SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended July 31, 1999
Commission File Number 1-4925
HARCOURT GENERAL,INC.
(Exact of name of registrant as specified in its charter)
Delaware 04-1619609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 Boylston Street, Chestnut Hill, MA 02467
(Address of principal executive offices) (Zip Code)
(617) 232-8200
Registrant's telephone number, including area code)
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
As of September 8, 1999, the number of outstanding shares of each of the
issuer's classes of common stock was:
Class Outstanding Shares
Common Stock, $1 Par Value 51,135,503
Class B Stock, $1 Par Value 20,020,336
HARCOURT GENERAL, INC.
I N D E X
Part I. Financial Information Page Number
Item 1. Condensed Consolidated Balance Sheets as of
July 31, 1999 and October 31, 1998 1
Condensed Consolidated Statements of Earnings for
the Nine and Three Months Ended
July 31, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended July 31, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 10.1
Exhibit 10.2
Exhibit 27.1
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
(In thousands) July 31, October 31,
1999 1998
---------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 62,743 $ 115,200
Undivided interests in NMG Credit
Card Master Trust 185,268 138,867
Accounts receivable, net 536,260 479,569
Inventories 800,747 706,586
Deferred income taxes 169,354 114,794
Other current assets 92,875 94,024
---------- -----------
Total current assets 1,847,247 1,649,040
Property and equipment, net 668,814 645,213
Other assets:
Prepublication costs, net 311,272 252,831
Goodwill, net 1,586,166 1,614,369
Other intangible assets, net 125,824 183,431
Other 109,977 104,215
---------- -----------
Total other assets 2,133,239 2,154,846
---------- -----------
Total assets $4,649,300 $4,449,099
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and current maturities of
long-term liabilities $ 168,801 $ 10,013
Accounts payable 361,682 392,417
Taxes payable 65,079 20,928
Other current liabilities 724,267 701,212
---------- -----------
Total current liabilities 1,319,829 1,124,570
Long-term liabilities:
Notes and debentures 1,644,170 1,729,459
Other long-term liabilities 259,817 258,621
Deferred income taxes 118,162 118,162
---------- -----------
Total long-term liabilities 2,022,149 2,106,242
Minority interest 321,445 292,565
Shareholders' equity:
Preferred stock 894 914
Common stock 71,119 71,029
Paid-in capital 747,905 745,679
Accumulated other comprehensive loss (12,886) (15,407)
Retained earnings 178,845 123,507
---------- -----------
Total shareholders' equity 985,877 925,722
---------- -----------
Total liabilities and shareholders' equity $4,649,300 $4,449,099
========== ==========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
1
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<CAPTION>
(In thousands except for
per share amounts) Nine Months Three Months
Ended July 31, Ended July 31,
1999 1998 1999 1998
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues $3,447,084 $3,099,059 $1,304,779 $1,161,670
Costs applicable to revenues 1,805,125 1,678,568 585,331 559,441
Selling, general and
administrative expenses 1,306,864 1,121,990 430,661 370,530
Corporate expenses 28,323 26,434 9,540 9,224
---------- ---------- ---------- ----------
Operating earnings 306,772 272,067 279,247 222,475
Investment and other income 11,969 3,984 7,465 623
Interest expense (98,556) (80,338) (33,372) (26,268)
Earnings before income taxes and ---------- ---------- ---------- ----------
minority interest 220,185 195,713 253,340 196,830
Income tax expense (83,670) (74,371) (96,269) (74,795)
---------- ---------- ---------- ----------
Earnings before
minority interest 136,515 121,342 157,071 122,035
Minority interest in net earnings
of subsidiaries (39,097) (42,238) (16,578) (11,235)
---------- ---------- ---------- -----------
Net earnings $ 97,418 $ 79,104 $ 140,493 $110,800
========== ========== ========== ===========
Weighted average number of
common and common equivalent
shares outstanding:
Basic 71,093 70,843 71,133 70,912
======== ======== ======== ========
Diluted 72,160 72,132 72,185 72,142
======== ======== ======== ========
Earnings per common
share:
Basic $ 1.36 $ 1.11 $ 1.97 $ 1.56
======== ======== ======== ========
Diluted $ 1.35 $ 1.10 $ 1.95 $ 1.54
======== ======== ======== ========
Dividends per share:
Common Stock $ .60 $ .57 $ .20 $ .19
======== ======== ======== =========
Class B Stock $ .54 $ .513 $ .18 $ .171
======== ======== ======== =========
Series A Stock $ .6825 $ .6495 $ .2275 $ .2165
======== ======== ======== =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
2
<TABLE>
HARCOURT GENERAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
(In thousands) Nine Months
Ended July 31,
-------------------
1999 1998
Cash flows from operating activities: --------- ---------
<S> <C> <C>
Net earnings $ 97,418 $ 79,104
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 240,998 219,934
Minority interest 39,097 42,238
Other items (7,491) (6,012)
Changes in current assets and liabilities:
Accounts receivable (52,872) (106,589)
Inventories (90,809) (51,586)
Other current assets 557 6,028
Accounts payable (34,471) (9,527)
Taxes payable 42,531 68,645
Other current liabilities 12,060 62,946
--------- ---------
Net cash provided by operating activities 247,018 305,181
--------- ---------
Cash flows from investing activities:
Capital expenditures (234,846) (190,245)
Purchases of held-to-maturity securities (540,889) (513,362)
Maturities of held-to-maturity securities 494,488 475,797
Acquisition of Steck-Vaughn minority interest - (40,512)
Other acquisitions and investing activities (56,706) (60,223)
--------- ---------
Net cash used for investing activities (337,953) (328,545)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings 77,250 55,000
Repayment of debt - (3,557)
Cash dividends paid (42,080) (39,936)
Other equity transactions 3,308 60
--------- ---------
Net cash provided by financing activities 38,478 11,567
--------- ---------
Cash and equivalents:
Decrease during the period (52,457) (11,797)
Beginning balance 115,200 82,644
--------- --------
Ending balance $ 62,743 $ 70,847
========= ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of presentation
The Condensed Consolidated Financial Statements of Harcourt General, Inc.
