The acquiring company will control Matthew Bender and will be    able to consolidate for financial reporting purposes.   o The merger of Matthew Bender into the acquisition in exchange    for MB Parent common stock will qualify as a tax-free    reorganization for tax purposes (even though such common stock    does not carry with*208  it voting control).   o MB Parent, the LLC and Matthew Bender will not be consolidated    for tax purposes with either Times Mirror or the acquiring    company.   o At some later date and upon mutual agreement, the Matthew    Bender and MB Parent preferred stock can be redeemed at face    value and the nonvoting common can be redeemed at a formula    price, which would leave the acquiring company as the sole    owner of Matthew Bender and Times Mirror as the sole, and    controlling owner of MB Parent, with the ability to liquidate    MB Parent and the LLC without a tax cost.In a memorandum dated April 29, 1998, E& Y recorded the following:   Times Mirror has entered into an agreement with Reed Elsevier   for the sale of Matthew Bender for $ 1,375,000,000 and the sale   of Times Mirror's interest in Shepard's Inc. for $ 225,000,000.   The sale of Matthew Bender is structured as a reorganization in   which the $ 1,375 million proceeds from the sale will end up in   an LLC whose ownership is as shown in the attached chart.   Through the various shareholder*209  agreements, certificates of   incorporation and the LLC management agreement, Times Mirror has   total control over the assets and operations of the LLC and Reed   Elsevier has total control over the assets and operations of   Matthew Bender. The structure is designed to result in no tax   due by Times Mirror on the profit from the sale of Matthew   Bender.           *   *   *   *   *   *   *  *187  Consolidation   * * * Times Mirror controls the assets of the LLC through the   management agreement, which specifically states that Times   Mirror has no fiduciary duty to the holder of Acquisition Parent   and may use its discretion as to the use of the assets. Times   Mirror may have the LLC buy its own debt instruments or Times   Mirror stock, make business acquisitions or any other   transaction to the benefit of Times Mirror. The only limitation   is that Times Mirror may not upstream LLC assets to itself.   Times Mirror has the ability to ensure that the Board of   Directors*210  of Acquisition Parent may not do anything that may   affect the control or viability of the LLC. Certain board   actions require the unanimous vote of the Board. These include:   o the incurrence of indebtedness or guarantees of indebtedness    of Acquisition Parent   o the sale, transfer or other disposition, pledge or assignment    of any portion or all of its LLC interest   o the issuance of any other securities of Acquisition Parent   All of these factors indicate that Times Mirror not only   controls the assets of the LLC, but also is the beneficiary of   all of the ownership risks and rewards of the LLC. * * *We cannot improve on the descriptions of the Bender transaction in the above contemporaneous statements of the participants. Little more would be required to conclude that the Bender transaction was, in substance, a sale. The issue in this case, however, is to determine whether the "reorganization" structure satisfies the requirements of sections 354(a) and 368 and precludes taxation of the gain derived from the transaction.Fiduciary Obligations Among the PartiesIn the context of the dispute*211  over the value of the MB Parent common stock received by TMD, as discussed below, petitioner argues that Times Mirror, as manager of the LLC, had fiduciary obligations that precluded unlimited use of the LLC's cash and prevented a conclusion that TMD or Times Mirror realized the proceeds of a sale of Bender. Respondent contends that Times Mirror's only fiduciary obligation under the management agreement was to itself. The LLC agreement dated July 28, 1998, contained provisions including the following:  *188  9. Management.   a. The Manager shall have the sole right to manage the business   of the Company and shall have all powers and rights necessary,   appropriate or advisable to effectuate and carry out the   purposes and business of the Company, and no Member or other   person other than the Manager shall have any authority to act   for or bind the Company or to vote on or approve any of the   actions to be taken by the Company (unless otherwise expressly   required by the Act or other applicable law). Notwithstanding   the foregoing, the Initial Manager shall not take any action in   respect of or on behalf of*212  the Company, other than the opening   of one or more bank accounts in the name of the Company, the   appointment of an agent for service of process for the Company   and the performance of other ministerial duties in connection   with the organization and formation of the Company. Accordingly,   as of the Effective Time of the Merger, the Company shall have   no liabilities or obligations other than pursuant to this   Agreement.           *   *   *   *   *   *   *   e. Without limiting the generality of the foregoing, to the   fullest extent permitted by law, including Section 18-1101(c) of   the [Delaware Limited Liability Company] Act, and without   creating any duties or obligations of the Manager by implication   or otherwise, it is expressly acknowledged and agreed that to   the extent the Manager owes any fiduciary duties or similar   obligations to the Initial Member [MB Parent] under any   principles of law or equity or otherwise, such duties and   obligations shall be owed solely to the holders of the Initial   Member's [MB Parent's] *213  common equity and not to the holders of   any other class of the Initial Member's [MB Parent's] equity.Petitioner's brief, in attacking respondent's valuation experts, asserts:   The LLC Agreement was written with the understanding that the   manager, TM, would be the 100% indirect owner of the MBP [MB   Parent] Common. * * *           *   *   *   *   *   *   *   * * * the management authority and the MBP Common were not owned   by two parties; TM was not only the manager, but also the 100%   indirect owner of the MBP Common, which was directly owned by a   holding company which TM had created to hold TM's   property. The rights to be valued are in fact the rights held by   one party. * * *Petitioner does not point to any provision in the documentation of the transaction that restricts Times Mirror's use of the LLC's cash, although petitioner asserts limitations under Delaware law. Representations of Times Mirror to its shareholders indicated that the cash in the LLC would not be used for working capital but would be used for repurchase of *189  stock and strategic investments. However, *214  nothing in the documents contains this restriction on the use of cash for working capital, which was a management decision consistent only with tax advice given to Times Mirror. The advisers, Shefter and Behnia, had made it clear to Reed before the transaction that "the LLC agreement will not contain any restrictions on the use of the cash." In any event, cash is fungible. Use of the LLC's cash in Times Mirror's ambitious stock repurchase program obviously freed up other resources to be used for working capital.Reed's vice president of taxes, Fontaine, who negotiated the structure on behalf of Reed, testified:   Q [Counsel for petitioner] And what was Reed's position with   regard to nonvoting common stock in the structure?   A [Fontaine] Reed did not like the fact that it was common   stock. We were hoping that it would be changed to a preferred   stock because of issues surrounding fiduciary duties.   Q Could you elaborate?   A Generally speaking, a common shareholder is owed a fiduciary   duty, and because Matthew Bender at the time would have had a   common shareholder of MB Parent, and indirectly TMD, *215  that that   would be -- there would be a fiduciary duty ultimately to Times   Mirror as a result of that shareholding as to the operations of   Matthew Bender.   Q What was the result of those negotiations?   A The nonvoting common stock was changed to nonvoting   participating preferred stock.Thus, the parties understood that they were deliberately negating any fiduciary obligations owed to Reed with respect to the cash or owed to Times Mirror or TMD with respect to Bender operations.Times Mirror's understanding of its rights with respect to the cash was described in its report to the board on October 8, 1998, as follows:   Since the July Board meeting, we have continued to sharpen our   focus on our intended use of the proceeds from the Mosby and   Matthew Bender dispositions as well as our continuing   significant free cash flow. It had not been our assumption that   we would immediately turn around and use these resources as a   war chest to finance a major acquisition program, and over the   past several months we tested this presumption by examining in   detail the prospect for*216  value creation and the acceleration of   earnings growth through acquisitions. * * *All subsequent reports to the board, the shareholders, and the SEC represented that the cash proceeds of the divestiture *190  of Bender were controlled by Times Mirror and were being used for Times Mirror's strategic repurchase of stock and new acquisitions. Although petitioner disputes the legal significance of these representations, it has never suggested that the representations were not entirely consistent with the terms of the documentation of the Bender transaction.In 1999, Times Mirror, as manager of the LLC, effected a $ 21,160,000 cash dividend on MB Parent's common stock. Reed agreed to the amendments to MB Parent's corporate documents because Reed had unequivocally given up any interest in the $ 1.375 billion or in the earnings on that amount.Consideration for the Transfer of Bender to ReedFor purposes of section 368, the basic factual determination to be made is whether, under the contractual arrangements, the consideration received by TMD, the formal "divestor" of Bender, from MB Parent, the formal "divestee", was, as