SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended October 31, 1993
Commission File Number 1-4925
HARCOURT GENERAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-1619609
State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
27 Boylston Street, Chestnut Hill, Massachusetts 02167
(Address of principal executive offices) (Zip Code)
Registrant's telephone number and area code: 617-232-8200
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
Common Stock, $1.00 par value
Series A Cumulative Convertible New York Stock Exchange
Stock, $1.00 par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $1,871,664,192 on January 20, 1994.
There were 55,912,545 shares of Common Stock, 21,906,566 shares of
Class B Stock and 1,503,894 shares of Series A Cumulative Convertible Stock
outstanding as of January 20, 1994.
______________________
Documents Incorporated by Reference
Portions of the Company's 1993 Annual Report to Stockholders are
incorporated by reference in Parts I, II and IV of this Report. Portions of
the Proxy Statement for the Annual Meeting of Stockholders to be held on
March 11, 1994 are incorporated by reference in Part III of this Report.
HARCOURT GENERAL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1993
TABLE OF CONTENTS
PART I Page No.
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security 8
Holders
PART II
Item 5. Market for the Registrant's Common Equity 9
and Related Stockholder Matters
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 9
Item 9. Changes in and Disagreements with Accountants 10
on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 10
Item 11. Executive Compensation 12
Item 12. Security Ownership of Certain Beneficial 12
Owners and Management
Item 13. Certain Relationships and Related Transactions 12
PART IV
Item 14. Exhibits, Financial Statement Schedules 12
and Reports on Form 8-K
Signatures 14
PART I
Item 1. BUSINESS
General
The principal businesses of Harcourt General, Inc., a Delaware corporation
formed in 1950 (the "Company"), are publishing and specialty retailing. The
Company also has significant operations in insurance and professional services,
consisting of human resources consulting and outplacement services. During
fiscal 1993 and for many years prior thereto, the Company also conducted a
significant motion picture exhibition business under the "General Cinema
Theatres" name. In December 1993, the Company completed the spinoff of this
business to its common shareholders. General Cinema Theatres is now operated
by GC Companies, Inc., an independent public company. See "Motion Picture
Exhibition" below.
A. Publishing
General
The Company acquired its wholly-owned subsidiary Harcourt Brace &
Company ("Harcourt Brace") in a merger accounted for as a pooling of interests
in November 1991. Harcourt Brace is among the world's largest publishing
houses, publishing books and scholarly journals for the educational,
scientific, technical, medical, professional and trade markets. The Company
believes that The Psychological Corporation, a subsidiary of Harcourt Brace, is
the world's largest for-profit publisher of tests for educational,
psychological, clinical and professional assessment. In the professional field,
Harcourt Brace conducts the largest bar examination review program in the
country under the BAR/BRI name, as well as accountant accreditation review
courses. Most of the operations of Harcourt Brace are in the United States,
but Harcourt Brace also has international publishing operations in London,
Tokyo, Sydney, Toronto and Montreal, as well as an export business headquartered
in Orlando, Florida.
Educational Publishing. The educational publishing group includes the
operations of Harcourt Brace School, Holt, Rinehart and Winston, The
Psychological Corporation and Harcourt Brace College. Harcourt Brace School
produces textbooks and related instructional materials for the elementary
grades. Holt, Rinehart and Winston publishes instructional materials for grades
7 through 12. The Psychological Corporation provides aptitude, diagnostic,
achievement and performance tests and related products for educational,
psychological, clinical and professional assessment. The college division
publishes books for the college and university market under the Harcourt Brace
College, Holt College, Saunders College and Dryden Press imprints.
Scientific, Technical, Medical and Professional Publishing. The
scientific, technical, medical and professional publishing group includes the
operations of Academic Press, W.B. Saunders, Harcourt Brace Professional
Publishing and
[page 2]
Harcourt Brace Legal and Professional Publishing. Academic
Press publishes scholarly books and journals in the life, physical and
social sciences. Its books and journals are sold to universities, libraries,
businesses, laboratories and individuals in the United States and abroad. W.B.
Saunders publishes books and periodicals in the health sciences, which are sold
in the United States and abroad. Harcourt Brace Professional Publishing
publishes reference guides and newsletters for certified public accountants.
Harcourt Brace Legal and Professional Publishing conducts review courses for
individuals preparing for bar examinations, CPA accreditation and graduate
school entrance examinations.
Trade Publishing. The Harcourt Brace trade division publishes children's
books, general adult fiction and nonfiction hardcover books, and trade
paperbacks under the Harvest imprint.
Competition
Numerous companies compete in all of the markets in which the Harcourt
Brace businesses operate. The Company believes that the principal competitive
factors for its publishing operations are the quality of its publications and
customer service. The principal competitive factors in obtaining the
publishing rights which are the foundation for the quality of its publications
are the reputation of the Company and its financial resources, editorial and
marketing skills and distribution capabilities.
B. Specialty Retailing
General
The Company owns approximately 65% of the outstanding equity, on a
fully-converted basis, of The Neiman Marcus Group, Inc. ("NMG"), which operates
Neiman Marcus, NM Direct, Bergdorf Goodman and Contempo Casuals.
NMG is a separate public company which is listed on the New York Stock
Exchange and is subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). On October 28, 1993, NMG filed
an Annual Report on Form 10-K with respect to its fiscal year ended July 31,
1993. Following is a brief description of the businesses of NMG. For further
information with respect to NMG, reference may be made to the NMG Annual
Report on Form 10-K and to subsequent reports and other information which may
be filed by NMG from time to time with the Securities and Exchange Commission
(the "Commission").
Neiman Marcus
Neiman Marcus is a high fashion, specialty retailer which offers high
quality women's and men's apparel, fashion accessories, precious jewelry,
decorative
[page 3]
home accessories, fine china, crystal, silver and epicurean products. In
addition, through NM Direct, Neiman Marcus operates a state-of-the-art mail
order business, including the catalogues of Neiman Marcus and Horchow. Neiman
Marcus expects to complete a major expansion of its NM Direct mail order
facility in 1994.
As of October 31, 1993, Neiman Marcus operated 27 stores in 24 cities.
The average Neiman Marcus store size is 142,000 gross square feet and the
stores range in size from 90,000 gross square feet to 269,000 gross square feet.
Neiman Marcus has announced that it plans to open four new stores: one in Short
Hills, New Jersey, in calendar 1995; one in Paramus, New Jersey and one in King
of Prussia, Pennsylvania, both in 1996; and one in Honolulu, Hawaii at a later
date. Neiman Marcus also expects to renovate five of its stores in 1994.
Bergdorf Goodman
Bergdorf Goodman is a high fashion retailer of distinctive high quality
women's and men's apparel, fashion accessories, precious jewelry, decorative
home accessories, fine china, crystal and silver. It operates two leased
stores on Fifth Avenue and 58th Street in New York City. The original store,
consisting of 250,000 gross square feet, is dedicated to women's apparel and
accessories, home furnishings and gifts. Bergdorf Goodman Men, which opened
in August 1990, consists of 66,000 gross square feet and is dedicated to men's
apparel and accessories. Bergdorf Goodman also operates an important mail
order business through NM Direct.
Contempo Casuals
Contempo Casuals operates a chain of retail stores which sells
contemporary fashion apparel and accessories primarily for young women at
generally moderate prices. Almost all apparel sold in Contempo Casuals
stores carries the Contempo Casuals label. In fiscal 1993, approximately
55% of Contempo Casuals' merchandise was produced through internal design.
As of October 31, 1993, Contempo Casuals operated 290 stores, which average
4,000 gross square feet, in leased facilities located primarily in regional
shopping malls in 35 states and Puerto Rico.
Contempo Casuals is evaluating a new chain concept under the name
Pastille, which offers contemporary women's fashion apparel at a value price and
is designed to appeal to a broad group of female consumers between the ages of
25 and 50. As of October 31, 1993, Pastille operated 39 leased stores, which
average 4,600 gross square feet. Pastille also operates a mail order business
through NM Direct.
[page 4]
Competition
NMG's specialty store operations compete with numerous specialty retail
stores and department stores for customers and merchandise. The Company
believes that the principal competitive factors for specialty store operations
are customer service, quality of merchandise, merchandise assortment, store
ambience and price. The NM Direct mail order operations compete in both the
retail and direct mail markets with numerous other retail and direct mail
operations. The Company believes that the principal competitive factors for
the NM Direct mail order operations are customer service, price, merchandise
quality and assortment and catalog presentation.
C. Insurance
General
The Company's Insurance operations underwrite and market insurance and
annuity products in four distinct areas: farm, general agency, structured
settlements and credit.
The farm division underwrites and markets life, accident and health
insurance policies and annuity contracts through The Harvest Life Insurance
Company ("Harvest") and Federal Home Life Insurance Company ("Federal"). The
general agency division underwrites and markets life insurance and annuity
contracts on an individual basis in all 50 states and the District of Columbia.
The structured settlements division underwrites and markets annuity contracts
used in structured settlements, which are an alternative to lump sum cash
payments in the settlement of personal injury cases. Structured settlements
are marketed principally to casualty insurance companies, self-insured
corporations and defense attorneys. The credit insurance division underwrites
and markets life insurance and accident and health insurance in connection with
credit transactions. Policies for the general agency, structured settlements
and credit divisions are underwritten by Federal and PHF Life Insurance
Company. Credit insurance is also underwritten by Harvest.
Competition and Regulation
The insurance business is highly competitive. Most life insurance
companies sell a full range of life, health and annuity policies which are
comparable to those sold by the Company's Insurance operations. The Company
believes that the principal competitive factors for its Insurance business
are financial strength, reputation, price and customer service.
The insurance business is highly regulated. The Company's Insurance
operations must maintain their licenses, which are required to be renewed
annually, in each state in which they do business.
[page 5]
D. Professional Services
The Company believes that Drake Beam Morin ("DBM") is the world's
leading human resources management consulting firm. DBM assists organizations
and individuals worldwide in outplacement, employee selection, performance
evaluation, career management and transition management. DBM has expanded its
services in recent years to include employee training and consulting for
organizations in the process of change. During fiscal 1993, DBM had 67 leased
offices in the United States and 84 offices in 26 countries around the world.
The Company believes that the principal competitive factors for DBM are quality
of service (including its ability to promptly respond to clients' needs for
services) and price.
E. Motion Picture Exhibition
On December 15, 1993, the Company completed the spinoff of its motion
picture exhibition business (known as "General Cinema Theatres") to the holders
of the Company's Common Stock and Class B Stock on December 10, 1993, the
record date for the spinoff. As a result of the spinoff, the motion picture
exhibition business is now operated by GC Companies, Inc. ("GCC"), an
independent public company which is listed on the New York Stock Exchange and
is subject to the reporting requirements of the Exchange Act. The Company has
no equity ownership in GCC. However, Richard A. Smith, the Chairman of the
Board of the Company, serves as the Chairman, President and Chief Executive
Officer of GCC, and Robert J. Tarr, Jr., the President and Chief Executive
Officer of the Company, serves as a director of GCC. In addition, the Company
has certain contractual arrangements with GCC, including an Intercompany
Services Agreement and a Reimbursement and Security Agreement. See Note 2 of
the Notes to the Consolidated Financial Statements for further information
regarding such agreements. For further information with respect to GCC,
reference may be made to the Registration Statement on Form 10 filed by GCC
with the Commission and to subsequent reports and information which may be
filed by GCC from time to time with the Commission.
[page 6]
<TABLE>
F. Certain Additional Information
1. Employees
<CAPTION>
Percentage of Employees
Total Total Number of Each Operating Unit
Number of of Part-Time Covered by Collective
Employees Employees Bargaining Agreements
<S> <C> <C> <C>
Harcourt Brace
Publishing 4,500 55 Less than 1%
The Neiman
Marcus Group 18,000 6,400 Less than 1%
Insurance 570 4 None
Drake Beam Morin 500 4 None
Corporate 130 3 None
</TABLE>
The figures in the above table are approximate as of October 31, 1993 and
exclude the employees of General Cinema Theatres. At October 31, 1993, DBM
also utilized the services of approximately 1,200 independent contractors and
adjunct employees. The Company believes that its relations with its employees
are generally good.
2. Capital Expenditures; Seasonality; Liquidity; Capital Resources
For a review of the Company's financial results for fiscal 1993, including
information on capital expenditures, seasonality, liquidity, capital resources
and other financial information, reference is made to the "Business Review" and
"Financial Review" sections on pages 16 through 23 and 25 through 29,
respectively, of the Company's Annual Report to Stockholders for the fiscal year
ended October 31, 1993 (the "1993 Annual Report"), which is incorporated
herein.
3. Financial Information About Industry Segments
The information set forth under the heading "Additional Financial
Information" in Note 4 of the Notes to the Company's Consolidated Financial
Statements on page 37 of the 1993 Annual Report is incorporated herein.
[page 7]
ITEM 2. PROPERTIES
The Company's corporate headquarters, as well as the corporate
headquarters for The Neiman Marcus Group, Inc., are located in leased
facilities in Chestnut Hill, Massachusetts. The corporate headquarters for
Harcourt Brace's publishing operations are located in a leased office in Lake
Forest, Illinois. The corporate headquarters for the Company's Insurance
operations are located in a leased building in Orlando, Florida. The corporate
headquarters for Drake Beam Morin are located in a leased office in New York
City.
At October 31, 1993, the office, warehouse and other facilities owned or
leased by Harcourt Brace and its affiliates (excluding the Insurance operations)
were located in 29 states, the District of Columbia, Puerto Rico and five
foreign countries.
NMG's operating divisions are headquartered in leased or owned facilities
in Dallas (Neiman Marcus and NM Direct), New York (Bergdorf Goodman) and Los
Angeles (Contempo Casuals). At October 31, 1993, the approximate square
footage used in NMG's operations was as follows:
<TABLE>
<CAPTION>
Owned
Subject to
Owned Ground Lease Leased Total
<S> <C> <C> <C> <C>
Stores ................... 347,000 1,170,300 3,962,500 5,479,800
Distribution centers
and office facilities... 377,000 --- 1,425,100 1,802,100
</TABLE>
Leases for Neiman Marcus stores are generally for periods of up to 30
years, with renewal options for substantial periods, and leases for Contempo
Casuals stores are generally for 10 years, with no renewal options. The lease
on the Bergdorf Goodman main store expires in 2050 and the lease on the Bergdorf
Goodman Men's store expires in 2010, with two 10-year renewal options. Leases
are generally at fixed rentals, except that certain leases provide for
additional rentals based on sales in excess of predetermined levels. NMG also
owns approximately 50 acres of land in Las Colinas, Texas where its computer
facilities and NM Direct are located.
At October 31, 1993, the Company's Insurance operations had leased
offices in 15 states and Drake Beam Morin conducted its business from 67 leased
offices in the United States and 84 offices in 26 countries around the world.
For additional information about the properties of the Company, see Item 1,
above and the information contained in Note 12 of the Notes to the Company's
Consolidated Financial Statements under the heading "Leases", which is
incorporated herein.
[page 8]
ITEM 3. LEGAL PROCEEDINGS
Harcourt Brace and five of its former officers and directors are
defendants in a class action pending before the United States District Court
for the Southern District of New York entitled In re Harcourt Brace Jovanovich,
Inc. Securities Litigation. This action consolidates various actions filed
between February 28, 1990 and April 25, 1990. The allegations in this case
relate to conduct that occurred prior to the acquisition of Harcourt Brace
by the Company. The purported class comprises purchasers of Harcourt Brace's
common stock from March 30, 1989 through November 28, 1989 who allege that
the defendants knew or were reckless in not knowing, among other things,
that Harcourt Brace would not be able to bear the burden of the debt it
incurred as a result of its 1987 recapitalization and its 1988 refinancing
plan, and that it could not meet these obligations out of cash flow from
operations without the sale of substantial
assets. The complaint further alleges that Harcourt Brace's public filings and
reports to shareholders were false and misleading and failed to make required
disclosures concerning these and related matters in violation of Section 10(b)
of the Exchange Act and Rule 10b-5 thereunder, and that, as a result, members of
the class purchased Harcourt Brace common stock at allegedly artificially
inflated prices during the class period. The complaint seeks damages, as well
as costs and expenses of the action, including attorneys' and experts' fees.
In March 1992, a new case, Nivram Corp. v. Harcourt Brace Jovanovich,
Inc., et al., was commenced in the United States District Court for the Southern
District of New York on behalf of a purported class of purchasers of Harcourt
Brace's 12% Exchangeable Preferred Stock against Harcourt Brace and the same
former officers and directors. The allegations in this case also relate to
conduct that occurred prior to the acquisition of Harcourt Brace by the
Company. The Nivram complaint contains virtually identical allegations and
demands as those contained in the case described in the previous paragraph.
In December 1993, the Court denied the Company's motion to dismiss the
Nivram case. Thus, Nivram will be consolidated with the original action
described above.
The Company does not believe that the disposition of the foregoing
litigation or of any other litigation pending against the Company or any of its
subsidiaries will have a material adverse effect on the continuing operations
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
[page 9]
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The following information contained in the 1993 Annual Report is
incorporated herein:
(i) the last paragraph of Note 8 of the Notes to the Company's
Consolidated Financial Statements on page 42 of the 1993 Annual Report
relating to restrictions on the Company's ability to pay dividends;
(ii) "Dividends per share" in Note 14 of the Notes to the Company's
Consolidated Financial Statements on page 47 of the 1993 Annual Report;
and
(iii) "Stock Information" on page 51 of the 1993 Annual Report. In
addition to the information set forth therein with respect to the
Company's
Common Stock and Series A Cumulative Convertible Stock, the Company's
Class B Stock is subject to significant restrictions on transfer and is
not listed or traded on any exchange or in any market. As of January 20,
1994, there were 2,323 record holders of Class B Stock. For further
information with respect to the Class B Stock, including the ownership
of 99.8% of the Class B Stock by the family of Richard A. Smith (the
Chairman of the Board of Directors of the Company), reference is made
to the information contained in the Company's Proxy Statement for
the 1994 Annual Meeting of Stockholders under the heading "Stock
Ownership of Certain Beneficial Owners and Management."
ITEM 6. SELECTED FINANCIAL DATA
The response to this Item is contained in the 1993 Annual Report under the
caption "Five Year Summary" on page 49 and is incorporated herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The response to this Item is contained in the 1993 Annual Report under the
captions "Business Review" on pages 16 through 23 and "Financial Review" on
pages 25 through 29 and is incorporated herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and supplementary data set forth in
[page 10]
Item 14 are incorporated herein.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Directors
The response to this Item regarding the directors of the Company is
contained in the Proxy Statement for the 1994 Annual Meeting of Stockholders
under the caption "Election of Directors" and is incorporated herein.
B. Executive Officers
Below is the name, age and principal occupations for the last five years of
each current executive officer of the Company. All such persons have been
elected to serve until the next annual election of officers and their
successors are elected or until their earlier resignation or removal.
Richard A. Smith - 69
Chairman of the Board of Directors of the Company and of The Neiman
Marcus Group, Inc.; Chief Executive Officer of the Company and of The
Neiman Marcus Group, Inc. until November 25, 1991; Chairman of the
Board, President and Chief Executive Officer of GC Companies, Inc. since
December 1993. Mr. Smith is the father of Robert A. Smith, a director and
officer of the Company, and the father-in-law of Brian J. Knez, an officer
of the Company.
Robert J. Tarr, Jr. - 50
President, Chief Executive Officer (since November 25, 1991), Chief
Operating Officer and Director of the Company and of The Neiman Marcus
Group, Inc.; Director of GC Companies, Inc.
John R. Cook - 52
Senior Vice President and Chief Financial Officer of the Company and of The
Neiman Marcus Group, Inc. since September 1992; Senior Vice President -
Finance and Administration and Chief Financial Officer of NACCO Industries
from 1988 through August 1992.
[page 11]
Eric P. Geller - 46
Senior Vice President and General Counsel of the Company and of The
Neiman Marcus Group, Inc. since May 1992; Vice President and Associate
General Counsel of the Company and of The Neiman Marcus Group, Inc.
prior thereto; Secretary of the Company since December 1991 and of The
Neiman Marcus Group, Inc. since January 1992.
Paul F. Gibbons - 42
Vice President and Treasurer of the Company and of The Neiman Marcus
Group, Inc. since August 1992; Vice President - Taxation of the Company
and of The Neiman Marcus Group, Inc. prior thereto.
Brian J. Knez - 36
Group Vice President of the Company since November 1991; Assistant to
the President of the Company from 1989 to November 1991; Assistant to
the President of the former Beverage Division of the Company prior
thereto.
Mr. Knez is the son-in-law of Richard A. Smith, Chairman of the Board of
Directors of the Company, and the brother-in-law of Robert A. Smith, a
director and officer of the Company.
Richard T. Morgan - 56
President and Chief Executive Officer of Harcourt Brace & Company since
June 1992; President and Chief Executive Officer of Macmillan/McGraw-Hill
School Publishing Company from 1989 through April 1992; President and
Chief Executive Officer of Scott, Foresman & Company prior thereto.
Stephen C. Richards - 38
Vice President and Controller of the Company and of The Neiman Marcus
Group, Inc. since June 1993; Partner, Deloitte & Touche from June 1990 to
May 1993; Senior Manager, Deloitte & Touche prior thereto.
Craig B. Sawin - 37
Vice President - Planning and Analysis of the Company and of The Neiman
Marcus Group, Inc. since 1990; Director of Planning and Analysis and
Director of Administration of the Company and The Neiman Marcus Group,
Inc. prior thereto.
Robert A. Smith - 34
Group Vice President of the Company since December 1991 and of The
Neiman Marcus Group, Inc. since January 1992; Director of the Company
since March 1989; Vice President - Corporate Development of the Company
from December 1988 to December 1991. Mr. Smith is the son of Richard
A. Smith, Chairman of the Board of Directors of the Company, and the
brother-in-law of Brian J. Knez, an officer of the Company.
[page 12]
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is contained in the Proxy Statement for the 1994
Annual Meeting of Stockholders under the captions "Meetings and Committees of
the Board of Directors," "Executive Compensation" and "Transactions Involving
Management and Others" and is incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The response to this Item is contained in the Proxy Statement for the 1994
Annual Meeting of Stockholders under the caption "Stock Ownership of Certain
Beneficial Owners and Management" and is incorporated herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this Item is contained in the Proxy Statement for the 1994
Annual Meeting of Stockholders under the captions "Executive Compensation" and
"Transactions Involving Management and Others" and is incorporated herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
14(a)(1)Financial Statements
The documents listed below are incorporated herein by reference to the
Company's 1993 Annual Report to Shareholders and are incorporated
herein by reference to Item 8 hereof:
Consolidated Balance Sheets - October 31, 1993 and 1992.
Consolidated Statements of Operations for the fiscal years ended
October 31, 1993, 1992 and 1991.
Consolidated Statements of Cash Flows for the fiscal years ended
October 31, 1993, 1992 and 1991.
Consolidated Statements of Shareholders' Equity for the fiscal years
ended October 31, 1993, 1992 and 1991.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
[page 13]
14(a)(2) Consolidated Financial Statement Schedules
The documents and schedules listed below are filed as part of this
Form 10-K:
Page In
Form 10-K
Independent Auditors' Report on Consolidated Financial
Statement Schedules F-1
Schedule II - Accounts Receivable from Related Parties
and Underwriters, Promoters and Employees Other Than
Related Parties F-2
Schedule VIII - Valuation and Qualifying Accounts
and Reserves F-3
Schedule IX - Short-Term Borrowings F-4
Schedule X - Supplemental Income Statement
Information F-5
Insurance Schedules:
Schedule I - Summary of Investments-Other Than
Investments In Affiliates F-6
Schedule VI - Reinsurance F-7
All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission have been omitted
because the information is disclosed in the Consolidated Financial
Statements or because such schedules are not required or are not applicable.
14(a)(3) Exhibits
The exhibits filed as part of this Annual Report are listed in the Exhibit
Index immediately preceding the exhibits. The Registrant has identified with
an asterisk in the Exhibit Index each management contract and compensation plan
filed as an exhibit to this Form 10-K in response to Item 14(c) of Form 10-K.
14(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter ended
October 31, 1993.
[page 14]
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HARCOURT GENERAL, INC.
By: s/Robert J. Tarr, Jr.
Robert J. Tarr, Jr., President,
Chief Executive Officer and
Chief Operating Officer
Dated: January 27, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the following capacities and on the dates indicated.
Signature Title Date
Principal Executive
Officer:
s/Robert J. Tarr, Jr. President, Chief Executive January 27, 1994
Robert J. Tarr, Jr. Officer, Chief Operating
Officer and Director
Principal Financial
Officer:
s/John R. Cook Senior Vice President and January 27, 1994
John R. Cook Chief Financial Officer
Principal Accounting
Officer:
s/Stephen C. Richards Vice President and January 11, 1994
Stephen C. Richards Controller
[PAGE 15]
Directors:
s/William F. Connell January 13, 1994
William F. Connell
s/Jack M. Greenberg January 27, 1994
Jack M. Greenberg
s/Herbert W. Jarvis January 27, 1994
Herbert W. Jarvis
s/Lynn Morley Martin January 27, 1994
Lynn Morley Martin
s/Maurice Segall January 27, 1994
Maurice Segall
s/Richard A. Smith January 27, 1994
Richard A. Smith
s/Robert A. Smith January 27, 1994
Robert A. Smith
s/Paula Stern January 27, 1994
Paula Stern
s/Sidney Stoneman January 10, 1994
Sidney Stoneman
s/Hugo Uyterhoeven January 10, 1994
Hugo Uyterhoeven
[Page F-1]
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Harcourt General, Inc.
Chestnut Hill, Massachusetts
We have audited the consolidated financial statements of Harcourt General, Inc.
and its subsidiaries (the Company) as of October 31, 1993 and l992 and for
each of the three years in the period ended October 31, l993, and have issued
our report thereon dated December 16, l993. Such consolidated financial
statements and report are included in the Company's 1993 Annual Report to
Stockholders and are incorporated herein by reference. Our audits also
included the consolidated financial statement schedules of Harcourt General,
Inc. and its subsidiaries, listed in Item 14(a)(2). These consolidated
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such consolidated financial statement schedules, when
considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set
forth therein.
DELOITTE & TOUCHE
Boston, Massachusetts
December 16, l993
[page F-2]
<TABLE>
SCHEDULE II
HARCOURT GENERAL, INC. AND SUBSIDIARIES
ACCOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES
OTHER THAN RELATED PARTIES
THREE YEARS ENDED OCTOBER 31, 1993
(In thousands)
<CAPTION>
COLUMN A COLUMN B COLUMN C
Balance at
Beginning
Name of Debtor of Period Additions
<S> <C> <C>
YEAR ENDED OCTOBER 31, 1993
Peter Farwell (A) $ 150 $ -
Eric P. Geller (A) 113 132
Robert J. Tarr, Jr. (A) 794 886
J. Atwood Ives (B) 288 -
Robert J. Tarr, Jr. (C) - 1,019
Robert J. Tarr, Jr. (D) 1,000 -
Richard A. Smith (E) 1,312 426
James P. Levy (F) - 200
YEAR ENDED OCTOBER 31, 1992
Samuel Frankenheim (A) $ 130 $ -
Eric P. Geller (A) 113 -
J. Atwood Ives (A) 450 -
Mayer Rabinovitz (A) 23 -
Robert J. Tarr, Jr. (A) 859 -
Peter Farwell (A) - 150
J. Atwood Ives (B) 288 -
Robert J. Tarr, Jr. (D) - 1,000
Richard A. Smith (E) 883 429
Robert Painter (G) 150 -
YEAR ENDED OCTOBER 31, 1991
Samuel Frankenheim (A) $ 222 $ 539
Eric P. Geller (A) 96 17
J. Atwood Ives (A) 771 -
Mayer Rabinovitz (A) 101 56
Robert J. Tarr, Jr.(A) 797 418
A. Anthony Trauber (A) 162 -
J. Atwood Ives (B) 292 -
Richard A. Smith (E) 436 447
Robert Painter (G) - 150'
TABLE CONTINUED
<CAPTION>
COLUMN D COLUMN E
Deductions Balance at End
of Period
Amounts
Amounts Written Not
Name of Debtor of Collected Off Current Current
<S> <C> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1993
Peter Farwell (A) $ - $ - $ - $ 150
Eric P. Geller (A) - - - 245
Robert J. Tarr, Jr.(A) 467 - - 1,213
J. Atwood Ives (B) - - - 288
Robert J. Tarr, Jr.(C) 127 - 255 637
Robert J. Tarr, Jr.(D) 250 - - 750
Richard A. Smith (E) - - - 1,738
James P. Levy (F) 200 - 40 160
YEAR ENDED OCTOBER 31, 1992
Samuel Frankenheim (A) $130 $ - $ - $ -
Eric P. Geller (A) - - - 113
J. Atwood Ives (A) 450 - - -
Mayer Rabinovitz (A) - - 23 -
Robert J. Tarr, Jr.(A) 65 - - 794
Peter Farwell (A) - - - 150
J. Atwood Ives (B) - - - 288
Robert J. Tarr, Jr.(D) - - - 1,000
Richard A. Smith (E) - - - 1,312
Robert Painter (G) 150 - - -
YEAR ENDED OCTOBER 31, 1991
Samuel Frankenheim (A) $631 $ - $130 $ -
Eric P. Geller (A) - - - 113
J. Atwood Ives (A) 321 - 450 -
Mayer Rabinovitz (A) 134 - - 23
Robert J. Tarr, Jr.(A) 356 - - 859
A. Anthony Trauber (A) 162 - - -
J. Atwood Ives (B) 4 - 288 -
Richard A. Smith (E) - - - 883
Robert Painter (G) - - 150 -
(A) Loans represent notes receivable due under the Company's 1975 Key
Executive Stock Purchase Loan Plan or the Company's 1983 Key Executive
Stock Purchase Loan Plan; interest is payable quarterly at a rate, based
upon a formula, which ranged from 2.81% to 6.00% at October 31, 1993;
principal is due at employment termination subject to certain stipulations
provided in said plans.
(B) Loan represents notes receivable permitted under November 19, 1974
employment agreement; quarterly interest payable at 5% per annum; principal
due December 1, 1996.
(C) Loan represents a note receivable permitted under a supplement to the
November 25, 1991 employment agreement. The loan is non-interest bearing and
is due in 16 quarterly installments commencing June 15, 1993. The loan is
secured by the Company's right to offset any amounts payable by the Company
to Mr. Tarr.
(D) Loan represents a note receivable permitted under the November 25, 1991
employment agreement; annual interest payable at 5%, principal due and
payable in full twelve months after the end of the term of the employment
agreement. The loan is secured by a mortgage on real property.
(E) As approved by the Board of Directors, the Company has agreed to make
advances of a portion of the premiums payable on a split dollar life
insurance policy purchased by a trust on the joint lives of Mr. and Mrs.
Richard A. Smith. The Company is entitled to reimbursement of the amounts
advanced, without interest, upon the first to occur of (a) the death of
the survivor of Mr. and Mrs. Smith or (b) the surrender of the policy.
These advances are secured by a collateral assignment of the policy to the
Company.
(F) Loan represents a note receivable due under a promissory note dated
September 13, 1993. If employment does not terminate, the loan will be
forgiven in five equal and annual increments through September 13, 1998
and bears no interest. If employment terminates, the note will be
forgiven, due in 30 days or due in 12 months depending on the circumstances.
The loan is secured by a mortgage on real property.
(G) Loan with interest payable monthly at 8% per annum; paid in full in December
1991.
</TABLE>
[page F-3]
<TABLE>
SCHEDULE VIII
HARCOURT GENERAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THREE YEARS ENDED OCTOBER 31, 1993
(In thousands)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts- Deductions- End
Description of Period Expenses Describe Describe of Period
YEAR ENDED OCTOBER 31, 1993
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $12,781 $23,616 - $16,034 (A) $20,363
(deducted from accounts
receivable)
Allowance for book returns $45,576 $79,345 - $75,191 (B) $49,730
(deducted from accounts
receivable)
YEAR ENDED OCTOBER 31, 1992
Allowance for doubtful
accounts $12,062 $16,612 - $15,893 (A) $12,781
(deducted from accounts
receivable)
Allowance for book returns $42,880 $69,912 - $67,216 (B) $45,576
(deducted from accounts
receivable)
YEAR ENDED OCTOBER 31, 1991
Allowance for doubtful
accounts $11,342 $16,192 $2,383 (C) $17,855 (A) $12,062
deducted from accounts
receivable)
Allowance for book returns $37,099 $62,401 $ 766 (C) $57,386 (B) $42,880
(deducted from accounts
receivable)
(A) Write-off of uncollectible accounts net of recoveries.
(B) Books actually returned during the year.
(C) Adjustment to conform Harcourt Brace's fiscal year to October 31.
</TABLE>
[page F-4]
<TABLE>
SCHEDULE IX
HARCOURT GENERAL, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
THREE YEARS ENDED OCTOBER 31, 1993
(In thousands)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Maximum Average Weighted
Weighted Amount Amount Average
Balance at Average Outstanding Outstanding Interest Rate
Category of Aggregate End of Interest During the During the During the
Short-term Borrowings Period Rate Period(A) Period(A) Period(B)
Year ended October 31, 1993
<S> <C> <C> <C> <C> <C>
Payable to Banks(C)(D) $27,200 3.47% $41,500 $11,500 3.38%
Year ended October 31, 1992
Payable to Banks(C) $6,500 3.30% $74,000 $22,042 5.48%
Year ended October 31, 1991
Payable to Banks(C) $9,000 6.09% $124,000 $71,992 7.55%
(A) Based on amounts outstanding at month-end.
(B) Based on daily averages.
(C) Interest and principal are payable in full at the due date.
(D) Represents amounts payable by The Neiman Marcus Group, Inc.
</TABLE>
[page F-5]
<TABLE>
SCHEDULE X
HARCOURT GENERAL, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION(A)
THREE YEARS ENDED OCTOBER 31, 1993
(In thousands)
<CAPTION>
Column A Column B
Charged to Costs and Expenses
Item 1993 1992 1991
<S> <C> <C> <C>
Depreciation and amortization of intangible
assets, preopening costs and similar
deferrals $42,277 $39,348 $42,456
Royalties 63,416 60,428 58,051
Advertising costs 58,823 47,463 41,955
(A) From continuing operations.
</TABLE>
[page F-6]
<TABLE>
SCHEDULE I
HARCOURT GENERAL, INC. AND SUBSIDIARIES
HARCOURT GENERAL INSURANCE COMPANIES
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN AFFILIATES
OCTOBER 31, l993
(In thousands)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
Amount at
which shown in
Type of investment Cost Value the balance sheet
<S> <C> <C> <C> <C>
Fixed Maturity Securities:
Bonds:
United States Government and
government agencies and authorities $ 533,587 $ 555,949 $ 533,587
States, municipalities and
political subdivisions 242,391 252,313 242,391
Foreign governments 78,518 86,161 78,518
Public utilities 267,695 302,328 267,695
All other corporate bonds 1,543,187 1,719,099 1,543,187
Total Fixed Maturity Securities $2,665,378 $2,915,850 $2,665,378
Equity Securities:
Public Utilities 971 964 964
Industrial, miscellaneous and
all others 189 70 70
Total Equity Securities 1,160 1,034 1,034
Mortgage Loans on Real Estate 8,994 8,994
Real Estate(A) 16,945 16,945
Policy Loans 25,330 25,330
Other Long-term Investments 1,200 1,200
Short-term Investments 107,044 107,044
Total Other Investments 159,513 159,513
Total Investments $2,826,051 $2,825,925
(A) Includes a $15,000 reserve for other than temporary market losses in real
estate holdings which were acquired in satisfaction of debt.
</TABLE>
[page F-7]
<TABLE>
SCHEDULE VI
HARCOURT GENERAL, INC. AND SUBSIDIARIES
HARCOURT GENERAL INSURANCE COMPANIES
REINSURANCE
THREE YEARS ENDED OCTOBER 31, 1993
(Dollar amounts in thousands)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Percentage
Ceded to Assumed of Amount
Gross Other from Other Net Assumed to
Amount Companies Companies Amount Net
YEAR ENDED OCTOBER 31, 1993
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $8,021,484 $1,614,987 $ 1,479 $6,407,976 0.02%
Premiums
Life Insurance $ 133,088 $ 14,867 $ - $ 118,221 0.00%
Accident and health
insurance 182,118 29,021 - 153,097 0.00%
Total premiums $ 315,206 $ 43,888 $ - $ 271,318 0.00%
YEAR ENDED OCTOBER 31, 1992
Life Insurance in Force $8,163,878 $1,366,179 $ - $6,797,699 0.00%
Premiums
Life Insurance $ 88,705 $ 19,244 $ 1 $ 69,462 0.00%
Accident and health
insurance 200,883 28,635 - 172,248 0.00%
Total premiums $ 289,588 $ 47,879 $ 1 $ 241,710 0.00%
YEAR ENDED OCTOBER 31, 1991
Life Insurance in Force $8,616,716 $1,128,142 $ - $7,488,574 0.00%
Premiums
Life Insurance $ 108,876 $ 11,311 $ 375 $ 97,940 0.38%
Accident and health
insurance 184,459 18,350 1 166,110 0.00%
Total premiums $ 293,335 $ 29,661 $ 376 $ 264,050 0.14%
</TABLE>
EXHIBIT INDEX
Page
No.
3.1 Restated Certificate of Incorporation of the Company,
as amended.
3.2 By-Laws of the Company, as amended, incorporated herein by
reference to Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1991.
4.1 Indenture, dated as of May 1, 1987, between the Company
and Manufacturers Hanover Trust Company, as Trustee and
(a) Terms Agreement, dated June 23, 1987, among the
Company, The First Boston Corporation and Salomon
Brothers Inc relating to the Company's 9 3/8%
Subordinated Notes due 1997, incorporated herein by
reference to Exhibit 4.3 to the Company's Report on
Form 8-K, dated June 23, 1987, and to Exhibit 4.3 to
the Company's Registration Statement on Form S-3, File
No. 33-13936, and (b) Terms Agreement, dated March 16,
1988, among the Company, The First Boston Corporation
and Salomon Brothers Inc relating to the Company's
9 1/2% Subordinated Notes due 2000, incorporated herein
by reference to Exhibit 1 to the Company's Report on
Form 8-K, dated March 16, 1988.
4.2 Indenture, dated as of April 23, 1992, between the
Company and Bankers Trust Company, as Trustee, relating
to the 8 1/4% Senior Notes Due 2002 and the 8 7/8%
Senior Debentures Due 2022, incorporated herein by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-3, File No. 33-46148.
4.3 Smith-Lurie/Marks Stockholders' Agreement, dated
December 29, 1986, as supplemented January 8, 1988,
December 5, 1988, April 29, 1989 and December 5, 1990,
incorporated herein by reference to Exhibit 4.5 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1992.
*10.1 Executive Incentive Bonus Plan, as amended, incorporated
herein by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 31, 1986.
*10.2 1981 Stock Option Plan, as amended and restated, incorpor-
ated herein by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 31, 1987.
*10.3 1988 Stock Incentive Plan, incorporated herein by reference
to Exhibit 28.1 to the Company's Registration Statement on
Form S-8, File No. 33-26079.
*10.4(a) 1975 Key Executive Stock Purchase Loan Plan, as amended,
incorporated herein by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1982.
*10.4(b) 1983 Key Executive Stock Purchase Loan Plan, as amended,
incorporated herein by reference to Exhibit 10.4(b) to
the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1984.
*10.5 Executive Medical Plan, as amended, incorporated herein
by reference to Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the fiscal year ended October
31, 1991.
*10.6(a) Supplemental Executive Retirement Plan, incorporated
herein by reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 31, 1988.
*10.6(b) Amendment to Supplemental Executive Retirement Plan,
dated October 26, 1990, incorporated herein by reference
to Exhibit 10.7(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1990.
*10.7 Deferred Compensation and Retirement Income Plan for
Non-Employee Directors.
*10.8 Deferred Compensation Agreement between the Company and
Herbert W. Jarvis, a director, incorporated herein by
reference to Exhibit 10.12(b) to the Company's Annual
Report on Form 10-K for the fiscal year ended October
31, 1981.
*10.9 Amended and Restated Deferred Compensation Agreement,
dated August 27, 1990, between the Company and Richard A.
Smith, incorporated herein by reference to Exhibit 10.13
the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1990.
10.10 Intercompany Services Agreement, dated as of July 24,
1987, between the Company and NMG, incorporated herein
by reference to Exhibit 10.17(c) to the Company's Annual
Report on Form 10-K for the fiscal year ended October 31,
1987.
10.11 Intercompany Services Agreement, dated as of December
14, 1993, between the Company and GC Companies, Inc.
10.12 Reimbursement and Security Agreement, dated as of
December 14, 1993, between the Company and GC
Companies, Inc.
10.13 Split Dollar Life Insurance Agreement, dated as of June 21,
1990, by and between the Company and the Richard and Susan
Smith 1990 Issue Trust, under a Declaration of Trust
dated as of April 3, 1990, incorporated herein by
reference to Exhibit 10.17 to the Company's Annual Report
on Form 10-K for the fiscal year ended October 31, 1991.
*10.14 Key Employee Deferred Compensation Plan, incorporated herein
by reference to Exhibit 10.18 to the Company's Annual Report
on Form 10-K for the fiscal year ended October 31, 1991.
*10.15(a) Employment Agreement, dated as of November 15, 1991,
by and between the Company and Robert J. Tarr, Jr.,
incorporated herein by reference to Exhibit 10.19 to
the Company's Annual Report on Form 10-K for the fiscal
year ended October 31, 1991.
*10.15(b) Supplemental Agreement, dated as of December 17, 1992,
by and between the Company and Robert J. Tarr, Jr.,
incorporated herein by reference to Exhibit 10.16(b)
to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1992.
11.1 Computation of Average Number of Shares Outstanding
Used In Determining Primary and Fully Diluted Earnings
Per Share.
13.1 1993 Annual Report to Stockholders (which is not deemed
to be filed except to the extent that portions thereof
are expressly incorporated by reference in this Annual
Report on Form 10-K).
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche.
__________________________
* Exhibits filed pursuant to Item 14(c) of Form 10-K.
Exhibit 3.1
COMPOSITE COPY
MARCH 15, 1993
RESTATED CERTIFICATE OF INCORPORATION
OF
HARCOURT GENERAL, INC.