(the Company) are submitted in response to the requirements of Form 10-Q
and should be read in conjunction with the Consolidated Financial
Statements in the Company's Annual Report on Form 10-K. In the opinion of
management, these statements contain all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the results
for the interim periods presented. The consolidated financial statements
of The Neiman Marcus Group, Inc. (NMG) are consolidated with a lag of one
fiscal quarter. 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. The Company owns approximately 54% of the
common stock of NMG. The Company does not include in its net earnings that
portion of NMG earnings (currently 46%) attributable to the minority
shareholders.
The Company's businesses are seasonal in nature, and historically the
results of operations for these periods have not been indicative of the
results for the full year.
Certain reclassifications have been made to the 1998 financial statements
to conform to the 1999 presentation.
2. Earnings per share
Pursuant to the provisions of Statement of Financial Accounting Standards
No. 128, "Earnings per Share," the net earnings and the number of weighted
average shares used in computing basic and diluted earnings per share (EPS)
are as presented in the table below.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
---------------------- -----------------------
July 31, July 31, July 31, July 31,
(in thousands) 1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Earnings $97,418 $79,104 $140,493 $110,800
Less:dividends on Series
A Cumulative Convertible
Stock (610) (673) (201) (205)
--------- --------- --------- ---------
Earnings for computation of
basic EPS 96,808 78,431 140,292 110,595
Add: dividends on assumed
conversion of Series A
Cumulative Convertible
Stock 610 673 201 205
--------- --------- --------- ---------
Earnings for computation of
diluted EPS $ 97,418 $ 79,104 $140,493 $110,800
========= ======== ======== ========
</TABLE>
4
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. Earnings per share(continued)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
--------------------- --------------------
July 31, July 31, July 31, July 31,
(in thousands) 1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Shares for computation of
basic EPS 71,093 70,843 71,133 70,912
Add: assumed conversion of
Series A Cumulative
Convertible Stock 989 1,178 974 1,113
Add: effect of assumed
option exercises 78 111 78 117
--------- --------- --------- ---------
Shares for computation
of diluted EPS 72,160 72,132 72,185 72,142
======== ========== ========= ========
</TABLE>
In the nine months and three months ended July 31, 1999, options to
purchase 604,600 shares of common stock were not included in the
computation of diluted EPS because the exercise price of those options
was greater than the average market price of those shares. In the nine
months and three months ended July 31, 1998, all outstanding options to
purchase shares of common stock were included in the computation of
diluted EPS.
3. NMG stock repurchase
During the first thirty-nine weeks of NMG's fiscal 1999, NMG
repurchased 827,000 shares at an average price of $18.57 per share, and
512,900 shares were remaining under this program.
4. NMG acquisitions
On November 2, 1998, NMG acquired a 51 percent interest in Gurwitch
Bristow Products for approximately $6.7 million in cash. Gurwitch
Bristow Products manufactures and markets the Laura Mercier cosmetic
lines. The acquisition has been accounted for by the purchase method of
accounting and, accordingly, the results of operations of Gurwitch
Bristow Products for the period from November 2, 1998 are included in
the accompanying condensed consolidated financial statements. The
excess of cost over the estimated fair value of net assets acquired of
$5.3 million was allocated to trademarks, which is amortized on a
straight-line basis over 25 years. Assets acquired and liabilities
assumed have been recorded at their estimated fair values.
On February 1, 1999, the Company acquired a 56 percent interest in Kate
Spade LLC for approximately $33.6 million in cash. Kate Spade is a
manufacturer and marketer of high-end fabric and leather handbags and
accessories. The acquisition has been accounted for by the purchase
method of accounting and, accordingly, the results of operations of Kate
Spade for the period from February 1, 1999 are included in the
accompanying condensed consolidated financial statements. The excess of
cost over the estimated fair value of net assets acquired of $32.7
million was allocated to trademarks which are amortized on a straight-
line basis over 25 years. Assets acquired and liabilities assumed have
been recorded at their estimated fair values.
5
HARCOURT GENERAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Comprehensive Income
As of November 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130) and has reclassified certain amounts to conform to the requirements
of SFAS 130. The adoption of SFAS 130 had no impact on the Company's
net earnings or shareholders' equity. Total comprehensive income
amounted to $98.1 million and $76.9 million for the nine months ended
July 31, 1999 and 1998, respectively. Comprehensive income differs from
net earnings primarily due to foreign currency translation adjustments,
unrealized gains or losses on the Company's available-for-sale
securities, less reclassification for realized gains or losses included
in net earnings.
6. Income Taxes
During the third quarter, the Company reduced its valuation allowance
attributable to acquired net operating losses and tax credit
carryforwards. The change resulted in an increase in the deferred tax
asset and a reduction of goodwill of approximately $54.6 million.