petitioner contends, common stock of MB Parent worth at least*217  $ 1.1 billion or whether, as respondent contends, the consideration received was title to the common stock plus effective control over $ 1.375 billion -- the amount paid by Reed in the transaction. Certainly from the standpoint of Times Mirror, control of the funds was the most important asset received. From the standpoint of Reed, control of the Bender operations was the most important asset received. Neither TMD nor MB Parent had officers or employees. TMD had no operations independent of Times Mirror, and MB Parent had no operations independent of Reed. Unterman testified that Times Mirror was appointed manager of the LLC because TMD had no employees and was solely owned by Times Mirror. He further testified:   Q [Counsel for petitioner] From your perspective as chief   financial officer of Times Mirror, was Times Mirror's management   authority over the assets of the LLC a separate part of the   consideration Times Mirror received for Matthew Bender?   A [Unterman] Not at all. It was all one deal.   Q Could you explain your response, please?   A Well, the economic asset was the cash that was in MB parent,   and*218  the LLC was a way of assuring that the cash would be   invested in a manner that was parallel of Times Mirror's   interests at all times.*191  Under the combined terms of the management agreement, MB Parent's restated certificate of incorporation, MergerSub's certificate of incorporation, the MB Parent stockholders agreement, and the MergerSub shareholders agreement, all incidents of ownership of the $ 1.375 billion were shifted to Times Mirror as of July 31, 1998.Examination of the voting, dividend, redemption, and liquidation provisions of the documents, quoted at length in our findings, confirms respondent's view that only Times Mirror had a continuing economic interest in the cash, and only Reed had a continuing economic interest in Bender. The structure of MB Parent and the dividend provisions assured that any dividends paid to MB Parent from the operations of Bender would be paid to Reed as dividends on MB Parent's preferred stock. Moreover, when the structure was ultimately unwound, TMD would own MB Parent and the LLC and Reed would own Bender.The foregoing factual analysis demonstrates that the consideration received by TMD, as the investment subsidiary of Times*219  Mirror, was not common stock in MB Parent but was control over the cash deposited in the LLC. In relation to the arguments over expert testimony, as discussed below, petitioner asserts that the common stock and the management authority cannot be valued separately because it would have been unthinkable to transfer them separately. But this argument does not aid petitioner's case. Recognizing that no one would separately purchase either the common stock or the management authority confirms respondent's argument that common stock was not the only consideration for the transfer and that the common stock, viewed alone, did not have the value necessary for the transaction to qualify under the reorganization provisions of the Internal Revenue Code.Valuation of MB Parent Common StockPetitioner argues that Times Mirror and Reed "conclusively" agreed that the MB Parent common stock was worth $ 1.375 billion. In the context of the entire agreement, however, the description of the consideration in the merger agreement as common stock was merely a recital consistent with the intended tax effect. We have examined the corporate governing documents to determine whether the MB Parent *192  common stock*220  possessed the requisite value for purposes of section 368(c). Cf. Alumax Inc. v. Commissioner, 109 T.C. 133">109 T.C. 133, 177-191 (1997), affd. 165 F.3d 822">165 F.3d 822 (11th Cir. 1999).The factual analysis of the transaction compels the conclusion that the management authority over the cash in the LLC had far more value to Times Mirror than the MB Parent common stock and thus represented the bulk of the consideration. For completeness, we discuss briefly the expert testimony and the context of petitioner's effective concession that the MB common stock and the management authority over the LLC were inseparable, which we conclude establishes that common stock was not the sole consideration for the Bender transaction.Petitioner's expert, Michael Bradley (Bradley), used a "net asset value approach" to determine that MB Parent's common stock was worth $ 1.375 billion. Using an "avoided costs approach", Bradley determined that the management authority might have a fair market value ranging from $ 9.2 million to $ 44.1 million. Bradley, however, gave no apparent consideration to the contractual aspects of the Bender transaction and assumed -- contrary to any reasonable expectation or*221  contractual possibility -- the immediate dissolution of MB Parent, Bender, and the LLC as of July 31, 1998, the date of the transaction. Bradley and petitioner's other experts, in rebuttal to respondent's experts, asserted that, if separated from economic ownership of the common stock of MB