(AS AMENDED THROUGH MARCH 15, 1993)
(ORIGINALLY INCORPORATED UNDER THE NAME
MID-WEST DRIVE-IN THEATRES, INC. ON NOVEMBER 1, 1950)
FIRST: The name of the corporation is HARCOURT GENERAL, INC.
SECOND: Its registered office in the State of Delaware is located at
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name and address of its registered agent is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801.
THIRD: The nature of the business, or objects or purposes to be
transacted, promoted or carried on are:
To own, operate, and manage hotels or motels; to purchase and acquire
land, buildings, leases, contracts, options, corporate shares, trust
certificates and any and all other property, rights or interests in hotel or
motel enterprises, to buy, sell, lease and deal in hotel or motel furnishings,
equipment and supplies of every kind.
To own, operate and manage places of amusement, including motion
pictures, theatrical productions, vaudeville exhibitions, bowling alleys,
sports arenas, skating rinks, and all other athletic and recreational
facilities for public exhibition or participation, and other enterprises
incidental thereto; to purchase and acquire land, buildings, leases,
contracts, options, corporate shares, trust certificates and any and all other
property, rights or interests in amusement enterprises or activities in
connection therewith; to buy, sell, lease and deal in apparatus, furnishings,
equipment and supplies of every kind used or useful in amusement enterprises,
and contracts for every variety of entertainment, and to construct and erect
buildings or other structures of any and every kind required or incidental to
the purposes of this corporation; to borrow money and contract indebtedness
for all proper corporate purposes, to issue bonds, notes and other evidences
of indebtedness therefor, to secure the same by franchises, rights, property,
assets and goodwill of this corporation; and to assume or guarantee and secure
in like manner the leases, contracts or other obligations and the payment of
any dividends on any stock or shares and the principal or interest on any
bonds, notes or other evidences of indebtedness of any person, firm,
association, trust or other corporation, and to lend money to or advance money
in behalf of any person, firm, association, trust or other corporation, in
which this corporation has an interest.
To lend money, to advance money in behalf of, or invest in the stock,
bonds, notes, debentures or other securities of any person, firm, association,
trust or corporation engaged in the business of acquiring, building, equipping
or operating restaurants, particularly, but without limitation, curb service
restaurants so called, or engage in the business of acquiring real estate or
interests in real estate upon which restaurants are to be constructed.
To engage in the business of buying, preparing and selling foods and
beverages of all kinds and to operate restaurants, liquor lounges, snack bars
or refreshment stands in conjunction with, or as an incident to, any of the
other enterprises in which the corporation may be engaged.
1
To purchase, lease or otherwise acquire, own, hold, use, develop, improve
and otherwise deal in and with, and sell, convey, mortgage, lease, exchange,
transfer and otherwise dispose of real estate and any interests in real
estate.
To lend money, to advance money on behalf of, or invest in the stocks,
bonds, notes, debentures, securities or obligations of any person, firm,
association, trust or corporation engaged in an enterprise organized for any
of the purposes hereinbefore enumerated in this Article Third.
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware, whether or not
similar or related or incidental to or useful or advantageous in or in
connection with any of the purposes or enterprises hereinbefore enumerated in
this Article Third.
FOURTH: The total number of shares of capital stock of all classes which
this corporation shall have authority to issue shall be 180,000,000 shares, to
wit: (a) 100,000,000 shares of Common Stock with a par value of $1.00 per
share, (b) 40,000,000 shares of Class B Stock with a par value of $1.00 per
share and (c) 40,000,000 shares of Preferred Stock with a par value of $1.00
per share. (Modified by amendment November 25, 1991.)
The powers, preferences and the relative, participating, optional and
other rights and the qualifications, limitations and restrictions thereof, of
each class of stock, and the express grant of authority to the Board of
Directors to fix by resolution the designations and the powers, preferences
and rights of each share of Preferred Stock and the qualifications,
limitations and restrictions thereof which are not fixed by this Restated
Certificate of Incorporation, are as follows:
A. COMMON STOCK AND CLASS B STOCK
I. Dividends, etc. Subject to the rights of the holders of Preferred
Stock, and subject to any other provisions of this Restated Certificate of
Incorporation, as amended from time to time, holders of Common Stock and Class
B Stock shall be entitled to receive such dividends and other distributions in
cash, stock or property of the corporation as may be declared thereon by the
Board of Directors from time to time out of assets or funds of the corporation
legally available therefor, provided that in the case of cash dividends, if at
any time a cash dividend is paid on the Common Stock, a cash dividend will
also be paid on the Class B Stock in an amount per share of Class B Stock
equal to 90% of the amount of the cash dividend paid on each share of the
Common Stock (rounded down, if necessary, to the nearest one-hundredth of a
cent), and provided, further, that in the case of dividends or other
distributions payable in stock of the corporation other than Preferred Stock,
including distributions pursuant to stock splits or divisions of stock of the
corporation other than Preferred Stock, including distributions pursuant to
stock splits or divisions of stock of the corporation other than Preferred
Stock, which occur after the initial issuance of shares of Class B Stock by
the corporation, only shares of Common Stock shall be distributed with respect
to Common Stock and only shares of Class B Stock in an amount per share equal
to the amount per share paid with respect to the Common Stock shall be
distributed with respect to Class B Stock, and that, in the case of any
combination or reclassification of the Common Stock, the shares of Class B
Stock shall also be combined or reclassified so that the number of shares of
Class B Stock outstanding immediately following such combination or
reclassification shall bear the same relationship to the number of shares
outstanding immediately prior to such combination or reclassification as the
number of shares of Common Stock outstanding immediately following such
combination or reclassification bears to the number of shares of Common Stock
outstanding immediately prior to such combination or reclassification.
II. Voting. (a) At every meeting of the stockholders every holder of
Common Stock shall be entitled to one (1) vote in person or by proxy for each
share of Common Stock standing in his name on the transfer books of the
corporation and every holder of Class B Stock shall be entitled to one (1)
vote in person or by proxy for each share of Class B Stock standing in his
name on the transfer books of the corporation, except that each holder of
Class B Stock shall be entitled to ten (10) votes per share on the election of
any directors at any stockholders' meeting if more than 20% of the shares of
Common Stock outstanding on the record date for such meeting are beneficially
owned by, or if more
2
than 20% of the total voting power attributable to the shares of the Common
Stock outstanding on the record date for such meeting are voted either
directly or by proxy for a person or persons other than those nominated by the
Board of Directors by, a person or group of persons acting in concert (unless
such person or group is also the beneficial owner of a majority of the shares
of Class B Stock on such record date). (Added by amendment March 14, 1986.)
(b) The provisions of this Restated Certificate of Incorporation shall
not be modified, revised, altered or amended, repealed or rescinded in whole
or in part, without the affirmative vote of the holders of a majority of the
shares of the Common Stock and of a voting majority of the shares of the Class
B stock, each voting separately as a class.
(c) The corporation may not effect or consummate:
(1) any merger or consolidation of the corporation with or into any
other corporation;
(2) any sale, lease, exchange or other disposition of all or
substantially all of the assets of the corporation to or with any other
person; or
(3) any dissolution of the corporation;
unless and until such transaction is authorized by the vote, if any, required
by Article Eighth of this Restated Certificate of Incorporation and by
Delaware law; and unless and until such transaction is authorized by a
majority of the voting power of the shares of Common Stock and of Class B
Stock entitled to vote, each voting separately as a class, but the foregoing
shall not apply to any merger or other transaction described in the preceding
subparagraphs (1) and (2) if the other party to the merger or other
transaction is a Subsidiary of the corporation.
For purposes of this paragraph (c) a 'Subsidiary' is any corporation more
than 50% of the voting securities of which are owned directly or indirectly by
the corporation; and a 'person' is any individual, partnership, corporation or
entity.
(d) Following the initial issuance of shares of Class B Stock, the
corporation may not effect the issuance of any additional shares of Class B
Stock (except in connection with stock splits and stock dividends) unless and
until such issuance is authorized by the holders of a majority of the voting
power of the shares of Common Stock and of Class B Stock entitled to vote,
each voting separately as a class.
(e) Every reference in this Restated Certificate of Incorporation to a
majority or other proportion of shares of stock shall refer to such majority
or other proportion of the votes of such shares of stock.
(f) Except as may be otherwise required by law or by this Article Fourth,
the holders of Common Stock and Class B Stock shall vote together as a single
class, subject to any voting rights which may be granted to holders of
Preferred Stock.
III. Transfer.
(a) No person holding shares of Class B Stock of record (hereinafter
called a 'Class B Holder') may transfer, and the corporation shall not
register the transfer of, such shares of Class B Stock, whether by sale,
assignment, gift, bequest, appointment or otherwise, except to a Permitted
Transferee. A Permitted Transferee shall mean, with respect to each person
from time to time shown as the record holder of shares of Class B Stock:
(i) In the case of a Class B Holder who is a natural person;
(A) The spouse of such Class B Holder, any lineal descendant of a
grandparent of such Class B Holder, and any spouse of such lineal
descendant (which lineal descendants, their spouses, the Class B
Holder, and his or her spouse are herein collectively referred to as
'Class B Holder's Family Members');
3
(B) The trustee of a trust (including a voting trust) principally
for the benefit of such Class B Holder and/or one or more of his or
her Permitted Transferees described in each subclause of this clause
(i) other than this subclause (B), provided that such trust may also
grant a general or special power of appointment to one or more of such
Class B Holder's Family Members and may permit trust assets to be used
to pay taxes, legacies and other obligations of the trust or of the
estates of one or more of such Class B Holder's Family Members payable
by reason of the death of any such Family Members;
(C) Any organization contributions to which are deductible for
federal income, estate or gift tax purposes of any split-interest
trust described in Section 4947 of the Internal Revenue Code, as it
may from time to time be amended (hereinafter called a 'Charitable
Organization');
(D) A corporation a majority of the beneficial ownership of
outstanding capital stock of which entitled to vote for the election
of directors is owned by, or a partnership a majority of the
beneficial ownership of the partnership interests of which entitled to
participate in the management of the partnership are held by, the
Class B Holder or his or her Permitted Transferees determined under
this clause (i), provided that if by reason of any change in the
ownership of such stock or partnership interests, such corporation or
partnership would no longer qualify as a Permitted Transferee, all
shares of Class B Stock then held by such corporation or partnership
shall, upon the election of the corporation given by written notice to
such corporation or partnership, without further act on anyone's part,
be converted into shares of Common Stock effective upon the date of
the giving of such notice, and stock certificates formerly
representing such shares of Class B Stock shall thereupon and
thereafter be deemed to represent the like number of shares of Common
Stock; and
(E) The estate of such Class B Holder.
(ii) In the case of a Class B Holder holding the shares of Class B
Stock in question as trustee pursuant to a trust (other than a Charitable
Organization or a trust described in clause (iii) below), 'Permitted
Transferee' means (A) any person transferring Class B Stock to such trust
and (B) any Permitted Transferee of any such transferor determined
pursuant to clause (i) above.
(iii) In the case of a Class B Holder holding the shares of Class B
Stock in question as trustee pursuant to a trust (other than a Charitable
Organization) which was irrevocable on the record date (hereinafter in
this Section III called the 'Record Date') for determining the persons to
whom the Class B Stock is first issued by the corporation, 'Permitted
Transferee' means (A) any person to whom or for whose benefit principal
may be distributed either during or at the end of the term of such trust
whether by power of appointment or otherwise and (B) any Permitted
Transferee of any such person determined pursuant to clause (i) above.
(iv) In the case of a Class B Holder which is a Charitable
Organization holding record and beneficial ownership of the shares of
Class B Stock in question, 'Permitted Transferee' means any Class B
Holder.
(v) In the case of a Class B Holder which is a corporation or
partnership (other than a Charitable Organization) acquiring record and
beneficial ownership of the shares of Class B Stock in question upon its
initial issuance by the corporation, 'Permitted Transferee' means (A) any
partner of such partnership, or stockholder of such corporation, on the
Record Date, (B) any person transferring such shares of Class B Stock to
such corporation or partnership, and (C) any Permitted Transferee of any
such person, partner, or stockholder referred to in subclauses (A) and
(B) of this clause (v), determined under clause (i) above.
(vi) In the case of a Class B Holder which is a corporation or
partnership (other than a Charitable Organization or a corporation or
partnership described in clause (v) above) holding record and beneficial
ownership of the shares of Class B Stock in question, 'Permitted
Transferee'
4
means (A) any person transferring such shares of Class B Stock to such
corporation or partnership and (B) any Permitted Transferee of any such
transferor determined under clause (i) above.
(vii) In the case of a Class B Holder which is the estate of a
deceased Class B Holder, or which is the estate of a bankrupt or
insolvent Class B Holder, which holds record and beneficial ownership of
the shares of Class B Stock in question, 'Permitted Transferee' means a
Permitted Transferee of such deceased, bankrupt or insolvent Class B
Holder as determined pursuant to clause (i), (ii), (iii), (iv), (v) or
(vi) above, as the case may be.
(b) Notwithstanding anything to the contrary set forth herein, any Class
B Holder may pledge such Holder's shares of Class B Stock to a pledgee
pursuant to a bona fide pledge of such shares as collateral security for
indebtedness due to the pledgee, provided that such shares shall not be
transferred to or registered in the name of the pledgee and shall remain
subject to the provisions of this Section III. In the event of foreclosure or
other similar action by the pledgee, such pledged shares of Class B Stock may
only be transferred to a Permitted Transferee of the pledgor or converted into
shares of Common Stock, as the pledgee may elect.
(c) For purposes of this Section III:
(i) The relationship of any person that is derived by or through legal
adoption shall be considered a natural one.
(ii) Each joint owner of shares of Class B Stock shall be considered a
'Class B Holder' of such shares.
(iii) A minor for whom shares of Class B Stock are held pursuant to a
Uniform Gifts to Minors Act or similar law shall be considered a Class B
Holder of such shares.
(iv) Unless otherwise specified, the term 'person' means both natural
persons and legal entities.
(v) Without derogating from the election conferred upon the
corporation pursuant to subclause (D) of clause (i) above, each reference
to a corporation shall include any successor corporation resulting from
merger or consolidation; and each reference to a partnership shall
include any successor partnership resulting from the death or withdrawal
of a partner.
(d) Any transfer of shares of Class B Stock not permitted hereunder shall
result in the conversion of the transferee's shares of Class B Stock into
shares of Common Stock, effective the date on which certificates representing
such shares are presented for transfer on the books of the corporation. The
corporation may, in connection with preparing a list of stockholders entitled
to vote at any meeting of stockholders, or as a condition to the transfer or
the registration of shares of Class B Stock on the corporation's books,
require the furnishing of such affidavits or other proof as it deems necessary
to establish that any person is the beneficial owner of shares of Class B
Stock or is a Permitted Transferee.
(e) At any time when the number of outstanding shares of Class B Stock as
reflected on the stock transfer books of the corporation falls below 12 1/2%
of the aggregate number of the issued and outstanding shares of the Common
Stock, Class B Stock and Series A Stock of the corporation, or the Board of
Directors and the holders of a majority of the outstanding shares of Class B
Stock approve the conversion of all of the Class B Stock into Common Stock,
then, immediately upon the occurrence of either such event the outstanding
shares of Class B Stock shall be converted into shares of Common Stock. In the
event of such a conversion, certificates formerly representing outstanding
shares of Class B Stock shall thereupon and thereafter be deemed to represent
the like number of shares of Common Stock.
(f) Shares of Class B Stock shall be registered in the names of the
beneficial owners thereof and not in 'street' or 'nominee' name. For this
purpose, a 'beneficial owner' of any shares of Class B Stock shall mean a
person who, or an entity which, possesses the power, either singly or jointly,
to
5
direct the voting or disposition of such shares. The corporation shall note on
the certificates for shares of Class B Stock the restrictions on transfer and
registration of transfer imposed by this Section III.
IV. Conversion Rights.
(a) Subject to the terms and conditions of this Section IV, each share of
Class B Stock shall be convertible at any time or from time to time, at the
option of the respective holder thereof, at the office of any transfer agent
for Class B Stock, and at such other place or places, if any, as the Board of
Directors may designate, or, if the Board of Directors shall fail so to
designate, at the principal office of the corporation (attention of the
Secretary of the corporation), into one (1) fully paid and nonassessable share
of Common Stock. Upon conversion, the corporation shall make no payment or
adjustment on account of dividends accrued or in arrears on Class B Stock
surrendered for conversion or on account of any dividends on the Common Stock
issuable on such conversion. Before any holder of Class B Stock shall be
entitled to convert the same into Common Stock, he shall surrender the
certificate or certificates for such Class B Stock at the office of said
transfer agent (or other place as provided above), which certificate or
certificates, if the corporation shall so request, shall be duly endorsed to
the corporation or in blank or accompanied by proper instruments of transfer
to the corporation or in blank (such endorsements or instruments of transfer
to be in form satisfactory to the corporation), and shall give written notice
to the corporation at said office that he elects so to convert said Class B
Stock in accordance with the terms of this Section IV, and shall state in
writing therein the name or names in which he wishes the certificate or
certificates for Common Stock to be issued. Every such notice of election to
convert shall constitute a contract between the holder of such Class B Stock
and the corporation, whereby the holder of such Class B Stock shall be deemed
to subscribe for the amount of Common Stock which he shall be entitled to
receive upon such conversion, and, in satisfaction of such subscription, to
deposit the Class B Stock to be converted and to release the corporation from
all liability thereunder, and thereby the corporation shall be deemed to agree
that the surrender of the certificate or certificates therefor and the
extinguishment of liability thereon shall constitute full payment of such
subscription for Common Stock to be issued upon such conversion. The
corporation will as soon as practicable after such deposit of a certificate or
certificates for Class B Stock, accompanied by the written notice and the
statement above prescribed, issue and deliver at the office of said transfer
agent (or other place as provided above) to the person for whose account such
Class B Stock was so surrendered, or to his nominee or nominees, a certificate
or certificates for the number of full shares of Common Stock to which he
shall be entitled as aforesaid. Subject to the provisions of subsection (c) of
this Section IV, such conversion shall be deemed to have been made as of the
date of such surrender of the Class B Stock to be converted; and the person or
persons entitled to receive the Common Stock issuable upon conversion of such
Class B Stock shall be treated for all purposes as the record holder or
holders of such Common Stock on such date.
(b) The issuance of certificates for shares of Common Stock upon
conversion of shares of Class B Stock shall be made without charge for any
stamp or other similar tax in respect of such issuance. However, if any such
certificate is to be issued in a name other than that of the holder of the
share or shares of Class B Stock converted, the person or persons requesting
the issuance thereof shall pay to the corporation the amount of any tax which
may be payable in respect of any transfer involved in such issuance or shall
establish to the satisfaction of the corporation that such tax has been paid.
(c) The corporation shall not be required to convert Class B Stock, and
no surrender of Class B Stock shall be effective for that purpose, while the
stock transfer books of the corporation are closed for any purpose; but the
surrender of Class B Stock for conversion during any period while such books
are so closed shall become effective for conversion immediately upon the
reopening of such books, as if the conversion had been made on the date such
Class B Stock was surrendered.
(d) The corporation covenants that it will at all times reserve and keep
available, solely for the purpose of issue upon conversion of the outstanding
shares of Class B Stock, such number of shares of Common Stock as shall be
issuable upon the conversion of all such outstanding shares, provided that
nothing contained herein shall be construed to preclude the corporation from
satisfying its obligations
6
in respect of the conversion of the outstanding shares of Class B Stock by
delivery of shares of Common Stock which are held in the treasury of the
corporation. The corporation covenants that if any shares of Common Stock,
required to be reserved for purposes of conversion hereunder, require
registration with or approval of any governmental authority under any federal
or state law before such shares of Common Stock may be issued upon conversion,
the corporation will use its best efforts to cause such shares to be duly
registered or approved, as the case may be. The corporation will endeavor to
list the shares of Common Stock required to be delivered upon conversion prior
to such delivery upon each national securities exchange, if any, upon which
the outstanding Common Stock is listed at the time of such delivery. The
corporation covenants that all shares of Common Stock which shall be issued
upon conversion of the shares of Class B Stock, will, upon issue, be fully
paid and nonassessable and not entitled to any preemptive rights.
V. Liquidation Rights. In the event of any dissolution, liquidation or
winding up of the affairs of the corporation, whether voluntary or
involuntary, after payment or provision for payment of the debts and other
liabilities of the corporation, the holders of each series of Preferred Stock
shall be entitled to receive, out of the net assets of the corporation, an
amount for each share equal to the amount fixed and determined by the Board of
Directors in any resolution or resolutions providing for the issuance of any
particular series of Preferred Stock, plus an amount equal to all dividends
accrued and unpaid on shares of such series to the date fixed for
distribution, and no more, before any of the assets of the corporation shall
be distributed or paid over to the holders of Common Stock. After payment in
full of said amounts to the holders of Preferred Stock of all series other
than the corporation's Series A Cumulative Convertible stock, $1.00 par value
(hereinafter the 'Series A Stock'), and after payment of the full amount
provided for the holders of Series A Stock in accordance with the first
sentence of Section B.3. of this Article Fourth, the remaining assets and
funds of the corporation shall be divided among and paid ratably to the
holders of Common Stock (including those persons who shall become holders of
Common Stock by reason of converting their shares of Class B Stock) in a
manner not inconsistent with the provisions of Section B.3. of this Article
Fourth regarding the rights of the holders of Series A Stock in any such
liquidation, dissolution or winding up. If, upon such dissolution, liquidation
or winding up, the assets of the corporation distributable as aforesaid among
the holders of Preferred Stock of all series shall be insufficient to permit
full payment to them of said preferential amounts, then such assets shall be
distributed among such holders, first in the order of their respective
preferences, and second, as to such holders who are next entitled to such
assets and who rank equally with regard to such assets, ratably in proportion
to the respective total amounts which they shall be entitled to receive as
provided in this Section V. A merger or consolidation of the corporation with
or into any other corporation or a sale or conveyance of all or any part of
the assets of the corporation (which shall not in fact result in the
liquidation of the corporation and the distribution of assets to stockholders)
shall not be deemed to be a voluntary or involuntary liquidation or
dissolution or winding up of the corporation within the meaning of this
Section V.
B. PREFERRED STOCK.
The Board of Directors is hereby authorized from time to time to provide
by resolution for the issuance of shares of Preferred Stock in one or more
series not exceeding the aggregate number of shares of Preferred Stock
authorized by this Restated Certificate of Incorporation, as amended from time
to time; and to determine with respect to each such series the voting powers,
if any (which voting powers if granted may be full or limited), designations,
preferences and relative, participating, optional or other special rights and
the qualifications, limitations or restrictions appertaining thereto,
including without limiting the generality of the foregoing, the voting rights
appertaining to shares of Preferred Stock of any series (which may be one vote
per share or a fraction of a vote per share, and which may be applicable
generally or only upon the happening and continuance of stated events or
conditions), the rate of dividend to which holders of Preferred Stock of any
series may be entitled (which may be cumulative or noncumulative), the rights
of holders of Preferred Stock of any series in the event of liquidation,
dissolution or winding up of the affairs of the corporation, and the rights
(if any) of holders of Preferred Stock of any series to convert or exchange
such shares of Preferred Stock of such
7
series for shares of any other class of capital stock (including the
determination of the price or prices or the rate or rates applicable to such
rights to convert or exchange and the adjustment thereof, the time or times
during which the right to convert or exchange shall be applicable and the time
or times during which a particular price or rate shall be applicable).
Before the corporation shall issue any shares of Preferred Stock of any
series, a certificate setting forth a copy of the resolution or resolutions of
the Board of Directors, fixing the voting powers, designations, preferences,
the relative, participating, optional or other rights, if any, and the
qualifications, limitations and restrictions, if any, appertaining to the
shares of Preferred Stock of such series, and the number of shares of
Preferred Stock of such series authorized by the Board of Directors to be
issued shall be made under seal of the corporation and signed by the president
or vice president and by the secretary or an assistant secretary of the
corporation and acknowledged by such president or vice president as provided
by the laws of the State of Delaware and shall be filed and a copy thereof
recorded in the manner prescribed by the laws of the State of Delaware.
The powers, preferences and the relative, participating, optional and
other rights, and the qualifications, limitations and restrictions thereof of
the series of Preferred Stock of the corporation designated Series A Stock are
as follows:
1. Designation and Number of Shares. The distinctive serial designation
of the series shall be Series A Cumulative Convertible Stock, $1.00 par value.
The number of shares of Series A Stock which the corporation is authorized to
issue is initially established at 10,000,000, which number of shares may be
increased (if, and to the extent that, the Restated Certificate of
Incorporation shall be further amended to increase the authorized number of
shares of Preferred Stock) or decreased (but not below the number of shares of
Series A Stock then outstanding) from time to time by the Board of Directors
of the corporation.
2. Dividends.
(a) Subject to full dividends accrued on the outstanding shares of any
Preferred Stock ranking senior to the Series A Stock in respect of the payment
of dividends for all past dividend periods and for the then current dividend
period having been paid or declared and set apart for payment, holders of the
Series A Stock shall be entitled to receive, but only when and as declared by
the Board of Directors out of funds legally available for the declaration and
payment of dividends, cumulative dividends as fixed by the provisions of this
paragraph, and no more, payable in cash quarterly on October 29, 1982 and
thereafter on the last day of January, April, July and October in each year,
to holders of record of the Series A Stock on the respective dates fixed in
advance for this purpose by the Board of Directors prior to the payment of
each such dividend. The quarterly dividend to be paid on each share of Series
A Stock shall be the sum of (x) $.03 (adjusted, if necessary, in accordance
with Section 2(f) and (y) the product of (i) the amount of the dividend or
dividends (including special dividends, if any) paid or to be paid in cash on
each share of Common Stock during the quarter ending on the date on which the
Series A Stock dividend is payable, and (ii) the conversion rate (as defined
in Section 4 below).
(b) Such dividends shall accrue and be cumulative as follows: as to
shares issued prior to the record date for the first dividend payment, from
the date of issuance; as to shares issued during the period commencing
immediately after the record date for a dividend and terminating at the close
of business on the payment date for such dividend, from such dividend payment
date; and otherwise, from the quarterly payment date next preceding the date
of issue of such shares.
(c) Accumulations of dividends accrued on any shares of the Series A
Stock shall not bear interest.
(d) No dividend (other than a dividend in Common Stock, in Class B Stock
or in any other class of stock of the corporation ranking junior to the Series
A Stock in respect of the payment of dividends) shall be declared or paid or
set aside for payment, nor shall any other distribution be declared or made
upon the Common Stock, upon the Class B Stock or upon any other stock ranking
junior to the Series
8
A Stock in respect of the payment of dividends, nor shall any Common Stock,
Class B Stock or any other class of stock of the corporation ranking junior to
the Series A Stock in respect of the payment of dividends be redeemed,
purchased or otherwise acquired for any consideration by the corporation or by
any corporation more than fifty percent of the voting securities of which are
owned, directly or indirectly, by the corporation, while any of the Series A
Stock is outstanding, unless, in each case, all dividends accrued on all
outstanding shares of the Series A Stock for all past dividend periods shall
have been paid or declared and set apart for payment.
(e) As used in this certificate, accrued dividends shall mean the sum of
amounts in respect of shares of Series A Stock then outstanding which, as to
each share, shall be an amount computed from the date from which dividends on
such share become cumulative to the date with reference to which the
expression is used, irrespective of whether such amount or any part thereof
shall have been declared as dividends or there shall have existed any funds
legally available for the declaration or payment thereof, less the aggregate
of all dividends paid on such share.
(f) If the corporation shall declare a dividend on its Common Stock in
shares of its Common Stock, the Board of Directors may in its discretion, and
in lieu of any adjustment in the conversion rate (as defined in Section 4
below), declare a dividend on the Series A Stock in shares of its Series A
Stock and provide for the issuance of said shares in accordance with this
Article Fourth such that the number of shares of Series A Stock distributed on
each share of Series A Stock then outstanding shall equal the number of shares
of Common Stock distributed on each share of Common Stock then outstanding. In
the event a dividend payable in Series A Stock is declared pursuant to this
paragraph (f), the amount of $.03 set forth in clause (x) of Section 2(a), or
such other amount as shall have resulted from any previous adjustments made in
accordance with this paragraph (f), shall be adjusted by multiplying such
amount by a fraction the numerator of which shall be the number of shares of
Series A Stock outstanding on the record date for such dividend and the
denominator of which shall be the sum of the number of shares of Series A
Stock outstanding on the record date for such dividend and the number of
shares of Series A Stock payable thereon pursuant to the declaration of such
dividend. In such event, the amount of $20 set forth in the first and third
sentences of Section 3, or such other amount as shall have resulted from any
previous adjustments made in accordance with this paragraph (f), shall be
adjusted by multiplying such amount by the same fraction used in accordance
with the immediately preceding sentence.
3. Liquidation Rights.
In the event of any liquidation, dissolution or winding up (whether
voluntary or involuntary) of the corporation, holders of the Series A Stock
shall be entitled to be paid in cash from the net assets of the corporation
available for distribution (after the prior claims of the holders of any
Preferred Stock ranking senior to the Series A Stock shall have been
satisfied) the sum of $20 per share (adjusted, if necessary, in accordance
with Section 2(f)) plus dividends accrued on each share to the date fixed for
payment thereof, before any amount shall be paid to holders of the Common
Stock. If the net assets of the corporation available for distribution are
insufficient to allow payment in full to be made to the holders of the Series
A Stock as provided in the immediately foregoing sentence, the holders of the
Series A Stock shall be paid, ratably, in proportion to the full distributive
amounts to which they are respectively entitled. If the net assets of the
corporation available for distribution are sufficient to allow payment in full
to be made to the holders of the Series A Stock as provided in the first
sentence of this Section 3, the holders of the Common Stock shall be entitled
to be paid in cash out of the net assets, if any, remaining for distribution a
sum per share equal to the amount obtained by dividing $20 (adjusted, if
necessary, in accordance with Section 2(f)) by the conversion rate (as defined
in Section 4, below), or, if such remaining net assets are insufficient to
allow payment of such amount per share, then that amount per share derived by
dividing the total amount of such remaining net assets by the number of shares
of Common Stock then outstanding. After giving effect to the distributive
amounts payable to holders of the Series A Stock and of the Common Stock as
aforesaid, all such holders shall be entitled to share ratably in the net
assets, if any, remaining for distribution, each share
9
of Common Stock being valued as one share, and each share of Series A Stock
being valued as the number of shares equal to the product of one share and the
conversion rate (as defined in Section 4, below), for this purpose. Neither
the purchase or redemption by the corporation of stock of any class, in any
manner permitted by law, nor the consolidation or merger of the corporation
with or into any other corporation or corporations, nor the sale or transfer
by the corporation of all or any part of its properties or assets, shall be
deemed to be a liquidation, dissolution or winding up of the corporation for
the purposes of this Section 3. No holder of Series A Stock shall be entitled
to receive any amounts with respect thereto upon any liquidation, dissolution
or winding up of the corporation other than the amounts provided for in this
Section 3.
4. Conversion Rights.
(a) Conversion Rate and Procedures.
(i) Subject to the terms and conditions of this Section 4, the shares
of Series A Stock shall be convertible at any time or from time to time,
at the option of the respective holders thereof, at the office of any
transfer agent for Series A Stock, and at such other place or places, if
any, as the Board of Directors may designate, or, if the Board of
Directors shall fail so to designate, at the principal office of the
corporation (attention of the Secretary of the corporation), into fully
paid and nonassessable shares (calculated as to each conversion to the
nearest 1/100th of a share) of Common Stock at the rate of one share of
Common Stock for each one share of Series A Stock surrendered for
conversion, subject to the adjustments hereinafter specified. The term
'conversion rate' as used herein shall mean, as of any time, the number
of shares or fraction of shares of Common Stock into which one full share
of Series A Stock shall be entitled to be converted. Upon conversion, the
corporation shall make no payment or adjustment on account of dividends
accrued or in arrears on Series A Stock surrendered for conversion or on
account of any dividends on the Common Stock issuable on such conversion.
Before any holder of Series A Stock shall be entitled to convert the same
into Common Stock, he shall surrender the certificate or certificates for
such Series A Stock at the office of said transfer agent (or other place
as provided above), which certificate or certificates, if the corporation
shall so request, shall be duly endorsed to the corporation or in blank
or accompanied by proper instruments of transfer to the corporation or in
blank (such endorsements or instruments of transfer to be in form
satisfactory to the corporation), and shall give written notice to the
corporation at said office that he elects so to convert said Series A
Stock in accordance with the terms of this Section 4, and shall state in
writing therein the name or names in which he wishes the certificate or
certificates for Common Stock to be issued. Every such notice of election
to convert shall constitute a contract between the holder of such Series
A Stock and the corporation, whereby the holder of such Series A Stock
shall be deemed to subscribe for the amount of Common Stock which he
shall be entitled to receive upon such conversion, and, in satisfaction
of such subscription, to deposit the Series A Stock to be converted and
to release the corporation from all liability thereunder, and thereby the
corporation shall be deemed to agree that the surrender of the
certificate or certificates therefor and the extinguishment of liability
thereon, shall constitute full payment of such subscription for Common
Stock to be issued upon such conversion. The corporation will as soon as
practicable after such deposit of a certificate or certificates for
Series A Stock, accompanied by the written notice and the statement above
prescribed, issue and deliver at the office of said transfer agent (or
other place as provided above) to the person for whose account such
Series A Stock was so surrendered, or to his nominee or nominees, a
certificate or certificates for the number of full shares of Common Stock
to which he shall be entitled as aforesaid, and if the certificate or
certificates surrendered evidence a greater number of shares than the
number of shares to be converted, one or more certificates evidencing the
shares of Series A Stock not to be converted, and together with a cash
adjustment of any fraction of a share as hereinafter stated, if not
evenly convertible. Subject to the provisions of paragraph (ii) of this
Section 4(a), such conversion shall be deemed to have been made as of the
date of such surrender of the Series A Stock to be converted; and the
person or persons
10
<PAGE>
entitled to receive the Common Stock issuable upon conversion of such
Series A Stock shall be treated for all purposes as the record holder or
holders of such Common Stock on such date.
(ii) The corporation shall not be required to convert Series A Stock,
and no surrender of Series A Stock shall be effective for that purpose,
while the stock transfer books of the corporation are closed for any
purpose; but the surrender of Series A Stock for conversion during any
period while such books are so closed shall, subject to the provisions of
paragraph (iii) of this subsection 4(a), become effective for conversion
immediately upon the reopening of such books, as if the conversion had
been made on the date such Series A Stock was surrendered, and at the
conversion rate in effect at the date of such surrender.
(iii) The right of each holder of Series A Stock to convert shall be
limited as follows:
(A) For purposes of this paragraph (iii), the term 'Conversion
Year' shall mean each twelve-month period commencing March 1 (except
that the initial period commencing October 29, 1982 and ending
February 28, 1983 shall also be deemed to be a 'Conversion Year'), the
term 'Proration Period' shall mean the first fifteen days of the
Conversion Year, and the term 'Conversion Limit' shall be a number
equal to ten percent of the total number of shares of Series A Stock
which shall have been issued by the corporation as of the beginning of
the relevant Conversion Year. The total number of shares which shall
have been issued by the corporation as of the beginning of any
Conversion Year, for purposes of calculating the Conversion Limit for
such Conversion Year in accordance with the immediately preceding
sentence, shall mean the aggregate number of shares of Series A Stock
issued by the corporation, without reduction for shares reacquired by
the corporation through conversion, purchase or otherwise (whether or
not any such reacquired shares shall have been cancelled); provided,
however, that reacquired shares which are reissued by the corporation
shall not again be counted for the purpose of determining the total
number of shares issued by the corporation hereunder.
(B) Shares of Series A Stock surrendered for conversion during any
Proration Period shall not be converted during such Proration Period,
but, subject to the following limitation, shall be converted promptly
after the expiration of such Proration Period. If, during such
Proration Period, the number of shares of Series A Stock surrendered
for conversion shall exceed the Conversion Limit, conversions shall be
made on a pro rata basis, each holder having surrendered shares being
deemed to have surrendered that percentage of such shares which is
equal to the ratio of the Conversion Limit to the total number of
shares of Series A Stock actually surrendered for conversion during
such Proration Period.
(C) During the period of a Conversion Year following the Proration
Period of such Conversion Year, shares of Series A Stock surrendered
for conversion shall not be converted if, prior to the date of such
surrender (but during such Conversion Year), a number of shares of
Series A Stock equal to or greater than the Conversion Limit has been
surrendered for conversion.
(D) If, on any day during the period of a Conversion Year following
the Proration Period of such Conversion Year, the number of shares of
Series A Stock surrendered, when taken together with the number of
such shares previously surrendered for conversion during such
Conversion Year, exceeds the Conversion Limit (the Conversion Limit as
to such Conversion Year not having been exceeded prior to such day),
then each holder having surrendered such shares for conversion on such
day shall be deemed to have surrendered that percentage of such shares
so surrendered which is equal to the ratio of (x) the difference
between the Conversion Limit and the number of such shares surrendered
for conversion during such Conversion Year but prior to such day, to
(y) the number of such shares surrendered for conversion on such day.
11
(E) If the implementation of the proration provisions of this
paragraph (iii) should result in any fractional shares of Series A
Stock, such fractional shares shall be ignored for the purpose of
conversion pursuant to this Section 4, and, although fewer shares than
the number equal to the Conversion Limit may as a result of ignoring
such fractional shares have been converted during any Conversion Year,
no further conversions of Series A Stock shall be effected until the
following Conversion Year.
(F) All shares of Series A Stock surrendered for conversion and not
converted by reason of the limitations imposed by this paragraph (iii)
shall be returned to the holder together with the Common Stock, if
any, issued upon conversion of the Series A Stock surrendered with
such unconverted shares.
(G) Notwithstanding the foregoing provisions of this paragraph
(iii), no limitations on the number of shares of Series A Stock which
may be converted shall apply if the Board of Directors shall approve a
transaction in which the corporation is to be consolidated or merged
with or into any other corporation or corporations, and one of the
other corporations is to be the surviving entity (or, if the
corporation is to be the surviving entity, at least a majority of the
shares of Common Stock of the corporation to be outstanding
immediately following such transaction shall as a result thereof be
owned by one person or by a group of persons acting in concert), or
all or substantially all of the properties and assets of the
corporation are to be sold or transferred, or if the Board of
Directors shall recommend a tender offer for at least a majority of
the Common Stock as being in the best interests of the holders of the
Common Stock, or if the Board of Directors shall direct that notice be
given to all holders of shares of Common Stock and Preferred Stock of
the corporation that the Conversion Limit applicable to the Series A
Stock is suspended until a specified date or eliminated altogether.
(b) Adjustments.
(i) In case the corporation shall (A) declare a dividend on its Common
Stock in shares of its capital stock except in any case where a dividend
on its Series A Stock also shall have been declared pursuant to Section
2(f), (B) subdivide outstanding shares of its Common Stock, (C) combine
outstanding shares of its Common Stock into a smaller number of shares,
or (D) issue by reclassification of its shares of Common Stock (including
any such reclassification in connection with a consolidation or merger in
which the corporation is the continuing corporation) any shares of
capital stock, then the conversion rate in effect at the time of the
record date for such dividend or of the effective date of such
subdivision, combination or reclassification shall be proportionately
adjusted so that the holder of any Series A Stock surrendered for
conversion after such time shall be entitled to receive the number and
kind of shares which he would have owned or have been entitled to receive
had such Series A Stock been converted immediately prior to such time.
Such adjustment shall be made successively whenever any event listed
above shall occur.
(ii) In case the corporation shall fix a record date for the issuance
of rights, warrants or options to all holders of its Common Stock and/or
Class B Stock entitling them to subscribe for or purchase shares of
Common Stock and/or Class B Stock at a price per share less than the
current market price per share of Common Stock (as defined in paragraph
(v) below) on such record date, the conversion rate after such record
date shall be determined by multiplying the conversion rate in effect
immediately prior to such record date by a fraction, of which the
numerator shall be the number of shares of Common Stock and Class B Stock
outstanding on such record date plus the number of additional shares of
Common Stock and/or Class B Stock to be offered for subscription or
purchase, and of which the denominator shall be the number of shares of
Common Stock and Class B Stock outstanding on such record date plus the
number of shares of Common Stock and/or Class B Stock which the aggregate
offering price of the total number of shares so to be offered would
purchase at such current market price. Such adjustment shall be made
12
successively whenever such a record date is fixed. In the event that such
rights, warrants or options are not so issued, the conversion rate shall
again be adjusted to be the conversion rate which would then be in effect
if such record date had not been fixed. To the extent that such rights,
warrants or options expire unexercised, the conversion rate shall be
readjusted to the conversion rate which would then be in effect had the
adjustments made as of the record date for the issuance of such rights,
warrants or options been made upon the basis of the issuance of rights,
warrants or options to subscribe for or purchase only the number of
shares of Common Stock and/or Class B Stock as to which such rights,
warrants or options were actually exercised. In the case of an issuance
by the corporation to all holders of its Common Stock and/or Class B
Stock of rights, warrants or options entitling them to subscribe for or
purchase securities convertible into, exchangeable for or carrying a
right to purchase shares of Common Stock and/or Class B Stock
(collectively, 'Convertible Securities'), for purposes of this paragraph
(ii), such issuance shall be deemed to be an issuance of rights, warrants
or options to such holders entitling them to subscribe for or purchase
Common Stock and/or Class B Stock at an aggregate offering price equal to
the aggregate offering price of the Convertible Securities plus the
minimum aggregate amount (if any) payable upon conversion of such shares
or securities into Common Stock and/or Class B Stock.
(iii) In case the corporation shall fix a record date for the making
of a distribution to all holders of its Common Stock and/or Class B Stock
(including any such distribution made in connection with a consolidation
or merger in which the corporation is the continuing corporation) of
evidences of its indebtedness or assets (excluding dividends paid in, or
distributions of, cash to the extent permitted by law) or subscription
rights, warrants or options (excluding those referred to in paragraph
(ii) above), the conversion rate after such record date shall be
determined by multiplying the conversion rate in effect immediately prior
to such record date by a fraction, of which the numerator shall be the
current market price per share of Common Stock (as defined in paragraph
(v) below) on such record date, and of which the denominator shall be
such current market price per share of Common Stock, less the fair market
value (as determined by the Board of Directors, whose determination shall
be conclusive in the absence of fraud) of the portion of the assets or
evidences of indebtedness so to be distributed, or of such subscription
rights, warrants or options applicable, to one share of Common Stock.