7. Proposed Spin-off of NMG
On May 14, 1999, the Boards of Directors of the Company and of The
Neiman Marcus Group, Inc. ("NMG"), and a committee of independent
directors of NMG, approved a series of transactions (the "Transactions")
relating to a plan by the Company to spin-off to the holders of its
common stock approximately 21.4 million of the approximately 26.4 million
shares of NMG common stock held by the Company in a distribution to be
tax-free to the Company and its stockholders. The Transactions are
expected to be completed late in the third quarter or early in the fourth
quarter of the 1999 calendar year, subject to, among other things,
approval of the tax-free status of the spin-off by the Internal Revenue
Service, approval by the stockholders of the Company of a new class of
stock, "Class C Stock," which would have one-tenth (1/10) of one vote per
share on all matters and which would receive a dividend equal to the
dividend received by the common stock, if any, and approval by the
stockholders of NMG of a plan of recapitalization.
On May 27, 1999, the Company filed a Form 8-K with the Securities and
Exchange Commission (the "Commission") in which the Transactions are
described in greater detail. For further information regarding the
Transactions, reference may be made to the Form 8-K and to such other
reports filed by the Company and NMG from time to time with the
Commission.
6
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following table presents revenues and operating earnings by business
segment.
<TABLE>
<CAPTION>
Nine Months Three Months
Ended July 31, Ended July 31,
--------------------- ---------------------
(In thousands) 1999 1998 1999 1998
Revenues: ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Publishing and
educational services $1,459,058 $1,262,441 $ 693,020 $ 613,938
Specialty retailing 1,988,026 1,836,618 611,759 547,732
---------- --------- ---------- ---------
Total revenues $3,447,084 $3,099,059 $1,304,779 $1,161,670
========== ========== ========== ==========
Operating earnings:
Publishing and
educational services $ 155,776 $ 121,879 $ 219,795 $ 183,478
Specialty retailing 179,319 176,622 68,992 48,222
Corporate expenses (28,323) (26,434) (9,540) (9,225)
Total operating ---------- --------- ---------- ---------
earnings $ 306,772 $272,067 $ 279,247 $ 222,475
========== ========== ========== ==========
</TABLE>
Nine Months Ended July 31, 1999 Compared To Nine Months Ended July 31, 1998
Publishing and Educational Services
Revenues from the Harcourt, Inc. publishing and educational services
businesses increased $196.6 million, or 15.6%, compared to the same period
last year, primarily as a result of revenues generated by the acquisition
of Mosby in October 1998. The Education Group's revenues rose $2.3 million
to $472.9 million from $470.6 million, due to higher elementary school
publishing and trade sales, offset in part by lower secondary and college
publishing sales. Revenues of the Lifelong Learning & Assessment Group
increased $54.9 million to $494.4 million from $439.5 million in the first
nine months of fiscal 1998. The 12.5% increase in this group's revenues
resulted from higher sales at the career counseling and outplacement
services business, its site-based testing operations and its professional
publishing group. The Worldwide Scientific, Technical and Medical (STM)
Group's revenues increased $139.4 million, or 39.6%, in the first nine
months of fiscal 1999 to $491.7 million from $352.3 million, principally
due to the acquisition of Mosby.
The publishing and educational services businesses generated operating
earnings of $155.8 million in the first nine months of fiscal 1999, an
increase of $33.9 million from $121.9 million in the first nine months of
fiscal 1998. The Education Group's operating earnings decreased $3.7
million to $53.9 million as a result of lower secondary and college sales.
Operating earnings of the Lifelong Learning & Assessment Group increased
$24.9 million to $32.5 million both as a result of strong sales by its
professional education and career counseling and outplacement services
business, as well as from significantly lower amortization costs.
Worldwide STM Group earnings increased $12.7 million to $69.4 million in
the 1999 period primarily as a result of the acquisition and integration of
Mosby.
Specialty Retailing
Specialty retailing results are reported with a lag of one quarter.
Accordingly, the operating results of The Neiman Marcus Group, Inc. (NMG)
for the thirty-nine weeks ended May 1, 1999 are consolidated with the
Company's operating results for the nine months ended July 31, 1999.
Revenues in the thirty-nine weeks ended May 1, 1999 increased $151.4
million or 8.2% to $1.99 billion from $1.84 billion in the thirty-nine
weeks ended May 2, 1998. The increase in revenues was primarily
attributable to higher comparable sales at Neiman Marcus Stores and NM
Direct, sales from Chef's Catalog, acquired in January 1998, and the new
Neiman Marcus store in Hawaii, which opened in September 1998. Total
comparable sales for the period increased 3.2%, with comparable sales
increases of 4.7% at Neiman Marcus Stores and 0.9% at NM Direct, offset by
a 4.2% comparable sales decrease at Bergdorf Goodman.
7
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Specialty Retailing (continued)
Operating earnings increased $2.7 million to $179.3 million from $176.6
million in the prior period as a result of the higher sales volume combined
with proportionately lower buying and occupancy costs. The increase in
operating earnings was offset in part by higher selling and sales promotion
expenses and pre-opening costs.
Investment and Other Income
Investment and other income increased $8.0 million to $12.0 million compared
to $4.0 million in the same nine month period in 1998. The increase included
a gain of $6.4 million on sale of the Conviser CPA Review Course in the third
quarter of 1999, as well as a gain of $3.0 million from the sale of securities
in the second quarter of 1999.
Interest Expense
Interest expense increased $18.3 million to $98.6 million from $80.3 million
in the same period last year. The increase in interest expense is primarily
due to the interest on borrowings under the Company's revolving credit
facility to fund the Mosby acquisition. The interest expense in the first
nine months of fiscal 1999 includes a higher amount of interest incurred by
NMG in comparison to the 1998 period, resulting from both a higher effective
interest rate and higher average borrowings by NMG.