Parent, the management authority had no value to a hypothetical purchaser.Respondent presented three experts who had separately valued the management authority and the MB Parent common stock. Alan C. Shapiro (Shapiro) provided an opinion of the fair market value of the common stock immediately after the merger. Like Bradley, Shapiro began with a determination of net asset value. Shapiro, however, reviewed all of the contractual arrangements and corporate governing documents and concluded that the MB Parent common stock should be discounted substantially for lack of control over the assets. Using various assumptions, such as the net value of MB Parent's assets after liabilities and the scope of fiduciary responsibilities by the manager, Shapiro concluded that the fair market value of the MB Parent common stock ranged *193  from a negative number, through worthless, to a maximum of $ 337 million.Respondent*222  also presented the testimony of William R. Zame (Zame), an economics and mathematics professor, who applied game theory principles to determine the value of the MB Parent common stock uncoupled from the management rights over the LLC. Zame acknowledged that his computed value was not the same as fair market value. He did, however, recognize that:   [because] the common stock of MB Parent represents a derivative   claim to the resources of Eagle I, by analyzing the nature of   that derivative claim it is possible to determine the amount a   rational, well-informed investor might be willing to pay for   this claim, keeping in mind that there are other competing   claims to the resources of Eagle I. It is value in this sense   that this report estimates.Zame applied probabilities to various assumptions and determined the most plausible estimates of the value of the MB Parent common stock as a fraction of the value of the LLC's assets. His analysis concluded that the "upper bounds of the stand-alone value" of the MB Parent common stock ranged from .595 to .800 of the value of the LLC.Another of respondent's experts, Michael J. Barclay*223  (Barclay), addressed the value of the management authority from a financial standpoint. Barclay also considered alternative assumptions about fiduciary duty and concluded that, without a fiduciary duty from the manager to the LLC, MB Parent, or the MB Parent common stockholder, the management authority would have a value approaching $ 1.375 billion. Assuming a fiduciary duty, Barclay opined that the management authority would have a value of 40 percent of $ 1.375 billion.Referring to Bradley's report, petitioner asserts:   Respondent's valuation approach caused his experts to value   rights that did not exist: common stock in an entity managed by   an unrelated, hostile manager, and a management authority giving   unconstrained powers to an unrelated, hostile manager.   Respondent's experts assumed a hypothetical transaction with no   resemblance to the actual transaction or rights. * * *Petitioner claims that the management authority was an uncompensated obligation, not an asset, assigned to Times Mirror as the "residual claimholder" of the LLC's assets.*194  It is indeed unlikely that the authority of Times Mirror under the management agreement*224  would be separated from TMD's ownership of the MB Parent common stock in the real world. However, separation of the management authority from the putative holder of the cash is part of the structure adopted by Times Mirror so that it could maintain its position that the only consideration received by TMD in the Bender transaction was the MB Parent common stock. Times Mirror and its advisers created the scenario that makes it necessary to value the MB Parent common stock at least as a portion of the total consideration. To support its statutory argument, petitioner is asking us to give effect to a fictional separation of the MB Parent common stock transferred to TMD from the management authority transferred to Times Mirror. Additionally, petitioner's criticism of respondent's experts' valuation applies equally to petitioner's valuation, i.e., petitioner's experts ignore relevant facts concerning the property to be valued.We do not need to reach any judgment about the fiduciary obligations that may or may not exist under Delaware law. It is enough to observe that there is uncertainty on that subject, which uncertainty affects value. See Estate of Newhouse v. Commissioner, 94 T.C. 193">94 T.C. 193, 231-233 (1990).