Such adjustment shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the
conversion rate shall again be adjusted to be the conversion rate which
would then be in effect if such record date had not been fixed.
(iv) In case of any reclassification or change of outstanding Common
Stock and/or Class B Stock, or in case of any consolidation or merger of
the corporation with or into another corporation, or in case of any sale
or conveyance to another corporation or entity (other than by mortgage or
pledge) of all or substantially all of the properties and assets of the
corporation, the corporation (or its successor in such consolidation or
merger, or the purchaser of such properties and assets) shall make
appropriate provision so that the holder of each share of Series A Stock
then outstanding shall have the right thereafter to convert such share
into the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance, by a holder of the number of shares of Common
Stock into which such Series A Stock might have been converted
immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance, and shall have no other conversion rights
under these provisions; provided, that effective provision shall be made,
in the Articles or Certificate of Incorporation of the resulting or
surviving corporation or otherwise, so that the provisions set forth
herein for the protection of the conversion rights of Series A Stock
shall thereafter be applicable, as nearly as reasonably may be, to any
such other shares of stock and other securities and property deliverable
upon conversion of the Series A Stock remaining outstanding or other
convertible preferred stock or other securities received by the holders
of Series A Stock in place thereof; and provided, further, that any such
resulting or surviving corporation shall expressly assume the obligation
to deliver, upon the exercise of the conversion
13
privilege, such shares, securities or property as the holders of the
Series A Stock remaining outstanding, or other convertible preferred
stock received by the holders in place thereof, shall be entitled to
receive pursuant to the provisions hereof, and to make provisions for the
protection of the conversion right as above provided. In case securities
or property other than Common Stock shall be issuable or deliverable upon
conversion as aforesaid, then all reference in this paragraph (iv) shall
be deemed to apply, so far as appropriate and as nearly as may be, to
such other securities or property. The subdivision or combination of the
number of shares of Common Stock at any time outstanding into a greater
or lesser number of shares of Common Stock (whether with or without par
value) shall not be deemed to be a reclassification of the Common Stock
of the corporation for the purposes of this paragraph (iv).
(v) For the purpose of any computation under paragraphs (ii) and (iii)
of this subsection 4(b), the current market price per share of Common
Stock on any record date shall be deemed to be the average of the daily
closing prices for the thirty consecutive business days commencing
forty-five business days before such date. The closing price for each day
shall be the last sale price (regular way) or, in case no such sale takes
place on such day, the average of the closing bid and asked prices
(regular way), in either case on the composite tape, or, if the Common
Stock is not quoted on the composite tape, on the principal United States
securities exchange registered under the Securities Exchange Act of 1934
on which the Common Stock is listed or admitted to trading, or if it is
not listed or admitted to trading on any such securities exchange, the
average of the closing bid and asked prices as furnished by any member of
the National Association of Securities Dealers, Inc. selected from time
to time by the corporation for that purpose.
(vi) No adjustment in the conversion rate shall be required unless
such adjustment (plus any adjustments not previously made by reason of
this paragraph (vi), would require an increase or decrease of at least
one percent in such rate; provided, however, that any adjustments which
by reason of this paragraph (vi) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 4 shall be made to the nearest cent or to
the nearest 1/100th of a share, as the case may be.
(vii) Upon occurrence of any of the events described in paragraphs (i)
through (iv) above, the corporation shall promptly (A) file with the
transfer agent or agents for the Series A Stock a statement signed by the
President or one of the Vice Presidents of the corporation and by its
Treasurer or Assistant Treasurer, disclosing the nature of such event,
the conversion rate in effect immediately thereafter and the kind and
amount of stock or other securities or property into which Series A Stock
shall be convertible after such event, and (B) cause a notice containing
a summary of the information set forth in said statement to be mailed to
the holders of record of Series A Stock. Where appropriate, such notice
may be given in advance and included as a part of a notice required to be
mailed under the provisions of subsection 4(c) hereof.
(viii) In any case in which this subsection 4(b) shall require that an
adjustment shall become effective immediately after a record date for an
event, the corporation may defer until the occurrence of such event (A)
issuing to the holder of Series A Stock converted after such record date
and before the occurrence of such event the additional shares of Common
Stock issuable upon such conversion by reason of the adjustment required
by such event over and above the shares issuable upon such conversion
before giving effect to such adjustment and (B) paying to such holder an
amount in cash in lieu of a fractional share pursuant to subsection 4(f)
hereof; provided, however, the corporation shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right
to receive such additional shares of Common Stock (or other securities or
property, as the case may be), and such cash, upon the occurrence of the
event requiring such adjustment.
(ix) Except as otherwise expressly provided in this subsection 4(b),
no adjustment in the conversion rate shall be made by reason of the
issuance or sale, in exchange for cash, property or services, of shares
of Common Stock and/or Class B Stock, or any securities convertible into
or
14
exchangeable for shares of Common Stock and/or Class B Stock, or
securities carrying the right to purchase any of the foregoing.
(x) Any determination as to fair market value or as to whether an
adjustment in the conversion rate in effect hereunder is required
pursuant to paragraphs (i) through (iv) of this subsection 4(b), or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of Series A Stock and the corporation if made in good faith by
the Board of Directors.
(xi) In the event that at any time, as a result of an adjustment made
pursuant to paragraph (i) or paragraph (iv) of this subsection 4(b), the
holder of any shares of Series A Stock thereafter surrendered for
conversion shall become entitled to receive any shares of capital stock
of the corporation other than shares of Common Stock, thereafter the
number of such other shares so receivable upon conversion of any shares
of Series A Stock shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Common Stock contained in paragraphs (i) through (x)
above, and the provisions of subsections (a) and (c) through (h) of this
Section 4 with respect to the Common Stock shall apply on like terms to
any such other shares.
(c) Advance Notice of Certain Events.
In case at any time:
(i) the corporation shall authorize the issuance to all holders of its
Common Stock of rights, warrants or options to subscribe for or purchase
shares of its Common Stock or of any other subscription rights, warrants
or options; or
(ii) the corporation shall authorize the distribution to all holders
of its Common Stock of evidences of its indebtedness or assets (other
than dividends paid in, or distributions of, cash to the extent permitted
by law); or
(iii) there is any consolidation or merger to which the corporation is
a party and for which approval of any shareholders of the corporation is
required, or a conveyance or transfer of all or substantially all of the
properties and assets of the corporation, or a tender offer for at least
a majority of the Common Stock which has been recommended by the Board of
Directors as being in the best interests of the holders of the Common
Stock; or
(iv) there is a total voluntary or involuntary dissolution,
liquidation or winding up of the corporation; or
(v) the corporation proposes to take any action (other than actions of
the character described in paragraph (i) of subsection 4(b) above) which
would require an adjustment of the conversion rate pursuant to subsection
4(b) above;
then the corporation shall cause to be filed with the transfer agent or agents
for the Series A Stock, and shall cause to be mailed to the holders of record
of the outstanding Series A Stock, at least twenty days (or ten days in any
case specified in clause (i) or (ii) above or in the case of a recommended
tender offer as specified in clause (iii) above) prior to the applicable
record date (or effective date if there shall be no record date) hereinafter
specified, a notice stating (A) the date as of which the holders of Common
Stock of record to be entitled to receive any such rights, warrants, options
or distribution are to be determined, or (B) the date on which any such
consolidation, merger, conveyance, transfer, tender offer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other property, if
any, deliverable upon such distribution, right, warrant, option,
consolidation, merger, conveyance, transfer, tender offer, dissolution,
liquidation or winding up. The failure to give the notice required by this
subsection 4(c) or any defect therein shall not affect the legality or
validity of any distribution, right, warrant, option, consolidation, merger,
15
conveyance, transfer, tender offer, dissolution, liquidation, or winding up,
or the vote upon any such action.
(d) Status of Stock Converted.
All shares of Series A Stock which shall have been surrendered for
conversion as herein provided shall no longer be deemed to be outstanding and
all rights with respect to such shares, including the right, if any, to
receive notices and to vote, shall forthwith cease and terminate except only
the right of the holders thereof to receive Common Stock in exchange therefor.
(e) Shares Reserved for Conversion.
The corporation shall at all times reserve and keep available, out of its
authorized and unissued stock, solely for the purpose of effecting the
conversion of Series A Stock, such number of shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all shares of
Series A Stock from time to time outstanding.
(f) Fractions Upon Conversion.
No fractional shares of Common Stock are to be issued upon conversion,
but in lieu thereof the corporation will pay therefor a cash adjustment
(computed to the nearest cent) in an amount equal to such fraction of the
market price per share of Common Stock computed on the basis of the last
reported sale price (regular way) on the business day which next precedes the
date of conversion, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices (regular way) of Common Stock, in
either case on the composite tape, or, if the Common Stock is not quoted on
the composite tape, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which the Common Stock
is listed or admitted to trading, or if the Common Stock is not listed or
admitted to trading on any such securities exchange, the average of the
closing bid and asked prices on said last trading day as furnished by any
member of the National Association of Securities Dealers, Inc. selected from
time to time by the corporation for that purpose.
(g) Taxes Upon Conversion.
The corporation will pay any and all issue and other taxes that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of Series A Stock pursuant to this Section 4. The corporation shall
not, however, be required to pay any tax which may be payable in respect of
any transfer involved in the issue and delivery of Common Stock in a name
other than that in which the Series A Stock so converted was registered, and
no such issue or delivery shall be made unless and until the person requesting
such issue has paid to the corporation the amount of any such tax, or has
established, to the satisfaction of the corporation, that such tax has been
paid.
(h) Affidavit of Mailing.
An affidavit of the transfer agent or transfer agents for the Series A
Stock or of the Secretary of the corporation to the effect that any notice
provided for in this Section 4 has been mailed shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
5. Voting Rights.
(a) Except as set forth in this Section 5 and as required by applicable
law, the holders of Series A Stock shall not be entitled to vote.
(b) If and whenever accrued dividends on Series A Stock shall not have
been paid or declared and a sum sufficient for the payment thereof set aside,
in an amount equivalent to six quarterly dividends on all shares of Series A
Stock at the time outstanding, then and in such event the holders of Series A
Stock and each other series of Preferred Stock now or hereafter issued which
shall be
16
accorded such class voting right by the Board of Directors and which shall
have the right to elect two directors as the result of a prior or subsequent
default in payment of dividends on such series (each such other series being
hereinafter called 'Other Series of Preferred Stock'), voting separately as a
class without regard to series, shall be entitled to elect two directors, and
the holders of all shares otherwise entitled to vote for directors, voting
separately as a class, shall be entitled to elect the remaining members of the
Board of Directors. Such special voting rights of the holders of Series A
Stock may be exercised until all dividends in default on the Series A Stock
shall have been paid in full or declared and funds sufficient therefor set
aside, and when so paid or provided for such special voting rights of the
holders of Series A Stock shall cease, but subject always to the same
provisions for the vesting of such special voting rights in the case of any
such future dividend default or defaults. At any time after such special
voting rights shall have so vested in the holders of Series A Stock, the
Secretary of the corporation may, and upon the written request of the holders
of record of ten percent or more in number of shares of Series A Stock and
each Other Series of Preferred Stock then outstanding addressed to him at the
principal executive office of the corporation shall, call a special meeting of
the holders of Preferred Stock so entitled to vote, for the election of the
directors to be elected by them as herein provided, to be held within fifty
days after such call and at such place and upon such notice provided by law
and in the bylaws for the holding of meetings of shareholders; provided,
however, that the Secretary shall not be required to call such special meeting
in the case of any such request received less than ninety days before the date
fixed for any annual meeting of shareholders, and if in such case such special
meeting is not called, the holders of Preferred Stock so entitled to vote
shall be entitled to exercise the special voting rights provided in this
paragraph at such annual meeting. If any such special meeting required to be
called as above provided shall not be called by the Secretary within thirty
days after receipt of any such request, then the holders of record of ten
percent or more in number of shares of Series A Stock and each Other Series of
Preferred Stock then outstanding may designate in writing one of their number
to call such meeting, and the person so designated may, at the expense of the
corporation, call such meeting to be held at the place and upon the notice
above provided, and for that purpose shall have access to the stock books of
the corporation. No such special meeting and no adjournment thereof shall be
held on a date later than thirty days before the annual meeting of the
shareholders or a special meeting held in place thereof next succeeding the
time when the holders of Series A Stock become entitled to elect directors as
above provided. If, at any meeting so called or at any annual meeting held
while the holders of shares of Series A Stock have the special voting rights
provided for in this paragraph, the holders of not less than forty percent of
the then outstanding shares of Series A Stock and each Other Series of
Preferred Stock are present in person or by proxy, which percentage shall be
sufficient to constitute a quorum for the election of additional directors as
herein provided, the then authorized number of directors of the corporation
shall be increased by two, as of the time of such special meeting or the time
of the first such annual meeting held while such holders have said special
voting rights and such quorum is present, and the holders of the Series A
Stock and each Other Series of Preferred Stock, voting as a class, shall be
entitled to elect the additional directors so provided for. If the directors
of the corporation are then divided into classes under provisions of the
Restated Certificate of Incorporation, as amended, or the bylaws, the two
additional directors shall be members of those respective classes of directors
in which a vacancy is created as a result of such increase in the authorized
number of directors. Upon the election at such meeting by the holders of the
shares of Series A Stock and each Other Series of Preferred Stock, voting as a
class for the two directors they are entitled so to elect, the persons so
elected, together with such persons as may be or may have been elected as
directors by the holders of all shares otherwise entitled to vote for
directors, shall constitute the duly elected directors of the corporation. The
additional directors so elected by holders of Series A Stock and each Other
Series of Preferred Stock, voting as a class, shall serve until the next
annual meeting or until their respective successors shall be elected and
qualified, or if any such director is a member of a class of directors under
provisions dividing the directors into classes as aforesaid, each such
director shall serve until the annual meeting at which the term of office of
his class shall expire or until his successor shall be elected and shall
qualify, and at each subsequent meeting of shareholders at which the
directorship of any director elected by the vote of holders of Series A Stock
and each Other Series of Preferred
17
Stock under the special voting rights set forth in this paragraph is up for
election said special voting rights shall apply in the re-election of such
director or in the election of his successor, provided, however, that whenever
the holders of Series A Stock and each Other Series of Preferred Stock shall
be divested of the special rights to elect two directors as above provided,
the terms of office of all persons elected as directors by the holders of
Series A Stock and each Other Series of Preferred Stock, voting as a class, or
elected to fill any vacancies resulting from the death, resignation, or
removal of directors so elected by the holders of Series A Stock and each
Other Series of Preferred Stock, shall forthwith terminate and the authorized
number of directors shall be reduced accordingly. If, at any time after a
special meeting of shareholders or an annual meeting of shareholders at which
the holders of Series A Stock and each Other Series of Preferred Stock have
elected additional directors as provided above, and while the holders of
Series A Stock and each Other Series of Preferred Stock shall be entitled to
elect two directors, the number of directors who have been elected by the
holders of Series A Stock and each Other Series of Preferred Stock (or who by
reason of one or more resignations, deaths or removals have succeeded any
directors so elected) shall by reason of resignation, death or removal be less
than two but at least one, the vacancy in the directors elected by the holders
of the Series A Stock and each Other Series of Preferred Stock may be filled
by the remaining director elected by such holders, and failing such election
within thirty days after such vacancy arises, or if there shall not be
incumbent at least one director elected by such holders, the Secretary of the
corporation may, and upon the written request of the holders of record of ten
percent or more in number of shares of Series A Stock and each Other Series of
Preferred Stock then outstanding addressed to him at the principal office of
the corporation shall, call a special meeting of the holders of Preferred
Stock so entitled to vote, for an election to fill such vacancy or vacancies,
to be held within fifty days after such call and at the place and upon the
notice provided by law and in the bylaws for the holding of meetings of
shareholders; provided, however, that the Secretary shall not be required to
call such special meeting in the case of any such request received less than
ninety days before the date fixed for any annual meeting of shareholders, and
if in such case such special meeting is not called, the holders of Preferred
Stock so entitled to vote shall be entitled to fill such vacancy or vacancies
at such annual meeting. If any such special meeting required to be called as
above provided shall not be called by the Secretary within thirty days after
receipt of any such request, then the holders of record of ten percent or more
in number of shares of Series A Stock and each Other Series of Preferred Stock
then outstanding may designate in writing one of their number to call such
meeting, and the person so designated may, at the expense of the corporation,
call such meeting to be held at the place and upon the notice above provided,
and for that purpose shall have access to the stock books of the corporation;
no such special meeting and no adjournment thereof shall be held on a date
later than thirty days before the annual meeting of the shareholders or a
special meeting held in place thereof next succeeding the time when the
holders of Series A Stock and each Other Series of Preferred Stock become
entitled to elect directors as above provided.
(c) So long as any shares of Series A Stock shall be outstanding, the
corporation shall not, without the affirmative vote or written consent of the
holders of a majority of the number of shares of Series A Stock at the time
outstanding, amend the Restated Certificate of Incorporation to increase the
authorized number of shares of Preferred Stock.
(d) So long as any shares of Series A Stock shall be outstanding, the
corporation shall not, without the affirmative vote or written consent of the
holders of two-thirds of the number of shares of Series A Stock at the time
outstanding, amend the Restated Certificate of Incorporation to:
(i) change the designations, preferences, limitations or other
relevant rights of the Series A Stock;
(ii) effect an exchange, reclassification or cancellation of all or
part of the Series A Stock;
(iii) effect an exchange or create a right of exchange of another
class or series into Series A Stock;
18
(iv) change the Series A Stock into the same or a different number of
shares of the same or another class or series; or
(v) cancel or otherwise affect dividends on the shares of Series A
Stock which have accrued but have not been declared.
C. Authorized Shares of Capital Stock.
Except as may be provided in the terms and conditions fixed by the Board
of Directors for any series of Preferred Stock, the number of authorized
shares of any class or classes of stock of the corporation may be increased or
decreased by the affirmative vote of the holders of a majority of the
outstanding shares of stock of the corporation entitled to vote.
D. Preemptive or Preferential Rights of Stockholders.
No stockholder of this corporation shall have any preemptive or
preferential right to purchase or subscribe to any shares of any class of this
corporation now or hereafter to be authorized, or any notes, debentures, bonds
or other securities convertible into or carrying options or warrants to
purchase shares of any class, now or hereafter to be authorized, whether or
not the issue of any such shares, or such notes, debentures, bonds or other
securities, would adversely affect the dividend or voting rights of such
stockholder, other than such rights, if any, as the Board of Directors in its
discretion from time to time may grant, and at such price as the Board of
Directors in its discretion may fix; and the Board of Directors may issue
shares of any class of this corporation, or any notes, debentures, bonds or
other securities convertible into or carrying options or warrants to purchase
shares of any class, without offering any such shares or securities, either in
whole or in part, to the existing stockholders of any class.
FIFTH: The minimum amount of capital with which the corporation will
commence business is One Thousand Dollars ($1,000.00).
SIXTH: The corporation is to have perpetual existence.
SEVENTH: The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever.
EIGHTH: The following provisions are inserted for the regulation and
conduct of the affairs of the corporation, and it is expressly provided that
they are intended to be in furtherance and not in limitation or exclusion of
the powers elsewhere conferred herein or in the by-laws or conferred by law:
(a) The Board of Directors may at any time set apart out of any of the
funds of the corporation available for dividends a reserve or reserves
for any proper purpose and may at any time reduce or abolish any such
reserve.
(b) Except as may be otherwise expressly required by law or by other
provisions of this Restated Certificate of Incorporation or the by-laws,
the Board of Directors shall have and may exercise, transact, manage,
promote and carry on all of the powers, authorities, businesses, objects
and purposes of the corporation, provided, however, that the directors
may not effect or consummate:
(1) any merger or consolidation of the corporation or any
Subsidiary with or into any other corporation;
(2) any sale, lease, exchange or other disposition of all or
substantially all of the assets of the corporation to or with any
other person; or
(3) any issuance or transfer by the corporation or any Subsidiary
of any voting securities of the corporation or any Subsidiary to any
other person except for voting securities issued pursuant to stock
option, purchase, bonus or other plans for natural persons who are
directors, employees, consultants and/or agents of the corporation and
its Subsidiaries;
19
unless and until such transaction is authorized by the affirmative vote
of the holders of at least 66 2/3% of the outstanding stock of the
corporation entitled to vote generally in the election of directors
considered for the purposes of this Article Eighth as one class, but the
foregoing requirement shall not apply, and the provisions of Delaware law
relating to the percentage of stockholder approval, if any, shall apply
to
(i) any merger or other transaction described in the preceding
subparagraphs (1), (2) and (3) if the other party to the merger or
other transaction is a Subsidiary of the corporation, or
(ii) any merger or other transaction described in the preceding
subparagraphs (1), (2) and (3) if at any time prior to its
consummation the transaction has been approved by a resolution adopted
by not less than two-thirds of all of the directors then in office.
For purposes of this Article Eighth a 'Subsidiary' is any corporation
more than 50% of the voting securities of which are owned directly or
indirectly by the corporation; and a 'person' is any individual,
partnership, corporation or entity.
(c) The election of directors need not be by ballot unless the by-laws
so require and no director need be a stockholder.
(d) By-laws not inconsistent with the Certificate of Incorporation may
be made, and by-laws may be altered, amended or repealed in the manner
therein specified provided (1) that no inconsistency with the Certificate
of Incorporation results from such alteration or repeal, (2) that the
Board of Directors shall not alter, amend or repeal Sections 3.1 to 3.4
inclusive and Section 13 of the by-laws as amended at the 1978 Annual
Meeting of Stockholders without the approval of the holders of at least
66 2/3% of the outstanding stock of the corporation entitled to vote
generally in the election of directors, considered for the purposes of
this paragraph (d) as one class, and (3) that no change of the time or
place of the meeting for the election of directors shall be made within
60 days next before the day on which such meeting is to be held, and that
in case of any change of such time or place, notice thereof shall be
given to each stockholder in person or by letter mailed to his last known
post-office address at least 20 days before the meeting is held.
(e) The Board of Directors may from time to time determine whether and
to what extent and at what times and places and under what conditions and
regulations the accounts and books and papers of the corporation, or any
of them, shall be open to the inspection of the stockholders, and no
stockholder shall have any right to inspect any account, book or document
of the corporation, except as and to the extent expressly provided by law
with reference to the right of stockholders to examine the original or
duplicate stock ledger, or otherwise expressly provided by law, or except
as expressly authorized by resolution of the Board of Directors.
(f) A director of this corporation shall not, in the absence of fraud,
be disqualified by his office from dealing or contracting with the
corporation, either as vendor, vendee or otherwise, nor in the absence of
fraud, shall any contract or other transaction of the corporation be void
or voidable or otherwise affected by reason of the fact that any
director, or any firm or association in which any director is a member,
or any corporation of which any director is an officer, director or
stockholder, or any trust of which any director is a trustee or
beneficiary, is in any way pecuniarily interested in such contract or
transaction, provided that at the meeting of the Board of Directors or of
any committee thereof having authority in the premises, authorizing or
confirming said contract or transaction, the interest of such director,
firm, association, corporation, or trust and in the case of a firm,
association, corporation, or trust, the relation of such director
thereto, is disclosed or made known to the meeting; nor shall any
director be liable to account to the corporation for any profit realized
by him from or through any such contract or transaction of this
corporation, by reason of the fact that he or any firm or association of
which he is a member, or any corporation of which he is an officer,
director or stockholder, or any trust of which he is a trustee or
beneficiary, was pecuniarily interested in such transaction or contract.
Directors so
20
interested may be counted when present at meetings of the Board of
Directors or of any such committee for the purpose of determining the
existence of a quorum. No such interested director shall vote to
authorize or confirm any such contract or transaction, and if he does so
vote his vote shall be disregarded; but in respect of any contract or
transaction with any wholly-owned subsidiary of the corporation, or with
any corporation in which such director is interested only by virtue of
being a director or officer or both, and not as a stockholder, such
director may vote and act as freely as though his interests in such
corporation did not exist. Any contract, transaction or act of the
corporation or of the Board of Directors or of any committee thereof, or
of any officer, which shall be ratified by a majority in interest of
stockholders having voting power, at any annual meeting or at a special
meeting called for the purpose, shall be as valid and as binding as
though ratified by every stockholder of the corporation. In any situation
in which a director should disclose his pecuniary interest in a contract
or transaction as provided for in this section, it shall not be necessary
for him to disclose the extent or the details of such pecuniary interest.
(g) The Board of Directors may issue all or any part of the authorized
stock of the corporation at such times and on such lawful conditions as
it may from time to time determine; and no stockholders shall have any
preemptive right to subscribe for any issue of the corporation's stock or
of any other securities.
(h) To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, a
director of the corporation shall not be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of the foregoing sentence by the
stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such
repeal or modification. (Added by amendment March 13, 1987.)
NINTH: Meetings may be held without the State of Delaware if the by-laws
so provide. The books of the corporation may be kept (subject to any
provisions contained in the statute) outside of the State of Delaware at such
place or places as may be from time to time designated by the Board of
Directors or in the by-laws of the corporation. No action required or
permitted to be taken by the stockholders of the corporation may be taken
except at the annual meeting of the stockholders or at a special meeting of
the stockholders duly called for as provided by the by-laws of the
corporation. The stockholders entitled to vote generally in the election of
directors, considered for the purposes of this Article Ninth as one class,
shall have the authority to remove any director of the corporation with or
without cause as provided in the by-laws of the corporation.
TENTH: The corporation reserves the right to modify, revise, alter,
amend, change, repeal, or rescind any provision contained in this Restated
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon the stockholders herein are granted
subject to this reservation, provided, however, that the provisions of
Paragraphs (b), (c) and (d) of Article Eighth, and the provisions of Articles
Ninth and Tenth of this Restated Certificate of Incorporation shall not be
modified, revised, altered or amended, repealed or rescinded, in whole or in
part, except by the affirmative vote of the holders of not less than 66 2/3%
of the outstanding stock entitled to vote generally in the election of
directors considered for the purposes of this Article Tenth as one class.
21
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, having
been duly adopted by the Board of Directors and the stockholders of the
corporation in accordance with the provisions of Section 242 and 245 of the
Delaware General Corporation Law, has been executed on this 18th day of
December, 1984.
HARCOURT GENERAL, INC.
By ______/s/ RICHARD A. SMITH_____
RICHARD A. SMITH
President
Attest: __/s/ SAMUEL FRANKENHEIM__
SAMUEL FRANKENHEIM
Assistant Secretary
22
EXHIBIT 10.7
HARCOURT GENERAL, INC.
DEFERRED COMPENSATION AND RETIREMENT INCOME PLAN
FOR NON-EMPLOYEE DIRECTORS
Effective January 1, 1993
HARCOURT GENERAL, INC.
DEFERRED COMPENSATION AND RETIREMENT INCOME PLAN
FOR NON-EMPLOYEE DIRECTORS
Table of Contents
ARTICLE PAGE
ARTICLE 1. Introduction . . . . . . . . . . . . . . . . . . . 1
1.1. Amendment and restatement . . . . . . . . . . . . . 1
1.2. Status of Plan. . . . . . . . . . . . . . . . . . . 1
ARTICLE 2. Definitions. . . . . . . . . . . . . . . . . . . . 2
2.1. "Account" . . . . . . . . . . . . . . . . . . . . . 2
2.2. "Board" . . . . . . . . . . . . . . . . . . . . . . 2
2.3. "Committee" . . . . . . . . . . . . . . . . . . . . 2
2.4. "Common Stock". . . . . . . . . . . . . . . . . . . 2
2.5. "Company" . . . . . . . . . . . . . . . . . . . . . 2
2.6. "Compensation". . . . . . . . . . . . . . . . . . . 2
2.7. "Effective Date". . . . . . . . . . . . . . . . . . 2
2.8. "Market Price". . . . . . . . . . . . . . . . . . . 2
2.9. "Non-Employee Director" . . . . . . . . . . . . . . 3
2.10. "Participant". . . . . . . . . . . . . . . . . . . 3
2.11. "Plan" . . . . . . . . . . . . . . . . . . . . . . 3
2.12. "Plan Year". . . . . . . . . . . . . . . . . . . . 3
2.13. "Prior Plan" . . . . . . . . . . . . . . . . . . . 3
2.14. "Retainer" . . . . . . . . . . . . . . . . . . . . 3
2.15. "Unforeseen Emergency" . . . . . . . . . . . . . . 3
2.16. "Year of Service". . . . . . . . . . . . . . . . . 4
ARTICLE 3. Participation. . . . . . . . . . . . . . . . . . . 5
3.1. Commencement of participation . . . . . . . . . . . 5
3.2. Continuation of participation . . . . . . . . . . . 5
ARTICLE 4. Elective Deferrals . . . . . . . . . . . . . . . . 6
4.1. Elective deferrals. . . . . . . . . . . . . . . . . 6
4.2. Accounts. . . . . . . . . . . . . . . . . . . . . . 6
4.3. Investment equivalent alternatives. . . . . . . . . 7
4.4. Time of payment.. . . . . . . . . . . . . . . . . . 9
4.5. Form of payment . . . . . . . . . . . . . . . . . . 10
4.6. Death prior to payment. . . . . . . . . . . . . . . 10
4.7. Unforeseen Emergency. . . . . . . . . . . . . . . . 11
ARTICLE 5. Retirement Income Benefits . . . . . . . . . . . . 13
5.1. Retirement income benefits. . . . . . . . . . . . . 13
5.2. Forfeitures . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 6. Administration . . . . . . . . . . . . . . . . . . 15
6.1. Plan administration and interpretation. . . . . . . 15
6.2. Powers, duties, procedures, etc.. . . . . . . . . . 15
6.3. Information . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 7. Amendment and Termination. . . . . . . . . . . . . 17
7.1. Amendments. . . . . . . . . . . . . . . . . . . . . 17
7.2. Termination of Plan . . . . . . . . . . . . . . . . 17
7.3. Existing rights . . . . . . . . . . . . . . . . . . 17
ARTICLE 8. Miscellaneous. . . . . . . . . . . . . . . . . . . 19
8.1. No funding. . . . . . . . . . . . . . . . . . . . . 19
8.2. Grantor trust . . . . . . . . . . . . . . . . . . . 19
8.3. Nonassignability. . . . . . . . . . . . . . . . . . 19
8.4. Limitation of Participants' rights. . . . . . . . . 20
8.5. Participants bound. . . . . . . . . . . . . . . . . 20
8.6. Receipt and release . . . . . . . . . . . . . . . . 20
8.7. Notices . . . . . . . . . . . . . . . . . . . . . . 21
8.8. Governing law . . . . . . . . . . . . . . . . . . . 21
8.9. Headings and subheadings. . . . . . . . . . . . . . 21
HARCOURT GENERAL, INC.
DEFERRED COMPENSATION AND RETIREMENT INCOME PLAN
FOR NON-EMPLOYEE DIRECTORS
ARTICLE I.
Introduction
A. Amendment and restatement. The Company originally
adopted the General Cinema Corporation Deferred Compensation Plan
for Non-Employee Directors, effective April 20, 1990, to provide a
means by which members of the Board who are not employees of the
Company may elect to defer receipt of designated amounts of
Compensation earned in that capacity. The Company hereby amends
and restates that Plan to make certain clarifications, to provide
an additional benefit in the form of retirement income to Non-
Employee Directors who satisfy the requirements for such benefits
as set forth herein and, coincident with the change in the name of
the Company, to rename such Plan the "Harcourt General, Inc.
Deferred Compensation and Retirement Income Plan for Non-Employee
Directors." This amended and restated Plan shall be effective as
of January 1, 1993, except that the amendment and restatement of
Article 4 shall be effective as of May 1, 1991.
B. Status of Plan. The Plan is intended neither to be a
qualified plan within the meaning of I.R.C. section 401(a) nor to
constitute a "pension benefit plan" or a "welfare benefit plan"
subject to the requirements of the Employee Retirement Income
Security Act of 1974. The Plan shall be administered and
interpreted to the extent possible in a manner consistent with that
intent.
ARTICLE II.
Definitions
Whenever used herein, the following terms have the meanings
set forth below, unless a different meaning is clearly required
by the context:
A. "Account" means, for each Participant, the account
maintained for his or her benefit under Section 4.2.
B. "Board" means the Board of Directors of the Company.
C. "Committee" means the Compensation Committee of the
Board.
D. "Common Stock" means the Common Stock, $1.00 par value,
of the Company.
E. "Company" means Harcourt General, Inc., formerly
General Cinema Corporation, a Delaware corporation, and any
successor to all or substantially all of the Company's assets or
business which assumes the obligations of the Company.
F. "Compensation" means the amount of Retainer payable for
service on the Board, plus any fees payable for attendance at a
meeting, for service as Chair or Vice Chair of the Board, or for
service on or as a chair of any committee of the Board,
determined without reduction for any elective deferrals under
Article 4.
G. "Effective Date" means January 1, 1993, except that
Article 4 shall be effective as of May 1, 1991.
H. "Market Price" means, as of any date, the mean of the
highest and lowest sales prices of the Common Stock on such date
(or, if no trading shall have occurred on such date, on the next
previous date on which trading shall have occurred), as reported
on the New York Stock Exchange Composite Tape.
I. "Non-Employee Director" means a member of the Board who
is not an officer or employee of the Company or any of its
subsidiaries.
J. "Participant" means any Non-Employee Director who
participates in the Plan as set forth in Article 3.
K. "Plan" means the Harcourt General, Inc. Deferred
Compensation and Retirement Income Plan for Non-Employee
Directors as set forth herein and all subsequent amendments
hereto.
L. "Plan Year" means the calendar year.
M. "Prior Plan" means the General Cinema Corporation
Deferred Compensation Plan for Non-Employee Directors, effective
April 20, 1990.
N. "Retainer" means the amount of retainer payable for
service on the Board, exclusive of any fees payable for
attendance at a meeting, for service as Chair or Vice Chair of
the Board, or for service on or as a chair of any committee of
the Board, and determined without reduction for any elective
deferrals under Article 4.
O. "Unforeseen Emergency" means a severe financial
hardship to a Participant resulting from a sudden and unexpected
illness or accident of the Participant or of a dependent (as
defined in I.R.C. section 152(a)) of the Participant, loss of property
due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of
the Participant.
P. "Year of Service" means a 12-month period of service as
a Non-Employee Director, including periods of service before the
Effective Date of the Plan.
ARTICLE III.
Participation
A. Commencement of participation. Each Non-Employee
Director shall become a Participant in this Plan upon the later
of (a) the Effective Date or (b) the day on which he or she
becomes a Non-Employee Director.
B. Continuation of participation. An individual who has
become a Participant in the Plan shall continue to be a
Participant so long as he or she remains a Non-Employee Director,
and so long thereafter as any amount is payable to him or her in
accordance with Article 4 or 5.
ARTICLE IV.
Elective Deferrals
A. Elective deferrals. An individual who is a Non-
Employee Director on any November 1 may elect to defer all or a
specified portion of his or her Compensation for services to be
performed on or after that date by filing a written election with
the Committee before such November 1. In addition, an individual
may elect before the date he or she becomes a Non-Employee
Director, or within thirty (30) days thereafter, to defer all or
a specified portion of all Compensation payable to the individual
for services to be performed after such deferral election (or, if
later, after the date he or she becomes a Non-Employee Director)
by filing a written election with the Committee.
Each deferral election under this Section 4.1 shall be made
on a form approved or prescribed by the Committee and shall also
specify the time and form of distribution of the amounts deferred
and the investment equivalent alternative described in Section
4.3 to be applied to such amounts. Each such election may be
revoked or modified, effective for amounts earned on and after
any November 1, by an election filed before that November 1, but
may not otherwise be revoked or modified except as provided in
Section 4.7 in the event of an Unforeseen Emergency.
B. Accounts. The Committee shall maintain a bookkeeping
account for each Participant reflecting elective deferrals made
for the Participant's benefit under Section 4.1, or under the
Prior Plan, and interest credited to such elective deferrals in
accordance with Section 4.3, together with any adjustments
hereunder. Elective deferrals shall be credited to the Account
as of the day such amounts become payable to the Participant. As
of each February 15th, the Committee shall provide the
Participant with a statement of his or her Account as of the end
of the preceding Plan Year.
C. Investment equivalent alternatives. When a Participant
elects to make elective deferrals in accordance with Section 4.1,
he or she shall also elect whether interest shall be credited to
such elective deferrals under the cash-based option or the stock-
based option described below.
(a) Cash-Based Option:
Under the cash-based option, elective deferrals
shall accrue interest, to be compounded at the end of
each fiscal quarter of the Company, at a rate equal to
the average of the top rates paid by major New York
banks on primary new issues of three-month negotiable
certificates of deposit (usually on amounts of
$1,000,000 or more) as quoted in the Wall Street
Journal on the last business day of the fiscal quarter.
(b) Stock-Based Option:
Under the stock-based option, elective deferrals
will be converted hypothetically into Common Stock
equivalent units. The number of such units shall be
determined by dividing the amount of elective deferrals
in each fiscal quarter by the average of the Market
Prices of the Common Stock during the last five (5)
trading days of such fiscal quarter. Units will be
calculated to the nearest thousandth. On each dividend
payment date for the Common Stock, dividend equivalents
in the form of additional units representing Common
Stock will be credited to the Participant's Account
equal to (i) the per-share cash dividend divided by the
Market Price of Common Stock on the payment date,
multiplied by (ii) the number of such units reflected
in such Account on the day before the dividend payment
date.
At the end of the period of deferral elected by
the Participant, the Common Stock equivalent units will
be valued for payment by multiplying the applicable
number of units by the average of the Market Prices of
Common Stock during the last ten (10) trading days
before the date on which the elective deferrals (and
interest attributable thereto) are to be paid (or on
which payments are to commence).
If the outstanding shares of Common Stock are
increased, decreased or exchanged for a different
number or kind of shares or other securities, or if
additional shares or new or different shares or other
securities are distributed with respect to such shares
of Common Stock or other securities through merger,
consolidation, sale of all or substantially all the
property of the Company, reorganization,
recapitalization, reclassification, stock dividend,
stock split, reverse stock split or other distribution
with respect to such shares of Common Stock or other
securities, appropriate adjustments will be made by the
Company in the number of Common Stock equivalent units
credited to a Participant's Account.
D. Time of payment. When a Participant elects to
make elective deferrals in accordance with Section 4.1, the
Participant shall also elect whether the elective deferrals
(including interest attributable thereto) shall be paid, or begin
to be paid, (a) at a specified date at least twenty-four months
in the future (which date shall be the last day of a fiscal
quarter) or (b) upon termination of his or her service as a
member of the Board. If alternative (a) under this Section 4.4
is elected, payment will be made or will commence on the date
specified. If alternative (b) under this Section 4.4 is elected,
payment will be made or will commence at the end of the fiscal
quarter in which the Participant's service as a member of the
Board terminates. The foregoing election shall be made on a form
approved or prescribed by the Committee.
Payment of a Participant's Account shall be made in
accordance with the Participant's elections under this Section
4.4 and Section 4.5. Each Participant's Account shall be reduced
by the amount of any payment made to or on behalf of the
Participant (including interest paid with respect to such
payment) as of the date such payment is made.
E. Form of payment. When a Participant elects to make
elective deferrals in accordance with Section 4.1, the
Participant shall also elect whether such elective deferrals
(including interest attributable thereto) shall be paid in (a) a
lump sum, or (b) a specified number of annual installments (not
to exceed 10). Each installment (other than the first) shall
accrue interest from the date of the first installment to the
date on which such installment is paid, compounded quarterly at a
rate equal to the average of the top rates paid by major New York
banks on primary new issues of three-month negotiable
certificates of deposit (usually on amounts of $1,000,000 or
more) as quoted in the Wall Street Journal on the last business
day of the fiscal quarter. The foregoing election shall be made
on a form approved or prescribed by the Committee.
F. Death prior to payment. In the event that a
Participant dies prior to complete distribution of his or her
Account, the balance of his or her Account shall be paid in a
single lump sum to the beneficiary or beneficiaries designated by
the Participant. If no such beneficiary has been designated or
if no designated beneficiary survives the Participant, the
balance of such Account shall be paid to the Participant's
estate. Payment of such amount shall be made within sixty (60)
days from the date of receipt by the office of the Secretary of
the Company of notice of the Participant's death. Such
designation or designations of beneficiary must be in writing,
dated, signed by the Participant and acknowledged before a notary
public, and no such designation shall require Company consent.
No beneficiary designation shall be deemed effective unless the
same is on file in the office of the Secretary of the Company
prior to the death of the Participant. The Company may rely in
all cases on the genuineness, accuracy and date of any such
beneficiary designation and shall be fully protected in making
payment in accordance therewith. Any beneficiary designation
filed in the office of the Secretary of the Company prior to the
death of the Participant shall be deemed to have revoked all
earlier designations, and no beneficiary designation filed after
the date of a Participant's death shall be deemed effective.
G. Unforeseen Emergency. A Participant who has an
Unforeseen Emergency may, with the consent of a majority of the
disinterested members of the Committee, receive a distribution of
that portion of his or her Account as to which interest is being
credited under the cash-based option described in Section 4.3(a)
and which the Committee determines is necessary to satisfy the
emergency need, including any amounts necessary to pay any
federal, state or local income taxes reasonably anticipated to
result from the distribution, but only to the extent such need is
not covered by insurance and cannot reasonably be relieved by the
liquidation of the Participant's assets (to the extent that such
liquidation would not in itself cause a severe financial
hardship) or by cessation of elective deferrals under the Plan.
A Participant who has an Unforeseen Emergency may also cease or
reduce future deferrals under the Plan with the consent of a
majority of the disinterested members of the Committee. A
Participant requesting a distribution, or a cessation or
reduction of future deferrals, on account of an Unforeseen
Emergency shall apply in writing in a letter submitted to the
Committee and shall provide such information as the Committee may
require.
ARTICLE V.
Retirement Income Benefits
A. Retirement income benefits. Except as provided in
Section 5.2, each Participant who has completed ten (10) or more
Years of Service shall be entitled upon the termination of his or
her service as a member of the Board to receive an annual
retirement income benefit equal to the amount of the annual
Retainer in effect at the time of such termination of service.