Minority Interest
The Company recorded minority interest in net earnings of its subsidiaries of
$39.1 million in the first nine months of fiscal 1999 compared to $42.2
million in fiscal 1998. In the first nine months of fiscal 1999, minority
interest includes $42.6 million relating to the minority interest in net
earnings of its specialty retailing business, offset in part by minority
interest in net losses of various publishing and educational services
businesses. In the first nine months of fiscal 1998, the entire $42.2 million
consisted of minority interest in net earnings of its specialty retailing
business.
Three Months Ended July 31, 1999 Compared to Three Months Ended July 31, 1998
Publishing and Educational Services
Revenues from the Harcourt, Inc. publishing and educational services
businesses increased by $79.1 million, or 12.9%, to $693.0 million compared to
$613.9 million in the same period last year, as a result of revenues generated
by the acquisition of Mosby in October 1998. The Education Group revenues
rose $5.3 million to $310.4 million, primarily reflecting higher elementary
school publishing sales. Revenues of the Lifelong Learning & Assessment Group
increased $26.8 million, or 15.3%, to $202.1 million from $175.3 million in
the same period last year. The increase in this group's revenues resulted
from the higher sales at the career counseling and outplacement services
business, the professional publishing group and the site-based testing
operations. The Worldwide STM Group's revenues increased $47.0 million or
35.2% to $180.5 million, due to the acquisition of Mosby.
The publishing and educational services businesses generated operating
earnings of $219.8 million in the third quarter of fiscal 1999, an increase of
$36.3 million or 19.8% compared to operating earnings of $183.5 million in the
fiscal 1998 third quarter. The Education Group's operating earnings increased
$5.4 million to $141.0 million as a result of strong sales of its elementary
school products. The operating earnings of the Lifelong Learning & Assessment
Group rose $14.3 million to $35.9 million as a result of higher sales of
professional publishing products and lower amortization costs. The Worldwide
STM Group's operating earnings increased $16.6 million to $42.9 million
primarily due to the acquisition and integration of Mosby.
8
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Specialty Retailing
Results of NMG are reported with a lag of one quarter. Accordingly, NMG's
operating results for its quarter ended May 1, 1999 are consolidated with the
Company's operating results for the quarter ended July 31, 1999.
Revenues in the thirteen weeks ended May 1, 1999 increased 11.7% to $611.8
million in the 1999 period from $547.7 million in the thirteen weeks ended May
2, 1998. Total comparable sales for the period increased 6.3%. Higher
comparable sales at Neiman Marcus Stores of 9.3% in the thirteen weeks ended
May 1, 1999 contributed to the increase in revenues over the same period in
fiscal 1998.
Operating earnings increased $20.8 million or 43.1% to $69.0 million in the
thirteen week period ended May 1, 1999 compared to $48.2 million in the same
period in 1998. This increase was primarily due to higher sales and
proportionately lower buying and occupancy costs, offset in part by higher
sales promotion expenses. In fiscal 1999, NMG shifted the timing of certain
sales promotion events to the third quarter. Such events occurred in the
fourth quarter in fiscal 1998.
Investment and Other Income
Investment and other income increased $6.8 million to $7.5 million compared
with the same period last year, primarily from the gain of $6.4 million during
the 1999 quarter on the sale of the Conviser CPA Review Course.
Interest Expense
Interest expense increased $7.1 million or 27.0% compared to the same period
last year. The increase is primarily due to interest on borrowings under the
Company's revolving credit facility to fund the Mosby acquisition. The
interest expense includes a higher amount of interest incurred by NMG in
comparison to the 1998 period, resulting from both a higher effective rate and
higher average borrowings by NMG.
Minority Interest
The Company recorded minority interest in net earnings of its subsidiaries of
$16.6 million in the third quarter of fiscal 1999 compared to $11.2 million in
fiscal 1998. In the third quarter of fiscal 1999, minority interest includes
$17.3 million relating to the minority interest in net earnings of its
specialty retailing business, offset in part by minority interest in net
losses of various publishing and educational services businesses. In the
third quarter of fiscal 1998, the entire $11.2 million consisted of minority
interest in net earnings of its specialty retailing business.
Liquidity and Capital Resources
The following discussion analyzes liquidity and capital resources by
operating, investing and financing activities as presented in the Company's
condensed consolidated statement of cash flows.
Cash provided by operating activities for the nine months ended July 31, 1999
was $247.0 million. The publishing and educational services business segment
provided $138.7 million of cash from operations while NMG's operations
provided $108.3 million. The cash provided by the publishing and educational
services businesses was sufficient to fund their working capital and capital
expenditure requirements, as well as the Company's dividend requirements. NMG
used cash provided by operations and borrowings under its revolving credit
facility to fund its working capital, capital expenditures and acquisitions.
The primary items affecting the Company's working capital were increases in
accounts receivable of $52.9 million and merchandise inventories of $90.8
million, offset in part by an increase in current liabilities of $20.1
million.
9
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (continued)
Cash flows used by investing activities were $338.0 million for the nine
months ended July 31, 1999. The Company's investing activities included
capital expenditures totaling $234.8 million. Publishing and educational
services capital expenditures in the nine month period ended July 31, 1999
totaled $165.0 million and were related principally to expenditures for
prepublication costs. Capital expenditures in the publishing and educational
service businesses are expected to approximate $230.0 million in fiscal 1999.
Specialty retail capital expenditures in the nine month period were $69.8
million. During the period, NMG purchased a building adjacent to its Neiman
Marcus store in Union Square in San Francisco for a future expansion of this
store. Specialty retailing capital expenditures also included existing store
renovations and completion of construction of the new Neiman Marcus store in
Honolulu, Hawaii. Capital expenditures for NMG in NMG's fiscal 1999 were
$91.0 million.