*225  We need not determine actual value of the MB Parent common stock, only proportionate value, i.e., whether the stock represents 80 percent of the total consideration paid by Reed. It is possible to engage in interminable arguments about the reports of the various experts presented by the parties in this case. To do so, however, would serve no useful purpose, because it would not affect the commonsense conclusions that (1) the MB Parent common stock cannot be isolated and treated as the sole consideration transferred to TMD for its divestiture of Bender and (2) the common stock of MB Parent, objectively, had a value less than $ 1.1 billion and less than 80 percent of the $ 1.375 billion paid by Reed.Pertinent PrecedentsRespondent invites us to adopt a broad-based approach and apply the "spirit" of the reorganization provisions in order to deter the type of abuse that respondent perceives the Bender transaction to be. We need not and do not accept *195  respondent's invitation. We are, however, mindful of the precedents and judicial homilies that support respondent's position.The source of most "substance over form" arguments, of course, is Gregory v. Helvering, 293 U.S. 465">293 U.S. 465, 79 L. Ed. 596">79 L. Ed. 596, 55 S. Ct. 266">55 S. Ct. 266 (1935).*226 In oft quoted language, the Supreme Court framed the issue as follows:   The legal right of a taxpayer to decrease the amount of what   otherwise would be his taxes, or altogether avoid them, by means   which the law permits, cannot be doubted. But the question for   determination is whether what was done, apart from the tax   motive, was the thing which the statute intended. * * *   [Id. at 469; citations omitted.]Gregory involved a purported statutory reorganization and thus is particularly applicable here. Petitioner argues, however, that "In the 70 years since Gregory was decided, no court has applied substance-form principles to override technical compliance supported by business purpose and true economic effect." Indeed, in Gregory, the Supreme Court disregarded the form of a transaction as having no independent significance. Before elaborating on the application of this principle and "true economic effect" in this case, we acknowledge the so-called progeny of Gregory.Respondent cites Minn. Tea Co. v. Helvering, 302 U.S. 609">302 U.S. 609, 613-614, 82 L. Ed. 474">82 L. Ed. 474, 58 S. Ct. 393">58 S. Ct. 393 (1938), in which the Supreme Court stated that "A given result at the end*227  of a straight path is not made a different result because reached by following a devious path. * * * The controlling principle will be found in Gregory v. Helvering".Respondent also relies on another "reorganization" case, West Coast Mktg. Corp. v. Commissioner, 46 T.C. 32">46 T.C. 32 (1966), in which the sole stockholder and president of the taxpayer corporation desired to dispose of certain land. In order to qualify the disposition as a tax-free reorganization under sections 354(a)(1) and 368(a)(1)(B), a corporation, Manatee, was formed, and the subject land was transferred to Manatee in exchange for stock. The stock of Manatee was then transferred to the acquiring corporation in exchange for its stock. Thereafter, Manatee was liquidated. Citing Minn. Tea Co. v. Helvering, supra, and Gregory v. Helvering, supra, this Court acknowledged that the transaction fell literally within the reorganization provisions but held that "the tax consequences *196  must turn upon the substance of the transaction rather than the form in which it was cast." West Coast Mktg. Corp. v. Commissioner, supra at 40. Respondent argues that MB Parent in the instant case is*228  comparable to the intermediary corporation in West Coast Mktg. Corp. in that it had no business, no offices, and no employees, and it served no purpose other than to create the form necessary to support a claim for tax-free reorganization treatment.In addition to cases cited above, respondent relies on the legislative history of the reorganization provisions, various legislative attempts to prevent abuse, and cases discussing continuity of proprietary interest as "the judicial bulwark and backstop for limiting deferral [nonrecognition] to the kinds of transactions that Congress intended should qualify." See Pinellas Ice & Cold Storage Co. v. Commissioner, 287 U.S. 462">287 U.S. 462, 77 L. Ed. 428">77 L. Ed. 428, 53 S. Ct. 257">53 S. Ct. 257, 1 C.B. 161">1933-1 C.B. 161 (1933); Cortland Specialty Co. v. Commissioner, 60 F.2d 937">60 F.2d 937 (2d Cir. 1932). Petitioner responds with the assertion that "Stock as consideration has always satisfied" the continuity of proprietary interest requirement "even when the stock conveys a highly attenuated economic interest in the acquiring corporation." Here, however, petitioner is again assuming that stock was the sole consideration for the divestiture of Bender -- an assumption we reject under the facts of this case for the reasons*229  discussed above. Moreover, the interest of the MB Parent common stock held by TMD in the Bender operations is not merely "highly attenuated"; it is expressly negated by the evidence.Petitioner does not address Minn.Tea Co. or West Coast Mktg. Corp. Petitioner relies on Esmark, Inc. v. Commissioner, 90 T.C. 171">90 T.C. 171 (1988), affd. without published opinion 886 F.2d 1318">886 F.2d 1318 (7th Cir. 1989), as demonstrating the limitations on applying substance over form analysis to recast a transaction that, on its face, complies with the formal requirements of a statute. Respondent notes that Esmark, Inc. reaffirmed the notion that a taxpayer's receipt of a substantial amount of cash for its property is the hallmark of a sale. See id. at 187.In J. E. Seagram Corp. v. Commissioner, 