Such retirement income benefit shall be payable in quarterly
installments which begin as of the last day of the fiscal quarter
in which the Participant's service terminates and which continue
for a period equal to the Participant's Years of Service
(including fractional years), but not beyond the Participant's
lifetime. The retirement income payment for the first fiscal
quarter shall be deferred to the extent necessary so that the sum
of such payment and any Retainer payable for such quarter (and
the amount paid for any subsequent quarter) shall not exceed one
full quarterly Retainer payment. Any benefit otherwise payable
for the fiscal quarter in which the Participant dies shall be
multiplied by a fraction equal to that fraction of the fiscal
quarter that preceded the Participant's death. Such prorated
benefit shall be payable in accordance with the provisions of
Section 4.6 above. No benefit shall be paid under this Section
5.1 for any fiscal quarter that begins after the Participant's
death.
B. Forfeitures. Notwithstanding any provision of the Plan
to the contrary, no retirement income benefit shall be payable
under Section 5.1 to a Participant who, while a member of the
Board or after ceasing to be a member of the Board, engages in
behavior which, in the sole discretion of the Board, casts such
discredit on the Participant, the Board or the Company as to
justify a forfeiture of retirement income benefits. In addition,
in the event a Participant receiving retirement income benefits
under Section 5.1 joins the board of directors or becomes an
executive officer of a competitor of the Company within three
years of the termination of his or her service as a member of the
Board, such Participant shall immediately forfeit any remaining
retirement income benefits payable to him or her under Section
5.1. The Board's decision as to the applicability of this
Section 5.2 in any case shall be conclusive and binding on all
persons.
ARTICLE VI.
Administration
A. Plan administration and interpretation. The Plan shall
be administered by the Committee which may appoint persons to
assist in the administration of the Plan. The Committee shall
have complete control and authority to determine the rights and
benefits and all claims, demands and actions arising out of the
provisions of the Plan of any Participant or other person having
or claiming to have any interest under the Plan. The Committee
shall have the exclusive power to interpret the Plan and to
decide all matters under the Plan. Such interpretation and
decision shall be final, conclusive and binding on all
Participants and any person claiming under or through any
Participant, in the absence of clear and convincing evidence that
the Committee acted arbitrarily and capriciously. Any individual
serving on the Committee who is a Participant will not vote or
act on any matter relating solely to himself or herself. When
making a determination or calculation, the Committee shall be
entitled to rely on information furnished by a Participant or the
Company.
B. Powers, duties, procedures, etc. The Committee shall
have such powers and duties, may adopt such rules and tables, may
act in accordance with such procedures, may appoint such officers
or agents, and may delegate such powers and duties as it deems
necessary or advisable for the administration of the Plan.
C. Information. To enable the Committee to perform its
functions, the Company shall supply full and timely information
to the Committee on all matters relating to the service of
Participants as a member of the Board and such other pertinent
facts as the Committee may require.
ARTICLE VII.
Amendment and Termination
A. Amendments. The Board shall have the right to amend
this Plan from time to time, subject to Section 7.3, by an
instrument in writing approved by the Board and executed on the
Company's behalf by a duly authorized officer.
B. Termination of Plan. The Plan is strictly a voluntary
undertaking on the part of the Company and shall not be deemed to
constitute a contract between the Company and any Participant or
a consideration for, or an inducement or condition of, the
performance of services by any Participant as a member of the
Board. The Board reserves the right to terminate this Plan at
any time, subject to Section 7.3, by an instrument in writing
approved by the Board and executed on the Company's behalf by a
duly authorized officer. Upon termination of the Plan, no
further benefits shall accrue on behalf of any individual then a
Participant, nor shall any individual not a Participant as of the
date of termination be eligible to become a Participant
thereafter.
C. Existing rights. No amendment or termination of the
Plan shall reduce:
(a) any benefits payable to (or in respect of) a
Participant who has ceased to be a member of the Board,
or
(b) any benefits to which a current Board member
would have been entitled, currently or in the future,
in the event his or her service as a Board member had
terminated on the date of such amendment or
termination.
ARTICLE VIII.
Miscellaneous
A. No funding. Nothing in the Plan will be construed to
create a trust or to obligate the Company or any other person to
segregate a fund, purchase an insurance contract, or in any other
way currently to fund the future payment of any benefits
hereunder, nor will anything herein be construed to give any
Participant or any other person rights to any specific assets of
the Company or of any other person. The Plan constitutes a mere
promise by the Company to make benefit payments in the future,
and is intended to be unfunded for tax purposes. Any benefits
which become payable hereunder shall be paid from the general
assets of the Company, and the rights of any Participant or of
his or her estate or beneficiary shall be those of an unsecured
general creditor.
B. Grantor trust. The Company in its sole discretion may
establish a trust (a "grantor trust") of which it is treated as
the owner under Subpart E of Subchapter J, Chapter 1 of the Code
to provide for the payment of benefits hereunder, subject to the
claims of the Company's general creditors in the event of
insolvency, and subject to such other terms and conditions as the
Company may deem necessary or advisable to ensure that benefits
are not includable, by reason of the trust, in the income of
trust beneficiaries prior to their actual distribution.
C. Nonassignability. None of the benefits, payments,
proceeds or claims of any Participant shall be subject to any
claim of any creditor and, in particular, the same shall not be
subject to attachment or garnishment or other legal process by
any creditor of the Participant or his or her beneficiary, nor
shall any Participant or beneficiary have any right to alienate,
anticipate, commute, pledge, sell, transfer, encumber or assign
any of the benefits or payments or proceeds which he or she may
expect to receive, contingently or otherwise, under the Plan.
D. Limitation of Participants' rights. Participation in
the Plan shall not give any Participant the right to be retained
as a member of the Board or any right or interest in the Plan
other than as herein provided.
E. Participants bound. Any action with respect to this
Plan taken by the Committee, the Board or the Company or any
action authorized by or taken at the direction of the Committee,
the Board or the Company shall be conclusive upon all
Participants entitled to benefits under the Plan.
F. Receipt and release. Any payment to any Participant in
accordance with the provisions of the Plan shall, to the extent
thereof, be in full satisfaction of all claims against the
Company, the Board and the Committee under the Plan, and the
Committee may require such Participant, as a condition precedent
to such payment, to execute a receipt and release to such effect.
If any Participant is determined by the Committee to be
incompetent by reason of physical or mental disability to give a
valid receipt and release, the Committee may cause the payment or
payments becoming due to such person to be made to another person
for his or her benefit without responsibility on the part of the
Committee, the Board or the Company to follow the application of
such funds.
G. Notices. All notices and elections to be delivered
hereunder shall be delivered to the attention of the Secretary of
the Company.
H. Governing law. The Plan shall be construed,
administered, and governed in all respects under and by the laws
of the Commonwealth of Massachusetts. If any provision shall be
held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall continue to
be fully effective.
I. Headings and subheadings. Headings and subheadings in
this Plan are inserted for convenience only and are not to be
considered in the construction of the provisions hereof.
IN WITNESS WHEREOF, Harcourt General, Inc. has caused this
Plan to be executed by its duly authorized officer this ______
day of _______________, 1993.
HARCOURT GENERAL, INC.
By: s/
Exhibit 10.11
INTERCOMPANY SERVICES AGREEMENT
This Intercompany Services Agreement ("Agreement"), dated as
of December 14, 1993, between Harcourt General, Inc., a Delaware
corporation ("Harcourt"), and GC Companies, Inc., a Delaware
corporation (the "Company").
WHEREAS, the Company is a wholly owned subsidiary of Harcourt;
WHEREAS, the Board of Directors of Harcourt has approved a
transaction in which Harcourt's theatre business will be
transferred to the Company, all of the shares of stock in the
Company will be distributed to the shareholders of Harcourt, and
the Company will become a publicly owned corporation (the
"Spinoff");
WHEREAS, Harcourt is willing effective November 1, 1993 to
provide many of the corporate services to the Company heretofore
provided by it to the theatre business and such corporate services
as may be required by a publicly owned corporation, and the Company
desires to receive and pay for such services, as provided herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements contained in this Agreement, Harcourt and the
Company hereby agree as follows:
1. Corporate Services To Be Made Available. For the period
provided for under paragraph 6 hereof, Harcourt agrees to make
available to the Company, and the Company agrees to purchase from
Harcourt, the services described below, together with such other
services as to which Harcourt and the Company may from time to time
agree (collectively the "Corporate Services"), on the terms
provided herein:
(a) auditing, accounting, payroll, and bookkeeping advice and
services, to be provided by Harcourt's internal
accounting and auditing staff;
(b) legal advice and services to be provided by Harcourt's
internal legal staff, including, without limitation,
assistance with respect to claims which may be or have
been asserted or are the subject of litigation (provided
that Harcourt's internal legal staff shall not provide
services to the Company with respect to any disagreements
between Harcourt and the Company); the preparation and
review of documents involving loans, financing
transactions, real estate matters, contracts and
disclosure relating to reporting requirements under the
federal securities laws; consultation related to legal
and administrative proceedings and compliance with
applicable laws and regulations;
(c) tax advice and services, including, without limitation,
the preparation of federal, state and local tax returns,
to be provided by Harcourt's internal tax staff;
(d) accounting services related to financial reporting and
the preparation of financial statements and disclosure
documents required under the federal securities laws, to
be provided by Harcourt's controller's staff;
(e) financial advice and services, including, without
limitation, assistance with respect to the raising of
additional capital, cash management, treasury management,
and risk management services, to be provided by
Harcourt's corporate and treasury staff;
(f) personnel advice and services, including, without
limitation, the administration of employee insurance
plans, pension plans, compensation, incentive, retirement
and benefit plans, to be provided by Harcourt's human
resources staff; and
(g) assistance in organizational matters associated with
shareholders' meetings and meetings of the board of
directors and the committees of the board, assistance in
preparation of certain public documents, including,
without limitation, preparation of annual and quarterly
reports and proxy statements, and in administration of
compensation, incentive, benefit and retirement plans,
and such other management and other services, not
specified herein, which are of the type normally
performed by the corporate staffs of public corporations,
to be provided by Harcourt's corporate staff.
Harcourt and the Company will cooperate in planning the scope
and timing of the Corporate Services provided by Harcourt under
this Agreement in order to minimize or eliminate interference with
the conduct of Harcourt's business activities. If such
interference is unavoidable, Harcourt will apportion, in its sole
discretion, the available services in a fair and reasonable manner.
2. Standard of Conduct. In providing Corporate Services to
the Company, Harcourt's officers and employees shall conduct
themselves in accordance with the Company's written policies and
procedures. Harcourt will use reasonable efforts in providing the
Corporate Services to the Company and will perform such services
with the same degree of care, skill and prudence customarily
exercised for its own operations. To the extent possible, such
Corporate Services will be substantially identical in nature and
quality to the services currently provided or otherwise made
available during the term of this Agreement by Harcourt to its
subsidiaries and their respective operating divisions, including
Harcourt's theatre division. Notwithstanding the foregoing, in
providing such Corporate Services Harcourt and its directors,
officers and employees will not be responsible for and shall have
no liability for the accuracy, completeness or timeliness of any
advice or service or any return, report, filing or other document
which it or any of them provides, prepares or assists in preparing,
except to the extent that any inaccuracy, incompleteness or
untimeliness arises from the gross negligence or willful misconduct
of Harcourt or its directors, officers or employees. The Company
shall indemnify, defend and hold harmless Harcourt and its
directors, officers and employees from and against any and all
damage, cost, loss, liability and expense (including reasonable
attorneys fees) in connection with any and all actions or
threatened actions arising out of the performance of the Corporate
Services hereunder, except in circumstances where the party that
would otherwise be indemnified hereunder is found by a court of
competent jurisdiction to have not met the standard of care
described in the preceding sentence. In no event will Harcourt or
its directors, officers or employees be liable for any indirect,
special or consequential damages in connection with or arising out
of the performance of Corporate Services under this Agreement.
3. Cost of Services.
(a) Promptly following the completion of the Spinoff,
Harcourt and the Company shall estimate the probable
level of Corporate Services to be provided under this
Agreement and shall agree upon the amount of the fee to
be paid to Harcourt by the Company for the Company's
fiscal year ending October 31, 1994, on the assumption
that such estimated level of Corporate Services will
actually be provided. In determining the fee to be paid,
Harcourt and the Company shall value Corporate Services
based on Harcourt's direct and indirect costs allocable
thereto, calculated in accordance with Harcourt's usual
accounting practices.
(b) The Company agrees to pay to Harcourt on the first
business day of each fiscal quarter (except that the
payment for the fiscal quarter beginning November 1, 1993
shall be made promptly after the initial determination of
the fee in accordance with subparagraph (a)) that portion
of the fee, determined initially as set forth in
subparagraph (a) and subject to adjustment in accordance
with subparagraph (c), attributable to the Corporate
Services to be provided by Harcourt during such quarter.
(c) As soon as practicable after the end of fiscal 1994, but
in no event later than January 31, 1995, Harcourt and the
Company shall, based on a detailed review, determine the
actual level of Corporate Services rendered by Harcourt
during fiscal 1994 and make such adjustments in the fee
as is necessary to reflect such level. Harcourt shall
cause its employees to keep records of the time they
devote in providing Corporate Services to the Company, in
order to facilitate such review and determination and to
permit a proper adjustment to be made. With the benefit
of experience, Harcourt and the Company shall estimate
the level of Corporate Services to be provided for the
Company's fiscal years subsequent to fiscal 1994, and
shall follow the same procedures for payment, review and
adjustment.
(d) The Company also agrees to reimburse Harcourt, within 15
business days of presentation of invoices therefor, for
all reasonable out-of-pocket expenses incurred by
Harcourt in providing Corporate Services.
(e) In addition, the Company agrees to reimburse Harcourt
within 15 business days of presentation of invoices
therefor, for all reasonable expenses for outside
professional services incurred by Harcourt for the
benefit of the Company, including, without limitation,
public accounting services, outside legal services,
actuarial services, banking and financial advisory
services, property tax and personnel consulting services,
and outside marketing, public relations and appraisal
services.
(f) The failure of the Company to make any payment hereunder
within 30 days of the date such payment is due shall
result in the Company owing Harcourt interest at the rate
of 10% per annum on the amount due from the date payable
to the actual payment date.
4. Requirement of Approval By Independent Directors of the
Company. All determinations on behalf of the Company made pursuant
to paragraphs 3 and 6 hereof must be approved by a committee
consisting solely of directors of the Company who are not employed
by or otherwise affiliated with Harcourt (the "Independent
Committee"). In carrying out its duties pursuant to this
Agreement, the Independent Committee may retain such independent
accountants, lawyers and other experts as it deems necessary or
prudent to retain, and the expenses of all such professionals shall
be reimbursed by the Company.
5. Information and Witnesses. Harcourt shall provide to the
Company and the Company shall provide to Harcourt, upon the other's
written request, at reasonable times, full and complete access to,
and duplication rights with respect to, any and all Information, as
defined below, as the other may reasonably request and require, and
Harcourt shall use its best efforts to make available to the
Company, and the Company shall use its best efforts to make
available to Harcourt, upon the other's written request, the
officers, directors, employees and agents of Harcourt and of the
Company, respectively, as witnesses to the extent that such persons
may reasonably be required in connection with any legal,
administrative or other proceedings in which the Company or
Harcourt, as the case may be, may from time to time be a party;
provided, however, that neither Harcourt nor the Company need
provide any Information or make available witnesses to the other to
the extent that doing so would (i) unreasonably interfere with the
performance by any person of such person's duties to the party to
which a request under this paragraph 5 is made or otherwise cause
unreasonable burden to such party, (ii) result in a waiver of any
attorney-client or work product privilege of such party or its
legal counsel, (iii) require either Harcourt or the Company to
provide any Information which relates to the subject matter of any
legal, administrative or other proceeding in which Harcourt and the
Company are adverse parties, or (iv) result in any breach of any
agreement with a third party; and provided, further, that the party
providing Information or making available witnesses pursuant to
this paragraph 5 shall be entitled to receive from the other party,
upon presentation of reasonably detailed invoices therefor, payment
of its reasonable out-of-pocket costs (including reasonable
attorneys' fees) incurred in connection with providing Information
or making witnesses available. The term "Information" as used in
this paragraph 5 means any books, records, contracts, instruments,
data, facts and other information in the possession or under the
control of either Harcourt or the Company and necessary or
desirable for use in legal, administrative or other proceedings or
for auditing, accounting or tax purposes.
6. Term of Agreement. This Agreement shall become effective
as of November 1, 1993, shall remain in effect through October 31,
1994, and shall continue in effect thereafter unless terminated as
of the end of a month, with respect to the performance of Corporate
Services in whole or in part, by either party upon not less than 90
days' written notice. Termination of Corporate Services in part
shall not result in the termination of this Agreement. Termination
of Corporate Services in whole shall result in the termination of
this Agreement except that the obligations of the parties under
paragraphs 3, 5 and 9 shall continue after such termination. A
final fee adjustment on the basis described in paragraph 3(c) shall
be made within 90 days of the date as of which Corporate Services
are terminated in whole. An appropriate revision of quarterly fees
remaining to be paid shall be made following the date as of which
Corporate Services are terminated in part.
7. Independence. All employees and representatives of
Harcourt providing the Corporate Services to the Company will be
deemed for purposes of all compensation and employee benefits to be
employees or representatives of Harcourt and not employees or
representatives of the Company. In performing such services such
employees and representatives will be under the direction, control
and supervision of Harcourt (and not of the Company) and Harcourt
will have the sole right to exercise all authority with respect to
the employment (including termination of employment), assignment
and compensation of such employees and representatives.
8. Independent Contractor. The relationship of Harcourt to
the Company which is created hereunder is that of an independent
contractor. This Agreement is not intended to create and shall not
be construed as creating between the Company and Harcourt the
relationship of affiliate, principal and agent, joint venture,
partnership, or any other similar relationship, the existence of
which is hereby expressly denied.
9. Confidentiality. Any and all information which is not
generally known to the public which is exchanged between the
parties in connection with the performance of this Agreement,
whether of a technical or business nature, shall be considered to
be confidential. The parties agree that confidential information
shall not be disclosed to any third party or parties without the
written consent of the other party, except as permitted below.
Each party shall take reasonable measures to protect against
disclosure of confidential information by its officers, employees
and agents. Confidential information shall not include any
information (i) which is or becomes part of the public domain other
than as a result of the breach of a party's obligation hereunder,
(ii) which is obtained from third parties who are not bound by
confidentiality obligations or (iii) which is required to be
disclosed by law or the rules of any state or Federal regulatory
agency or any securities exchange (including NASDAQ) on which the
Company's or Harcourt's securities might be listed for trading.
The provisions of this section shall survive the termination of
this Agreement.
10. Miscellaneous.
(a) Nonassignability of Agreement. Except by operation of
law or in connection with the sale of all or
substantially all the assets of a party hereto, this
Agreement shall not be assignable, in whole or in part,
directly or indirectly, by either party hereto without
the prior written consent of the other, and any attempt
to assign any rights or obligations arising under this
Agreement without such consent shall be void; provided,
however, that the provisions of this Agreement shall be
binding upon, inure to the benefit of and be enforceable
by Harcourt and the Company and their respective
successors and permitted assigns.
(b) Further Assurances. Subject to the provisions hereof,
each of the parties hereto shall make, execute,
acknowledge and deliver such other actions and documents
as may be reasonably required in order to effectuate the
purposes of this Agreement, and to comply with all
applicable laws, regulations, orders and decrees, and
obtain all required consents and approvals and make all
required filings with any governmental agency, other
regulatory or administrative agency, commission or
similar authority, as may be necessary or desirable in
this connection.
(c) Waivers. No failure or delay on the part of Harcourt or
the Company in exercising any right hereunder shall
operate as a waiver thereof, nor shall any single or
partial exercise of any such right, or any abandonment or
discontinuance of steps to enforce such a right, preclude
any other or further exercise thereof or the exercise of
any other right. No modification or waiver of any
provision of this Agreement nor consent to any departure
by Harcourt or the Company therefrom shall in any event
be effective unless the same shall be in writing, and
then such waiver or consent shall be effective only in
the specific instance and for the purpose for which
given. Any consent or waiver by the Company under this
paragraph 10(c) shall be approved by the Independent
Committee.
(d) Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the
transactions contemplated hereby.
(e) Amendments. This Agreement may be amended or supplemented
only in writing executed by the parties hereto under
authorization by their respective Boards of Directors
(including, in the case of the Company, the approval of
the Independent Committee).
(f) Notices. All notices, approvals and other communications
provided for herein shall be validly given, made or
served, if in writing and delivered personally, by
telegram or by telephonic facsimile transmission, or sent
by registered mail, postage prepaid, to:
The Company at: 27 Boylston Street
Chestnut Hill, MA 02167
Attention: President
Harcourt at: 27 Boylston Street
Chestnut Hill, MA 02167
Attention: President
and shall become effective upon receipt.
(g) Governing Law. Despite any different result required by
any conflicts of law provisions, this Agreement shall be
governed by the laws of the Commonwealth of
Massachusetts.
(h) Force Majeure. Anything else in this Agreement
notwithstanding, Harcourt shall be excused from
performance hereunder while, and to the extent that, its
performance is prevented by fire, drought, explosion,
flood, invasion, rebellion, earthquake, civil commotion,
strike or labor disturbance, governmental or military
authority, act of God, mechanical failure or any other
event or casualty beyond the reasonable control of
Harcourt, whether similar or dissimilar to those
enumerated in this paragraph (hereafter a "Casualty").
In the event of a Casualty, the Company shall be
responsible for making its own alternative arrangements
with respect to the interrupted services.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
HARCOURT GENERAL, INC.
s/Robert J. Tarr, Jr.
Robert J. Tarr, Jr.
President and
Chief Executive Officer
GC COMPANIES, INC.
s/Richard A. Smith
Richard A. Smith
Chairman, President and
Chief Executive Officer
EXHIBIT 10.12
REIMBURSEMENT
AND
SECURITY AGREEMENT
Dated as of December 14, 1993
TABLE OF CONTENTS
PAGE
1. Definitions; Certain Rules of Construction . . . . . . . . 1
2. Certain Payment Provisions . . . . . . . . . . . . . . . . 12
2.1. Reimbursement and Indemnification . . . . . . . . . 12
2.2. Guarantor's Fee . . . . . . . . . . . . . . . . . . 12
2.3. Interest on Overdue Payments. . . . . . . . . . . . 12
3. General Covenants. . . . . . . . . . . . . . . . . . . . . 12
3.1. Financial Statements and Reports. . . . . . . . . . 12
3.1.1. Annual Reports . . . . . . . . . . . . . . 12
3.1.2. Quarterly Reports. . . . . . . . . . . . . 13
3.1.3. SEC Reports. . . . . . . . . . . . . . . . 14
3.1.4. Notice of Litigation; Notice of
Defaults . . . . . . . . . . . . . . . . . 14
3.1.5. Certain Exceptions . . . . . . . . . . . . 15
3.1.6. Other Information. . . . . . . . . . . . . 15
3.2. Liens . . . . . . . . . . . . . . . . . . . . . . . 15
3.3. Distributions . . . . . . . . . . . . . . . . . . . 17
3.4. Merger, Consolidation and Dispositions of Assets. . 18
3.5. Issuance of Stock by Theatre Subsidiaries;
Subsidiary Distributions . . . . . . . . . . . . . 18
3.5.1. Issuance of Stock by Subsidiaries. . . . . 18
3.5.2. No Restrictions on Subsidiary
Distributions. . . . . . . . . . . . . . . 19
3.6. Guaranteed Leases and Transferred Leases. . . . . . 19
3.6.1. No Transfer. . . . . . . . . . . . . . . . 19
3.6.2. Amendments, Renewals, Extensions, Etc. . . 19
3.7. Conduct of Theatre Business . . . . . . . . . . . . 19
3.7.1. Theatre Subsidiaries . . . . . . . . . . . 19
3.7.2. Theatre Business . . . . . . . . . . . . . 19
4. First Tier Covenants . . . . . . . . . . . . . . . . . . . 20
4.1. Consolidated Net Worth. . . . . . . . . . . . . . . 20
4.2. Consolidated Adjusted Cash Flow to Consolidated
Fixed Charges. . . . . . . . . . . . . . . . . . . 20
4.3. Consolidated Cash Flow to Consolidated Interest
Charges. . . . . . . . . . . . . . . . . . . . . . 20
5. Second Tier Covenants. . . . . . . . . . . . . . . . . . . 20
5.1. Investments and Acquisitions. . . . . . . . . . . . 20
5.2. Financing Debt. . . . . . . . . . . . . . . . . . . 21
5.3. Distributions . . . . . . . . . . . . . . . . . . . 22
5.4. Capital Expenditures. . . . . . . . . . . . . . . . 22
5.5. Payment of Theatre Obligations. . . . . . . . . . . 23
6. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1. Events of Default . . . . . . . . . . . . . . . . . 23
6.2. Certain Payments Upon an Event of Default . . . . . 25
6.3. Enforcement of Payment and Security following a
Payment Default; Setoff. . . . . . . . . . . . . . 25
6.4. Specific Performance; Exercise of Rights. . . . . . 26
6.5. Cumulative Remedies . . . . . . . . . . . . . . . . 26
6.6. Annulment of Defaults . . . . . . . . . . . . . . . 26
6.7. Waivers . . . . . . . . . . . . . . . . . . . . . . 26
6.8. Obligations Absolute. . . . . . . . . . . . . . . . 27
7. Security . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.1. Credit Security . . . . . . . . . . . . . . . . . . 27
7.1.1. Pledged Stock. . . . . . . . . . . . . . . 27
7.1.2. Pledged Rights . . . . . . . . . . . . . . 27
7.1.3. Proceeds and Products. . . . . . . . . . . 28
7.2. Representations, Warranties and Covenants with
Respect to the Security. . . . . . . . . . . . . . 28
7.2.1. Pledged Stock. . . . . . . . . . . . . . . 28
7.2.2. No Liens or Restrictions on Transfer or
Change of Control. . . . . . . . . . . . . 28
7.2.3. Perfection of the Security . . . . . . . . 28
7.3. Administration of the Security. . . . . . . . . . . 28
7.3.1. Pledged Securities . . . . . . . . . . . . 29
7.4. Right to Realize upon Credit Security . . . . . . . 29
7.4.1. General Authority. . . . . . . . . . . . . 29
7.4.2. Marshaling, etc. . . . . . . . . . . . . . 30
7.4.3. Sales of Security. . . . . . . . . . . . . 31
7.4.4. Sale Without Registration. . . . . . . . . 32
7.4.5. Application of Proceeds. . . . . . . . . . 33
7.5. Custody of Credit Security. . . . . . . . . . . . . 33
8. Expenses; Indemnity. . . . . . . . . . . . . . . . . . . . 33
8.1. Expenses. . . . . . . . . . . . . . . . . . . . . . 33
8.2. General Indemnity . . . . . . . . . . . . . . . . . 33
9. Successors and Assigns . . . . . . . . . . . . . . . . . . 34
10. Confidentiality . . . . . . . . . . . . . . . . . . . . . 34
11. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 34
12. Course of Dealing; Amendments and Waivers . . . . . . . . 35
13. Termination and Defeasance. . . . . . . . . . . . . . . . 36
14. General . . . . . . . . . . . . . . . . . . . . . . . . . 36
REIMBURSEMENT AND SECURITY AGREEMENT
This Reimbursement and Security Agreement, dated as of
December 14, 1993, is between Harcourt General, Inc., a Delaware
corporation ("Harcourt"), and GC Companies, Inc., a Delaware
corporation (the "Company").
WHEREAS, the Company is a wholly owned subsidiary of
Harcourt.
WHEREAS, the Board of Directors of Harcourt has approved a
transaction in which Harcourt's theatre business will be
transferred to the Company, all of the shares of stock of the
Company will be distributed to the shareholders of Harcourt and
the Company will become a publicly owned corporation (the
"Spinoff").
WHEREAS, Harcourt has secondary liability with respect to
leases for certain theatre properties assigned by Harcourt
General to the Company and, in turn, assigned by the Company to
certain subsidiaries of the Company.
WHEREAS, Harcourt has guaranteed the obligations of
subsidiaries of the Company under certain theatre leases to which
such subsidiaries are parties.
NOW THEREFORE, in consideration of the premises and of the
mutual agreements, provisions, covenants and conditions contained
in this Agreement and for other good and valuable consideration,
Harcourt and the Company hereby agree as follows:
1. Definitions; Certain Rules of Construction. Except as
specified to the contrary or unless the context clearly requires
otherwise, (a) the word "including" shall be construed as
"including without limitation", (b) accounting terms not
otherwise defined herein shall have the meaning provided under
GAAP, (c) terms defined in the UCC and not otherwise defined
herein shall have the meaning provided under the UCC, and (d) the
singular shall include the plural and vice versa. Certain
capitalized terms are used in this Agreement as specifically
defined as follows:
1.1. "Affiliate" means, with respect to any specified
Person, any other Person directly or indirectly controlling,
controlled by or under direct or indirect common control with
such specified Person; provided, however, that the Company and
its Subsidiaries, on the one hand, and Harcourt and its
Subsidiaries, on the other hand, shall not be deemed Affiliates
of each other for purposes of this Agreement.
1.2. "Bankruptcy Code" means Title 11 of the United States
Code (or any successor statute) and the rules and regulations
thereunder.
1.3. "Bankruptcy Default" means an Event of Default
referred to in Section 6.1.8.
1.4. "Capital Expenditures" means, for any period, amounts
added or required to be added to the property, plant and
equipment or other fixed assets account on the balance sheet of
the Company or any of its Subsidiaries, prepared in accordance
with GAAP.
1.5. "Capitalized Lease" means any lease which is required
to be capitalized on the balance sheet of the lessee in
accordance with GAAP, including Statement Nos. 13 and 98 of the
Financial Accounting Standards Board.
1.6. "Capitalized Lease Obligations" means the amount of
the liability reflecting the aggregate discounted amount of
future payments under all Capitalized Leases calculated in
accordance with GAAP, including Statement Nos. 13 and 98 of the
Financial Accounting Standards Board.
1.7. "Cash Equivalents" means:
(a) negotiable certificates of deposit, time deposits
(including sweep accounts), demand deposits and bankers'
acceptances issued by any United States financial
institution having capital and surplus and undivided profits
aggregating at least $100,000,000 and rated both Prime-1 by
Moody's Investors Service, Inc. and A-1 by Standard & Poor's
Corporation;
(b) short-term corporate obligations rated both
Prime-1 by Moody's Investors Service, Inc. and A-1 by
Standard & Poor's Corporation;
(c) any direct obligation of the United States of
America or any agency or instrumentality thereof, or of any
state or municipality thereof, (i) which has a remaining
maturity at the time of purchase of not more than one year
or (ii) which is subject to a repurchase agreement with any
financial institution referred to in clause (a) above,
exercisable within one year from the time of purchase and
(iii) which, in the case of obligations of any state or
municipality, is rated AA or better by Moody's Investors
Service, Inc.;
(d) any mutual fund or other pooled investment vehicle
rated AA or better by Moody's Investors Service, Inc. which
invests principally in obligations described above; and
(e) repurchase agreements with respect to Securities
described in clause (c) above with any financial
institutions described in clause (a) above.
1.8. "Company" is defined in the introductory paragraph.
1.9. "Computation Covenant" means each of Sections 3.3,
3.4.4 and 4, and, if applicable, Sections 5.1.6, 5.2.3 and 5.4.
1.10. "Consolidated" and "Consolidating", when used with
reference to any term, mean that term as applied to the accounts
of the Company (or other specified Person) and all of its
Subsidiaries (or other specified group of Persons), or such of
its Subsidiaries as may be specified, consolidated (or combined)
or consolidating (or combining), as the case may be, in
accordance with GAAP and with appropriate deductions for minority
interests in Subsidiaries.
1.11. "Consolidated Adjusted Cash Flow" means, for any
period, the total of (a) Consolidated Net Income for such period
plus (b) all amounts deducted in computing such Consolidated Net
Income in respect of (i) depreciation and amortization, (ii)
interest on Indebtedness (including payments in the nature of
interest under Capitalized Leases), (iii) taxes based on or
measured by net income and (iv) rental payments and accruals
under operating leases for real property; provided, however, that
Consolidated Adjusted Cash Flow for any period ending on or prior
to October 31, 1993 shall be deemed to be Consolidated Adjusted
Cash Flow specified for such period in Exhibit 1.
1.12. "Consolidated Cash Flow" means, for any period, the
total of (a) Consolidated Net Income for such period, plus
(b) all amounts deducted in computing such Consolidated Net
Income in respect of (i) depreciation and amortization, (ii)
interest on Indebtedness (including payments and accruals in the
nature of interest under Capitalized Leases) and (iii) taxes
based on or measured by net income; provided, however, that
Consolidated Cash Flow for any period ending on or prior to
October 31, 1993 shall be deemed to be Consolidated Cash Flow
specified for such period in Exhibit 1.
1.13. "Consolidated Fixed Charges" means, for any period,
the sum of:
(a) Consolidated Interest Charges for such period,
plus
(b) the aggregate amount of all rental payments for
real property operating leases accrued or paid by the
Company and its Subsidiaries for such period.
1.14. "Consolidated Forecasted Charges" means for any
period the sum of:
(a) the aggregate amount of interest including
payments in the nature of interest under Capitalized Leases
required to be paid by the Company and its Subsidiaries
during such period (whether such interest is to be reflected
as an item of expense or capitalized); plus
(b) the aggregate amount of minimum rental payments
for real property operating leases required to be paid by
the Company and its Subsidiaries during such period; plus
(c) to the extent not included in clauses (a) and (b)
above, the aggregate amount of cash payments that the
Company and its Subsidiaries may be required to make during
such period pursuant to contractual commitments, including
without limitation, commitments to make Investments in cash
either during such period or on demand; plus
(d) the aggregate amount required to be paid by the
Company and its Subsidiaries during such period pursuant to
any final judgment rendered against the Company or any of
its Subsidiaries by any court, tribunal or agency or
pursuant to any settlement of litigation or other
proceedings.
For purposes of computing projected interest under the
preceding sentence for any period:
(i) it shall be assumed that the amount of
Indebtedness outstanding on the first day of such
period remains outstanding during the entire period
except to the extent that such Indebtedness is subject
to a mandatory payment of principal during such period;
(ii) if the Company or any of its Subsidiaries has
committed to incur additional Indebtedness during such
period, interest on such Indebtedness will be taken
into account from and after the date on which such
Person is committed to incur it; and
(iii) where interest varies with or depends on a
floating rate, the rate in effect on the first day of
such period will be assumed to be in effect and remain
constant during the entire period for which interest is
being computed.
1.15. "Consolidated Interest Charges" means, for any
period, the aggregate amount of interest, including payments in
the nature of interest under Capitalized Leases, paid or accrued
by the Company and its Subsidiaries (whether such interest is
reflected as an item of expense or capitalized) for such period
in accordance with GAAP on a Consolidated basis.
1.16. "Consolidated Net Income" means, for any period, the
net income (or loss) of the Company and its Subsidiaries for such
period, determined in accordance with GAAP on a Consolidated
basis excluding extraordinary gains (or losses); provided,
however, the net losses for such period from Investments in
Persons (other than Subsidiaries) by the Company or any of its
Subsidiaries shall only be included to the extent that such net
losses, together with net losses from such Investments for prior
periods, exceeds $25,000,000.
1.17. "Consolidated Net Worth" means, at any date,
stockholders' equity of the Company and the Subsidiaries at such
date determined in accordance with GAAP on a Consolidated basis.
1.18. "Consolidated Trailing Theatre Cash Flow" means, as
of the end of any fiscal quarter as of which the amount thereof
shall be determined, two-thirds of the sum of (a) the net income
(or loss) of the Theatre Subsidiaries for the 18-month period
then ended determined in accordance with GAAP on a Consolidated
basis, excluding extraordinary gains (or losses) plus (b) all
amounts deducted in computing such consolidated net income (or
loss) in respect of (i) depreciation and amortization,
(ii) interest on indebtedness (including payments in the nature
of interest under Capitalized Leases) and (iii) taxes based on or
measured by net income; provided, however, that Consolidated
Trailing Theatre Cash Flow for any 18-month period which includes
any fiscal quarter ending on or prior to October 31, 1993 shall
be calculated using Consolidated Trailing Theatre Cash Flow for
such fiscal quarter specified for such fiscal quarter in
Exhibit 1.
1.19. "Cumulative Consolidated Adjusted Net Income" means
at the time of determination the total of (a) the net income (or
loss) of the Company and its Subsidiaries for the period from
November 1, 1993 through the fiscal quarter of the Company most
recently ended, determined in accordance with GAAP on a
Consolidated basis plus (b) all amounts deducted in computing
such net income (or loss) in respect of depreciation and
amortization.
1.20. "Default" means any Event of Default and any event or
condition which with the passage of time or giving of notice, or
both, would become an Event of Default.
1.21. "Distribution" means, with respect to the Company (or
other specified Person):
(a) the declaration or payment of any dividend, (other
than dividends payable in shares of capital stock of the
Company (or such specified Person)), on or in respect of any
shares of any class of capital stock of the Company (or such
specified Person);
(b) the purchase, redemption or other retirement of
any shares of any class of capital stock of the Company (or
such specified Person), or of options, warrants or other
rights for the purchase of such shares, directly, indirectly
through a Subsidiary or otherwise;
(c) any other distribution on or in respect of any
shares of any class of equity of or beneficial interest in
the Company (or such specified Person);
(d) any prepayment, purchase, redemption or defeasance
of any Subordinated Indebtedness of the Company (or such
specified Person); and
(e) any payment, loan or advance by the Company (or
such specified Person) to, or any other Investment by the
Company (or such specified Person) in, any beneficial owner
of 5% or more of any class of capital stock of or other
equity interest in the Company (or such specified Person) or
any Affiliate of such beneficial owner;
provided, however, that the term "Distribution" shall not include
payments in the ordinary course of business in respect of
(i) reasonable compensation paid to employees, officers and
directors, (ii) advances to employees for travel expenses,
drawing accounts and similar expenditures, (iii) rent paid to or
account payables for services rendered or goods sold by
non-Affiliates which may hold stock of the Company (or such
specified Person), or (iv) intercompany accounts payable and real
property leases to non-Affiliates which may hold stock of the
Company (or such specified Person).
For purposes of the proviso to Section 3.3, $1,000,000 in
cash Distributions made by the Company to repurchase options or
stock appreciation rights granted to employees of the Company and
its Subsidiaries shall be excluded in determining the aggregate
amount of Distributions made by the Company.
1.22. "Event of Default" is defined in Section 6.1.
1.23. "Exchange Act" means the federal Securities Exchange
Act of 1934 (or any successor statute) and the rules and
regulations thereunder, all as from time to time in effect.
1.24. "First Tier Default" means any failure by the Company
to perform or observe the provisions of Section 4.
1.25. "Financing Debt" means:
(a) Indebtedness in respect of borrowed money;
(b) Indebtedness evidenced by notes, debentures or
similar instruments;
(c) Indebtedness in respect of Capitalized Lease
Obligations;
(d) Indebtedness in respect of the deferred purchase
price of assets (other than normal trade accounts payable in
the ordinary course of business);
(e) Indebtedness in respect of mandatory redemption or
dividend rights on capital stock (or other equity);
(f) Indebtedness in respect of unfunded pension
liabilities; and
(g) Indebtedness consisting of reimbursement
obligations with respect to letters of credit, security
binders and other financial guarantees.
1.26. "GAAP" means generally accepted accounting principles
as from time to time in effect including the statements and
interpretations of the United States Financial Accounting
Standards Board and any predecessor or successor entity;
provided, however, that for purposes of compliance with Sections
3.3, 3.4.4, 4, and 5.4 and the related definitions, "GAAP" means
such principles as in effect on October 31, 1993 as applied by
the Company and its Subsidiaries in the preparation of their
Consolidated financial statements for the fiscal year ending
October 31, 1993, and consistently followed without giving effect
to any subsequent changes therein other than changes consented to
in writing by Harcourt.
1.27. "Guaranteed Lease" means a lease for real property,
as from time to time in effect, which Harcourt has guaranteed
pursuant to a Guarantee.
1.28. "Guarantees" means the respective guarantees provided
by Harcourt to lessors of real property leased by Subsidiaries of
the Company, as from time to time in effect.
1.29. "Harcourt" is defined in the introductory paragraph.
1.30. "Indebtedness" means all obligations, contingent or
otherwise, which in accordance with GAAP are required to be
classified upon the balance sheet of the Company (or other
specified Person) as liabilities, but in any event including:
(a) liabilities secured by any Lien existing on
property owned or acquired by the Company (or such specified
Person) whether or not the liability secured thereby shall
have been assumed;
(b) Capitalized Lease Obligations;
(c) all guarantees and endorsements in respect of
Indebtedness of others;
(d) mandatory redemption, repurchase or dividend
obligations with respect to capital stock or other equity
interests;
(e) unfunded pension liabilities; and
(f) reimbursement obligations with respect to letters
of credit, security binders and other financial guarantees.
1.31. "Indemnified Party" is defined in Section 8.2.
1.32. "Intercompany Services Agreement" means the
Intercompany Services Agreement dated as of November 1, 1993, as
from time to time in effect, between the Company and Harcourt.
1.33. "Investment" means, with respect to the Company (or
other specified Person):
(a) any share of capital stock, partnership or other
equity interest, evidence of Indebtedness or other security
issued by any other Person;
(b) any loan, advance or extension of credit to, or
contribution to the capital of, any other Person;
(c) any guarantee of the Indebtedness of any other
Person;
(d) any acquisition of all or any part of the business
of any other Person or the assets comprising such business
or part thereof;
(e) any commitment or option to make any Investment if
the consideration for such commitment or option exceeds
$1,000; and
(f) any other similar investment.
The investments described in the foregoing clauses
(a) through (f) shall be included in the term "Investment"
whether they are made or acquired by purchase, exchange, issuance
of stock or other securities, merger, reorganization or any other
method; provided, however, that the term "Investment" shall not
include (i) current trade and customer accounts receivable for
property leased, goods furnished or services rendered in the
ordinary course of business and payable in accordance with
customary trade terms, (ii) advances and prepayments to suppliers
for property leased, goods furnished and services rendered in the
ordinary course of business, (iii) advances to employees for
travel expenses, drawing accounts and similar expenditures,
(iv) stock or other securities acquired in connection with the
satisfaction or enforcement of Indebtedness or claims due to the
Company (or such specified Person) or as security for any such
Indebtedness or claim or (v) demand deposits in banks or trust
companies.