During the first thirteen weeks of NMG's fiscal 1999, NMG repurchased 827,000
shares at an average price of $18.57 per share. In November 1998, NMG
acquired a 51 percent interest in Gurwitch Bristow Products for approximately
$6.7 million in cash. In February 1999, NMG acquired a 56 percent interest in
Kate Spade LLC for approximately $33.6 million in cash. The acquisitions were
funded primarily through borrowings under NMG's revolving credit facility.
At July 31, 1999, the Company had $270.0 million available under its $750.0
million revolving credit facility with 18 banks. The agreement expires in
July 2002. NMG had $580.0 million available at May 1, 1999 under its $650.0
million revolving credit facility, which expires in October 2002.
The Company believes its cash on hand, cash generated from operations and its
current and future debt capacity will be sufficient to fund its planned
capital growth, operating and dividend requirements.
Year 2000
The Company has completed its assessment of its hardware and software systems,
including the embedded systems in the Company's buildings, property and
equipment, and is implementing plans to ensure that the operations of such
systems will not be adversely affected by the Year 2000 date change.
The Company is presently in the process of renovating non-compliant systems
and implementing converted and replaced systems for substantially all of its
non-compliant hardware and software systems. The Company estimates that its
efforts to make these systems Year 2000 compliant are approximately 85%
complete, with substantial completion of the Year 2000 project currently
anticipated for October 1999.
The Company established an ongoing program to communicate with its significant
suppliers and vendors to determine the extent to which the Company's systems
and operations are vulnerable to those third parties' failure to rectify their
own Year 2000 issues. Based on responses to the Company's inquiries, the
Company is in the process of identifying those suppliers and vendors most at
risk for failing to achieve Year 2000 readiness on a timely basis and is
monitoring their continuing progress. The Company is not presently aware of
any significant exposure arising from potential third party failures.
However, there can be no assurance that the systems of other companies on
which the Company's systems or operations rely will be timely converted or
that any failure of such parties to achieve Year 2000 compliance would not
have an adverse effect on the Company's results of operations.
10
HARCOURT GENERAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Year 2000 (continued)
The Company has engaged both internal and external resources to assess,
reprogram, test and implement its systems for Year 2000 compliance. Based on
management's current estimates, the costs of Year 2000 remediation, including
system renovation, modifications and enhancements, which have been and will be
expensed as incurred, have not been and are not expected to be material to the
results of operations or the financial position of the Company. Additionally,
such expenditures have not adversely affected the Company's ability to
continue its investment in new technology in connection with its ongoing
systems development plan.
Management presently believes the Company's most reasonably likely worst case
Year 2000 scenario could arise from a business interruption caused by
governmental agencies, utility companies, telecommunication service companies,
shipping companies or other service providers outside the Company's control.
There can be no assurance that such providers will not suffer business
interruptions caused by a Year 2000 issue. Such an interruption could have a
material adverse effect on the Company's results of operations.
The Company is in the process of completing a contingency plan for critical
operational systems, including, for example, establishing alternate vendors
and monitoring production schedules. The Company expects to continue to
modify this plan through October 1999.
Forward-Looking Statements
Statements in this report referring to the expected future plans and
performance of the Company are forward-looking statements. Actual future
results may differ materially from such statements. Factors that could affect
future performance in the Company's publishing and educational services
businesses include, but are not limited to: the Company's ability to develop
and market its products and services; the relative success of the products and
services offered by competitors; integration of acquired businesses; failure
of the Company or third parties to be Year 2000 compliant; the seasonal and
cyclical nature of the markets for the Company's products and services;
changes in economic conditions; changes in public funding for the Company's
educational products and services; and changes in purchasing patterns in the
Company's markets.
Important factors that could affect future performance in the Company's
specialty retailing businesses include, but are not limited to: changes in
economic conditions or consumer confidence; changes in consumer preferences or
fashion trends; delays in anticipated store openings; adverse weather
conditions, particularly during peak selling seasons; failure of the Company
or third parties to be Year 2000 compliant; changes in demographic or retail
environments; competitive influences; significant increases in paper, printing
and postage costs; and changes in NMG's relationships with designers and other
resources. For more information, see the Company's filings with the
Securities and Exchange Commission.
11
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Amended and Restated Agreement and Plan of Merger,
dated as of July 1, 1999, among Harcourt General, Inc.,
The Neiman Marcus Group, Inc. and Spring
Merger Corporation
10.2 Amended and Restated Distribution Agreement, dated as
of July 1, 1999, between Harcourt General, Inc. and
The Neiman Marcus Group.
27.1 Financial data schedule
(b) Reports on Form 8-K.
On May 27, 1999, the Company filed a report on Form 8-K
describing a plan to spin-off to the holders of its common stock
approximately 21.4 million of the approximately 26.4 million
shares of NMG Common stock held by the Company in a distribution
to be tax-free to the Company and its stockholders.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HARCOURT GENERAL, INC.
Date: September 10, 1999 /s/ John R. Cook
John R. Cook
Senior Vice President and
Chief Financial Officer
Date: September 10, 1999 /s/ Catherine N. Janowski
Catherine N. Janowski
Vice President and Controller
13
APPENDIX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of July 1, 1999,
amending and restating the AGREEMENT AND PLAN OF MERGER dated as of May 14, 1999
(this "Agreement"), among THE NEIMAN MARCUS GROUP, INC., a Delaware corporation
(the "Company"), HARCOURT GENERAL, INC., a Delaware corporation ("Harcourt
General") and SPRING MERGER CORPORATION, a Delaware corporation and a
wholly-owned subsidiary of Harcourt General ("Merger Sub").