104 T.C. 75">104 T.C. 75, 94 (1995), the taxpayer, arguing against reorganization treatment in an effort to establish a recognizable loss, relied on the rationale of Esmark, Inc., and this Court responded:  *197  Esmark Inc. involved a series of related transactions   culminating in a tender offer and redemption of a part of the   taxpayer's stock in exchange for certain*230  property. The   Commissioner, seeking to apply the step transaction doctrine,   sought to recharacterize the tender offer/redemption as a sale   of assets followed by a self-tender. While it is true that we   held that each of the preliminary steps leading to the tender   offer/redemption had an independent function, we also held that   the form of the overall transaction coincided with its   substance, and was to be respected. In the case before us,   petitioner would have us respect the independent significance of   DuPont's tender offer, but disregard the overall transaction,   which included the merger. That result would, of course, be   inconsistent as an analogy with the result in Esmark,   Inc. We therefore decline petitioner's request that we apply   Esmark, Inc. to the facts of this case. [Id. at   94.]We believe that the J. E. Seagram Corp. analysis is helpful in this case. In J. E. Seagram Corp. and in Esmark, Inc., we declined to give conclusive effect to a single part of a complex integrated transaction, as petitioner would have us do here.Petitioner relies primarily on two aspects*231  of the documentation to conclude that the Bender transaction qualifies as a tax-free reorganization. The first is the form by which MB Parent common stock flowed to TMD and by which Bender preferred stock flowed to MB Parent. We agree with respondent that this case is more like West Coast Mktg. Corp. than like Esmark, Inc. There are differences, of course. MB Parent was not intended to be, and has not been, liquidated as promptly as the intermediary in West Coast Mktg. Corp. Additionally, MB Parent was putatively formed by the acquirer rather than by the party divesting itself of the property. Given the terms of MB Parent's governing documents and the structure of its several classes of stock, however, it has no more function than the intermediary in West Coast Mktg. Corp. By contrast to the facts in Esmark, Inc., here there is no uncontrolled participation by persons who are not parties to the contractual arrangement, such as the public shareholders in Esmark, Inc., to give substantive economic effect to the existence of MB Parent. To disregard the existence of MB Parent is not to ignore any meaningful step in the transfer of Bender from Times Mirror to Reed.Second, petitioner asserts*232  that "the evidence conclusively establishes that the parties valued the MBP Common at $ 1.375 billion." Petitioner argues that the agreement of the parties as to value was the result of arm's-length negotiations between Times Mirror and Reed. The arm's-length *198  negotiation, however, led to the parties' agreeing to adopt the form of tax-free reorganization, which required a recital that the common stock was the consideration being exchanged for the Bender stock. That language was consistent with Times Mirror's tax objectives, which were accepted by Reed when Reed concluded that it could not acquire the Bender stock without agreeing to those terms. While terms negotiated between the parties may produce evidence of value, they are not conclusive. Cf. Berry Petroleum v. Commissioner, 104 T.C. 584">104 T.C. 584, 615 (1995), affd. without published opinion on other issues 142 F.3d 442">142 F.3d 442 (9th Cir. 1998). In the instant case, the negotiated terms are overcome by the evidence, as discussed above, that the MB Parent common stock did not have a value of $ 1.375 billion or even 80 percent of that amount.Once petitioner acknowledges and asserts that the MB Parent common stock cannot be*233  separated from the authority of Times Mirror, the "ultimate claimholder", to manage the cash in the LLC, the putative 20-percent voting power of the common stock in MB Parent and the bare title of MB Parent in the LLC should be disregarded. MB Parent clearly serves no purpose and performs no function apart from Times Mirror's attempt to secure the desired tax consequences. In this context, we agree with respondent's reliance on Frank Lyon Co. v. United States, 435 U.S. 561">435 U.S. 561, 573, 55 L. Ed. 2d 550">55 L. Ed. 2d 550, 98 S. Ct. 1291">98 S. Ct. 1291 (1978), observing that "the simple expedient of drawing up papers" is not controlling for tax purposes when "the objective economic realties are to the contrary."As we indicated at the beginning of our factual analysis, our understanding of the Bender transaction gives full effect to all of the contractual terms other than the labels assigned. As we indicated in our discussion of the dispute over valuation of the common stock, we agree that it is unrealistic to separate the common stock in MB Parent from the authority to manage $ 1.375 billion in cash held by Times Mirror through the management agreement. Thus, we