1.34. "Lease Exposure" means, at any time, the sum of the
then present values of (i) all present and future rental payments
and other amounts guaranteed by Harcourt under the Guarantees and
(ii) all present and future rental payments and other amounts
owing under the Transferred Leases, calculated by discounting
each such rental payment and each such other amount from its
payment date to the date of calculation of such present value at
a per annum interest rate equal to the sum of (a) the then
prevailing rate of interest on debt securities customarily issued
by the Treasury of the United States having a ten year maturity
date plus (b) .75%.
1.35. "Lien" means, with respect to the Company (or any
other specified Person):
(a) Any lien, encumbrance, mortgage, pledge, charge or
security interest of any kind upon any property or assets of
the Company (or such specified Person), whether now owned or
hereafter acquired, or upon the income or profits therefrom.
(b) Any arrangement or agreement which prohibits the
Company (or such specified Person) from creating
encumbrances, mortgages, pledges, liens, charges or security
interests.
(c) The acquisition of, or the agreement to acquire,
any property or asset upon conditional sale or subject to
any other title retention agreement, device or arrangement
(including a Capitalized Lease).
(d) The sale, assignment, pledge or transfer for
security of any accounts, general intangibles or chattel
paper of the Company (or such specified Person), with or
without recourse.
(e) The transfer of any tangible property or assets
for the purpose of subjecting such items to the payment of
Indebtedness in priority to payment of the general creditors
of the Company (or such specified Person).
(f) The existence for a period of more than
90 consecutive days of any Indebtedness against the Company
(or such specified Person) which if unpaid would by law or
upon a Bankruptcy Default be given any priority over general
creditors.
1.36. "Nontheatre Subsidiaries" means any Subsidiary of the
Company that is not a Theatre Subsidiary.
1.37. "Obligations" means all present and future
liabilities, obligations and Indebtedness of the Company owing to
Harcourt under or in connection with this Agreement, including
interest and fees under Section 2, reimbursement, indemnification
and guarantee obligations under Section 2, payment obligations
under Sections 6.2 and 8.2 and other charges, indemnities and
expenses from time to time owing hereunder (whether accruing
before or after a Bankruptcy Default).
1.38. "Payment Default" means any failure by the Company to
perform or observe the provisions of Section 2 or Section 6.2.
1.39. "Person" means any present or future natural person
or any corporation, association, partnership, joint venture,
company, business trust, trust, organization, business or
government or any governmental agency or political subdivision
thereof.
1.40. "Pledged Rights" is defined in Section 7.1.2.
1.41. "Pledged Securities" means, collectively, the Pledged
Stock and the Pledged Rights.
1.42. "Pledged Stock" is defined in Section 7.1.1.
1.43. "PPI" means the Producer Price Index for Finished
Goods published by the Bureau of Labor Statistics (1982 = 100).
1.44. "Securities Act" means the federal Securities Act of
1933 (or any successor statute) and the rules and regulations
thereunder, all as from time to time in effect.
1.45. "Security" means all assets now or from time to time
hereafter subjected to a security interest, mortgage or charge
(or intended or required so to be subjected pursuant to this
Agreement) to secure the payment or performance of any of the
Obligations, including the assets described in Sections 7.1.1
through 7.1.3.
1.46. "Smith Family Group" means the group of Persons
originally party to the Smith-Lurie/Marks Stockholders Agreement
dated as of the date of the Spinoff (whether or not such
agreement is terminated) and the progeny of each such Person.
1.47. "Spinoff" is defined in the Recitals.
1.48. "Subordinated Indebtedness" means Indebtedness of the
Company (or other specified Person) which by its terms or any
agreement is subordinated to the prior payment of any Financing
Debt of the Company (or such specified Person).
1.49. "Subsidiary" means any Person of which the Company
(or other specified Person) shall at the time, directly or
indirectly through one or more of its Subsidiaries, (a) own at
least 50% of the outstanding capital stock (or other shares of
beneficial interest) entitled to vote generally, (b) hold at
least 50% of the partnership, joint venture or similar interests
or (c) be a general partner or joint venturer.
1.50. "Theatre Subsidiaries" means each present and future
Subsidiary of the Company that is engaged in whole or in part in
the business of (i) motion picture exhibition or (ii) managing
the motion picture exhibition or concession business of any other
Person.
1.51. "Transferred Leases" means the theatre leases
transferred by Harcourt General to the Company and in turn by the
Company to Subsidiaries of the Company in connection with the
Spinoff, as from time to time in effect.
1.52. "UCC" means the Uniform Commercial Code as in effect
in Massachusetts; provided, however, that with respect to the
perfection of Harcourt's Lien on the Security and the effect of
perfection or non perfection thereof, the term UCC shall mean the
Uniform Commercial Code as in effect in any jurisdiction the laws
of which are made applicable by Section 9-103 of the Uniform
Commercial Code as in effect in Massachusetts.
1.53. "Wholly-Owned Subsidiary" means any Subsidiary of
which all of the outstanding capital stock (or other shares of
beneficial interest) entitled to vote generally (other than
directors' qualifying shares) is owned by the Company (or other
specified Person) directly or indirectly through one or more
Wholly-Owned Subsidiaries.
2. Certain Payment Provisions.
2.1. Reimbursement and Indemnification. The Company hereby
unconditionally and irrevocably agrees (a) to pay Harcourt,
immediately upon written notice by Harcourt, any and all amounts
paid by Harcourt pursuant to, or in respect of, any Guarantee or
Transferred Lease and (b) to indemnify, defend and hold harmless
Harcourt and its Affiliates and their respective directors,
officers, employees and agents from and against any and all
claims, losses, liabilities, damages, cost and expenses
(including reasonable attorneys' fees and expenses) arising from
or in connection with any Guarantee or Transferred Lease.
2.2. Guarantor's Fee. The Company will pay to Harcourt (a)
a quarterly guarantor's fee for the quarter ending January 31,
1994 of $75,000 payable on the Distribution Date or promptly
thereafter and (b) a quarterly guarantor's fee, payable in
advance on the first business day of each November, February, May
and August, commencing on February 1, 1994, in an amount equal to
the product of (a) .015% multiplied by (b) the Lease Exposure as
of such day.
2.3. Interest on Overdue Payments. The Company will, on
demand, pay to Harcourt interest on any overdue payment required
to be made under this Agreement at a per annum rate equal to 2%
plus the rate of interest from time to time announced by The
First National Bank of Boston as its "Base Rate".
3. General Covenants. The Company covenants that it will, and
it will cause its Subsidiaries to, comply with the following
provisions:
3.1. Financial Statements and Reports.
3.1.1. Annual Reports. The Company will furnish to
Harcourt as soon as available, and in any event within
110 days after the end of each fiscal year, the Consolidated
balance sheet of the Company and its Subsidiaries as at the
end of such fiscal year, the Consolidated statements of
income, of changes in shareholders' equity and of cash flows
of the Company and its Subsidiaries for such fiscal year
audited and certified by Deloitte & Touche (or, if they
cease to be auditors of the Company and its Subsidiaries,
other independent certified public accountants of recognized
national standing), together with:
(a) The statement of such accountants that they have
caused this Agreement to be reviewed and that in the course
of their audit of the Company and its Subsidiaries no facts
have come to their attention that cause them to believe that
any First Tier Default or any Default exists or, if such is
not the case, specifying such First Tier Default or Default
and the nature thereof;
(b) A certificate of the Company signed by the chief
financial officer or treasurer of the Company to the effect
that such officer has caused this Agreement to be reviewed
and has no knowledge of any First Tier Default or any
Default, or if such officer has such knowledge, specifying
such First Tier Default or Default and the nature thereof,
and what action the Company has taken, is taking or proposes
to take with respect thereto;
(c) Computations by the Company demonstrating, as of the
end of such fiscal year, compliance with the Computation
Covenants; and
(d) In the event of a change in GAAP after
October 31, 1993, computations by the Company, certified by
the chief financial officer or treasurer of the Company,
reconciling the financial statements referred to above with
the financial information used in the computations referred
in Section 3.1.1(c);
3.1.2. Quarterly Reports. The Company will furnish to
Harcourt as soon as available and, in any event, within 55
days after the end of each of the first three fiscal
quarters of the Company, the internally prepared
Consolidated balance sheet of the Company and its
Subsidiaries as of the end of such fiscal quarter, the
Consolidated statements of income, of changes in
shareholders' equity and of cash flows of the Company and
its Subsidiaries for such month and for the portion of the
fiscal year then ended, together with:
(a) A certificate of the Company signed by the chief
financial officer or treasurer of the Company to the effect
that such financial statements have been prepared in
accordance with GAAP and present fairly, in all material
respects, the financial position of the Company and its
Subsidiaries covered thereby at the dates thereof and the
results of their operations for the periods covered thereby,
subject only to normal year-end audit adjustments and the
addition of footnotes;
(b) Computations by the Company demonstrating, as of
the end of such fiscal quarter, compliance with the
Computation Covenants;
(c) A certificate of the Company signed by the chief
financial officer or treasurer of the Company to the effect
that such officer has caused this Agreement to be reviewed
and has no knowledge of any First Tier Default or any
Default, or if such officer has such knowledge, specifying
such First Tier Default and the nature thereof and what
action the Company has taken, is taking or proposes to take
with respect thereto;
(d) In the event of a change in GAAP after
October 31, 1993, computations by the Company, certified by
the chief financial officer or treasurer of the Company,
reconciling the financial statements referred to above with
the financial information used in the computations referred
to in Section 3.1.2(b).
3.1.3. SEC Reports.
(a) The Company will promptly furnish to Harcourt such
registration statements, proxy statements and reports as may
be filed by the Company with the Securities and Exchange
Commission.
(b) Delivery by the Company to Harcourt of the
Company's Annual Report on Form 10-K with respect to any
fiscal year, and the Company's Quarterly Report on Form 10-Q
with respect to any fiscal quarter, in each case as filed
with the Securities and Exchange Commission, shall satisfy
the Company's obligations to provide such of the financial
statements described in the introductory paragraphs to
Sections 3.1.1 and 3.1.2, as are contained in such report,
provided that such report is provided to Harcourt within the
time period specified in such introductory paragraph.
3.1.4. Notice of Litigation; Notice of Defaults.
(a) The Company will promptly furnish to Harcourt
notice of (i) any notice or other communication from any
lessor that the Company or any Theatre Subsidiary is in
default under any Guaranteed Lease or any Transferred Lease;
(ii) any litigation or administrative or arbitration
proceeding commenced, or to the knowledge of the Company,
threatened, relating to any Guaranteed Lease or any
Transferred Lease; and (iii) any other litigation or
administrative or arbitration proceeding commenced, or to
the knowledge of the Company threatened, against or relating
to the Company or any of its Subsidiaries if the damages
claimed in such proceeding are $5,000,000 or more or if such
proceeding may result in a material adverse change in the
business or assets or in the condition, financial or
otherwise, of the Company and its Subsidiaries on a
consolidated basis or of the Company on an individual basis;
provided, however, that, so long as no notice of termination
of legal services has been given under the Intercompany
Services Agreement, and Harcourt General continues to be
primarily responsible for the provision of legal services to
the Company thereunder, no such notice need be given by the
Company to Harcourt unless requested by Harcourt.
(b) Promptly upon acquiring knowledge thereof, the
Company will notify Harcourt of the existence of any First
Tier Default or any Default, specifying the nature thereof
and what action the Company or any Subsidiary has taken, is
taking or proposes to take with respect thereto.
3.1.5. Certain Exceptions. Notwithstanding the
provisions of Section 3.1.1, 3.1.2 and 3.1.3(a), so long as
no notice of termination of accounting services has been
given under the Intercompany Services Agreement, and
Harcourt continues to provide accounting services
thereunder, the Company shall not be required, unless
otherwise requested by Harcourt, to furnish Harcourt with
(a) the financial statements, certificates and computations
specified in Section 3.1.1 or 3.1.2 or (b) the registration
statements, proxy statements or reports specified in
Section 3.1.3(a).
3.1.6. Other Information. From time to time upon
request of any authorized officer of Harcourt, each of the
Company and its Subsidiaries will furnish to Harcourt such
other information regarding the business, assets, financial
condition, income or prospects of the Company and its
Subsidiaries as such officer may reasonably request.
Harcourt's authorized officers and representatives shall
have the right during normal business hours upon reasonable
notice and at reasonable intervals to examine the books and
records of the Company and its Subsidiaries, to make copies,
notes and abstracts therefrom and to make an independent
examination of such books and records for the purpose of
verifying the accuracy of the reports delivered by any of
the Company and its Subsidiaries pursuant to this
Section 3.1 and ascertaining compliance with or obtaining
enforcement of this Agreement.
3.2. Liens. Neither the Company nor any of its
Subsidiaries shall create, incur or enter into, or suffer to be
created or incurred or to exist, any Lien (including any
arrangement or agreement which prohibits it from creating any
Lien), except the following:
3.2.1. Liens on the Security which secure the
Obligations for the benefit of Harcourt.
3.2.2. Liens to secure federal income taxes owing by
Harcourt for periods beginning prior to the Spinoff.
3.2.3. Liens to secure other taxes and assessments and
other governmental charges if the validity or amount of such
tax, assessment or other governmental charge is being
contested in good faith by the Company or any Subsidiary by
appropriate proceedings (so long as the Company, or such
Subsidiary, in accordance with GAAP, has set aside on its
books adequate reserves with respect thereto); provided,
however, that each of the Company and its Subsidiaries will
pay or bond, or cause to be paid or bonded, all such taxes,
assessments or other governmental charges immediately upon
the commencement of proceedings to foreclose any Lien which
may have attached as security therefor (except to the extent
such proceedings shall have been dismissed or stayed).
3.2.4. Deposits or pledges made (a) in connection
with, or to secure payment of, workers' compensation,
unemployment insurance, old age pensions or other social
security, (b) in connection with casualty insurance, (c) to
secure the performance of bids, tenders, contracts (other
than contracts relating to Financing Debt) or leases, (d) to
secure statutory obligations or surety or appeal bonds, or
(e) to secure indemnity, performance or other similar bonds
in the ordinary course of business.
3.2.5. Liens in respect of judgments or awards (a)
which have been in force for less than the applicable appeal
period, so long as execution is not levied, or (b) in
respect of which the Company or any Subsidiary of the
Company shall at the time be prosecuting an appeal or
proceeding for review, so long as execution thereof shall
have been stayed pending such appeal or review and the
Company or such Subsidiary shall have taken appropriate
reserves therefor in accordance with GAAP.
3.2.6. Liens of carriers, warehousemen, mechanics and
similar Liens, in each case being contested in good faith by
the Company or any Subsidiary in appropriate proceedings (so
long as the Company or such Subsidiary shall, in accordance
with GAAP, have set aside on its books adequate reserves
with respect thereto), which in each case do not materially
detract from the value of any asset or other property
material to the operations or business of the Company or any
of its Subsidiaries or impair the use thereof in the
business of the Company or any of its Subsidiaries.
3.2.7. Encumbrances in the nature of (a) zoning
restrictions, (b) easements, (c) restrictions of record on
the use of real property, (d) landlords' and lessors' Liens
on rented premises and (e) restrictions on transfers or
assignment of leases, which in each case do not materially
detract from the value of any asset or other property
material to the operations or business of the Company or any
of its Subsidiaries or impair the use thereof in the
business of the Company or any of its Subsidiaries.
3.2.8. Restrictions under federal and state securities
laws on the transfer of securities.
3.2.9. Liens constituting (a) purchase money security
interests existing or created on the date on which such
property is acquired, and (b) the renewal, extension or
refunding of any security interest referred to in the
foregoing clause (a) in an amount not to exceed the amount
thereof remaining unpaid immediately prior to such renewal,
extension or refunding; provided, however, that each such
security interest shall attach solely to the particular item
of property so acquired, and the principal amount of
Indebtedness (including Indebtedness in respect of
Capitalized Lease Obligations) secured thereby shall not
exceed the cost (including all such Indebtedness secured
thereby, whether or not assumed) of such item of property.
3.2.10. Liens consisting of covenants contained in
agreements relating to senior Financing Debt of the Company
prohibiting the Company and its Subsidiaries from creating
encumbrances, mortgages, liens, charges or security
interests on their assets (other than Liens on the Security
which secure the Obligations for the benefit of Harcourt).
3.3. Distributions. So long as no Event of Default has
occurred and is continuing:
(a) The Company may make Distributions from time to
time so long as immediately before and after giving effect
thereto there shall exist no First Tier Default; provided,
however, that the aggregate amount of such Distributions,
other than Distributions permitted by clause (b) of this
Section 3.3, shall not exceed the sum of (i) $25,000,000
plus (ii) 50% of Cumulative Consolidated Adjusted Net Income
plus (iii) the aggregate amount of net cash proceeds to the
Company from the sale of equity securities of the Company
after the date of the Spinoff plus (iv) the aggregate amount
of Financing Debt of the Company which is converted into
common stock of the Company after the date of the Spinoff
minus (v) the aggregate amount of Capital Expenditures made
by the Company and its Subsidiaries after October 31, 1993.
(b) At such times when Distributions are prohibited
under the proviso to Section 3.3(a), the Company may
nevertheless make a Distribution so long as (i) immediately
before and after giving effect thereto, there shall exist no
First Tier Default and (ii) after giving effect to such
Distribution, the total of (x) the aggregate amount of cash
and Cash Equivalents of the Company and its Subsidiaries
then on hand less (y) the aggregate principal amount of all
Financing Debt of the Company and its Subsidiaries then
outstanding, exceeds the aggregate amount of Consolidated
Forecasted Charges for the twelve-month period immediately
following such Distribution.
3.4. Merger, Consolidation and Dispositions of Assets.
Neither the Company nor any of the Theatre Subsidiaries shall (a)
become a party to any merger or consolidation or shall sell,
lease, sell and leaseback, sublease or otherwise dispose of any
of its assets, or (b) contract, or make other arrangements, with
any Person (other than a Theatre Subsidiary) to manage the
theatre business of, or provide concession services to, any
Theatre Subsidiary, except the following:
3.4.1. Any Theatre Subsidiary may sell or otherwise
dispose of (a) inventory in the ordinary course of business,
(b) tangible assets to be replaced in the ordinary course of
business by other tangible assets of equal or greater value
and (c) tangible assets that are no longer used or useful in
the business of the Company or such Theatre Subsidiary.
3.4.2. Any Theatre Subsidiary may merge or liquidate
into any other Theatre Subsidiary so long as after giving
effect thereto, the surviving company is a directly owned,
Wholly Owned Subsidiary of the Company.
3.4.3. The Company may sell or otherwise dispose of
Investments other than Investments in Theatre Subsidiaries.
3.4.4. In addition to assets sold and exchanged
pursuant to Section 3.4.1, the Theatre Subsidiaries may sell
assets at not less than fair market value; provided,
however, that immediately after giving effect to each sale
proposed to be made pursuant to this Section 3.4.4, the
aggregate amount of Consolidated Trailing Theatre Cash Flow
attributable to all assets sold and proposed to be sold
pursuant to this Section 3.4.4 shall not exceed the amount
equal to 10% of Consolidated Trailing Theatre Cash Flow
determined as of the end of the fiscal quarter ending
immediately prior to such proposed sale; and provided,
further, that the aggregate amount of the above locations
sold or otherwise disposed of in connection with sales made
pursuant to this Section 3.4.4 shall not exceed 10% of the
theatre locations operated by GCC and its subsidiaries as of
October 31, 1993.
3.5. Issuance of Stock by Theatre Subsidiaries; Subsidiary
Distributions.
3.5.1. Issuance of Stock by Subsidiaries. No present
Theatre Subsidiary shall issue or sell any shares of its
capital stock or other evidence of beneficial ownership to
any Person other than the Company.
3.5.2. No Restrictions on Subsidiary Distributions.
Except for this Agreement and agreements relating to senior
Financing Debt of the Company, neither the Company nor any
of its Subsidiaries shall enter into or be bound by any
agreement (including covenants requiring the maintenance of
specified amounts of net worth or working capital)
restricting the right of any such Subsidiary to make
Distributions or extensions of credit to the Company
(directly or indirectly through another Subsidiary of the
Company).
3.6. Guaranteed Leases and Transferred Leases.
3.6.1. No Transfer. No Theatre Subsidiary shall
transfer, assign or sublease any Guaranteed Lease or any
Transferred Lease to any other Person (other than another
Theatre Subsidiary) without the prior written consent of
Harcourt; provided, however, that the Theatre Subsidiaries
may transfer and assign any Guaranteed Lease or Transferred
Lease in connection with a sale of assets permitted under
Section 3.4.4.
3.6.2. Amendments, Renewals, Extensions, Etc. No
Theatre Subsidiary shall (a) amend, modify or terminate any
Guaranteed Lease or Transferred Lease without the prior
written consent of Harcourt if, as a result of such
amendment, modification or termination, Harcourt's liability
with respect to such Guaranteed Lease or Transferred Lease
shall be increased or the time period for which Harcourt has
any liability for such Guaranteed Lease or Transferred Lease
shall be extended or (b) renew or extend the term of any
Guaranteed Lease or any Transferred Lease without the prior
written consent of Harcourt unless Harcourt shall not be
liable for any Theatre Subsidiary's obligations with respect
to such renewed or extended term.
3.7. Conduct of Theatre Business.
3.7.1. Theatre Subsidiaries. The Theatre Subsidiaries
will engage only in the business of owing and operating
theatres for motion picture exhibition and other activities
incidental thereto.
3.7.2. Theatre Business. The Company's motion picture
exhibition business and activities incidental thereto will
be conducted only by the Theatre Subsidiaries. The Company
shall own and hold all interests in the Theatre Subsidiaries
directly and not indirectly through another Subsidiary of
the Company; provided, however, that each of Knights Holding
Corp., Knights Realty Corp. and Knights Theatre Corp. may be
indirectly owned by the Company so long as it is inactive
and does not engage in any operations or activities or own
any material assets.
4. First Tier Covenants. The Company covenants that, at any
time when Consolidated Net Worth is less than the then Lease
Exposure, it will comply with the following provisions:
4.1. Consolidated Net Worth. Consolidated Net Worth shall
not at any time be less than the total of (a) Consolidated Net
Worth as of October 31, 1993 minus (b) $25,000,000.
4.2. Consolidated Adjusted Cash Flow to Consolidated Fixed
Charges. On the last day of each fiscal quarter of the Company,
Consolidated Adjusted Cash Flow for the period of six consecutive
fiscal quarters then ended shall equal or exceed 120% of
Consolidated Fixed Charges for such six consecutive fiscal
quarters.
4.3. Consolidated Cash Flow to Consolidated Interest
Charges. On the last day of each fiscal quarter of the Company,
Consolidated Cash Flow for the period of six consecutive fiscal
quarters then ended shall equal or exceed 300% of Consolidated
Interest Charges for such six consecutive fiscal quarters.
5. Second Tier Covenants. The Company covenants that it will,
and it will cause its Subsidiaries to, comply with the provisions
of this Section 5 during the period from the occurrence of a
First Tier Default through such time as the Company is in
compliance with each of the provisions of Section 4 as are then
applicable.
5.1. Investments and Acquisitions. Neither the Company nor
any of its Subsidiaries shall have outstanding, acquire, commit
itself to acquire or hold any Investment (including any
Investment consisting of the acquisition of any business) except
that:
5.1.1. The Company and its Subsidiaries may continue
to have outstanding and hold Investments outstanding
immediately prior to such First Tier Default; provided,
however, that, unless permitted pursuant to Section 5.1.6,
neither the Company nor any of its Subsidiaries shall
exercise any option to make an Investment held by it prior
to such First Tier Default.
5.1.2. The Company may make and hold Investments in
Theatre Subsidiaries consisting of (a) cash equity
Investments and (b) loans; provided, however, that the
proceeds of such Investments are applied by the Theatre
Subsidiaries solely as provided in Section 5.5.
5.1.3. Nontheatre Subsidiaries may make and hold
Investments in the Company and the Theatre Subsidiaries
consisting of loans which, in the case of loans to the
Company, are subordinated on terms satisfactory to Harcourt
to the prior payment of the Obligations; provided, however,
that (i) the proceeds of such loans made to the Company are
used only to pay the Obligations or to make Investments in
Theatre Subsidiaries permitted by Section 5.1.2 and (ii) the
proceeds of such loans made to Theatre Subsidiaries are
applied by the Theatre Subsidiaries solely as provided in
Section 5.5.
5.1.4. The Theatre Subsidiaries may make and hold
Investments in other Theatre Subsidiaries consisting of
loans; provided, however, that the proceeds of such loans
are applied by the Theatre Subsidiaries solely as provided
in Section 5.5.
5.1.5. The Company and its Subsidiaries may make and
hold Investments in Cash Equivalents.
5.1.6. The Company and any Nontheatre Subsidiaries may
make and hold other Investments consisting of follow-on
equity Investments to maintain the Company's or such
Nontheatre Subsidiary's proportionate equity interest in
Persons that are not Wholly-Owned Subsidiaries in which the
Company or such Nontheatre Subsidiary held an equity
Investment immediately prior to such First Tier Default;
provided, however, that the aggregate amount of all such
follow-on Investments made during each period when the
provisions of Section 5 apply shall not exceed $10,000,000.
5.2. Financing Debt. Neither the Company nor any of its
Subsidiaries shall create, incur, assume or otherwise become or
remain liable with respect to any Financing Debt except the
following:
5.2.1. Financing Debt outstanding immediately prior to
such First Tier Default.
5.2.2. Financing Debt consisting of inter-company
loans and advances among the Company and its Subsidiaries
which are not prohibited by Section 5.1.
5.2.3. Additional Financing Debt of the Company
consisting of Indebtedness for borrowed money the proceeds
of which are used to finance Investments permitted by
Section 5.1.6; provided, however, that the aggregate amount
of Financing Debt outstanding pursuant to this Section 5.2.3
shall not at any one time exceed $10,000,000.
5.3. Distributions. Neither the Company nor any of its
Subsidiaries shall make any Distribution except the following:
5.3.1. Nontheatre Subsidiaries may make Distributions
to the Company or any Wholly-Owned Subsidiary of the
Company.
5.3.2. Theatre Subsidiaries may make cash
distributions to the Company, the proceeds of which are used
by the Company to make (a) regularly scheduled payments of
principal of and interest on Financing Debt owed to non-
Affiliates and permitted under Section 5.2.1, under the
terms of such Financing Debt in effect immediately prior to
such First Tier Default, (b) regularly scheduled payments of
principal of and interest on Financing Debt permitted under
Section 5.2.3 or (c) payments to Harcourt pursuant to
Sections 2, 6.2 or 8.2.
5.4. Capital Expenditures. Neither the Company nor any of
its Subsidiaries shall make any Capital Expenditures except
(a) Capital Expenditures necessary to (i) maintain facilities
operated by the Company and its Subsidiaries immediately prior to
such First Tier Default or (ii) equip new theatres committed for
by Theatre Subsidiaries prior to such First Tier Default with
customary theatre equipment and facilities and (b) Capital
Expenditures made for purposes of remaining competitive with
other theatre operators; provided, however, that the aggregate
amount of such Capital Expenditures made by the Company and its
Subsidiaries at any time the provisions of Section 5 apply shall
not exceed the amount equal to the product of (x) $5,000,000
multiplied by (y) the sum of one plus the percentage increase
(expressed as a decimal) in the PPI during the period from
December 31, 1993 to the month immediately preceding the
occurrence of such First Tier Default; and provided, further,
that, in the event that the provisions of Section 5 apply during
two or more nonconsecutive periods during any twelve month
period, the aggregate amount of such Capital Expenditures made
during such twelve month period shall not exceed the product of
(x) $5,000,000 multiplied by (y) the sum of one plus the
percentage increase in the PPI during the period from
December 31, 1993 to the month immediately preceding the
commencement of such twelve month period.
For purposes of this Section 5.4, Capital Expenditures to
increase the number of auditoriums in a facility or otherwise
expand such facility or to improve the quality of seats,
carpeting, refreshment stands or other amenities within a
facility may only be made for purposes of remaining competitive
with other theatre operators and shall not be considered Capital
Expenditures made solely to maintain facilities pursuant to
clause (a)(1) of the immediately preceding paragraph.
5.5. Payment of Theatre Obligations. The Theatre
Subsidiaries shall use cash generated from operations, cash
reserves, proceeds of borrowings and other funds of the Theatre
Subsidiaries only to pay obligations of the Theatre Subsidiaries
under leases of real property, to make Distributions permitted
under Section 5.3.2, to make Capital Expenditures permitted under
Section 5.4, to make Investments permitted under Section 5.1.4,
and to pay accounts payable, taxes, assessments and other
expenses of the Theatre Subsidiaries incurred in the ordinary
course of business.
6. Defaults.
6.1. Events of Default. The following events are referred
to as "Events of Default":
6.1.1. The Company shall fail to make any payment in
respect of amounts required under Section 2 as the same
shall become due.
6.1.2. The Company or any of its Subsidiaries shall
fail to perform or observe any of the provisions of
Sections 3.2 through 3.7 or Section 5, if applicable.
6.1.3. The Company or any of its Subsidiaries shall
fail to perform or observe any other covenant, agreement or
provision to be performed or observed by it under this
Agreement (other than Section 4), and such failure shall not
be rectified or cured to the written satisfaction of
Harcourt within 30 days after the earlier of (a) notice
thereof by Harcourt to the Company or (b) the date on which
the Company shall have had knowledge thereof.
6.1.4. Any representation or warranty of or with
respect to the Company or any of its Subsidiaries made to
Harcourt in, pursuant to or in connection with this
Agreement shall be materially false on the date as of which
it was made.
6.1.5. (a) The Company or any of its Subsidiaries
shall fail to make any payment when due (after giving effect
to any applicable grace periods) in respect of any Financing
Debt outstanding in an aggregate amount of principal and
accrued interest exceeding $1,000,000;
(b) the Company or any of its Subsidiaries shall fail
to perform or observe the terms of any agreement relating to
such Financing Debt, and such failure shall continue,
without having been duly cured, waived or consented to,
beyond the period of grace, if any, specified in such
agreement, and such failure shall permit the acceleration of
such Financing Debt;
(c) all or any part of such Financing Debt of the
Company or any of its Subsidiaries shall be accelerated or
become due or payable prior to its stated maturity for any
reason whatsoever (other than voluntary prepayments
thereof);
K\H any Lien on any property of the Company or any of
its Subsidiaries securing any such Financing Debt shall be
enforced by foreclosure or similar action; or
(e) any holder of any such Financing Debt shall
exercise any right of rescission with respect to the
issuance thereof.
6.1.6. Except as permitted by Section 3.4:
(a) the Company shall cease to own directly all the
capital stock of the Theatre Subsidiaries that are Wholly-
Owned Subsidiaries as of the date of the Spinoff;
(b) any Person (other than a member of the Smith
Family Group), together with "affiliates" and "associates"
of such Person within the meaning of Rule 12b-2 of the
Exchange Act, shall become the beneficial owner within the
meaning of Rule 13d-3 of the Exchange Act of more voting
stock or total equity capital of the Company than that
beneficially owned by the Smith Family Group if such Person
together with such "affiliates" and "associates" is also the
beneficial owner within the meaning of Rule 13d-3 of the
Exchange Act of at least 15% of either the voting stock or
total equity capital of the Company; or
(c) the Company or any Theatre Subsidiary shall
initiate any action to dissolve, liquidate or otherwise
terminate its existence.
6.1.7. This Agreement shall cease for any reason
(other than the scheduled termination thereof in accordance
with its terms) to be in full force and effect; or any party
hereto shall so assert in a judicial or similar proceeding;
or the security interests created by this Agreement shall
cease to be enforceable and of the same effect and priority
purported to be created hereby.
6.1.8. The Company or any of its Subsidiaries shall:
(a) commence a voluntary case under the Bankruptcy
Code or authorize, by appropriate proceedings of its board
of directors or other governing body, the commencement of
such a voluntary case;
(b) have filed against it a petition commencing an
involuntary case under the Bankruptcy Code which shall not
have been dismissed within 30 days after the date on which
said petition is filed, or file an answer or other pleading
within said 30-day period admitting or failing to deny the
material allegations of such a petition or seeking,
consenting to or acquiescing in the relief therein provided;
(c) have entered against it an order for relief in any
involuntary case commenced under the Bankruptcy Code;
(d) seek relief as a debtor under any applicable law,
other than the Bankruptcy Code, of any jurisdiction relating
to the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors, or
consent to or acquiesce in such relief;
(e) have entered against it an order by a court of
competent jurisdiction (i) finding it to be bankrupt or
insolvent, (ii) ordering or approving its liquidation,
reorganization or any modification or alteration of the
rights of its creditors or (iii) assuming custody of, or
appointing a receiver or other custodian for, all or a
substantial portion of its property; or
(f) make an assignment for the benefit of, or enter
into a composition with, its creditors, or appoint, or
consent to the appointment of, or suffer to exist a receiver
or other custodian for, all or a substantial portion of its
property.
6.2. Certain Payments Upon an Event of Default. If one or
more Events of Default shall occur and be continuing, then
Harcourt may by notice in writing to the Company require the
Company immediately to deposit with Harcourt in cash an amount
equal to the then Lease Exposure (which cash shall be held by
Harcourt and applied to the payment of the Company's Obligations
under Section 2) and thereupon such amount shall become
immediately due and payable without presentation, protest or
further demand or notice of any kind, all of which are hereby
expressly waived; provided, however, that if a Bankruptcy Default
shall have occurred, such amount shall automatically become
immediately due and payable.
6.3. Enforcement of Payment and Security following a
Payment Default; Setoff. If any one or more Payment Defaults
shall occur, (a) Harcourt may proceed to enforce payment of the
Obligations in such manner as it may elect and to realize upon
any and all rights in the Security and (b) may offset and apply
toward the payment of the Obligations (and/or toward the curing
of any Event of Default) any Indebtedness from Harcourt to the
Company or any of its Subsidiaries, regardless of the adequacy of
any security for the Obligations. Harcourt shall have no duty to
determine the adequacy of any such security in connection with
any such offset.
6.4. Specific Performance; Exercise of Rights. If any one
or more Events of Default has occurred and is continuing or if
one or more Payment Defaults shall occur, Harcourt may proceed to
protect and enforce its rights by suit in equity, action at law
and/or other appropriate proceeding, either for specific
performance of any covenant or condition contained in this
Agreement or in any instrument or assignment delivered pursuant
to this Agreement, or in aid of the exercise of any power granted
in this Agreement or any such instrument or assignment.
6.5. Cumulative Remedies. To the extent not prohibited by
applicable law which cannot be waived, all of the Harcourt's
rights hereunder and under, or with respect to, each Guarantee
and Transferred Lease shall be cumulative.
6.6. Annulment of Defaults. A First Tier Default or a
Payment Default shall be deemed not to have occurred or to exist
for any purpose hereunder, and an Event of Default shall be
deemed not to have occurred and be continuing for any purpose
hereunder, in each case, if Harcourt shall have waived it in
writing, stated in writing that it has been cured to Harcourt's
reasonable satisfaction or entered into an amendment to this
Agreement which by its express terms cures such First Tier
Default or such Event of Default. No such action by Harcourt
shall extend to or affect any subsequent First Tier Default or
Event of Default or impair any rights of Harcourt upon the
occurrence thereof.
6.7. Waivers. To the extent that such waiver is not
prohibited by the provisions of applicable law that cannot be
waived, the Company waives:
(a) all presentments, demands for performance, notices
of nonperformance (except to the extent required by the
provisions of this Agreement), protests, notices of protest
and notices of dishonor;
(b) any requirement of diligence or promptness on the
part of Harcourt in the enforcement of its rights under this
Agreement;
(c) any and all notices of every kind and description
which may be required to be given by any statute or rule of
law; and
(d) any defense (other than indefeasible payment in
full) which it now or hereafter may have with respect to its
liability under this Agreement, or with respect to the
Obligations.
6.8. Obligations Absolute. The obligations of the Company
under Sections 2.1, 2.2, 6.2 and 8 are absolute and unconditional
and, without limiting the generality of the foregoing, shall not
be released, discharged or otherwise affected by:
(a) the invalidity, unenforceability or
irrecoverability of any obligations under any Guarantee, any
Guaranteed Lease or any Transferred Lease;
(b) any change in the terms of, or any amendment to,
any waiver, consent or modification of any Guarantee, any
Guaranteed Lease or Transferred Lease; or
(c) any other circumstance which might constitute a
defense available to, or a discharge of Harcourt or the
Company other than in the case of the Company, indefeasible
payment in full.
7. Security.
7.1. Credit Security. As security for the payment and
performance of the Obligations, the Company hereby mortgages,
pledges and collaterally grants and assigns to Harcourt, and
hereby creates a security interest in favor of Harcourt in, all
of the Company's right, title and interest in and to (but none of
its obligations or liabilities with respect to) the items and
types of present and future property described in Sections 7.1.1
through 7.1.3, whether now owned or hereafter acquired, all of
which shall be included in the term "Security":
7.1.1. Pledged Stock. (a) All shares of capital stock
or other evidence of beneficial interest in any present or
future Theatre Subsidiary which is a corporation, business
trust or limited liability company, (b) all partnership
interests in any present or future Theatre Subsidiary which
is a limited partnership, (c) all joint venture interests in
any joint venture in the motion picture exhibition industry
and (d) all options, warrants and similar rights to acquire
such capital stock or such interests. All such capital
stock, interests, options, warrants and other rights are
collectively referred to as the "Pledged Stock".
7.1.2. Pledged Rights. All rights to receive profits
or surplus of, or other Distributions (including income,
return of capital and liquidating distributions) from, any
Theatre Subsidiary that is a partnership or joint venture,
including any distributions by any such Person to partners
or joint venturers. All such rights are collectively
referred to as the "Pledged Rights".
7.1.3. Proceeds and Products. All proceeds, including
insurance proceeds, and products of the items of Security
described or referred to in Sections 7.1.1 through 7.1.2
and, to the extent not included in the foregoing, all
Distributions with respect to the Pledged Securities.
7.2. Representations, Warranties and Covenants with Respect
to the Security. The Company hereby represents, warrants and
covenants that:
7.2.1. Pledged Stock. All shares of capital stock,
limited partnership interests and similar securities
included in the Pledged Stock are and shall be at all times
duly authorized, validly issued, fully paid and (in the case
of capital stock and limited partnership interests)
nonassessable. The Company will deliver to Harcourt
certificates representing the Pledged Stock, registered, if
Harcourt so requests, in the name of Harcourt or its
nominee, as pledgee, or accompanied by a stock transfer
power executed in blank and, if Harcourt so requests, with
the signature guaranteed, all in form and manner
satisfactory to Harcourt. Pledged Stock that is not
evidenced by a certificate will be registered in Harcourt's
name as pledgee on the issuer's records, all in form and
substance satisfactory to Harcourt. Upon the occurrence of
a Default, Harcourt may transfer into its name or the name
of its nominee, as pledgee, any Pledged Securities.
7.2.2. No Liens or Restrictions on Transfer or Change
of Control. All Security shall be free and clear of any
Liens and restrictions on the transfer thereof, except for
Liens permitted by Section 3.2. None of the Pledged Stock
is subject to any options to purchase or similar rights of
any Person. Except with the written consent of Harcourt,
neither the Company nor any Theatre Subsidiary is, and
neither Harcourt nor any Theatre Subsidiary will be, party
to or bound by any agreement, license or franchise which
restricts the change of control or ownership of any Theatre
Subsidiary.
7.2.3. Perfection of the Security. Upon Harcourt's
request from time to time, the Company will make, execute,
acknowledge and deliver, and file and record in the proper
filing and recording places, all such instruments, and will
take all such other action, as Harcourt deems advisable for
confirming to it the Security or to carry out any other
purposes of this Agreement.
7.3. Administration of the Security. The Security shall be
administered as follows, and if Payment Default shall have
occurred, Section 7.4 shall also apply.
7.3.1. Pledged Securities.
(a) Distributions. (i) Until an Event of
Default shall have occurred and is continuing, the
Company shall be entitled, to the extent permitted by
this Agreement, to receive all Distributions on or with
respect to the Pledged Securities (other than
Distributions constituting additional Pledged
Securities). All Distributions constituting additional
Pledged Securities will be retained by Harcourt (or if
received by the Company shall be held by the Company in
trust and shall be immediately delivered by the Company
to Harcourt in the original form received, endorsed in
blank) and held by Harcourt as part of the Security.
(ii) If an Event of Default has occurred and is
continuing, all Distributions on or with respect to the
Pledged Securities shall be retained by Harcourt (or if
received by the Company shall be held by the Company in
trust and shall be immediately delivered by it to
Harcourt in the original form received, endorsed in
blank) and held by Harcourt as part of the Security or
applied by Harcourt in accordance with Section 7.4.5.
(b) Voting. (i) Until an Event of Default shall
have occurred and is continuing, the Company shall be
entitled to vote or consent with respect to the Pledged
Securities in any manner not inconsistent with the
terms of this Agreement, and Harcourt will, if so
requested, execute appropriate revocable proxies
therefor.
(ii) If an Event of Default has occurred and is
continuing, if and to the extent that Harcourt shall so
notify the Company in writing, only Harcourt shall be
entitled to vote or consent or take any other action
with respect to the Pledged Securities and the Company
will, if so requested, execute or cause to be executed
appropriate proxies therefor.
7.4. Right to Realize upon Credit Security. Except to the
extent prohibited by applicable law that cannot be waived, this
Section 7.4 shall govern Harcourt's right to realize upon the
Security if any Payment Default shall have occurred. The
provisions of this Section 7.4 are in addition to any rights and
remedies available at law or in equity.
7.4.1. General Authority. To the extent specified in
written notice from Harcourt to the Company, the Company
grants Harcourt full and exclusive power and authority,
subject to the other terms hereof and applicable law, to
take any of the following actions (for the sole benefit of
Harcourt but at the Company's expense):
(a) To ask for, demand, take, collect, sue for and
receive all payments in respect of any Pledged Securities
which the Company could otherwise ask for, demand, take,
collect, sue for and receive for its own use.
(b) To extend the time of payment of Pledged
Securities and to make any allowance or other adjustment
with respect thereto.
(c) To settle, compromise, prosecute or defend any
action or proceeding with respect to Pledged Securities and
to enforce all rights and remedies thereunder which the
Company could otherwise enforce.
(d) To enforce the payment of any Pledged Securities,
either in the name of the Company or in its own name, and to
endorse the name of the Company on all checks, drafts, money
orders and other instruments tendered to or received in
payment of any Security.