WHEREAS, Harcourt General will own 21,440,960 shares of common stock, par
value $.01 per share, of the Company ("Common Stock") immediately prior to the
Merger (as defined below), and Harcourt General will own through HGI Investment
Trust, a wholly owned subsidiary of Harcourt General ("HGI"), 4,988,542 shares
of Common Stock (the "Retained Shares") immediately prior to the Merger,
totaling 26,429,502 shares of Common Stock;
WHEREAS, Harcourt General owns all of the issued and outstanding shares of
common stock, par value $.01 per share, of Merger Sub ("Merger Sub Common
Stock");
WHEREAS, prior to the effectiveness of the Merger, Harcourt General plans
to contribute to Merger Sub 21,440,960 of its 26,429,502 shares of Common Stock
(the "Contributed Shares");
WHEREAS, Harcourt General and the Company desire that Merger Sub merge with
and into the Company (the "Merger") upon the terms and subject to the conditions
set forth in this Agreement in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), pursuant to which all the issued and
outstanding shares of Merger Sub Common Stock shall be converted into shares of
a new class of common stock designated as Class B Common Stock, par value $.01
per share, of the Company ("Class B Common Stock") and all the issued and
outstanding shares of Common Stock (other than the Contributed Shares held by
Merger Sub, which shall be canceled with no securities or other consideration
issued in exchange therefor) shall be converted into Class A Common Stock
("Class A Common Stock") and shall remain issued and outstanding;
WHEREAS, Harcourt General has announced its intention, subject to the
satisfaction of certain conditions, to distribute all the shares of Class B
Common Stock, on a pro rata basis, to the holders of the common stock of
Harcourt General following consummation of the Merger (the "Distribution");
WHEREAS, simultaneously with the execution hereof, the Company and Harcourt
General are entering into a Distribution Agreement dated as of the date hereof
(the "Distribution Agreement"), which provides for the Distribution and certain
other matters;
WHEREAS, the Boards of Directors of the Company and Merger Sub by
resolutions duly adopted have approved the terms of this Agreement and of the
Merger, have declared the advisability of this Agreement and of the Merger and
determined them to be fair to and in the best interests of the Company and
Merger Sub and their respective subsidiaries, and have directed the submission
of this Agreement to their respective stockholders for approval; and
WHEREAS, the Merger is intended to constitute a reorganization within the
meaning of Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as
amended.
NOW, THEREFORE in consideration of the premises and the mutual agreements
and provisions herein contained, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. (a) Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined below), Merger Sub shall be
merged with and into the Company in accordance
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with the DGCL, whereupon the separate corporate existence of Merger Sub shall
cease, and the Company shall be the surviving corporation (the "Surviving
Corporation").
(b) Following satisfaction or waiver of all conditions to the Merger, the
Company and Merger Sub shall file a certificate of merger with the Secretary of
State of the State of Delaware and make all other filings or recordings required
by the DGCL in connection with the Merger. The Merger shall become effective at
such time as the certificate of merger is duly filed with the Secretary of State
of the State of Delaware or at such later time as is specified in the
certificate of merger (the "Effective Time").
(c) At and after the Effective Time, the Merger shall have the effects set
forth in the DGCL. Without limiting the foregoing and subject thereto, from and
after the Effective Time, the Surviving Corporation shall possess all the
rights, privileges, powers and franchises and be subject to all of the
restrictions, disabilities and duties of the Company and Merger Sub, all as
provided under the DGCL.
SECTION 1.2. Effect on Capital Stock. At the Effective Time:
(a) All of the shares of Merger Sub Common Stock outstanding immediately
prior to the Effective Time shall be converted in the aggregate into and become
21,440,960 fully paid and non-assessable shares of Class B Common Stock of the
Surviving Corporation, and shall have the rights and privileges as set forth in
the Surviving Corporation Certificate of Incorporation (as defined in Section
2.1);
(b) Each of the Contributed Shares shall automatically be canceled and
shall cease to exist and no stock of the Surviving Corporation or other
consideration shall be delivered in exchange therefor; and
(c) Each share of Common Stock (other than the Contributed Shares to be
canceled in accordance with Section 1.2(b)), including shares held in the
treasury, if any, and shares held by HGI, shall be converted into "Class A
Common Stock."
SECTION 1.3. Share Certificates. (a) As soon as practicable after the
Effective Time:
(i) the Surviving Corporation shall deliver, or cause to be delivered,
to Harcourt General a number of certificates issued in the names of such
persons, in each case, as Harcourt General shall direct, representing in
the aggregate 21,440,960 shares of Class B Common Stock which Harcourt
General has the right to receive upon conversion of shares of Merger Sub
Common Stock pursuant to the provisions of Section 1.2(a) hereof;
(ii) the Surviving Corporation shall cancel the share certificate or
certificates representing the shares of Common Stock owned directly by
Merger Sub; and
(iii) the share certificates representing shares of Common Stock that
remain issued and outstanding under Section 1.2(c) hereof or that remain
treasury shares under Section 1.2(c) hereof shall not be exchanged and
shall continue to represent an equal number of shares of Class A Common
Stock of the Surviving Corporation without physical substitution of share
certificates of the Surviving Corporation for existing share certificates
of the Company.
(b) Any dividend or other distribution declared or made with respect to any
shares of capital stock of the Company, whether the record date for such
dividend or distribution is before or after the Effective Time, shall be paid to
the holder of record of such shares of capital stock on such record date,
regardless of whether such holder has surrendered its certificates representing
Class A Common Stock or received certificates representing Class B Common Stock
pursuant to Section 1.3(a)(i).