are simply looking at the operative terms of the Bender transaction by analyzing*234  the respective rights of the parties to it as interpreted by them before, on, and after July 31, 1998.The evidence compels the conclusion that Times Mirror intended a sale, assured that it would receive the proceeds of sale for use in its strategic plans, used the proceeds of sale *199  in its strategic plans without limitation attributable to any continuing rights of Reed, and represented to shareholders and to the SEC that it had full rights to the proceeds of sale. None of these actions were inconsistent with the contractual terms. Thus, we need not "substitute respondent's version" for "what actually transpired." We deal only with what actually transpired and give effect to the legal documentation of the Bender transaction, with key points emphasized by the terms of the documents and the statements made by Times Mirror representatives about what was accomplished in the Bender transaction.In a different but analogous context, the Court of Appeals for the Seventh Circuit has stated:  The freedom to arrange one's affairs to minimize taxes does not   include the right to engage in financial fantasies with the   expectation that the Internal Revenue Service and*235  the courts   will play along. The Commissioner and the courts are empowered,   and in fact duty-bound, to look beyond the contrived forms of   transactions to their economic substance and to apply the tax   laws accordingly. That is what we have done in this case and   that is what taxpayers should expect in the future. * * *   [Saviano v. Commissioner, 765 F.2d 643">765 F.2d 643, 654 (7th Cir.   1985), affg. 80 T.C. 955">80 T.C. 955 (1983).]From any perspective, the "true economic effect" (petitioner's words, quoted above) of the Bender transaction was a sale. Because the consideration paid by the buyer, to wit, unfettered control over $ 1.375 billion in cash, passed to the seller from the buyer, the Bender transaction does not qualify as a reorganization under section 368(a)(1)(B), which requires that the exchange be solely for stock. Because the MB Parent common stock lacked control over any assets, its value was negligible in comparison to the $ 1.1 billion value that would be required to qualify the Bender transaction as a tax-free reorganization under section 368(a)(1)(A) and (a)(2)(E).Evidentiary MattersThe extensive stipulations*236  of the parties included certain documents to which objections were made with the understanding that the objections would be discussed in the posttrial briefs. Respondent objected on relevance, materiality, and hearsay grounds to four articles concerning the failed merger between Reed and Wolters Kluwer. Petitioner *200  did not address these materials in the briefs, and we have not relied on them in our findings. The relevance and hearsay objections will be sustained.Petitioner objects to certain exhibits proposed by respondent, consisting of documents provided to respondent by petitioner or its representatives during the audit and during pretrial negotiations and preparation. Petitioner objects to the materials on the grounds of relevance, relying on Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324">62 T.C. 324, 327 (1974). As to one document authored by petitioner's counsel, petitioner also objects that it was provided in settlement negotiations. See Fed. R. Evid. 408. Although respondent disputes whether petitioner can rely on the rule of Greenberg's Express, Inc. v. Commissioner, supra, respondent does not show how the materials*237  in question are helpful in our resolution of this case. We have not relied on them in our findings of fact. Petitioner's relevance objections are sustained.Petitioner objected at trial and renews on brief an objection to the testimony of Brian Huchro (Huchro), a senior staff accountant in the Division of Enforcement at the SEC who testified on SEC reporting requirements of publicly held companies. Huchro was identified in the trial memorandum and submitted a report as a rebuttal witness to Arthur C. Wyatt (Wyatt), whose report had been submitted by petitioner. At the time of trial, petitioner decided not to call Wyatt and then raised objection to Huchro's testimony. We do not rely on Huchro's report in our findings of fact. The representations made by Times Mirror in various SEC filings are recounted only to show that such representations were made, and we need not draw any conclusions about what was required by the SEC or the relationship of SEC rules to Generally Accepted Accounting Principles.We have considered the arguments of the parties that were not specifically addressed in this Opinion. Those arguments are irrelevant to our decision. In view of our resolution of the primary*238  issue, we do not address respondent's alternative argument under section 269. To reflect the foregoing and to *201  provide for resolution of the Mosby issues, neither tried nor addressed in this opinion,An appropriate order will be issued.  Footnotes1. At cost↩1. Includes Mosby proceeds↩1. At cost↩