(e) To notify the third party payor with respect to
any Pledged Securities of the existence of the security
interest created hereby and to cause all payments in respect
thereof thereafter to be made directly to Harcourt;
provided, however, that whether or not Harcourt shall have
so notified such payor the Company will at its expense
render all reasonable assistance to Harcourt in collecting
such items and in enforcing claims thereon.
OXY To sell, transfer, assign or otherwise deal in or
with any Security or the proceeds thereof, as fully as the
Company otherwise could do.
7.4.2. Marshaling, etc. Harcourt shall not be
required to make any demand upon, or pursue or exhaust any
of its rights or remedies against, the Company or any
guarantor, pledgor or any other Person with respect to the
payment of the Obligations or to pursue or exhaust any of
its rights or remedies with respect to any collateral
therefor or any direct or indirect guarantee thereof.
Harcourt shall not be required to marshal the Security or
any guarantee of the Obligations or to resort to the
Security or any such guarantee in any particular order, and
all of its rights hereunder or otherwise shall be
cumulative. To the extent it may lawfully do so, the
Company hereby absolutely and irrevocably waives and
relinquishes the benefit and advantage of, and covenants not
to assert against Harcourt, any valuation, stay,
appraisement, extension, redemption or similar laws now or
hereafter existing which, but for this provision, might be
applicable to the sale of any Security made under the
judgment, order or decree of any court, or privately under
the power of sale conferred by this Agreement, or otherwise.
Without limiting the generality of the foregoing, the
Company agrees that it will not invoke or utilize any law
which might prevent, cause delay in or otherwise impede the
enforcement of the rights of Harcourt in the Security, and
hereby waives all such laws, and that it will not invoke or
raise as a defense to any enforcement by Harcourt of its
rights and remedies relating to the Security or the
Obligations any legal or contractual requirement with which
Harcourt may have in good faith failed to comply. In
addition, the Company hereby waives any right to prior
notice (except to the extent expressly required by this
Agreement) or judicial hearing in connection with
foreclosure on or disposition of any Security, including any
such right which the Company would otherwise have under the
Constitution of the United States of America or of any state
or territory thereof or any other jurisdiction.
7.4.3. Sales of Security. All or any part of the
Security may be sold for cash or other value in any number
of lots at public or private sale, without demand,
advertisement or notice; provided, however, that Harcourt
shall give the Company 10 days' prior written notice of the
time and place of any public sale, or the time after which a
private sale may be made, which notice the Company and
Harcourt hereby agrees to be reasonable. At any sale or
sales of Security, Harcourt or any of its respective
officers acting on its behalf, or Harcourt's assigns, may
bid for and purchase all or any part of the property and
rights so sold, may use all or any portion of the
Obligations owed to Harcourt as payment for the property or
rights so purchased, and upon compliance with the terms of
such sale may hold and dispose of such property and rights
without further accountability to the Company, except for
the proceeds of such sale or sales pursuant to
Section 7.4.5. The Company acknowledges that any such sale
will be made by Harcourt on an "as is" basis with
disclaimers of all warranties, whether express or implied,
to the extent permitted by applicable law. The Company
agrees that (a) Harcourt may, in its sole discretion,
restrict any such sale to one or more purchasers who will
agree to guarantee the payment and performance of the
Guaranteed Leases and Transferred Leases of Theatre
Subsidiaries, the Pledged Securities of which are included
in such sale and who, in the reasonable judgment of
Harcourt, are financially capable of performing such
guarantee and (b) that such manner of disposition is
commercially reasonable notwithstanding the possibility that
a substantially higher price might be realized if such sale
were not so restricted. The Company will execute and
deliver or cause to be executed and delivered such
instruments, documents, assignments, waivers, certificates
and affidavits, will supply or cause to be supplied such
further information and will take such further action as
Harcourt shall require in connection with any such sale.
7.4.4. Sale Without Registration. The Company agrees
that if, at any time when Harcourt shall determine to
exercise its rights hereunder to sell all or part of the
securities included in the Security, the securities in
question shall not be effectively registered under the
Securities Act (or other applicable law), Harcourt may, in
its sole discretion, sell such securities by private or
other sale not requiring such registration in such manner
and in such circumstances as Harcourt may deem necessary or
advisable in order that such sale may be effected in a
commercially reasonable manner in accordance with applicable
law without such registration and the related delays,
uncertainty and expense. Without limiting the generality of
the foregoing, in any event Harcourt may, in its sole
discretion, (a) approach and negotiate with a single
purchaser or one or more possible purchasers to effect such
sale, (b) restrict such sale to one or more purchasers each
of whom will represent and agree that such purchaser is
purchasing for its own account, for investment and not with
a view to the distribution or sale of such securities and
(c) cause to be placed on certificates representing the
securities in question a legend to the effect that such
securities have not been registered under the Securities Act
(or other applicable law) and may not be disposed of in
violation of the provisions thereof. The Company hereby
agrees that such manner of disposition is commercially
reasonable, that it will upon Harcourt's request give any
such purchaser access to such information regarding the
issuer of the securities in question as Harcourt may
reasonably request and that Harcourt shall not incur any
responsibility for selling all or part of the securities
included in the Security at any private or other sale not
requiring such registration, notwithstanding the possibility
that a substantially higher price might be realized if the
sale were deferred until after registration under the
Securities Act (or other applicable law) or until made in
compliance with certain other rules or exemptions from the
registration provisions under the Securities Act (or other
applicable law). The Company acknowledges that there is no
adequate remedy at law for breach by it of this
Section 7.4.4 and that such breach would not be adequately
compensable in damages and therefore agrees that this
Section 7.4.4 may be specifically enforced.
7.4.5. Application of Proceeds. The proceeds of all
sales and collections in respect of any Security or other
assets of the Company, all funds collected from the Company
and any cash contained in the Security, the application of
which is not otherwise specifically provided for herein,
shall be applied as follows:
First, to the payment of the costs and expenses of such
sales and collections, the reasonable expenses of Harcourt
and the reasonable fees and expenses of its special counsel;
Second, any surplus then remaining to the payment of
the Obligations in such order and manner as Harcourt may in
its sole discretion determine;
Third, any surplus then remaining shall be paid to the
Company, subject, however, to the rights of the holder of
any then existing Lien of which Harcourt has actual notice.
7.5. Custody of Credit Security. Except as provided by
applicable law that cannot be waived, Harcourt will have no duty
as to the custody and protection of the Security, the collection
of any part thereof or of any income thereon or the preservation
or exercise of any rights pertaining thereto, including rights
against prior parties, except for the use of reasonable care in
the custody and physical preservation of any Security in its
possession. Harcourt will not be liable or responsible for any
loss or damage to any Security, or for any diminution in the
value thereof, by reason of the act or omission of any agent
selected by Harcourt acting in good faith.
8. Expenses; Indemnity.
8.1. Expenses. The Company will pay:
(a) all recording and filing fees and transfer and
documentary stamp and similar taxes at any time payable in
respect of this Agreement, or any Security; and
(b) all other reasonable expenses incurred by Harcourt
in connection with the enforcement of any rights hereunder,
including costs of collection and reasonable attorneys' fees
and expenses.
8.2. General Indemnity. The Company hereby agrees to
indemnify Harcourt, each of the directors, officers, employees
and agents of Harcourt, and each Person, if any, who controls
Harcourt (Harcourt and each of such directors, officers,
employees, agents and control Persons is referred to as an
"Indemnified Party"), and hold each of them harmless from and
against any and all claims, damages, liabilities and reasonable
expenses (including reasonable fees and disbursements of counsel
with whom any Indemnified Party may consult in connection
therewith and all reasonable expenses of litigation or
preparation therefor) which any Indemnified Party may incur or
which may be asserted against any Indemnified Party in connection
with (a) the existence or exercise of any security rights with
respect to the Security in accordance with this Agreement or
(b) this Agreement or any transaction contemplated hereby, other
than litigation commenced by the Company against Harcourt which
seeks enforcement of any of the rights of the Company hereunder
and is determined adversely to Harcourt in a final nonappealable
judgment and except to the extent such claims, damages,
liabilities and expenses result from the gross negligence or
willful misconduct of Harcourt.
9. Successors and Assigns. Any reference in this Agreement to
any of the parties hereto shall be deemed to include the
successors and assigns of such party, and all covenants and
agreements by or on behalf of the Company or Harcourt that are
contained in this Agreement shall bind and inure to the benefit
of their respective successors and assigns; provided, however,
that the Company may not assign its rights or obligations under
this Agreement.
10. Confidentiality. Harcourt agrees that it will make no
disclosure of confidential information furnished to it by the
Company or any of its Subsidiaries unless such information shall
have become public, except:
(a) in connection with operations under or the
enforcement of this Agreement;
(b) pursuant to any statutory or regulatory
requirement or any mandatory court order, subpoena or other
legal process;
(c) to its counsel, auditors and other professional
advisors with an instruction to such Person to keep such
information confidential; and
(d) with the prior written consent of the Company, to
any other Person.
11. Notices. Except as otherwise specified in this Agreement,
any notice required to be given pursuant to this Agreement shall
be given in writing. Any notice, demand or other communication
in connection with this Agreement shall be deemed to be given if
given in writing (including telex, telecopy or similar
teletransmission) addressed as provided below (or to the
addressee at such other address as the addressee shall have
specified by notice actually received by the addressor), and if
actually delivered in fully legible form to such address
(evidenced in the case of a telex by receipt of the correct
answerback).
If to the Company, to it at:
27 Boylston Street
Chestnut Hill, Massachusetts 02167
Telecopy No.: (617) 278-5396
Attention: President
If to Harcourt, to it at:
27 Boylston Street
Chestnut Hill, Massachusetts 02167
Telecopy No.: (617) 731-2354
Attention: President
12. Course of Dealing; Amendments and Waivers. No course of
dealing between Harcourt, on one hand, and the Company or any of
its Subsidiaries or their Affiliates, on the other hand, shall
operate as a waiver of any of the rights of Harcourt under this
Agreement or with respect to the Obligations. The Company
acknowledges that if Harcourt, without being required to do so by
this Agreement, gives any notice or information to the Company or
any of its Subsidiaries or their Affiliates, Harcourt shall not
by implication have amended, waived or modified any provision of
this Agreement, or created any duty to give any such notice or
information or to obtain any such consent on any future occasion.
No delay or omission on the part of Harcourt in exercising any
right under this Agreement or with respect to the Obligations
shall operate as a waiver of such right or any other right
hereunder or thereunder. A waiver on any one occasion shall not
be construed as a bar to or waiver of any right or remedy on any
future occasion. No waiver, consent or amendment with respect to
this Agreement shall be binding unless it is in writing and
signed by Harcourt and in the case of an amendment, signed by the
Company. Although Harcourt shall have no duty to agree to any
waiver, consent or amendment relating to this Agreement, Harcourt
shall give due consideration in accordance with its business
judgment to each request made by the Company for any such
consent, waiver or amendment.
Any amendment, waiver or consent entered into by any party
for any of the following purposes need not be specifically
authorized or approved by the Board of Directors of such party if
such amendment, waiver or consent is approved by an officer of
such party who is authorized to approve such type of amendment,
waiver or consent: (a) to cure any ambiguity herein, (b) to
cure, correct or supplement any defect or inconsistent provision
contained herein; or (c) to make any provision in regard to
matters or questions arising hereunder which is not inconsistent
with the provisions of this Agreement and which does not
adversely affect the interests of such party.
13. Termination and Defeasance. This Agreement may be
terminated at any time by Harcourt in its sole discretion by
providing written notice to the Company. This Agreement shall
terminate at such time as the Lease Exposure is less than
$50,000,000 if at such time no First Tier Default, Payment
Default or Event of Default has occurred and is continuing;
provided, however, that Sections 2, 3.1 and 3.6, Sections 6.3
through 6.8 (insofar as they relate to Sections 2, 3.1 and 3.6),
8, 9, 10 and 11 shall survive the termination of this Agreement.
Upon any such termination, the Security shall revert to the
Company and the right, title and interest of Harcourt therein
shall terminate. Thereupon, on the Company's demand and at its
cost and expense, Harcourt shall execute proper instruments,
acknowledging satisfaction of and discharging this Agreement, and
shall redeliver to the Company any Security then in its
possession.
14. General. The invalidity or unenforceability of any
provision hereof shall not affect the validity or enforceability
of any other provision hereof. The headings in this Agreement
are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof. This Agreement constitutes
the entire understanding of the parties with respect to the
subject matter hereof and thereof and supersedes all prior and
current understandings and agreements, whether written or oral.
This Agreement may be executed in any number of counterparts
which together shall constitute one instrument. This Agreement
shall be governed by and construed in accordance with the laws
(other than the conflict of laws rules) of The Commonwealth of
Massachusetts except as may be required by the UCC with respect
to matters involving the perfection of Harcourt's Lien on the
Security and the enforcement of such Lien.
Each of the undersigned has caused this Agreement to be
executed and delivered by its duly authorized officer as an
agreement under seal as of the date first above written.
HARCOURT GENERAL, INC.
By s/Robert J. Tarr, Jr.
Title: President and Chief
Executive Officer
GC COMPANIES, INC.
By s/Richard A. Smith
Title: Chairman, President and
Chief Executive Officer
EXHIBITS
1 - Certain Financial Data Exhibit 1
CERTAIN FINANCIAL DATA
Consolidated Adjusted Cash Flow
for the fiscal quarter ending July 31, 1992, shall be
26,926,000;
for the fiscal quarter ending October 31, 1992, shall be
17,883,000;
for the fiscal quarter ending January 31, 1992, shall be
31,053,000;
for the fiscal quarter ending April 30, 1993, shall be
21,245,000;
for the fiscal quarter ending July 31, 1993, shall be
33,290,000; and
for the fiscal quarter ending October 31, 1993, shall be
determined by mutual agreement by Harcourt and the Company on or
prior to January 31, 1994.
Consolidated Cash Flow
for the fiscal quarter ending July 31, 1992, shall be
10,237,000;
for the fiscal quarter ending October 31, 1992, shall be
1,955,000;
for the fiscal quarter ending January 31, 1992, shall be
13,748,000;
for the fiscal quarter ending April 30, 1993, shall be
5,599,000;
for the fiscal quarter ending July 31, 1993, shall be
15,939,000; and
for the fiscal quarter ending October 31, 1993, shall be
determined by mutual agreement by Harcourt and the Company on or
prior to January 31, 1994.
Consolidated Trailing Theatre Cash Flow
for the fiscal quarter ending July 31, 1992, shall be
6,825,000;
for the fiscal quarter ending October 31, 1992, shall be
1,303,000;
for the fiscal quarter ending January 31, 1992, shall be
9,165,000;
for the fiscal quarter ending April 30, 1993, shall be
3,733,000;
for the fiscal quarter ending July 31, 1993, shall be
10,626,000; and
for the fiscal quarter ending October 31, 1993, shall be
determined by mutual agreement by Harcourt and the Company on or
prior to January 31, 1994.
<TABLE>
EXHIBIT 11.1
HARCOURT GENERAL, INC. AND SUBSIDIARIES
OCTOBER 31, l993
EXHIBIT TO FORM 10-K
<CAPTION>
COMPUTATION OF AVERAGE NUMBER OF SHARES OUTSTANDING USED IN DETERMINING PRIMARY
AND FULLY DILUTED EARNINGS PER SHARE
In thousands 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
PRIMARY
1. Weighted average
number of Common
shares outstanding 76,493 75,554 74,907
2. Assumed conversion of
Series A Cumulative
Convertible Preferred
Stock 2,736 3,449 3,969
3. Assumed exercise of
certain stock options
based on average
market value during
the year 396 136 -
4. Weighted average
number of shares
used in primary per
share computations 79,625 79,139 78,876
FULLY DILUTED(A)
1. Weighted average
number of Common
shares outstanding 76,493 75,554 74,907
2. Assumed conversion of
Series A Cumulative
Convertible Preferred
Stock 2,736 3,449 3,969
3. Assumed exercise of
certain stock options
based on market
value at October 31 420 178 -
4. Weighted average
number of shares
used in fully diluted
per share computations 79,649 79,181 78,876
(A) This calculation is submitted in accordance with Securities Exchange Act
of 1934 Release No. 9083 although not required by footnote 2 to paragraph
14 of APB Opinion No. 15 because it results in dilution of less than 3%.
</TABLE>
Exhibit 13.1
{page 16}
BUSINESS REVIEW
PUBLISHING
The following review of operations discusses the results of Harcourt General's
four business segments: publishing, specialty retailing, insurance and
professional services. The professional services segment - which consists of
Drake Beam Morin's professional outplacement service operations - is reported
separately for the first time this year. Previously, it had been included in
publishing results. Publishing results for prior years have been restated to
conform to this new reporting format. The absence of a theatre review reflects
the treatment of that business as a discontinued operation, following the
spinoff of the theatre business along with $64 million in cash to Harcourt
General shareholders in December 1993.
Harcourt Brace & Company ranks among the world's largest and most prestigious
publishing houses, providing quality product for the educational, scientific,
technical, medical, professional and trade markets.
Within the educational market, Harcourt Brace is a leading publisher of
textbooks and other instructional materials for elementary and secondary
schools under the Harcourt Brace and Holt, Rinehart and Winston imprints.
The Company's well-known college imprints include Harcourt Brace College, Holt
College, Saunders College and Dryden Press. The Psychological Corporation, the
Company's testing business, is the largest for-profit publisher of tests for
educational, psychological, clinical and professional assessment.
Academic Press and W.B. Saunders, the Company's scientific, technical, medical
(STM) publishing businesses, hold well-established market leadership positions.
Academic Press is one of the leading international publishers of books and
scholarly journals in the life, physical and social sciences. W.B. Saunders is
the world's leading publisher of medical books and periodicals for the health
sciences.
In the professional field, the Company conducts the largest bar examination
review program in the country under the BAR/BRI name. Harcourt Brace
Professional Publishing produces accounting and tax practice reference
materials. The trade division publishes distinguished literature for children
and adults.
The Company has international operations in London, Tokyo, Sydney, Toronto and
Montreal as well as a foreign export division based in Orlando, Florida. These
operations publish locally and distribute U.S. product internationally in the
educational, STM, professional and trade areas.
{page 17}
Fiscal 1993 was a year of significant progress for the publishing segment,
which represents Harcourt General's largest earnings contributor. A continuing
emphasis on product development at all divisions has greatly enhanced the
market positions of our various imprints. The Harcourt Brace publishing
businesses are among the leaders in their market segments and hold significant
untapped potential for revenue growth and earnings appreciation through
continued revitalization efforts.
Publishing revenues increased 9.2% in 1993 to $944.5 million from $865.3
million in 1992. Operating earnings improved to $142.2 million, a 14.2%
increase from the previous year due to a very strong performance by our
elementary and secondary educational publishing operations. Operating margins
improved to 15.1% from 14.4%.
Educational Publishing
The educational publishing businesses include Harcourt Brace School, which
produces textbooks and related instructional materials for the elementary
grades; Holt, Rinehart and Winston (HRW), which publishes instructional
materials for grades 7 through 12; Harcourt Brace College, which publishes
post-secondary educational materials; and The Psychological Corporation, which
provides tests for educational, psychological, clinical and professional
assessment.
Harcourt Brace School
In 1993, Harcourt Brace School achieved revenue growth in excess of 50% and a
very strong increase in operating earnings. This improved performance was led
by the success of the Treasury of Literature reading program, which
secured 47% of the market in Texas, 63% of the available business in the
Arizona state adoption, and a significant share of market in the open
territory states. Continued sales of Mathematics Plus - introduced in 1992 and
now the number one-selling new elementary mathematics program - also
contributed to the school division's substantially improved operating results
in 1993.
New products to be introduced in 1994 include Passports, a supplemental reading
program that complements Treasury of Literature, as well as revisions of
Mathematics Plus and Being Healthy. Because market demand for elementary
textbooks will be substantially less in fiscal 1994, operating results from
this business will decline significantly from 1993 levels. However, Harcourt
Brace School is developing major new programs in a number of subject areas in
preparation for very significant adoption opportunities in 1995 and 1996.
Holt, Rinehart and Winston
Holt Rinehart and Winston
Both revenues and operating income improved significantly this year at HRW,
reflecting very strong sales of SciencePlus, Elements of Writing and Elements
of Literature, all of which were introduced in 1993. SciencePlus, a three-year
program for the middle school market, captured a 45% market share in California.
Elements of Literature and Elements of Writing - both 7th-12th grade programs
secured significant share of market in the key states of Virginia, South
Carolina and Louisiana. Sales of previously published backlist product were
also strong during the year.
{page 18}
In 1994, HRW will benefit from continued demand for these very successful
products as well as sales of its new biology program, Biology: Visualizing
Life, which was introduced in the latter half of 1993. In addition, HRW will
introduce a new interactive multimedia biology program, Concepts of Biology,
in 1994. The division will publish a new edition of The American Nation, an
important history textbook, in 1994 and a new mathematics program in 1995.
HRW's results in the coming year will be dampened by a decrease in secondary
textbook demand compared to 1993. However, as in the elementary market,
secondary adoptions will increase substantially in 1995 and 1996.
The Psychological Corporation
The Psychological Corporation had a modest decrease in revenues in 1993 compared
to very strong year-ago sales, which were boosted by the introduction of a
revised version of the Wechsler Intelligence Scale for Children (WISC-III), the
most widely used intellectual ability measure in the world. Strong sales in 1993
of the seventh edition of the Metropolitan Achievement Test (MAT 7) and the
Bayley Scales of Infant Development, Second Edition (BSID-II), both introduced
in 1993, helped to offset the decreased revenues from WISC-III.
Over the long-term there is significant opportunity for The Psychological
Corporation to play a vital role in educational reform, as that movement will
likely result in the use of a greater variety of assessment methodologies. With
its broad product base, The Psychological Corporation is well-positioned to
benefit from increased demand for numerous types of assessment tools.
Harcourt Brace College
College revenues in 1993 increased slightly while operating earnings declined
substantially as a result of increased operating expenses that reflect a staff
expansion and higher marketing costs. Strong sales of Saunders science
textbooks were more than offset by disappointing sales of Dryden Press
texbooks in business and economics subject areas due to in part to declines in
business school enrollments.
Best-selling titles in 1993 included Boone and Kurtz, Contemporary Business,
Seventh Edition; Serway and Faughn, College Physics, Third Edition; and the 12th
edition of the Harbrace College Handbook.
The college division initiated a print-based custom publishing operation in
1993. This program is able to meet an individual instructor's teaching needs by
combining his or her classroom material with portions of an existing Harcourt
Brace textbook.
Harcourt Brace College has made meaningful progress over the past two years in
the area of author acquisitions. As a result, important new textbooks are
currently under development in the fields of economics, marketing and
accounting, which will help return the college division's Dryden Press imprint
to its former leadership position in the business and economics market. We also
expect to strengthen our product offerings in a number of other areas,
including mathematics, behavioral sciences and education over the next several
years.
Scientific, Technical, Medical Publishing
Academic Press
Academic Press had slightly higher sales in 1993 due to increased journal
subscription revenue which more than offset lower book sales, reflecting the
release of fewer titles. Academic Press published approximately 400 scientific
and technical books and more than 200 scientific journals during the year. 1993
also marked the introduction of the new AP Professional imprint to publish
technical and reference books for advanced computer professionals. Fourteen new
titles were released in 1993 under this new imprint, and approximately 30
titles are scheduled for publication in 1994.
{page 19}
Despite the challenging funding situation facing many libraries worldwide,
Academic Press should benefit in 1994 from a planned increase in the number of
journal issues as well as from continued growth of the AP Professional imprint.
W.B. Saunders Company
Revenues at W.B. Saunders were virtually unchanged in 1993. Operating earnings
decreased from a very strong performance in 1992. Higher journal and clinic
subscription revenues offset lower sales of backlist book titles. Revenues were
affected by concerns within the medical community regarding health care reform
and its potential impact on physicians and other health care professionals.
In 1993, W.B. Saunders published approximately 150 books and 140 periodicals for
the health sciences market. Major titles contributing to 1993 sales included
Albert & Jakobiec's Principles & Practice of Ophthalmology, Magee's Orthopaedic
Physical Assessment, and Jarvis Physical Examination & Health Assessment. In
addition, substantial progress was made in expanding Saunders product offering
for the nursing and health-related professions. The 1993 book publication
schedule overall was significantly lighter than 1992, when Saunders published
nearly 200 books, including major titles like Braunwald's Heart Disease and
Wyngaarden, Smith & Bennett's Cecil Textbook of Medicine.
W.B. Saunders will benefit in 1994 from an increase in the number of medical
books scheduled for publication. Included in that schedule is the 28th edition
of Dorland's Illustrated Medical Dictionary, a major title first published in
1900. The company will also introduce 12 new periodicals in 1994.
Going forward, W.B. Saunders will focus on maintaining its leading worldwide
position in medical book publishing while continuing to expand into new allied
health and nursing publishing niches.
Professional Publishing
Professional publishing revenues benefited in 1993 from the addition of the CPA
Services product line, a professional accounting newsletter and executive
report publisher which was acquired at the end of fiscal 1992. Products under
development during 1994 will include new accounting and tax reference
materials, several new professional newsletters, and various software
applications for the CPA market, including a CD-ROM version of the bestselling
GAAP Guide.
Legal & Professional
Harcourt Brace's Legal and Professional operation conducts the largest bar
examination review program in the country under the BAR/BRI name. The division
also conducts review courses for CPA accreditation and graduate school entrance
examinations. More than 30,000 individuals completed Legal and Professional's
review courses in 1993.
Harcourt Brace Trade
In 1993, the Harcourt Brace trade division benefited from strong sales of
children's titles. Several Harcourt Brace trade publications earned distinctions
during the year. Virginia Woolf's Orlando secured a position on the Publishers
Weekly bestseller list, as did the popular children's book Stellaluna, which
reached the number-one position on this list. Other successful titles released
in 1993 include Harriet Doerr's national bestseller Consider This, Senora, and
Terry Waite's Taken On Trust. Beginning in 1994, the division will publish fewer
adult hardcover titles. Its program will emphasize high-quality literary
hardcovers, the Harvest trade paperback line, and the children's book imprints.
Foreign / International
Harcourt Brace's international operations had slightly lower revenues in 1993,
reflecting the discontinuation of elementary textbook publishing businesses
in England and Australia and the trade business in Japan.
{page 20}
SPECIALTY RETAILING
The Company's specialty retailing operations include a collection of distinctive
retailing brand equities - Neiman Marcus, NM Direct, Bergdorf Goodman and
Contempo Casuals.
Neiman Marcus, a world-renowned high-fashion specialty retailer, serves
customers through 27 stores in 24 cities. NM Direct, the Neiman Marcus mail
order operation, includes the well-known Horchow catalogues in addition to
those of Neiman Marcus.
Bergdorf Goodman and Bergdorf Goodman Men, with perhaps the preeminent retail
locations in the world at Fifth Avenue and 58th Street in New York City, offer
customers quality apparel and accessories from leading international designers.
Contempo Casuals provides contemporary fashion apparel and accessories for young
women through a chain of 290 stores in regional shopping malls in 35 states and
Puerto Rico.
Neiman Marcus, NM Direct, Bergdorf Goodman and Contempo Casuals - which make up
the Company's specialty retailing operations - achieved the highest level of
financial performance in their six years of operation under Harcourt General
management. Total revenues for our specialty retailing operations grew 11.5% in
fiscal 1993 to $2.02 billion, with comparable revenues growing 6.6%. Operating
earnings were $120.2 million, a 47.5% increase over 1992's performance. Each of
our divisions realized gross margin improvement, and the group's operating
margin increased to 6.0% from 4.5% in 1992. Results of our up-scale businesses
Neiman Marcus stores, NM Direct and Bergdorf Goodman - drove this performance,
as business at Contempo Casuals remained weak throughout the year.
The bulk of planned store renovation and expansion work at Neiman Marcus and
Bergdorf Goodman has been completed, greatly enhancing the competitive market
positions of these retail franchises.
Our focus in 1994 will be on maintaining the positive revenue and earnings
momentum at Neiman Marcus, NM Direct and Bergdorf Goodman while focusing on
returning Contempo Casuals to profitability. The degree of improvement at the
Contempo Casuals Division will be the major determinant of our ability to show
meaningful earnings gains from our specialty retailing operations in fiscal
1994.
Neiman Marcus Division
The Neiman Marcus Division includes the Neiman Marcus stores and the mail order
operations of NM Direct, both of which made significant progress in 1993.
Revenues in 1993 for the Neiman Marcus Division increased 12.7% to $1.45
billion. Comparable store sales at the Neiman Marcus stores grew 7.6%
while NM Direct continued its double-digit revenue growth trend. Operating
earnings for the division rose 45.7% to $121.5 million from $83.4 million the
previous year. Operating margins improved to 8.5% from 6.6% in 1992.
The performance improvement at Neiman Marcus stores was primarily the result of
a number of evolutionary merchandising changes implemented during the year.
These changes include an expansion of merchandise offered at the Neiman Marcus
opening price points along with increased assortments in the career and
[page 21]
casual merchandise categories. Both initiatives were designed to increase
profitability by increasing transaction volume and expanding our customer base.
NM Direct made a strong contribution to the division's profit improvement due to
an increase in the number of transactions and higher gross margins. The mail
order operation distributed approximately 75 catalogues in 1993, an increase of
roughly 10% over the number mailed in 1992. The catalogues have an average
circulation of 1.2 million households per book.
Selective expansion and remodeling projects are continuing at Neiman Marcus
stores. Expansion plans include four new Neiman Marcus stores, the first of
which is scheduled to open in Short Hills, New Jersey in calendar 1995,
followed by new stores in Paramus, New Jersey and King of Prussia,
Pennsylvania, both in 1996. A fourth new store in Honolulu, Hawaii will
follow. Remodeling work at the San Francisco store was completed in the fall.
Ongoing projects include renovations in Boston; Westchester, New York;
NorthPark in Dallas; and Northbrook, just outside Chicago.
NM Direct recently initiated a major expansion of its telemarketing and
fulfillment facility in Las Colinas, Texas. Planned for completion in 1994, that
expansion will accommodate continued growth in the mail order business.
Bergdorf Goodman
Both Bergdorf Goodman and Bergdorf Goodman Men registered strong revenue growth
in fiscal 1993, with broad-based improvement across merchandise categories.
Annual revenues increased 10.0% to $219.1 million. Sales growth at both the
main store and the men's store more than compensated for a decline in mail
order revenues. Operating earnings increased 66.2% to $12.8 million, with gross
margin improvement offsetting a modest increase in selling expenses due to new
advertising campaigns.
New advertising and sales promotion campaigns were initiated at both of the
Bergdorf Goodman stores in 1993 to generate increased store traffic and expand
the active customer base. The campaigns had a positive impact as both the
number of transactions and the average dollar amount per transaction increased
for the year.
Upcoming renovation plans include a remodeling of the main store's sixth floor,
which will feature designer sportswear, coats, dresses and eveningwear. That
project is scheduled to begin in the spring of 1994.
Bergdorf Goodman Men has yet to reach the volume level required to achieve
profitability. It is making important progress toward that goal, however, and
will continue to focus on programs to expand its share of the upscale New York
market.
Contempo Casuals
Business at Contempo Casuals continued to be disappointing in fiscal 1993. The
Contempo customers - young women in the 17- to 24-year-old age bracket -
continue to feel the impact of economic uncertainty while business also
suffered from a lack of inspiring fashion trends. Despite a comparable store
revenue decrease of 4.9% in 1993, inventory and expense control initiatives
held Contempo's operating loss to $3.6 million, approximately equal to the
operating loss incurred in 1992. Including losses associated with the test of
Pastille, a new retail concept, the Contempo Division had a total operating
loss of $14.1 million in 1993 compared with an operating loss of $9.5 million
in 1992.
Efforts underway to restore Contempo to profitability in 1994 include the
development of a more focused merchandising approach featuring fewer fashion
trends in greater depth; an enhanced visual presentation; and a continued
emphasis on cost and inventory controls. The Pastille operation should
significantly reduce its operating loss in 1994.
{page 22}
INSURANCE
Harcourt General's insurance operations include Federal Home Life Insurance
Company, PHF Life Insurance Company and The Harvest Life Insurance Company.
The Company's four insurance divisions - farm, general agency, structured
settlements and credit - are engaged primarily in the underwriting of
individual health, life, accident and credit insurance policies as well as
the sale of annuity products.
Harcourt General's insurance operations achieved an exceptionally strong
performance in 1993, with revenues increasing 18.0% to $548.0 million from
$464.6 million in 1992. Operating earnings grew 65.6% to $70.9 million from
$42.8 million in the previous year.
The revenue growth was primarily attributable to improved structured settlement
sales as well as significant capital gains and higher investment income due to
a larger portfolio balance. Operating earnings were favorably impacted by
the higher capital gains along with increased interest margins on deferred
annuity business and favorable claims experience in the farm and credit health
markets. These were partially offset by lower structured settlement results due
to adverse mortality experience.
Total revenues and operating earnings include $27.8 million of capital gains in
1993 compared to capital gains of $2.7 million in 1992. These gains result
primarily from calls on debt securities held in the insurance investment
portfolio as a result of the current low interest rate environment and are
beyond the Company's control.
Results in fiscal 1993 also include a $4.6 million charge recognized in the
third quarter primarily relating to the write-off of deferred acquisition
costs in conjunction with the reinsurance of a block of major medical business,
fulfilling our stated intention to exit the major medical field.
The insurance companies' marketing efforts in fiscal 1993 were aided in part by
improved credit ratings secured in fiscal 1992. The A.M. Best rating agency
removed its contingency qualification from Federal Home Life Insurance Company
and now rates that business A+/Superior. In addition, Duff & Phelps currently
rates the insurance companies AA-.
The insurance operations are managed conservatively and have significantly
increased in value over the past two years. Financial results in 1994 should
benefit from steady improvement in the fundamental insurance business and higher
sales of annuity products. Capital gains in fiscal 1994 should again be
significant but will not reach the level recognized in 1993.
Insurance Liquidity and Capital Resources
Cash provided by insurance operations in fiscal 1993 totaled $31.1 million.
This amount reflects insurance net earnings of $46.0 million adjusted for
operating and non-operating items totaling $14.9 million. A decrease in
unearned premiums and an increase in deferred policy acquisition costs were
partially offset by increases in policyholder reserves. The insurance companies
used $439.6 million of cash in investing activities, primarily to purchase fixed
maturity securities. Cash provided by insurance financing activities consisted
primarily of proceeds from policyholder deposits of $393.0 million.
The investment portfolio of the insurance companies included $24.3 million of
non-investment grade debt securities at October 31, 1993. These assets, stated
at their current market value, represented less than 1.0% of the $3.1 billion
market value of the total investment portfolio at year-end. The portfolio also
included real estate currently valued at $16.9 million, equal to approximately
0.5% of the total investment portfolio at October 31, 1993.
The portfolio of securities is diversified so that no particular issue is
individually material to the total investment portfolio. Under the current
investment policy of the insurance company, these securities generally will
be held to maturity. Therefore, the primary risk is default of the issuer rather
than liquidity risk associated with market volatility.
{Page 23}
PROFESSIONAL SERVICES
Founded in 1967, Drake Beam Morin (DBM) is the world's leading provider of
organizational and individual transition consulting. DBM operates a total of 151
offices - 67 domestic and 84 international - in 26 countries.
The professional services segment, which consists of the operations of Drake
Beam Morin (DBM), had substantially higher revenues and operating earnings
in fiscal 1993. Revenues grew 20.5% to $146.3 million from $121.4 million in
1992. Operating earnings were $28.4 million, an increase of 18.6% over the
previous year, continuing the company's very strong growth record.
As the world's leading human resources management consulting firm, DBM assists
organizations and individuals worldwide in employee selection, performance,
career management and transition management. DBM services a wide array of
clients including large and small corporations as well as private and
government organizations, providing consulting services to individuals
throughout all levels of the organization. DBM's services include both
individual executive counseling / placement programs and group programs. The
company has also expanded its services in recent years to include employee
training and consulting for organizations in the process of change. Drake Beam
Morin's performance improvement in 1993 was the result of substantial increases
in both group and individual executive program revenues stemming from a number
of major new corporate contracts. Operating earnings improved due to the volume
increase but were offset somewhat by higher personnel and operational costs
supporting the increased level of business.
In 1994, Drake Beam Morin will continue to expand its new training and
consulting line of business. In addition, the company plans to add eight
new domestic offices as well as new foreign offices in Canada and Mexico. Demand
for DBM's services should remain strong as business organizations, both
domestically and internationally, continue to restructure and downsize to
remain competitive.
{Page 25}
FINANCIAL REVIEW
FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements present the Company's
spinoff of its theatre operations to Harcourt General shareholders as a
discontinued operation, and the acquisition of Harcourt Brace & Company in
November 1991 is treated as a pooling-of-interests. It is also important
to note that The Neiman Marcus Group, Inc. (NMG) is not a wholly-owned
subsidiary of Harcourt General and that the insurance companies operate in a
regulated industry. Certain current and prior year amounts have been restated
to present the theatre division spinoff as well as the reporting of the
Company's professional services operation as a separate business segment which
previously had been included in publishing results.
GENERAL CINEMA THEATRES
On December 15, 1993, Harcourt General completed the spinoff of its General
Cinema Theatre operations along with $64.0 million in cash in a tax-free
distribution to Harcourt General shareholders. The newly created company, GC
Companies, Inc., will operate General Cinema Theatres and will pursue investment
and acquisition opportunities.
Under the plan of distribution, the Company transferred net theatre
assets totaling approximately $135.0 million, including $64.0 million in cash,
to GC Companies. The theatre business has been treated as a discontinued
operation in the accompanying consolidated statements of operations and cash
flows, and fiscal years 1992 and 1991 have been restated to reflect this
accounting treatment.
HARCOURT BRACE & COMPANY
On November 25, 1991, Harcourt General merged with Harcourt Brace & Company
(Harcourt Brace) in a business combination accounted for as a pooling-of-
interests. The merger was completed after Harcourt General acquired 90% of the
outstanding debentures of Harcourt Brace for $1.1 billion in cash and issued 2.9
million shares of Class B Stock and 2.4 million shares of Common Stock in
exchange for the outstanding Harcourt Brace common and preferred stocks.
The accompanying financial statements utilize pooling-of-interests
accounting and reflect the combined historical accounts of the two companies to
give retroactive effect to the merger. In fiscal 1992, the Company recorded the
purchase of the Harcourt Brace debt, which resulted in a net extraordinary
after-tax gain of $419.6 million, or $5.30 per share.
THE NEIMAN MARCUS GROUP, INC.
As of October 31, 1993, Harcourt General held approximately 65% of the
fully-converted equity in NMG. As a majority-owned subsidiary, NMG's financial
statements are consolidated with those of Harcourt General with a lag of one
quarter. Therefore, NMG's operating results for its fiscal year ended July 31,
1993 have been consolidated with the Company's operating results for its fiscal
year ended October 31, 1993.
NMG is a public company whose shares are listed on the New York Stock
Exchange. Harcourt General has no claim on NMG's assets and is not legally
responsible for its liabilities. The Company also has no access to NMG's
earnings or cash flow other than through the receipt of cash dividends paid by
NMG. The reverse is also true, and NMG has no claim on the Company's assets.
HARCOURT GENERAL INSURANCE
The Company's consolidated balance sheets include segregated balances for
the insurance company's assets and liabilities. This approach is taken because
substantially all insurance assets, including cash, are available to the
Company only through dividend distributions which are restricted by state
insurance regulations.
Under state insurance regulations, without prior regulatory approval,
the maximum dividend that the insurance company could have paid during the
calendar year ending December 31, 1993 was approximately $18.5 million. The
payment of dividends is also subject to other considerations, including the
maintenance of insurance industry credit ratings. The insurance company did not
distribute any dividends during the fiscal year ended October 31, 1993. In
December 1991, Harcourt General invested $20.0 million of capital to strengthen
the statutory capital surplus of the insurance company and secure improved
credit ratings.
{Page 26}
SEGMENT OPERATING RESULTS
The following table reflects revenues and operating earnings by business
segment.
<TABLE>
<CAPTION>
years ended October 31,
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Revenues:
Publishing $ 944,545 $ 865,336 $ 807,689
Specialty retailing 2,016,914 1,808,354 1,744,800
Insurance 548,030 464,606 464,726
Professional services 146,252 121,391 103,795
Total revenues $3,655,741 $3,259,687 $3,121,010
Operating earnings (loss):
Publishing $ 142,177 $ 124,503 ($ 73,792)
Specialty retailing 120,191 81,510 82,277
Insurance 70,871 42,798 (45,296)
Professional services 28,395 23,938 14,309
Corporate expenses (47,307) (41,876) (40,706)
Merger and restructuring charges (72,777)
Total operating earnings (loss) $ 314,327 $ 230,873 ($ 135,985)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The following discussion analyzes liquidity and capital resources by operating,
investing and financing activities as presented in the Company's consolidated
statements of cash flows. The discussion of liquidity and capital resources
for the insurance segment on page 22 appears separately because the assets,
liabilities and cash flows of the insurance company are restricted by statute.
Cash provided by continuing operating activities in 1993 was $255.2
million excluding adjustments for Harcourt General's insurance operations. The
publishing and professional services business segments generated positive cash
flows from operating activities while NMG's operating activities consumed $9.3
million of cash. The cash provided by the Company's operations was more than
sufficient to fund working capital, capital expenditure and dividend
requirements.
Since October 31, 1992, working capital increased $163.7 million. The
most significant items affecting working capital were increases in accounts
receivable of $105.1 million and in inventories of $59.4 million, which were
partially offset by a $46.3 million increase in current liabilities. These
significant changes in working capital were mainly due to increased inventory
requirements at NMG for new stores and transaction volume and higher accounts
receivable balances resulting from a modification of credit terms offered to
customers. Higher accounts receivable and inventory balances in the Company's
other business segments also contributed to the increase in working capital.
The $20.8 million gain in 1993 resulting from NMG's settlement of
certain legal and tax issues with Carter Hawley Hale Stores, Inc. (CHH) did not
result in a cash inflow to NMG. The settlement required a cash payment by NMG to
CHH of $7.7 million.
Cash flows used by investing activities excluding insurance operations
were $244.9 million. The Company's investing activities in 1993 included
capital expenditures for continuing operations totaling $159.9 million; $19.0
million of theatre division capital expenditures; and $64.0 million of cash
transferred to the theatre division as part of the spinoff of that operation.