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1. Certificate of Incorporation. At the Effective Time, the
Certificate of Incorporation of the Company as in effect immediately prior to
the Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation, except that such Certificate of Incorporation shall be amended as
set forth in Exhibit A-1 hereto, with such changes thereto as are set forth in
Exhibit A-1 to reflect, if approved by the vote
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of the holders of a majority of the outstanding Common Stock, each of the Board
Size Amendment, the Supermajority Voting Amendment and the Authorized Capital
Amendment (as defined in Section 3.1 below). The Certificate of Incorporation of
the Surviving Corporation that becomes effective pursuant to this Section 2.1 is
herein referred to as the "Surviving Corporation Certificate of Incorporation."
SECTION 2.2. By-Laws. (a) At the Effective Time, the By-Laws of the
Company as in effect immediately prior to the Effective Time shall be the
By-Laws of the Surviving Corporation. The By-Laws of the Surviving Corporation
are herein referred to as the "Surviving Corporation By-Laws."
SECTION 2.3. Directors and Officers. (a) The Surviving Corporation's
Board of Directors initially shall consist of eight members as identified on
Exhibit B-1 hereto. From and after the Effective Time, until the earlier of
their removal or resignation or until their successors are duly elected or
appointed and qualified in accordance with applicable law, the directors of the
Surviving Corporation shall consist of the directors of the Company in office at
the Effective Time. At the Effective Time, the directors of the Surviving
Corporation shall be divided into two classes pursuant to the Surviving
Corporation Certificate of Incorporation. One director of the Surviving
Corporation shall be designated a "Class A Director" and will remain in the
class of which such director is currently a member that designates the
expiration of such director's term. Each of the remaining seven directors of the
Surviving Corporation shall be designated a "Class B Director" and each will
remain in the class of which each such director is currently a member that
designates the expiration of such director's term. The director of the Company
that is expected to be designated as the "Class A Director" shall be identified
by the Board of Directors of the Company from the directors of the Company that
are not affiliated with Harcourt General on or prior to the date on which the
Proxy Statement referred to in Section 3.2 is mailed to the Company's
stockholders.
(b) From and after the Effective Time, until the earlier of their removal
or resignation or until their successors are duly appointed and qualified in
accordance with applicable law and the Surviving Corporation By-Laws, the
officers of the Company shall be the officers of the Surviving Corporation.
ARTICLE III
COVENANTS
SECTION 3.1. Stockholders Meeting. The Company shall, as soon as
practicable following the date of this Agreement, duly call, give notice of,
convene and hold, a meeting of its stockholders (the "Stockholders Meeting") for
the purpose of considering, as four separate proposals, (i) the adoption of this
Agreement; (ii) the approval of an amendment to the Certificate of Incorporation
of the Company establishing a range for the number of directors on the Surviving
Corporation's Board of Directors from six to nine, the actual number to be
determined exclusively by resolution of the Surviving Corporation's Board of
Directors, a provision that prohibits the alteration or repeal of this provision
without the vote of at least 66- 2/3% of the total voting power of the
outstanding shares of the Surviving Corporation's voting stock, voting together
as a single class, and related provisions in Article Twelfth of the Certificate
of Incorporation as set forth in Exhibit A-1 hereto to become effective in the
Merger at the Effective Time (the "Board Size Amendment"); (iii) the approval of
an amendment to the Certificate of Incorporation of the Company providing for a
requirement that the approval of 66- 2/3% of the total voting power of the
outstanding shares of the Surviving Corporation's common stock is necessary to
approve any merger or consolidation, any sale, lease, exchange or other
disposition of all or substantially all of the Surviving Corporation's assets
and, unless approved by two-thirds of the Surviving Corporation's Board of
Directors, any issuance of voting securities of the Surviving Corporation that
would require stockholder approval and related provisions in Article Thirteenth
of the Certificate of Incorporation as set forth in Exhibit A-1 hereto to become
effective in the Merger at the Effective Time (the "Supermajority Voting
Amendment") and (iv) the approval of an amendment to the Certificate of
Incorporation of the Company providing for an increase in authorized capital and
the creation of a new Class C Common Stock having one-tenth ( 1/10) of one vote
per share and related provisions in Article Fourth of the Certificate of
Incorporation as set forth in Exhibit A-1 hereto to become effective in the
Merger at the Effective Time (the "Authorized Capital Amendment"). The Company
hereby represents and warrants to Harcourt General that a committee of
independent directors of the Company's Board of Directors has approved the
Merger, this
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Agreement, the Board Size Amendment, the Supermajority Voting Amendment and the
Authorized Capital Amendment, has determined that the Merger, this Agreement,
the transactions contemplated by the Distribution Agreement, the Board Size
Amendment, the Supermajority Voting Amendment and the Authorized Capital
Amendment are advisable and favorable to and, therefore, fair to and in the best
interests of the stockholders of the Company other than Harcourt General, and
has recommended that the stockholders of the Company vote in favor of the
adoption of this Agreement, the Board Size Amendment, the Supermajority Voting
Amendment and the Authorized Capital Amendment. The Company shall, through a
committee of independent directors of its Board of Directors, continue to
recommend to its stockholders adoption of this Agreement, the Board Size
Amendment, the Supermajority Voting Amendment and the Authorized Capital
Amendment and shall not withdraw such recommendation.
SECTION 3.2. Filings; Other Actions. (a) Subject to the provisions of
this Agreement and the Distribution Agreement, the Company shall prepare and
file with the Securities and Exchange Commission (the "SEC") as soon as
reasonably possible following the execution hereof a proxy statement for the
solicitation of proxies in favor of (i) the adoption of this Agreement, (ii) the
approval of the Board Size Amendment as an amendment to the Certificate of
Incorporation of the Company to become effective in the Merger at the Effective
Time, (iii) the approval of the Supermajority Voting Amendment as an amendment
to the Certificate of Incorporation of the Company to become effective in the
Merger at the Effective Time and (iv) the approval of the Authorized Capital
Amendment as an amendment to the Certificate of Incorporation of the Company to
become effective in the Merger at the Effective Time (the "Proxy Statement").