Publishing capital expenditures in 1993 totaled $92.9 million and were
related principally to expenditures for prepublication costs including plate
expenditures. Capital investment in the publishing business is expected to
approximate $140.0 million in fiscal 1994.
Specialty retailing capital expenditures in 1993 totaled $56.3 million
and were primarily related to store renovation and expansion projects. Capital
expenditures for NMG in 1994 are expected to approximate $90.0 million. Future
expansion plans include the opening of four new Neiman Marcus stores - one in
calendar 1995 and two in calendar 1996, with a fourth store to follow. Five
Neiman Marcus stores will undergo remodeling in 1994. In addition, NMG has
initiated a major expansion of its mail order fulfillment facility, which is
expected to be completed in 1994.
As a result of the spinoff of the theatre division, Harcourt General
will no longer have access to the cash flow of that business. In addition, the
distribution reduced the Company's cash balances by $64.0 million and will
reduce future investment income accordingly. Harcourt General will remain
secondarily liable for certain lease obligations that were transferred to and
assumed by GC Companies in connection with the spinoff.
Financing activities primarily reflect additional borrowings of $77.2
million under NMG's revolving credit agreements as well as $44.0 million of
dividend payments. On October 31, 1993, the Company's consolidated long-term
debt totaled $1.1 billion. That amount includes $449.4 million of NMG debt,
which is not guaranteed by Harcourt General. At year-end the Company's
consolidated ratio of long-term debt to equity was 1.04 to 1. Excluding NMG's
debt, the Company's debt to equity ratio was .61 to 1.
On December 16, 1993, the Company replaced its existing revolving
credit agreements with a new revolving credit agreement with 13 banks, pursuant
to which the Company may borrow up to $400.0 million. The new revolving credit
agreement expires on December 16, 1996. The Company also has uncommitted
borrowing capacity with three banks totaling $75.0 million. With the exception
of amounts outstanding under NMG's credit facilities, there were no committed
or uncommitted borrowings outstanding at October 31, 1993.
{Page 27}
At July 31, 1993, NMG had available $95.0 million under its revolving
credit agreements. Effective August 1, 1993, NMG entered into additional
revolving credit agreements with four banks under which NMG may borrow up to
$25.0 million from each financial institution. These agreements expire on July
30, 1994. At July 31, 1993, there were $17.2 million of uncommitted borrowings
that are now outstanding under these new revolving credit agreements. NMG's
$10.0 million par value 9.83% Senior Notes are due in May 1994.
In addition to its funded debt, the Company has significant lease
commitments which require cash outflows. Lease payments from continuing
operations totaled $111.0 million in 1993, and minimum lease payments are
expected to approximate $87.7 million in 1994. The Company believes its cash
position, together with funds provided by operations and available revolving
credit, is more than sufficient to meet its foreseeable cash requirements.
SEASONALITY
The Company's businesses are seasonal in nature. Approximately one-half of
operating earnings are expected to be generated in the third quarter of the
Company's fiscal year since that quarter includes the important educational
publishing selling season. Conversely, second quarter operating earnings are
expected to be minimal during a period when publishing sales are at their lowest
level and that business segment typically reports operating losses. Those losses
partially offset retail earnings, which are at their highest point since the
Company's second quarter includes NMG's holiday selling season.
IMPACT OF INFLATION
The Company's financial statements are prepared on a historical cost basis
under generally accepted accounting principles. The Company uses the
last-in-first-out (LIFO) method of accounting for substantially all domestic
publishing inventories and for approximately 75% of its retail inventories, or
about 80% of the consolidated inventory reported in its financial statements.
Thus, the cost of goods sold approximates current cost.
The Company adjusts selling prices to maintain profit levels and will
continue to do so as competitive conditions permit. In general, management
believes that the impact of inflation or of changing prices is not material to
the results of operations in its business segments.
DIVIDENDS
The Company has a long-standing policy of returning a portion of its earnings
and cash flow to shareholders through the payment of cash dividends. In
September 1993, the Board of Directors voted to increase the quarterly cash
dividend on the Common Stock to 15 cents per share. The Board also increased
the quarterly cash dividend on the Series A Stock to 15.75 cents per share and
on the Class B Stock to 13.5 cents per share. The Series A Stock dividend has
been adjusted, effective with the January 1994 payment, to 17.25 cents per
share as a result of the spinoff of GC Companies. This is the 25th consecutive
year in which cash dividends have been increased.
OPERATING RESULTS 1993 vs. 1992
Net earnings applicable to common shareholders were $171.3 million in 1993, or
$2.15 per share, compared to net earnings of $494.5 million, or $6.25 per
share, in 1992. The 1993 net earnings include earnings of $5.8 million from the
theatre division; capital gains of $17.5 from the insurance division; and other
income of $12.2 from NMG s settlement of legal and tax issues with Carter
Hawley Hale Stores, Inc. The 1992 results have been restated to reflect the
theatre division as a discontinued operation and include an after-tax gain on
the retirement of Harcourt Brace debt of $419.6 million, or $5.30 per share,
and an after-tax charge of $36.0 million, or $0.45 per share, relating to the
adoption of Statement of Financial Accounting Standards No. 106 "Employer's
Accounting for Postretirement Benefits Other Than Pensions" (FAS 106).
PUBLISHING
Publishing revenues increased 9.2% to $944.5 million in 1993, primarily the
result of strong sales of new elementary and secondary textbooks. These
increases were partially offset by the absence of $18.6 million in revenues
generated in 1992 by the Company's Weber Costello subsidiary, which was sold in
August 1992.
Operating earnings in 1993 were $142.2 million compared to $124.5
million in 1992, an increase of 14.2%. The increase is attributable to
incremental textbook revenues offset by the impact of increased operating
expenses associated with the higher sales activity.
SPECIALTY RETAILING
Total revenues from specialty retailing increased 11.5% to $2.02 billion from
$1.81 billion in fiscal 1992, benefiting from a new Neiman Marcus store in
Troy, Michigan; 52 weeks of revenues from the Neiman Marcus store in
Scottsdale, Arizona in 1993 compared to 42 weeks in 1992; 10 incremental
Contempo Casuals stores; and 31 incremental Pastille stores. Comparable
revenues for NMG increased 6.6%.
Operating earnings from specialty retailing were $120.2 million in 1993, a
47.5% increase from $81.5 million in 1992. The earnings increase reflects higher
transaction volume and improved gross margins at the Neiman Marcus Division and
Bergdorf Goodman partially offset by an operating loss at Contempo Casuals.
{Page 28}
INSURANCE
Insurance revenues increased 18.0% to $548.0 million in 1993 primarily due to
higher premiums and investment income generated from both structured and
deferred annuities. The stronger sales resulted from the restoration of the
A.M. Best A+ / Superior rating at Federal Home Life Insurance Company. In
addition, capital gains increased $25.1 million due primarily to calls on
corporate debt securities held in the insurance portfolio.
Operating earnings were $70.9 million in 1993 compared to $42.8 million in
1992, a 65.6% increase. The improvement was due primarily to the higher capital
gains and favorable margins partially offset by a $4.6 million charge associated
with the sale of a block of major medical business.
PROFESSIONAL SERVICES
Revenues from the professional services segment increased 20.5% in 1993 to
$146.3 million from $121.4 million in 1992, benefiting from increased
corporate downsizing and restructuring activities.
Operating earnings for the professional services segment were $28.4
million in 1993 compared with $23.9 million in 1992. The improvement was
primarily due to increased revenues partially offset by higher labor costs.
CORPORATE EXPENSES
Corporate expenses increased $5.4 million to $47.3 million in 1993, primarily
due to higher employee and director benefit costs, professional fees and
other corporate activities.
INVESTMENT INCOME
Investment income declined $9.2 million to $14.1 million in 1993, primarily due
to lower interest rates and a lower average portfolio balance. The 1992
portfolio included $1.3 billion of cash for a 25-day period prior to the merger
with Harcourt Brace. Interest earned on the insurance company's portfolio is
included in insurance operating revenues.
INTEREST EXPENSE
Interest expense decreased $0.9 million to $84.6 million in 1993. A higher level
of NMG debt was more than offset by lower interest rates on NMG borrowings.
OTHER INCOME AND EXPENSE
Other income in 1993 includes a $20.8 million pre-tax gain from the reduction in
the level of NMG's estimated liabilities due to the settlement of various legal
and tax issues with Carter Hawley Hale Stores. Other income in 1992 reflects an
$11.6 million gain on the exchange of Cadbury Schweppes stock for subordinated
debentures of the Company.
INCOME TAXES
The effective income tax rate was 36.9% in 1993 compared to 39.0% in 1992. The
lower 1993 rate reflects lower state and foreign tax expenses.
DISCONTINUED OPERATIONS
Discontinued operations include after-tax earnings of the theatre division
amounting to $10.5 million in 1993 and $6.2 million in 1992. The $4.7 million
after-tax charge in 1993 reflects one-time expenses associated with the spinoff
of the theatre business. The after-tax charge of $3.2 million in 1992
represents the theatre division's portion of the cumulative effect of a change
in accounting for postretirement health care benefits.
OPERATING RESULTS 1992 vs. 1991
Net earnings in 1992 were $494.5 million, or $6.25 per share. These results
include an extraordinary after-tax gain on the retirement of Harcourt Brace debt
of $419.6 million, or $5.30 per share, and an after-tax charge of $36.0 million,
or $0.45 per share, relating to the adoption of FAS 106. Results have been
restated to reflect as discontinued operations the after-tax earnings related to
the theatre business of $3.0 million, or $.04 per share. The net loss for 1991
was $293.1 million, and the net loss applicable to common shareholders after the
payment of dividends on Harcourt Brace's preferred stock (which was eliminated
pursuant to the merger) was $305.8 million, or a loss of $3.88 per share. The
1991 net loss includes fourth quarter pre-tax charges of $338.5 million related
to the publishing and insurance segments. The 1991 operating results have also
been restated to reflect as discontinued operations after-tax earnings of $4.8
million, or $0.06 per share, related to the theatre business.
PUBLISHING
Publishing revenues in 1992 were $865.3 million, a 7.1% increase from fiscal
1991. While substantially all publishing business units had higher 1992
revenues as compared to 1991, significant increases were achieved in medical
publishing and testing products. Growth in medical publishing revenues
reflects higher frontlist sales of medical clinical and medical textbook
products. Gains in testing products over the prior year were primarily due to
the introduction in 1992 of a revised version of the Wechsler Intelligence
Scale for Children.
The publishing segment had operating earnings of $124.5 million in 1992
compared to a loss of $73.8 million in 1991. Substantially all publishing
units had higher operating earnings in 1992 compared to 1991. Fiscal 1992
benefited from a lower level of intangible and plate amortization and from
additional sales of testing products and medical books. The 1991 loss was
primarily due to pre-tax charges of $168.5 million related to the Harcourt
Brace merger and subsequent restructuring of the business. These charges
included shortening the lives of certain tangible and intangible assets;
write-downs of inventory and plate development costs associated with reduced
expectations of sales of certain products; and the recognition of shorter
revision cycles in the college market.
{Page 29}
SPECIALTY RETAILING
Total revenues from specialty retailing increased 3.6% in 1992 over 1991 while
consolidated NMG comparable sales declined 0.4%. Sales increases resulted from
a comparable revenue increase of 1.6% at the Neiman Marcus Division, which
includes the Neiman Marcus Stores and NM Direct, and from the opening of new
Neiman Marcus stores in Minneapolis (August 1991) and Scottsdale (October 1991);
17 incremental Contempo Casuals stores; and 7 new Pastille stores. Partially
offsetting these increases was a 13.0% decline in comparable store sales at
Contempo Casuals.
Operating earnings from specialty retailing were $81.5 million in 1992
compared to $82.3 million in 1991. The decline was primarily due to higher
markdowns needed to maintain inventory currency at Contempo Casuals and higher
occupancy costs associated with increased investment spending on store building
and renovation.
INSURANCE
Insurance revenues in 1992 were at compared to 1991. Investment income was
$198.1 million in 1992 and $160.4 million in 1991. The 1991 amount was reduced
by $42.0 million of charges for portfolio valuation reserves recorded as
capital losses. Premiums earned were $266.5 million in 1992 and $304.3 million
in 1991. Premium income declined primarily due to a reduction in structured
annuity sales, which were adversely affected during the period when the Federal
Home Life subsidiary temporarily lost its A.M. Best A+/Superior rating.
Operating earnings from Harcourt General Insurance were $42.8 million
in 1992 compared to a loss of $45.3 million in 1991. Fiscal 1992 benefited
from lower accident and health loss ratios and increased margins on deferred
annuity contracts as a result of falling interest rates. The 1991 loss included
additions to portfolio reserves and other charges totaling $89.0 million.
PROFESSIONAL SERVICES
Revenues from the professional services segment increased 17.0% to $121.4
million from $103.8 million in 1991, benefiting from increased activity in the
Company s group and executive programs.
Operating earnings for the professional services segment were $23.9 million
in 1992 compared with $14.3 million in 1991. The improvement in 1992 was
primarily due to increased revenues partially offset by higher operating
expenses.
CORPORATE EXPENSES
Corporate expenses increased $1.2 million to $41.9 million in 1992, primarily
due to additional costs related to relocation, higher executive compensation
costs and increases in professional fees at NMG. Corporate expenses in 1991
included $8.2 million of charges incurred in connection with the Harcourt Brace
merger.
DISCONTINUED OPERATIONS
Discontinued operations include after-tax operating earnings of the theatre
division amounting to $6.2 million in 1992 and $4.8 million in 1991. The
after-tax charge of $3.2 million in 1992 represents the theatre division's
portion of the cumulative effect of a change in accounting for postretirement
health care benefits.
MERGER AND RESTRUCTURING CHARGES
The 1991 charge of $72.8 million reflects $15.3 million of costs associated
with the Harcourt Brace merger; $18.9 million of costs associated with the
discontinuance of the Harcourt Brace ESOP; and $38.6 million of costs
reflecting management's decision to consolidate certain facilities.
INVESTMENT INCOME
Investment income declined $105.3 million to $23.2 million in 1992, primarily
due to the use of approximately $1.3 billion of the investment portfolio to
purchase the debt of Harcourt Brace. The $1.3 billion earned approximately
$88.4 million of income in fiscal 1991. Additionally, in fiscal 1992 the
short-term investment portfolio earned a lower rate of return than in 1991 due
to declining interest rates.
INTEREST EXPENSE
Interest expense decreased $262.8 million to $85.4 million in 1992, primarily
due to the elimination in consolidation of the $1.8 billion of Harcourt
Brace debt acquired by the Company. This debt incurred $249.5 million of
interest expense in fiscal 1991. Interest expense was also reduced as a result
of lower interest rates on NMG borrowings under its revolving credit facility.
OTHER INCOME AND EXPENSE
Other income in 1992 includes an $11.6 million gain on the exchange of Cadbury
Schweppes stock for subordinated debentures of the Company. Other expense in
1991 includes a $17.3 million charge related to the guarantee by NMG of certain
Carter Hawley Hale Stores employee benefits partially offset by a gain of $5.4
million from the sale of other assets.
INCOME TAXES
The effective income tax rate of 39.0% was significantly higher than the income
tax benefit rate of 19.7% recognized in 1991. The lower 1991 rate reflected
foreign tax expenses and a limitation on available net operating
loss carrybacks.
[page 30]
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
October 31 1993 1992
(In thousands)
<S> <C> <C>
Assets
CURRENT ASSETS
Cash and equivalents $ 466,925 $ 430,728
Accounts receivable-trade, net 493,384 388,333
Inventories 470,525 411,093
Other current assets 73,111 63,806
Total current assets 1,503,945 1,293,960
PROPERTY AND EQUIPMENT
Land, buildings and improvements 494,438 683,081
Fixtures and equipment 301,941 470,080
796,379 1,153,161
Less accumulated depreciation and amortization 279,838 445,678
Total property and equipment, net 516,541 707,483
OTHER ASSETS
Prepublication costs, net 137,959 144,088
Intangible assets 400,028 415,072
Other 111,601 115,359
Total other assets 649,588 674,519
NET ASSETS OF DISCONTINUED THEATRE OPERATIONS 135,804 -
INSURANCE ASSETS
Fixed maturity securities, at amortized cost
(market value $2,915,850 and $2,371,124) 2,665,378 2,226,486
Commercial paper 105,764 62,945
Other investments and cash 45,987 72,167
Premiums, accounts, and investment
income receivable 70,965 61,315
Deferred policy acquisition costs 155,534 138,725
Other assets 127,320 108,070
Total insurance assets 3,170,948 2,669,708
$5,976,826 $5,345,670
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
[page 31]
<TABLE>
<CAPTION>
October 31 1993 1992
(In thousands)
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Notes payable and current maturities
of long-term liabilities $ 64,904 $ 18,369
Accounts payable 283,693 258,936
Accrued liabilities 358,636 381,382
Taxes payable 35,322 28,179
Other current liabilities 49,331 58,765
Total current liabilities 791,886 745,631
LONG-TERM LIABILITIES
Notes and debentures 923,618 902,295
Other long-term liabilities 167,031 183,758
Total long-term liabilities 1,090,649 1,086,053
DEFERRED INCOME TAXES 200,088 205,600
INSURANCE LIABILITIES
Policyholder reserves and deposits 2,450,023 2,022,281
Unearned premiums 175,937 165,060
Policy and contract claims 123,621 111,118
Other insurance liabilities 93,044 85,486
Total insurance liabilities 2,842,625 2,383,945
Commitments and contingencies - -
SHAREHOLDERS EQUITY
PREFERRED STOCK:
Series A Cumulative Convertible - $1.00 par value
Authorized - 40,000 shares
Issued and outstanding - 1,996
and 2,890 shares 1,996 2,890
COMMON STOCKS:
Class B Stock - $1.00 par value
Authorized 40,000 shares
Issued and outstanding - 21,934
and 21,951 shares 21,934 21,951
Common Stock - $1.00 par value
Authorized - 100,000 shares
Issued and outstanding - 55,373
and 54,341 shares 55,373 54,341
Paid-in capital 861,928 860,133
Cumulative translation adjustments (5,524) (3,409)
Retained earnings (deficit) 115,871 (11,465)
Total shareholders equity 1,051,578 924,441
$5,976,826 $5,345,670
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
[page 32]
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Years ended October 31 1993 1992 1991
(In thousands except for per share amounts)
<S> <C> <C> <C>
Revenues $3,655,741 $3,259,687 $3,121,010
Costs applicable to revenues 2,209,470 1,946,258 1,969,972
Selling, general and administrative expenses 1,084,637 1,040,680 1,173,540
Corporate expenses 47,307 41,876 40,706
Merger and restructuring charges - - 72,777
Operating earnings (loss) 314,327 230,873 (135,985)
Investment income 14,072 23,239 128,533
Interest expense (84,585) (85,442) (348,260)
Other income (expense), net 18,303 8,341 (15,171)
Earnings (loss) from continuing operations
before income taxes, extraordinary gain
and cumulative effect of accounting change 262,117 177,011 (370,883)
Income tax (expense) benefit (96,627) (69,084) 72,926
Earnings (loss) from continuing operations
before extraordinary gain and cumulative
effect of accounting change 165,490 107,927 (297,957)
Discontinued theatre operations:
Earnings from theatre operations, net of
income taxes of $6,958, $3,863
and $3,024 10,503 6,172 4,835
Spinoff transaction expenses in 1993 and
charge for cumulative effect of
change in accounting for postretirement
health care benefits in 1992, net (4,660) (3,182) -
Earnings from discontinued theatre operations 5,843 2,990 4,835
Earnings (loss) before extraordinary gain and
cumulative effect of accounting change 171,333 110,917 (293,122)
Extraordinary gain on elimination of debt, net - 419,557 -
Charge for cumulative effect of change in
accounting for postretirement health care
benefits, net - (36,014) -
Net earnings (loss) 171,333 494,460 (293,122)
Dividends on Harcourt Brace preferred stock 12,684
Net earnings (loss) applicable to
common shareholders $ 171,333 $ 494,460 ($305,806)
Amounts applicable to common shareholders:
Earnings (loss) from continuing operations
before extraordinary gain and cumulative
effect of accounting change $ 2.08 $ 1.36 ($3.94)
Earnings from discontinued theatre
operations, net .07 .04 .06
Extraordinary gain, net - 5.30 -
Cumulative effect of accounting change, net - (.45) -
Net earnings (loss) $ 2.15 $ 6.25 ($3.88)
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
[page 33]
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
Years ended October 31 1993 1992 1991
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings (loss) from continuing operations $165,490 $107,927 ($297,957)
Adjustments to reconcile earnings (loss)
to net cash provided by continuing operations:
Depreciation and amortization 169,254 153,417 293,776
Other income (20,755) - -
Deferred income taxes 13,145 (1,943) 3,031
Non-cash interest 1,873 7,434 128,096
Gain on sales of long-term assets - (11,633) (1,098)
Merger and restructuring charges - - 72,777
Other 16,797 10,130 24,567
Changes in assets and liabilities:
Accounts receivable (105,218) (66,894) 15,436
Inventories (61,870) 3,486 9,214
Other current assets (11,746) (11,541) (9,870)
Accounts payable and accrued liabilities 88,246 38,686 (110,258)
255,216 229,069 127,714
Insurance operating activities 1,431 (24,227) 55,069
Discontinued theatre operations 43,687 32,295 23,602
Net cash provided by operating activities 300,334 237,137 206,385
CASH FLOWS FROM INVESTING ACTIVITIES
Theatre capital expenditures (18,984) (13,476) (5,606)
Spinoff cash transfer (64,000) - -
Capital expenditures (159,860) (185,997) (164,917)
Other investing activities (2,057) (10,650) (12,669)
(244,901) (210,123) (183,192)
Insurance investing activities (439,558) (284,391) (303,607)
Net cash used by investing activities (684,459) (494,514) (486,799)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash used to purchase Harcourt Brace debt - (1,369,473) -
Issuance of debt 77,200 369,330 194,400
Repayment of debt (6,500) (150,000) (157,839)
Dividends paid (43,997) (40,826) (35,096)
Equity transactions, net 632 4,546 (3,210)
27,335 (1,186,423) (1,745)
Proceeds from policyholder deposits 392,987 255,560 264,942
Net cash provided (used) by
financing activities 420,322 (930,863) 263,197
CASH AND EQUIVALENTS
Increase (decrease) during the year 36,197 (1,188,240) (17,217)
Beginning balance 430,728 1,618,968 1,636,185
Ending balance $466,925 $430,728 $1,618,968
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 82,280 $109,944 $ 232,856
Income taxes $ 84,087 $ 59,192 $ 64,350
Non-cash items:
Extraordinary gain, net - $419,557 -
Cumulative effect of accounting change, net - ($36,014) -
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
[page 34]
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Common Series A Cumulative Retained
Years ended October 31, Stocks, $1 Stock, $1 Paid-in Translation Earnings
1993, 1992 and 1991 Par Value Par Value Capital Adjustments (Deficit)
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at October 31, 1990 $74,868 $4,079 $846,517 $5,836 ($141,713)
Net loss (293,122)
Cash dividends paid, Harcourt General (35,096)
Preferred dividends, Harcourt Brace 9,851 (9,851)
Conversion of Series A Stock 226 (226)
Translation adjustments (1,238)
Adjustment to conform
fiscal year of Harcourt Brace 14,683
Other equity transactions, net 66 2 (2,128)
Balance at October 31, 1991 75,160 3,855 854,240 4,598 (465,099)
Net earnings 494,460
Cash dividends paid, Harcourt General (40,826)
Conversion of Series A Stock 965 (965)
Translation adjustments (8,007)
Other equity transactions, net 167 5,893
Balance at October 31, 1992 76,292 2,890 860,133 (3,409) (11,465)
Net earnings 171,333
Cash dividends paid, Harcourt General (43,997)
Conversion of Series A Stock 894 (894)
Translation adjustments (2,115)
Other equity transactions, net 121 1,795
Balance at October 31, 1993 $77,307 $1,996 $861,928 ($5,524) $115,871
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
[page 35]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended October 31, 1993, 1992 and 1991
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Harcourt General,
Inc. (the Company or Harcourt General) and its majority-owned subsidiaries.
The consolidated financial statements of The Neiman Marcus Group, Inc. (NMG)
are consolidated with a lag of one fiscal quarter. The assets of Harcourt
General Insurance are restricted to the insurance subsidiary by statute and are
unavailable for use by the Company except through dividend distributions (see
Note 7). All significant intercompany accounts and transactions have been
eliminated.
Cash and Equivalents
Cash and equivalents consist of cash and liquid debt instruments such as
commercial paper and certificates of deposit with maturities of three months
or less from the date of purchase. Cash and equivalents are stated at cost plus
accrued interest, which approximates market value. The Company's practice of
investing cash only with financial institutions that have acceptable credit
ratings limits the amount of credit exposure to any one financial institution.
Accounts Receivable
Certain publishing products are sold to customers with a right of return.
Revenues from such sales represent gross sales less a provision for
future returns. Returned goods included in inventory are valued at estimated
realizable value not exceeding cost.
Accounts receivable are reported net of both the allowance for book
returns of $49.7 million in 1993 and $45.6 million in 1992 and the allowance for
doubtful accounts of $20.4 million in 1993 and $12.8 million in 1992.
Inventories
Inventories are stated at the lower of cost or market.
All domestic publishing inventories are valued using the last-in-first-out
(LIFO) method. Approximately seventy-five percent of retail inventories are
valued using the retail method on a LIFO basis. The remaining retail inventories
are valued using the retail or cost method on a first-in-first-out (FIFO)
basis.
If the FIFO method of inventory valuation had been used to value
inventory, the inventories would have been $22.2 million and $25.9 million
higher than reported at October 31, 1993 and October 31, 1992, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
provided using straight-line or accelerated methods over the estimated useful
lives of the related assets or over the terms of the related leases, if shorter.
Prepublication Costs
Prepublication costs are amortized using the sum-of-the-years-digits method over
the estimated useful lives not exceeding five years.
Intangible Assets
Intangible assets represent trademarks and goodwill. Amortization is provided on
a straight-line method over the estimated useful lives of these assets not
exceeding forty years.
Income Taxes
Income taxes are calculated in accordance with Accounting Principles Board
Opinion No. 11. The Company accounts for certain revenue and expense items
differently for financial reporting purposes than for income tax purposes.
Deferred taxes are provided in recognition of these differences.
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, which mandates a change in the method of accounting for income taxes.
The Company will adopt this new standard during the first quarter of fiscal 1994
and has determined that its effect on the Company's financial position or
results of continuing operations will not be material.
Receivables and Finance Charge Income
NMG extends credit to its retail customers. NMG's retail credit operations
produce finance charge income which is treated as a reduction of selling,
general and administrative expenses. Finance charge income amounted to $36.3
million in 1993, $28.3 million in 1992 and $27.7 million in 1991. Credit risk
with respect to trade receivables is limited due to the large number of
customers to whom the Company extends credit. Ongoing credit evaluation of
customers' financial position is performed, and collateral is not required as a
condition of extending credit. The Company maintains reserves for potential
credit losses.
Earnings (Loss) Per Common and Common Equivalent Share
Earnings (loss) per common share is based upon the weighted average number of
common and, when dilutive, common equivalent shares outstanding during
the year. Weighted average shares outstanding amounted to 79.6 million shares in
1993, 79.1 million shares in 1992 and 78.9 million shares in 1991.
Earnings (loss) per common and common equivalent share, assuming full
dilution, have not been presented because the dilutive effect is not material.
[page 36]
Statement of Financial Accounting Standards No. 115
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments
in Debt and Equity Securities (FAS 115). FAS 115 revises the accounting and
reporting for all investments in debt securities and for investments in equity
securities that have determinable fair values. The Company is required to adopt
FAS 115 no later than fiscal 1995 and has not yet determined its impact on the
Company's continuing operations or financial position.
Changes in Presentation
Certain prior year amounts have been restated to conform to the current year
presentation and to reflect the spinoff of the theatre operations.
2. DISCONTINUED OPERATIONS
On December 15, 1993, the Company completed the spinoff of its theatre
operations in a tax-free distribution to its shareholders. The newly created
company is named GC Companies, Inc. (GCC). Under the plan of distribution, the
Company transferred to GCC approximately $135.0 million of net theatre assets
including $64.0 million in cash. Each common shareholder of the Company received
one share of Common Stock in GCC for every ten shares of Harcourt General Common
and Class B shares held on December 10, 1993, which was the record date for the
distribution. In connection with the distribution, GCC and Harcourt General have
entered into various agreements which govern their ongoing relationship,
including a Distribution Agreement; a Reimbursement and Security Agreement; an
Intercompany Services Agreement; an Information Services Agreement; a Tax
Agreement; and certain subleases. The consolidated statements of operations and
cash flows have been restated to reflect the theatre business as a discontinued
operation. Revenues applicable to discontinued operations were $495.0 million in
1993, $457.2 million in 1992 and $466.8 million in 1991.
Under the Reimbursement and Security Agreement, GCC has granted to
Harcourt General a security interest in the stock of its theatre subsidiaries
in order to secure GCC's obligation to indemnify Harcourt General from losses
Harcourt General may incur due to its secondary liability on theatre leases
which were transferred to GCC as part of the spinoff. In addition, GCC has
agreed to certain financial covenants designed to protect Harcourt General from
incurring such liabilities.
Prior to the distribution, GCC's employees participated in a
noncontributory defined benefit pension plan covering substantially all
full-time employees of Harcourt General. The projected benefit obligation
for GCC plan participants was estimated to be $15.8 million and $13.2 million
at October 31, 1993 and 1992, respectively. Following the distribution,
certain assets with a value in excess of the projected benefit obligation
will be transferred from Harcourt General's defined benefit pension plan to a
new plan for GCC participants.
GCC employees may, at their election, exercise all Harcourt General
stock options which were vested on December 15, 1993 or convert such vested
stock options into options to purchase shares of GCC Common Stock. All
non-vested Harcourt General options held by GCC employees at December 15, 1993
will automatically be converted into GCC stock options based upon a formula. At
October 31, 1993, there were 144,694 vested and 71,790 non-vested Harcourt
General stock options held by GCC employees.
Under the Intercompany Services Agreement, Harcourt General provides
certain management, accounting, financial, legal, tax and other corporate
services to GCC. The fees for these services are based on Harcourt General's
costs and are subject to the approval of a committee of directors of GCC who are
not affiliated with Harcourt General. After October 31, 1994, this agreement may
be terminated on 90 days notice. The Company's Chairman of the Board serves
as the Chairman, President and Chief Executive officer of GCC, and the Company's
Chief Executive Officer and President serves as a director of GCC.
3. MERGER WITH HARCOURT BRACE & COMPANY
Harcourt Brace & Company (Harcourt Brace) was acquired on November 25, 1991
through an exchange of stock and the purchase of approximately $1.7 billion
of certain Harcourt Brace indebtedness for approximately $1.1 billion in cash.
This acquisition was accounted for as a pooling-of-interests. Subsequent to
the acquisition, all remaining Harcourt Brace indebtedness was purchased from
bondholders for approximately $188.0 million in cash. In the aggregate, these
purchases resulted in a net extraordinary gain on a consolidated basis of
$419.6 million, net of $175.0 million of costs associated with the acquisition
of the debt including transaction fees, redemption premiums, other direct costs
and taxes.
During 1991 the Company earned $88.4 million of income on the $1.3
billion it used to acquire Harcourt Brace debt, and Harcourt Brace incurred
$249.5 million of interest expense on the debt acquired by the Company. Both of
these amounts are included in the statement of operations for the year ended
October 31, 1991. The financial statements for the year ended October 31, 1991
also reflect dividends paid on Harcourt Brace's preferred stock.
Prior to the acquisition, Harcourt Brace's fiscal year ended December
31. In 1991 Harcourt Brace's fiscal year-end was changed to October 31 to
conform to the Company's fiscal year. As a result of this change, the
[page 37]
$14.7 million net loss incurred by Harcourt Brace during the period from
November 1, 1990 to December 31, 1990 has been eliminated from retained
earnings at October 31, 1991.
In the fourth quarter of 1991, Harcourt General and Harcourt Brace
recorded costs directly and indirectly associated with the merger, together
with other charges to current operating results, totaling $338.5 million before
taxes. Merger and restructuring charges ($72.8 million) included merger costs;
costs associated with the discontinuance of the Harcourt Brace ESOP; and a
provision to consolidate certain facilities and relocate certain functions and
businesses. Other charges ($265.7 million) included increased amortization to
reflect the shortened estimated useful lives of both tangible and intangible
assets; recognition of a decline in the market value of certain insurance
portfolio holdings; the write-off of certain deferred insurance policy
acquisition costs; the write-down of inventory, plate, development costs and
royalty advances associated with reduced expectations of sales for certain
products; and various other charges.
4. DESCRIPTION OF CONTINUING OPERATIONS
Publishing
Harcourt Brace publishes textbooks and other materials for elementary and
secondary schools and colleges, as well as scientific, technical and medical
books and journals, fiction, non-fiction and children s books. It publishes and
scores tests that measure individual aptitude and competency and also conducts
bar examination review and accounting accreditation review courses.
Specialty Retailing
NMG operates three specialty retailing store businesses: Neiman Marcus,
Bergdorf Goodman and Contempo Casuals (which includes Pastille). Neiman Marcus
operates 27 stores in 14 states and the District of Columbia. Bergdorf Goodman
operates two stores in New York City, and Contempo Casuals and Pastille
operate 329 stores in 37 states and Puerto Rico. In addition, all three
specialty retailers operate mail order businesses through NM Direct.
Insurance
Harcourt General Insurance underwrites and acts as agents of individual
accident, life, health and credit insurance policies and sells annuity
products. On a combined basis, the life and health operations provide insurance
coverage in all 50 states.
Professional Services
Drake Beam Morin (DBM) provides human resources management consulting services
such as career transition, outplacement and other consulting services.
<TABLE>
<CAPTION>
Additional Financial Information
Years ended October 31,
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
REVENUES:
Publishing $944,545 $865,336 $807,689
Specialty retailing 2,016,914 1,808,354 1,744,800
Insurance 548,030 464,606 464,726
Professional services 146,252 121,391 103,795
Total revenues $3,655,741 $3,259,687 $3,121,010
OPERATING EARNINGS (LOSS):
Publishing $142,177 $124,503 $(73,792)
Specialty retailing 120,191 81,510 82,277
Insurance 70,871 42,798 (45,296)
Professional services 28,395 23,938 14,309
Corporate expenses (47,307) (41,876) (40,706)
Merger and restructuring
charges - - (72,777)
Total operating
earnings (loss) $314,327 $230,873 $(135,985)
IDENTIFIABLE ASSETS:
Publishing $739,746 $811,614 $843,945
Specialty retailing 1,362,657 1,221,693 1,156,453
Insurance 3,170,948 2,669,708 2,300,018
Professional services 55,973 46,587 37,376
Corporate 511,698 382,714 1,642,450
Total identifiable assets $5,841,022 $5,132,316 $5,980,242
Capital expenditures:
Publishing $92,864 $106,491 $ 64,221
Specialty retailing 56,325 73,933 96,787
Insurance 2,556 465 900
Professional services 4,813 2,892 3,849
Corporate 5,858 2,681 60
Total capital expenditures $162,416 $186,462 $ 165,817
DEPRECIATION AND AMORTIZATION:
Publishing $104,603 $91,403 $ 244,660
Specialty retailing 59,025 57,376 45,500
Insurance 2,178 975 1,919
Professional services 3,036 2,205 1,782
Corporate 2,590 2,433 1,834
Total depreciation and
amortization $171,432 $154,392 $ 295,695
</TABLE>
<TABLE>
<CAPTION>
5. INTANGIBLE ASSETS
Intangible assets consisted of the following at October 31:
(In thousands) 1993 1992
<S> <C> <C>
Goodwill $ 394,452 $ 395,369
Trademarks 73,000 73,000
Other 17,205 17,110
Total 484,657 485,479
Accumulated amortization (84,629) (70,407)
Total $ 400,028 $415,072
</TABLE>
Amortization expense was $14.4 million in 1993, $14.3 million in 1992 and
$151.6 million in 1991.
[page 38]
6. THE NEIMAN MARCUS GROUP, INC.
The Company owns 21.4 million shares of NMG Common Stock and all of the
outstanding shares of both the NMG 9 1/4% Cumulative Redeemable Preferred
Stock (9 1/4% Preferred Stock) and 6% Cumulative Convertible Preferred Stock (6%
Preferred Stock). On a fully-converted basis the shares presently owned by the
Company represent approximately sixty-five percent of the voting power and
equity of NMG.
The 6% Preferred Stock is entitled to vote on all matters and is
convertible on a per share basis into approximately 8.99 shares of NMG Common
Stock subject to certain antidilution adjustments. The conversion price for the
6% Preferred Stock at October 31, 1993 was approximately $41.70 per share of
Common Stock acquired on such conversion, which was substantially above the
market price of NMG Common Stock on October 31, 1993.
The earnings and cash flow of NMG are not available to the Company,
except through NMG dividend payments on the $374.9 million stated value of the
6% Preferred Stock, $50.0 million stated value of the 9 1/4% Preferred Stock,
and the Company's shares of NMG Common Stock.
In August 1990, NMG adopted a dividend reinvestment plan enabling all
shareholders to invest their dividends in shares of NMG Common Stock. During
NMG's fiscal years 1993, 1992 and 1991, the Company reinvested $15.6 million,
$30.9 million and $25.9 million, respectively, of common and preferred
dividends in additional shares of NMG's Common Stock. The Company ceased
participation in NMG's dividend reinvestment plan after the January 1993
dividend payment.
The Company and NMG are parties to an agreement pursuant to which the
Company provides certain management, accounting, financial, legal, tax and other
corporate services to NMG. The fees for these services are based on the
Company's costs and are subject to the approval of a committee of directors of
NMG who are unaffiliated with the Company. This agreement may be terminated by
either party on 180 days' notice. Charges to NMG were $7.4 million in 1993, $6.6
million in 1992 and $5.6 million in 1991.
The Company's Chairman of the Board; President and Chief Executive
Officer; Senior Vice President and Chief Financial Officer; and Senior Vice
President and General Counsel as well as certain other officers of the
Company serve in similar capacities with NMG. The first two named officers
also serve as directors of both companies.
7. INSURANCE
<TABLE>
<CAPTION>
Condensed Consolidated Results of Operations
The condensed consolidated results of operations for Harcourt General Insurance are as follows:
Years ended October 31,
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Insurance premiums and other income $296,399 $266,479 $ 304,280
Net investment income 251,631 198,127 160,446
Total revenues 548,030 464,606 464,726
Policy benefit expenses 154,450 177,005 177,535
Increase in policyholder reserves and deposits 207,328 139,172 170,366
Underwriting, acquisition, and general expenses 115,381 105,631 162,121
Earnings (loss) before income taxes 70,871 42,798 (45,296)
Income tax expense (benefit) 24,835 15,067 (15,146)
Net earnings (loss) $ 46,036 $ 27,731 ($30,150)
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Condensed consolidated statements of cash flows for Harcourt General Insurance are as follows:
Years ended October 31,
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) $ 46,036 $ 27,731 ($30,150)
Changes in:
Policyholder reserves 41,774 (8,511) 53,209
Unearned premiums (9,457) 2,512 (6,401)
Policy and contract claims 3,604 4,027 (8,089)
Deferred policy acquisition costs (17,351) (17,550) 13,440
Income taxes payable 1,679 3,256 (19,346)
Realized investment (gains) losses, net (27,610) (3,495) 23,675
Amortization of acquired insurance in force 2,013 2,659 5,845
Other, net (9,593) (4,960) (2,481)
Net cash provided by operating activities 31,095 5,669 29,702
INVESTING ACTIVITIES:
Purchase of fixed maturity securities (1,082,430) (728,274) (585,463)
Proceeds from sale of fixed
maturity securities 84,621 80,980 330,176
Prepayment, call and maturity of
investment securities 603,360 236,206 73,838
Change in short-term investments (42,079) 124,521 (121,431)
Other, net (3,030) 2,176 (727)
Net cash used in investing activities (439,558) (284,391) (303,607)
[page 39]
Financing Activities:
Proceeds from policyholder deposits 392,987 255,560 264,942
Capital contributions, advances and
repayments, net (896) 25,327 13,746
Net cash provided by financing activities 392,091 280,887 278,688
Increase (decrease) in cash ($ 16,372) $ 2,165 $ 4,783
</TABLE>
REVENUES AND EXPENSES
Premiums from traditional life insurance contracts are recognized as revenues
when due whereas accident and health premiums are recognized over the
contract period.
Amounts received from policyholders under non-traditional life policies
and investment contracts are recorded as liabilities. Revenues recorded on
nontraditional life contracts consist only of policy charges for the cost of
insurance, policy administration and surrenders assessed during the period.
Expenses for non-traditional life policies include interest credited to
policyholder account balances and benefit claims incurred in excess of
policyholder account balances.
POLICYHOLDER RESERVES AND DEPOSITS
For immediate annuities with life contingencies, the policyholder deposit
liability represents the present value of future benefit payments. Future
benefits are estimated based on insurance industry mortality tables and are
discounted at interest rates ranging from 5.90% to 11.75% at issue, graded from
5.80% to 10.0% after 20 years.
For deferred annuity contracts, the policyholder deposit liability
approximates accumulated contract values. During 1993, interest was credited to
such policies at rates ranging from 4.00% to 8.95%.
Estimates of future investment yields, mortality and withdrawals are
used to calculate policyholder reserves for traditional life insurance contracts
whereas policyholder deposits for universal life-type contracts approximate
premiums received plus accumulated interest, less mortality charges and expense
loads.
Reserves for cancelable accident and health insurance are based upon
unearned premiums, claims incurred but not reported, and claims in the process
of settlement. This estimate is based on the experience of the insurance
industry and Harcourt GeneralInsurance, adjusted for current trends.
DEFERRED POLICY ACQUISITION COSTS
Costs incurred which are directly related to and vary with the production of new
insurance policies are deferred. Deferred policy acquisition costs related
to non-traditional life and investment contracts are amortized in relation to
the present value of expected gross profits. For other products, such amounts
are amortized in relation to the present value of expected future premiums.
Amortization of deferred policy acquisition costs was $40.3 million in 1993,
$31.5 million in 1992 and $65.5 million in 1991.
INVESTMENTS
Fixed maturity securities consist primarily of bonds, which are recorded at
amortized cost. Harcourt General Insurance has the ability and intent to hold
these securities until maturity. Other investments include mortgage and policy
loans recorded at cost; short-term investments recorded at cost, which
approximates market value; and real estate recorded at the lower of cost or fair
value.
Fixed maturity securities include $24.3 million (market value $31.3
million) and $48.4 million (market value $56.9 million) of non-investment grade
debt securities at October 31, 1993 and October 31, 1992, respectively. These
securities represent 1.0% and 2.1% of the total investment portfolio at October
31, 1993 and 1992, respectively. If market conditions permit, these
non-investment grade debt securities might be sold.
The amortized cost and estimated market value of fixed maturity
securities were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
October 31, 1993
<S> <C> <C> <C> <C>
U.S. Government $ 89,239 $ 9,189 - $ 98,428
Public Utilities 267,695 34,633 - 302,328
Other Corporate Bonds 1,247,206 159,573 - 1,406,779
Mortgage-backed securities * 1,061,238 48,037 ($960) 1,108,315
$2,665,378 $251,432 ($960) $2,915,850
October 31, 1992
Public Utilities $363,275 $34,742 - $ 398,017
Other Corporate Bonds 927,572 70,528 ($13) 998,087
Mortgage-backed securities* 935,639 41,426 (2,045) 975,020
$2,226,486 $146,696 ($2,058) $ 2,371,124
* Includes $765.3 million in 1993 and $728.3 million in 1992 of
mortgage-backed securities guaranteed by the U.S. Government.
</TABLE>
The specific identification method is used to determine the cost of securities
sold. Sales of fixed maturity securities resulted in gross realized gains of
$33.2 million in 1993, $26.5 million in 1992 and $26.6 million in 1991 and gross
realized losses of $7.5 million in 1993, $24.1 million in 1992 and $36.6 million
in 1991.
[page 40]
The following table sets forth the contractual maturities of fixed maturity
securities.
<TABLE>
<CAPTION>
October 31, 1993
Amortized Market
(In thousands) Cost Value
<S> <C> <C>
Due in one year or less $ 32,257 $ 33,306
Due after one year through five years 203,263 229,079
Due after five years through ten years 563,380 610,363
Due after ten years 805,240 934,787
Mortgage-backed securities 1,061,238 1,108,315
$2,665,378 $2,915,850
</TABLE>
Expected maturities may differ from contractual maturities because certain
lenders or borrowers have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
INVESTMENT INCOME
<CAPTION>
The components of net investment income were as follows:
Years ended October 31,
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Fixed maturity securities $213,973 $191,618 $177,274
Short-term investments 3,065 3,627 7,404
Realized investment gains (losses) 27,745 2,727 (24,994)
Other investment income 11,275 4,725 5,242
Investment expense (4,427) (4,570) (4,480)
Net investment income $251,631 $198,127 $160,446
</TABLE>
Income tax expense on net realized investment gains was $9.9 million in 1993 and
$0.9 million in 1992. The income tax benefit on net realized investment losses
was $8.5 million in 1991.
REINSURANCE
Harcourt General Insurance utilizes reinsurance agreements. These agreements do
not release Harcourt General Insurance from its primary liability as direct
insurer of the risks reinsured but allow Harcourt General Insurance to recover a
portion of losses from reinsurers. Harcourt General Insurance continually
monitors the financial condition of the parties to these reinsurance agreements.
Ceded policy and claim reserves for reinsured policies were $87.4 million and
$58.6 million for fiscal years 1993 and 1992, respectively.
The effect of reinsurance on premiums and amounts earned on long-duration
contracts was not material. The effect of reinsurance on premiums written
and earned on short-duration contracts was as follows:
<TABLE>
<CAPTION>
Years ended October 31,
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Written
Direct $229,351 $244,669 $212,431
Ceded (61,778) (44,781) (26,719)
Net premiums $167,573 $199,888 $185,712
Earned
Direct $218,476 $220,445 $212,483
Ceded (41,444) (23,069) (20,371)
Net premiums $177,032 $197,376 $192,112
</TABLE>
STATUTORY FINANCIAL INFORMATION
The condensed financial statement information for Harcourt General Insurance was
prepared in accordance with generally accepted accounting principles which
are different in certain respects from the statutory reporting practices
required by state insurance regulatory authorities. Certain statutory financial
information of the life insurance companies, which is reported on a calendar
year basis, was as follows:
<TABLE>
<CAPTION>
Nine Months
ended September 30, Years ended
(unaudited) December 31,
(In thousands)
1993 1992 1991
<S> <C> <C> <C>
Statutory net income $ 12,113 $ 18,511 $ 27,894
Statutory capital and surplus $171,219 $151,977 $137,829
</TABLE>
The maximum dividend that the life insurance companies may pay to
shareholders during a year without prior regulatory approval is generally the
greater of statutory net income for the previous year or 10 percent of statutory
surplus.
[page 41]
<TABLE>
<CAPTION>
8. LONG-TERM LIABILITIES
Interest
(In thousands) Rate Maturity 1993 1992
<S> <C> <C> <C> <C>
HARCOURT GENERAL:
Revolving credit agreements (a) Variable
Senior debt (b) 8.25-8.88% 2002-2022 $297,153 $ 297,079
Subordinated notes (c) 9.375-9.5% 1997-2000 249,465 249,339
Other long-term liabilities (d) Various 113,610 135,265
Total Harcourt General $660,228 $ 681,683
NMG:
Revolving credit agreement (e) Variable $232,200 $ 155,000
Senior notes (f) 9.24-9.89% 1994-1996 182,000 182,000
Other long-term liabilities (g) Various 81,125 85,739
Total NMG $495,325 $ 422,739
Less current maturities (64,904) (18,369)
Total long-term liabilities $1,090,649 $1,086,053
</TABLE>
(a) At October 31, 1993, the Company had revolving credit agreements with ten
banks pursuant to which the Company was able to borrow an aggregate of $500.0
million. There were no outstanding borrowings on October 31, 1993. Effective
December 16, 1993, the Company entered into a new revolving credit agreement
with 13 banks pursuant to which the Company may borrow up to $400.0 million and
concurrently terminated the existing revolving credit agreements. The new
agreement, which expires on December 16, 1996, may be terminated by the Company
at any time on three business days notice. The rate of interest payable varies
according to the senior debt rating of the Company and one of four pricing
options selected by the Company. The Company is required to pay a facility fee
on the total amount of the revolving credit facility and a commitment fee on
the unused portion of the facility at annual rates dependent upon the senior
debt rating of the Company. Based on the Company's present senior debt rating,
the annual facility fee and commitment fee are equal to .1500% and .0375%,
respectively. The agreement contains, among other restrictions, provisions
limiting the issuance of additional debt, the maintenance of minimum net worth,
and the payment of dividends.
(b) Senior debt consists of $150.0 million of non-redeemable 8.25% senior notes
due June 2002 and $150.0 million of non-redeemable 8.875% senior debentures due
June 2022. The unsecured notes and debentures were issued at a discount and rank
equally with all other unsecured and unsubordinated indebtedness of the Company.
The notes and debentures contain certain covenants which are no more restrictive
than the terms of the Company's other issues of senior indebtedness.
(c) Subordinated notes consist of $125.0 million of non-redeemable 9.375% notes
due June 1997 and $125.0 million of non-redeemable 9.50% notes due March 2000.
The notes were issued at a discount.
(d) Other long-term liabilities consist primarily of a liability for
postretirement health care benefits and provisions for other employee
benefits (see Note 12).
(e) NMG has a revolving credit agreement with nine banks pursuant to which NMG
may borrow up to $300.0 million, of which $100.0 million expires during fiscal
1995; $175.0 million expires during fiscal 1996; and $25.0 million may be
terminated on not less than three years notice. NMG may terminate the agreement
at any time. The rate of interest payable (3.6% at July 31, 1993) varies
according to one of four pricing options selected by NMG. The revolving credit
agreement contains, among other restrictions, provisions limiting the issuance
of additional debt, the amount and type of investments and the payment of
dividends. Under the terms of this agreement the amount available for dividend
payments was $128.5 million at July 31, 1993.
During 1993, NMG borrowed from other banks on an uncommitted basis. Such
bank borrowings are included in notes payable and current maturities of
long-term liabilities and amounted to $27.2 million at July 31, 1993. Of these
borrowings, $17.2 million related to the new revolving credit agreements
described below.
[page 42]
On August 1, 1993, NMG entered into new revolving credit agreements with four
banks under which NMG may borrow up to $25.0 million from each bank. These
credit agreements will expire on July 30, 1994 and contain covenants similar to
those in the previously existing revolving credit agreement.
(f) NMG senior notes consist of:
(In thousands)
Interest rate Due Principal Amount
9.83% May 1994 $10,000
9.89% May 1996 $40,000
9.59% August 1996 $52,000
9.24% December 1996 $40,000
Variable December 1996 $40,000
The notes have no sinking fund requirements. All fixed-rate senior notes may be
redeemed at a premium plus accrued interest. The variable rate note bears
interest at LIBOR plus 0.7% (4.20% at July 31, 1993) and is adjusted
semi-annually.
NMG has entered into an interest rate swap agreement having a
notional principal amount of $50.0 million. The agreement effectively fixes the
interest rate on variable rate debt at 8.94%. The amount to be paid or received
is accrued as interest rates change and is recognized over the life of the
agreement. The interest rate swap matures in September 1996.
(g) Other long-term liabilities consist primarily of the present value of
certain employee benefit obligations assumed by NMG when it was acquired from
Carter Hawley Hale Stores, Inc. (CHH), postretirement health care benefits, and
a provision for certain scheduled rent increases. The present value of the
employee benefit obligations of CHH accretes on average by 10% annually.
The aggregate maturities of all long-term liabilities are as follows:
Harcourt
(In thousands) General NMG Total
1994 $19,000 $45,900 $64,900
1995 2,800 73,900 76,700
1996 2,500 165,600 168,100
1997 127,700 138,000 265,700
1998 3,000 6,000 9,000
Thereafter 505,200 65,900 571,100
Certain of Harcourt General's loan agreements contain, among other restrictions,
provisions limiting the issuance of additional debt and guarantees, the
execution of additional leases, the redemption of the Company's capital stock
and the payment of dividends. Under the most restrictive of all covenants,
$250.0 million was available for the payment of dividends.
9. SHAREHOLDERS' EQUITY
SERIES A CUMULATIVE CONVERTIBLE STOCK
In accordance with the Restated Certificate of Incorporation of Harcourt
General, certain adjustments have been made to both the conversion rate and
the dividend rate for the Series A Stock as a result of the spinoff of GCC on
December 15, 1993. Effective December 11, 1993, each share of Series A Stock
became convertible into 1.1 shares of Common Stock and is entitled to a
quarterly dividend equal to the quarterly dividend on each share of Common
Stock multiplied by 1.1, plus $.0075. Each share of Series A Stock is entitled
to a liquidation preference of $5.00 plus any accrued but unpaid dividends.
Liquidation proceeds remaining after the satisfaction of such preference and the
payment of $4.55 per share of Common Stock would be distributed ratably to the
holders of Common Stock and Series A Stock.
CLASS B STOCK
The Class B Stock is not transferable except to family members and related
entities but is convertible at any time on a share-for-share basis into Common
Stock. The holders of Class B Stock are entitled to cash dividends which are 10%
lower per share than the cash dividends paid on each share of Common Stock. The
Class B Stock and the Common Stock are each entitled to vote separately as a
class on charter amendments, mergers, consolidations and certain extraordinary
transactions which are required to be approved by shareholders under Delaware
law. Under certain circumstances, the holders of Class B Stock have the right to
cast 10 votes per share for the election of directors.
COMMON STOCK INCENTIVE PLANS
The Company has established stock incentive plans which provide for the granting
of stock options, stock appreciation rights (SARs), restricted stock and
other stock-based awards.
Eligible employees have been granted 10-year options under the 1981
Stock Option Plan and the 1988 Stock Incentive Plan. No further grants may be
made under the 1981 plan. The number of authorized shares for which future
awards may be granted under the 1988 Stock Incentive Plan was 1.5 million shares
of Common Stock at October 31, 1993.
[page 43]
Options outstanding at October 31, 1993 were granted at prices (not less
than 100% of the fair market value on the date of grant) varying from $11.31 to
$35.63 per share and expire between 1994 and 2003. There were 113 employees with
options outstanding, and the weighted average exercise price for all options
outstanding was $21.43 at October 31, 1993. The number of options outstanding
and their exercise price will be adjusted pursuant to a formula as a result of
the spinoff of GCC.
There were 2.2 million shares of Common Stock reserved at October 31,
1993 for issuance upon the exercise of stock options.
The Company has permitted stock options held by certain employees to
become fully vested and has allowed SAR treatment in connection with the
exercise of certain options. Optionees electing SAR treatment surrender an
exercisable option for an amount of cash equal to the excess of the market price
of the Common Stock over the option price when the option is exercised.
Option activity on the Company's common shares was as follows:
<TABLE>
<CAPTION>
Years ended October 31,
1993 1992 1991
<S> <C> <C> <C>
Options outstanding - beginning of year 918,432 852,030 943,628
Granted 105,250 461,338 89,150
Exercised (131,676) (217,408) (115,471)
SARs (32,346) (40,900) (28,612)
Cancelled (19,680) (136,628) (36,665)
Options outstanding - end of year 839,980 918,432 852,030
Exercisable options - end of year 452,800 486,402 490,430
Restricted common stock issued - 100,000 42,075
</TABLE>
10. INCOME TAXES
A reconciliation of the statutory Federal income tax rates to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
Years ended October 31,
1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
(Dollar amounts in thousands) Amount % Amount % Amount %
Statutory tax (expense) benefit ($91,295) (35) ($60,184) (34) $126,100 34
State income taxes net of Federal tax effect (5,214) (2) (4,961) (3) (3,628) (1)
Tax credits 704 - 842 - - -
Dividends received exclusion 1,646 1 1,435 1 4,230 1
Unrealized net operating loss carry forward - - - - (46,808) (13)
Foreign tax rate differentials 310 - 264 - (2,017) (1)
Permanent items (3,920) (2) (6,475) (3) (4,475) (1)
Settlements, capital gains and other 1,142 1 (5) - (476) -
Income tax (expense) benefit from continuing
operations ($96,627) (37) ($69,084) (39) $ 72,926 19
</TABLE>
State income tax expense was $8.0 million in 1993, $8.2 million in 1992 and $6.0
million in 1991.
The tax benefit (expense) of deferred items was as follows:
<TABLE>
<CAPTION>
October 31,
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Depreciation and amortization ($8,525) ($1,451) $2,279
Settlements (8,600) 704 4,871
Inventory valuation 255 3,183 2,531
Insurance (831) (6,853) 676
Other 5,911 1,449 5,551
Deferred tax benefit (expense) (11,790) (2,968) 15,908
Amounts included in current deferred taxes (1,355) 4,911 (12,877)
(13,145) 1,943 3,031
Discontinued theatre operations 18,657 - -
Extraordinary item and accounting change - (70,582) -
Net change in deferred taxes $5,512 ($68,639) $3,031
</TABLE>
The tax provided on the extraordinary item reflects the permanent tax
differences associated with the elimination of long-term debt. The tax provided
on the change in accounting for postretirement health care benefits reflects
the Company's combined effective Federal and state statutory rates.
[page 44]
<TABLE>
<CAPTION>
11. Investment and Other Income
(Expense), Net
Investment and other income (expense) consisted of the following:
Years ended October 31,
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Investment income
Interest income $ 8,605 $ 11,342 $125,128
Dividend income 5,467 11,897 3,405
Total investment income $14,072 $ 23,239 $128,533
Other income (expense)
CHH matters $20,755 - ($17,300)
Gain on sale of securities - $11,633 -
Other (2,452) (3,292) 2,129
Total other
income (expense) $18,303 $ 8,341 ($15,171)
</TABLE>
When NMG was formed as part of the restructuring of CHH in 1987, NMG and CHH
entered into a variety of agreements, including agreements regarding the
allocation of taxes and the guaranty by NMG of certain CHH employee benefits.
As a result of CHH filing under Chapter 11 of the Bankruptcy Code in
1991, NMG began making payments as guarantor of certain CHH employee benefits.
In fiscal 1991, NMG increased its total estimate of liabilities related to CHH
and recorded a charge of $17.3 million.
In October 1992, CHH successfully emerged from Chapter 11 with the
result that all disputes between the parties have been settled. NMG paid CHH
$7.7 million and was discharged as guarantor of certain CHH employee benefits.
In light of the above, NMG re-evaluated its liabilities to CHH and recognized a
gain on settlement of these liabilities of $20.8 million.
12. COMMITMENTS AND CONTINGENCIES
LEASES
The Company and NMG have long-term operating leases primarily for retail stores,
distribution centers, offices, other facilities and equipment. Leases are
generally for periods of up to thirty years with renewal options at fixed
rentals. Certain leases also provide for additional rentals based on revenues in
excess of predetermined levels.
<TABLE>
Rent expense for continuing operations under operating leases was as
follows:
<CAPTION>
Years ended October 31,
(In thousands) 1993 1992 1991
<S> <C> <C> <C>
Minimum rent $102,823 $ 95,297 $90,729
Rent based on revenues 8,200 7,300 7,813
$111,023 $102,597 $98,542
</TABLE>
Unless renewal options are exercised, the future minimum rental payments will be
as follows:
<TABLE>
<CAPTION>
Harcourt
(In thousands) General NMG Total
<S> <C> <C> <C>
1994 $27,300 $60,400 $ 87,700
1995 25,300 59,900 85,200
1996 23,400 57,000 80,400
1997 20,200 54,700 74,900
1998 15,000 49,600 64,600
Thereafter 81,800 1,100,000 1,181,800
</TABLE>
Harcourt General is secondarily liable for certain lease obligations that were
transferred to and assumed by GCC in connection with the spinoff of GCC on
December 15, 1993. Under the terms of the Reimbursement and Security Agreement,
GCC is obligated to indemnify Harcourt General against liabilities with respect
to such transferred obligations. As of October 31, 1993, GCC's future rental
obligations over the next twenty years under such theatre leases amounted to
$806.7 million.
PENSION PLANS
Harcourt General and NMG each have non-contributory defined benefit pension
plans covering substantially all full-time employees other than union
employees. Harcourt General and NMG also sponsor unfunded supplemental
executive retirement plans which provide certain employees with additional
pension benefits. As of January 1, 1992, the Harcourt General plans cover most
of the Harcourt Brace employees. Benefits under the plans are based on
employees years of service and compensation prior to retirement. When funding
is required, the policy is to contribute amounts that are deductible for
Federal income tax purposes.
Net pension income (expense) from continuing operations was as follows:
<TABLE>
<CAPTION>
Years ended October 31,
(In millions) 1993 1992 1991
<S> <C> <C> <C>
Harcourt General ($1.8) ($1.4) $ 3.2
NMG (6.5) (5.7) (6.1)
Net pension (expense) ($8.3) ($7.1) ($ 2.9)
</TABLE>
Net pension expense for both Harcourt General and NMG included the following
components:
<TABLE>
<CAPTION>
Years ended October 31,
(In millions) 1993 1992 1991
<S> <C> <C> <C>
Service cost - benefits earned ($9.5) ($8.2) ($4.0)
Interest cost on projected benefit obligation (8.7) (7.7) (6.8)
Actual return on assets 17.6 15.8 15.7
Net amortization and deferral (7.7) (7.0) (7.8)
Net pension (expense) ($8.3) ($7.1) ($ 2.9)
</TABLE>
[page 45]
<TABLE>
<CAPTION>
The following table sets forth the plans' funded status and amounts recognized
in the balance sheets at October 31:
1993 1992
Overfunded Non-funded Overfunded Non-funded
(In millions) Plans Plans Plans Plans
<S> <C> <C> <C> <C>
Vested benefit obligation ($91.6) ($12.4) ($81.2) ($10.0)
Accumulated benefit obligation ($95.2) ($14.3) ($83.8) ($11.3)
Projected benefit obligation ($118.6) ($20.6) ($100.8) ($15.9)
Plan assets at fair value * 162.5 - 141.0 -
Assets in excess of (less than) projected obligation $43.9 ($20.6) $40.2 ($15.9)
Unrecognized net (asset) obligation at transition (2.9) 1.4 (3.5) 1.6
Unrecognized net (gain) loss (3.3) 1.4 (0.3) (0.2)
Unrecognized prior service cost 2.9 1.7 3.1 1.8
Prepaid (accrued) pension cost recognized
in the balance sheets $40.6 ($16.1) $39.5 ($12.7)
* PLAN ASSETS INCLUDE $9.9 MILLION AND $6.7 MILLION OF HARCOURT GENERAL COMMON
AND SERIES A STOCK AT OCTOBER 31, 1993 AND 1992, RESPECTIVELY, AND CONSIST
PRIMARILY OF EQUITY AND FIXED INCOME SECURITIES.
</TABLE>
<TABLE>
<CAPTION>
The plans' funded status by company as of October 31 was as follows:
1993 1992
Overfunded Non-funded Overfunded Non-funded
(In millions) Plans Plans Plans Plans
<S> <C> <C> <C> <C>
Harcourt General $ 27.0 ($3.9) $ 27.9 ($2.7)
NMG 13.6 (12.2) 11.6 (10.0)
$ 40.6 ($16.1) $ 39.5 ($12.7)
</TABLE>
Assumptions used in the computation of pension costs for both Harcourt General
(HG) and NMG as of October 31 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
HG NMG HG NMG HG NMG
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.5% 8.5% 8.5% 8.5% 8.5% 8.5%
Long-term rate of return on plan assets 9.0% 9.0% 9.0% 10.0% 10.0% 10.0%
Rate of increases in future compensation levels 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
</TABLE>
In addition to the pension plans, Harcourt General and NMG each have two defined
contribution plans for certain employees. The Savings Plans permit employee
contributions and provide for certain matching contributions. The Employee Stock
Ownership Plans are non-contributory.
POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides health care benefits for retired employees which are funded
as claims are incurred. Retirees and active employees hired prior to March 1,
1989 are eligible for retirement benefits if they have met certain service and
minimum age requirements. Beginning in fiscal 1992, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 106, Employers
Accounting for Postretirement benefits Other Than Pensions. This statement
requires accrual of these postretirement health care benefits during the years
in which an employee provides services. Prior to fiscal 1992, the expense for
these benefits was recognized as actual claims were incurred. The Company paid
$3.0 million during fiscal 1993 and $2.4 million during fiscal 1992 for
postretirement health care benefit claims. The cumulative effect of adopting
this change in fiscal 1992 resulted in a charge to continuing operations of
$36.0 million, net of applicable taxes of $23.2 million.
[page 46]
<TABLE>
The actuarial present value of accumulated postretirement benefit obligations
and the amounts recognized in the Company's consolidated balance sheets as
of October 31 was as follows:
<CAPTION>
(In thousands) 1993 1992
<S> <C> <C>
Retirees $61,053 $57,969
Fully eligible active plan participants 8,308 8,024
Other active plan participants 18,545 14,308
Unrecognized net loss (8,880) -
Accumulated postretirement
benefit obligation $79,026 $80,301
The postretirement benefit cost for continuing operations was as follows:
</TABLE>
<TABLE>
<CAPTION>
Years ended October 31,
(In thousands) 1993 1992
<S> <C> <C>
Service cost $ 1,519 $1,509
Interest cost on accumulated benefit obligation 6,239 5,731
Postretirement benefit cost $ 7,758 $7,240
</TABLE>
The assumed health care cost trend rate used in measuring accumulated
postretirement benefit obligation was 18% in 1993 and 20% in 1992, gradually
declining to 5% in the year 2005. Measurement of the accumulated postretirement
benefit obligation was based on an assumed 7.5% discount rate in 1993 and an
assumed rate of 8.5% in 1992. In fiscal 1993, NMG used an assumed discount rate
of 8.5%.
An increase of 1% in the health care cost trend rate would increase the
accumulated postretirement obligation as of October 31, 1993 by $10.2 million.
This change would increase the annual expense by $1.2 million.
LITIGATION
Harcourt General and NMG are involved in various suits and claims in the
ordinary course of business. Management does not believe that the disposition of
such suits and claims will have a material adverse effect on the continuing
operations of Harcourt General or NMG.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
During the normal course of business the Company uses various financial
instruments. Discussed below is the fair value of financial instruments not
presented elsewhere in these financial statements.
INTEREST RATE SWAP
The fair value of NMG's interest rate swap is the amount at which it could be
settled based on estimates obtained from dealers. The estimated pre-tax cost to
settle the interest rate swap was approximately $6.6 million at July 31, 1993.
This amount changes during the life of the swap as a function of maturity,
interest rates and the credit standing of the parties to the swap agreement. If
the swap is held to maturity, no settlement cost is incurred.
LONG-TERM DEBT
The fair value of Harcourt General's and NMG's senior debt and subordinated
notes was $832.8 million on October 31, 1993 and was based upon comparable
publicly-traded issues or discounted cash flows. The discount rate used was
based upon the Company's estimated current incremental borrowing rates.
POLICYHOLDER RESERVES AND DEPOSITS
Policyholder reserves and deposits include immediate and deferred annuities;
structured settlements not involving life contingencies; and insurance
contracts. As of October 31, 1993, the fair value of these liabilities was
$2,473.2 million. The fair value for immediate annuities and structured
settlements was computed as the present value of the future payments under
these contracts discounted at 7.1%. The fair value for deferred annuities was
computed as the account value less the surrender charge that would apply if
the contract were surrendered, adjusted to recognize any interest valued above
the current credited rate guaranteed beyond October 31, 1993. Market adjusted
annuity contracts were further adjusted by the market value adjustment formula
specified in such contracts.
[page 47]
<TABLE>
<CAPTION>
14. COMPARATIVE QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The 1993 and 1992 comparative quarterly financial information has been restated
to reflect the spinoff of the discontinued theatre operations.
1993
First Second Third Fourth Full
(In thousands except for per share data) Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
Revenues $806,840 $933,242 $1,008,476 $907,183 $3,655,741
Gross profit $317,263 $289,771 $ 462,353 $376,884 $1,446,271
Earnings (loss) from:
Continuing operations $26,816 $5,666 $102,142 $30,866 $165,490
Theatre operations 4,989 139 4,613 (3,898) 5,843
Net earnings $31,805 $5,805 $106,755 $26,968 $171,333
Net earnings (loss) per common share from:
Continuing operations $.34 $.07 $1.28 $.39 $2.08
Theatre operations .06 - .06 (.05) .07
Net earning $.40 $.07 $1.34 $.34 $2.15
Dividends per share:
Common Stock $0.14 $0.14 $0.14 $0.15 $0.57
Class B Stock $0.126 $0.126 $0.126 $0.135 $0.513
Series A Stock $0.1475 $0.1475 $0.1475 $0.1575 $0.60
1992
First Second Third Fourth Full
(In thousands except for per share data) Quarter Quarter Quarter Quarter Year
Revenues $754,618 $822,629 $867,554 $814,886 $3,259,687
Gross profit $302,782 $257,445 $364,660 $388,542 $1,313,429
Earnings (loss) before extraordinary gain and
cumulative effect of accounting change from:
Continuing operations $23,429 ($5,069) $ 67,684 $ 21,883 $ 107,927
Theatre operations 269 1,799 2,944 (2,022) 2,990
$ 23,698 ($3,270) $ 70,628 $19,861 $ 110,917
Net earnings (loss) $407,241 ($3,270) $ 70,628 $19,861 $ 494,460
Net earnings (loss) per common share:
Before extraordinary item and cumulative
effect of accounting change from:
Continuing operations $ .30 ($.06) $ .85 $ .28 $ 1.36
Theatre operations - .02 .04 (.03) .04
Extraordinary gain 5.31 - - - 5.30
Cumulative effect of accounting change (.46) - - - (.45)
Net earnings $5.15 ($.04) $.89 $.25 $6.25
Dividends per share:
Common Stock $0.13 $0.13 $0.13 $0.14 $0.53
Class B Stock $0.117 $0.117 $0.117 $0.126 $0.477
Series A Stock $0.1375 $0.1375 $0.1375 $0.1475 $0.56
</TABLE>
[page 48]
INDEPENDENT AUDITORS REPORT
Board of Directors and Shareholders
Harcourt General, Inc.
Chestnut Hill, Massachusetts
We have audited the consolidated balance sheets of Harcourt General, Inc. and
its subsidiaries as of October 31, 1993 and 1992 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of
the three years in the period ended October 31, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Harcourt
General, Inc. and its subsidiaries as of October 31, 1993 and 1992 and the
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1993 in conformity with generally accepted
accounting principles. As discussed in Note 12 to the consolidated financial
statements, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits
Other than Pensions in fiscal 1992.
Deloitte & Touche
Boston, Massachusetts
December 16, 1993
[page 49]
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY (UNAUDITED)
(In thousands except for per share amounts)
REVENUES 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Publishing $944,545 $865,336 $807,689 $853,725 $816,285
Specialty retailing 2,016,914 1,808,354 1,744,800 1,688,611 1,467,504
Insurance 548,030 464,606 464,726 476,810 456,298
Professional services 146,252 121,391 103,795 82,212 69,437
Total $3,655,741 $3,259,687 $3,121,010 $3,101,358 $2,809,524
Operating earnings (loss)
Publishing $142,177 $124,503 ($73,792) $121,650 ($2,774)
Specialty retailing 120,191 81,510 82,277 99,191 83,212
Insurance 70,871 42,798 (45,296) 26,118 28,149
Professional services 28,395 23,938 14,309 17,062 8,919
Corporate expenses (47,307) (41,876) (40,706) (42,072) (59,377)
Merger and restructuring
charges - - (72,777) - -
OPERATING EARNINGS (LOSS) 314,327 230,873 (135,985) 221,949 58,129
Investment income 14,072 23,239 128,533 124,411 185,065
Interest expense (84,585) (85,442) (348,260) (363,021) (448,125)
Other income (expense), net 18,303 8,341 (15,171) 126,020 23,861
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 262,117 177,011 (370,883) 109,359 (181,070)
Income tax (expense) benefit (96,627) (69,084) 72,926 (47,987) 40,041
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 165,490 107,927 (297,957) 61,372 (141,029)
Discontinued Operations, Net* 5,843 2,990 4,835 (30,989) 1,217,242
Extraordinary Item, Net - 419,557 - - (32,287)
Accounting change, net - (36,014) - - -
NET EARNINGS (LOSS) 171,333 494,460 (293,122) 30,383 1,043,926
Dividends on Harcourt Brace
preferred stock - - 12,684 18,242 59,741
Net earnings (loss) applicable
to common shareholders $171,333 $494,460 ($305,806) $12,141 $984,185
Depreciation and amortization $171,432 $154,392 $295,695 $156,004 $154,759
Capital expenditures 162,416 186,462 165,817 136,943 175,420
Insurance assets 3,170,948 2,669,708 2,300,018 2,096,118 1,524,695
Total assets 5,976,826 5,345,670 6,208,348 6,250,126 6,048,002
Total long-term liabilities 1,090,649 1,086,053 980,224 2,658,734 2,452,873
Weighted average number of common and
common equivalents shares outstanding 79,625 79,139 78,876 79,027 78,676
AMOUNTS APPLICABLE TO COMMON SHAREHOLDERS:
Earnings (loss) from continuing operations
before extraordinary item and cumulative
effect of accounting change $2.08 $1.36 ($3.94) $.55 ($2.55)
Net earnings (loss) applicable
to common shareholders $2.15 $6.25 ($3.88) $.15 $12.51
Dividends paid on common stock $.57 $.53 $.49 $.45 $.41
*EFFECTIVE DECEMBER 15, 1993, THE COMPANY DISTRIBUTED ITS THEATRE OPERATIONS TO
ITS SHAREHOLDERS. IN MARCH 1989, THE COMPANY SOLD ITS BEVERAGE BUSINESS, AND
IN NOVEMBER 1989, HARCOURT BRACE SOLD ITS SIX THEME PARKS AND RELATED LAND
HOLDINGS.
</TABLE>
[page 51]
Stock Information
Harcourt General's Common Stock and Series A Cumulative Convertible Stock are
traded on the New York Stock Exchange under the symbols H and HPRA,
respectively. The following table indicates the quarterly price range of the
Common Stock and Series A Stock for the past two fiscal years. These prices
are prior to the tax-free distribution of shares in GC Companies, Inc., which
was effective on December 15, 1993.
<TABLE>
<CAPTION>
Common Stock
1993 1992
Quarter High Low High Low
<S> <C> <C> <C> <C>
First $38.13 $28.50 $20.50 $16.63
Second $37.50 $31.25 $23.00 $18.75
Third $40.00 $32.63 $26.13 $21.63
Fourth $46.13 $37.50 $30.00 $24.13
Series A Stock
1993 1992
Quarter High Low High Low
First $37.13 $28.00 $20.00 $17.13
Second $36.63 $32.75 $22.50 $19.00
Third $39.00 $33.75 $25.75 $21.25
Fourth $46.00 $40.25 $28.88 $24.63
Harcourt General had 13,398 and 14,018 Common shareholders of record at
October 31, 1993 and 1992, respectively, and 847 and 937 Series A
shareholders of record at October 31, 1993 and 1992, respectively. Following
an adjustment related to the spinoff of GC Companies, the Series A shares
are now convertible into Common Stock on a 1:1.1 basis.
</TABLE>
Exhibit 21.1
<TABLE>
HARCOURT GENERAL, INC.
SUBSIDIARIES & AFFILIATES
<CAPTION>
JURISDICTION
OF
NAME OF SUBSIDIARY INCORPORATION STOCKHOLDER
<S> <C> <C>
Acadata (London) England Harcourt Brace &
Limited Company Limited (50%)
Academic Press Ontario Harcourt Brace &
Canada Limited Company
Academic Press, Inc. New York Harcourt Brace &
Company
Academic Press Limited England Harcourt Brace & Company
Limited (99%)
Harcourt Brace & Company (1%)
Agence D'Arc Inc. Quebec HRW Publications Ltd.
American Agriculturist New York The Harvest Insurance
Services, Inc. Agency, Inc.
AP Export Company, Inc. Delaware Academic Press, Inc.
AP Journals, Inc. Delaware Harcourt Brace & Company
Bailliere Tindall Limited England Harcourt Brace & Company
Limited (99%)
Harcourt Brace & Company (1%)
BAR/BRI Review Courses, Delaware Harcourt Brace Legal and
Inc. Professional Publications,
Inc.
Bergdorf Goodman, Inc. New York Neiman Marcus Holdings, Inc.
Bergdorf Graphics, Inc. New York Bergdorf Goodman, Inc.
Books for Professionals, Delaware Harcourt Brace & Company
Inc.
Broadcasters, Inc. Texas Neiman Marcus Holdings, Inc.
C.C. Group Limited Hong Kong The Neiman Marcus Group,Inc.
Inc. (50%)
Contempo Casuals (50%)
Chatterton Corp. New York Verily Enterprises, Inc.
Contempo Casuals California The Neiman Marcus Group,
Inc.
(Page 1)
Coronado Publishers, Inc. Delaware Academic Press, Inc.
DBM France, S.A. France Drake Beam Morin, Inc.
(99%)
DBM International, Inc. Delaware Drake Beam Morin, Inc.
DBM Training and Delaware Drake Beam Morin, Inc.
Consulting, Inc.
Devices for Learning, Inc. Delaware Harcourt Brace & Company
Drake Beam Morin-Canada, Ontario Drake Beam Morin, Inc.
Inc.
Drake Beam Morin, Inc. Delaware SIFTCO, Inc.
Emcor, Inc. Delaware Harcourt General, Inc.
Executive In Residence, New York Drake Beam Morin, Inc.
Inc.
Fanwick & Rubin, Inc. New York Verily Enterprises, Inc.
Federal Home Life Insurance Indiana Harcourt General Insurance,
Company Inc.
Foundation for Marine Animal Florida Harcourt Brace & Company
Husbandry, Inc.
GCC Films, Inc. Delaware Harcourt General, Inc.
GCC Investment Trust Massachusetts Hammond Pond Investments,
Inc. (50%)
Emcor, Inc. (50%)
GCC Land Co., Inc. Delaware Harcourt General, Inc.
General Cinema Broadcasting, Delaware Harcourt General, Inc.
Inc.
GMN, INC. Delaware Harcourt General, Inc
Grune & Stratton, Inc. New York Harcourt Brace & Company
Grune & Stratton Limited England Harcourt Brace & Company
Limited (50%)
Harcourt Brace & Company
(50%)
Hammond Pond Investments, Massachusetts SIFTCO, Inc.
Inc.
Harcourt Brace & Company Delaware SIFTCO, Inc.
(Page 2)
Harcourt Brace & Company Australia Harcourt Brace & Company
Australia Pty. Limited (99%)
Harcourt Brace & Company Quebec Academic Press Canada
Canada, Inc. Limited
Harcourt Brace & Company England Academic Press, Inc. (99%)
Limited Harcourt Brace & Company (1%)
Harcourt Brace & Company Australia Harcourt Brace & Company
New Zealand Pty. Limited Australia Pty. Limited
Harcourt Brace Educational Massachusetts Harcourt Brace & Company
Development Group, Inc.
Harcourt Brace Export Delaware Harcourt Brace & Company
Corporation
Harcourt Brace FSC, Inc. U.S. Virgin Harcourt Brace & Company
Islands
Harcourt Brace Inter- New York Harcourt Brace & Company
national Corporation
Harcourt Brace Japan, Inc. Japan Harcourt Brace & Company
(99.17%)
Harcourt Brace Legal and Delaware SIFTCO, Inc.
Professional Publications,
Inc.
Harcourt Brace Real Ohio Harcourt Brace & Company
Properties Corporation
Harcourt General Annuity Delaware Harcourt General Insurance,
Service Corporation Inc.
Harcourt General Charitable Massachusetts Harcourt General, Inc.
Foundation, Inc.
Harcourt General Insurance, Delaware Harcourt Brace & Company
Inc.
Harvest & HBJ Insurance, Florida Harcourt General Insurance,
Inc. Inc.
HBJ Farm Publications, Inc. Ohio The Harvest Insurance
Agency, Inc.
Health Careers Academy New Jersey
Holt, Rinehart and Winston, Delaware Harcourt Brace & Company
Inc.
Holt, Rinehart and England W.B. Saunders Company Limited
Winston Limited (99%)
Harcourt Brace & Company
(1%)
(Page 3)
Holt, Rinehart and Winston Ontario HRW and WBS Canada
of Canada Limited Corporation, Inc.
Holt, Rinehart & Winston Hong Kong Harcourt Brace & Company (99%)
Publishing Asia Limited Harcourt Brace & Company
Australia Pty. Limited (1%)
HRW and WBS Canada New York Harcourt Brace & Company
Corporation, Inc.
HRW Distributors, Inc. Delaware Harcourt Brace & Company
HRW Publications Ltd. Quebec Holt, Rinehart and Winston
of Canada Limited
Human Nature, Inc. Delaware Harcourt Brace & Company
(83%)
Innovation Research, Inc. Delaware Harcourt Brace & Company
Johnson Reprint Company England Harcourt Brace & Company
Limited Limited (99%)
Harcourt Brace & Company (1%)
Johnson Reprint Corporation New York Academic Press, Inc.
Last Call, Inc. New Jersey The Neiman Marcus Group, Inc.
Laureate Canada Inc. Ontario HRW and WBS Canada
Corporation, Inc.
Learned & Tested, Inc., The Delaware Harcourt Brace & Company
Education Company
Les Editions Etudes Vivantes Quebec Harcourt Brace & Company
Ltee Canada, Inc.
Mercury of Delaware, Inc. Delaware
Miller Accounting Delaware Harcourt Brace & Company
Publications, Inc.
Miller Comprehensive CPA Delaware Legal and Professional
Review, Inc. Publications, Inc.
MSRD, Inc. New York The Psychological Corporation
Neiman Marcus Holdings, Inc. California The Neiman Marcus Group, Inc.
Pastille, Inc. Delaware The Neiman Marcus Group, Inc.
Pastille By Mail, Inc. Delaware The Neiman Marcus Group, Inc.
PHF Life Insurance Company Florida Federal Home Life Insurance
Company
Reference Works Limited England W.B. Saunders Company Limited
(99%)
Harcourt Brace & Company (1%)
Richard J. Katz & Co., Inc. New York Harcourt General Insurance,
Inc.
(Page 4)
Security Funding Corporation Delaware Harcourt General Insurance,
Inc.
Selective Programs, Inc. New York Harcourt General Insurance,
Inc.
Seminar Press Limited England Harcourt Brace & Company
Limited (99%)
Harcourt Brace & Company (1%)
SIFTCO, Inc. Massachusetts Harcourt General, Inc.
T & A D Poyser Limited England Harcourt Brace & Company
Limited (50%)
Harcourt Brace & Company (50%)
The Harcourt Brace Delaware Harcourt Brace & Company
Quads, Inc.
The Harvest Insurance Ohio The Harvest Life Insurance
Agency, Inc. Company
The Harvest Life Insurance Ohio The Harvest Insurance Agency,
Agency, Inc. Inc. (77%)
The Harvest Life Insurance Ohio Federal Home Life Insurance
Company Company
The Marine Research Center Florida
at Sea World, Inc.
The Neiman Marcus Group, Delaware Harcourt General, Inc. (65%)
Inc.
The Psychological New York Harcourt Brace & Company
Corporation
The Psychological England Harcourt Brace & Company
Corporation Limited Limited (99%)
Harcourt Brace & Company (1%)
Verily Enterprises, Inc. New York Harcourt General Insurance,
Inc.
W. B. Saunders Company Delaware Harcourt Brace & Company
W. B. Saunders Company Ontario HRW and WBS Canada
Canada Limited Corporation, Inc.
W. B. Saunders Company England Harcourt Brace & Company
Limited Limited (99%)
Harcourt Brace & Company (1%)
</TABLE>
(Page 5)
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statements
of Harcourt General, Inc. on Form S-3 (No. 33-13936 and 33-46148) and Form
S-8 (No. 33-26079) of our report dated December 16, 1993 appearing in and
incorporated by reference in this Annual Report on Form 10-K of Harcourt
General, Inc. for the year ended October 31, 1993.
s/Deloitte & Touche
DELOITTE & TOUCHE
Boston, Massachusetts
January 27, 1994