The Company shall use all reasonable efforts to have the Proxy Statement cleared
by the SEC for mailing in definitive form as promptly as practicable after such
filing. The Company and Harcourt General shall cooperate with each other in the
preparation of the Proxy Statement and any amendment or supplement thereto, and
the Company shall notify Harcourt General of the receipt of any comments of the
SEC with respect to the Proxy Statement and of any requests by the SEC for any
amendment or supplement thereto or for additional information, and shall provide
to Harcourt General promptly copies of all correspondence between the SEC and
the Company or any of its advisors with respect to the Proxy Statement. The
Company shall give Harcourt General and its counsel appropriate advance
opportunity to review the Proxy Statement and all responses to requests for
additional information by and replies to comments of the SEC, and shall
incorporate therein any comments Harcourt General may deliver to the Company
with respect thereto, before such Proxy Statement, response or reply is filed
with or sent to the SEC. The Company agrees to use its best efforts, after
consultation with Harcourt General and its advisors, to respond promptly to all
such comments of, and requests by, the SEC and to cause the Proxy Statement to
be mailed to the holders of its common stock entitled to vote at the
Stockholders Meetings at such time as shall be requested by Harcourt General.
(b) The Company agrees promptly to furnish to Harcourt General all copies
of written communications (and summaries of the substance of all oral
communications) received by it, or any of its affiliates or representatives
from, or delivered by any of the foregoing to, any federal, state or local or
international court, commission, governmental body, agency, authority, tribunal,
board or other governmental entity (each a "Governmental Entity") in respect of
the transactions contemplated hereby.
SECTION 3.3. Best Efforts. Except in the case of Harcourt General to the
extent that it shall have exercised its right to terminate the Distribution
Agreement in accordance with the terms thereof, upon the terms and subject to
the conditions set forth in this Agreement, each of the parties hereto agrees to
use its best efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other party in doing, all
things necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement and the Distribution Agreement, including, but
not limited to (i) the obtaining of all necessary actions or non-actions,
waivers, consents and approvals from all Governmental Entities and the making of
all necessary registrations and filings (including filings with Governmental
Entities) and the taking of all reasonable steps as may be necessary to obtain
an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any
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stay or temporary restraining order entered by any court or other Governmental
Entity with respect to the Merger or this Agreement vacated or reversed, (iv)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by this Agreement and (v) taking such other
actions as are necessary, including agreeing to such other amendments to or
modifications of this Agreement to obtain a favorable tax ruling from the
Internal Revenue Service as to the Federal income tax consequences of the Merger
and Distribution.
SECTION 3.4. Merger Sub Approval. The Board of Directors of Merger Sub
has approved and declared advisable the Merger and this Agreement, has
determined that the Merger is fair to and in the best interests of its
stockholders and has recommended that its stockholders adopt this Agreement. As
promptly as possible following the execution of this Agreement, Harcourt
General, as sole stockholder of Merger Sub, shall execute a written consent
adopting this Agreement.
SECTION 3.5. Harcourt General Approval. Harcourt General agrees to vote,
or cause to be voted, all of the shares of Common Stock owned by it and any of
its subsidiaries in favor of the adoption of this Agreement, the Board Size
Amendment, the Supermajority Voting Amendment and the Authorized Capital
Amendment.
SECTION 3.6. Stockholders Rights Plan. The Company agrees that prior to
the Distribution, it will adopt a stockholders rights plan substantially in the
form attached hereto as Exhibit D-1.
ARTICLE IV
CONDITIONS TO THE MERGER
SECTION 4.1. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction (or waiver by the Company, except that the condition set forth in
Section 4.1(a) may not be waived) of the following conditions:
(a) a proposal to adopt this Agreement has been approved by the
holders of (i) two-thirds of the shares of Common Stock outstanding and
entitled to vote thereon and (ii) a majority of the shares of Common Stock
(other than shares held directly or indirectly by Harcourt General) present
in person or by proxy at the Stockholders Meeting and voting on such
proposal;
(b) no court, arbitrator or governmental body, agency or official
shall have issued any order, and there shall not be any statute, rule or
regulation, restraining or prohibiting the consummation of the Merger or
the Distribution and no proceeding challenging this Agreement or the
transactions contemplated hereby or seeking to prohibit, alter, prevent or
materially delay the Merger or the Distribution shall have been instituted
by any Governmental Entity before any court, arbitrator or governmental
body, agency or official and be pending;
(c) all actions by or in respect of or filings with any Governmental
Entity required to permit the consummation of the Merger shall have been
obtained, except those that would not reasonably be expected to have a
material adverse affect on any party's ability to consummate the
transactions contemplated by this Agreement; and
(d) all the conditions to the Distribution set forth in the
Distribution Agreement, other than the consummation of the Merger, shall
have been satisfied.
SECTION 4.2. Conditions to the Obligations of Harcourt General and Merger
Sub. The obligations of Harcourt General and Merger Sub to consummate the
Merger are subject to the satisfaction (or waiver by Merger Sub, except that the
condition set forth in Section 4.2(a) may not be waived) of the following
conditions:
(a) a proposal to adopt this Agreement has been approved by the
holders of (i) two-thirds of the shares of Common Stock outstanding and
entitled to vote thereon and (ii) a majority of the shares of Common Stock
(other than shares held directly or indirectly by Harcourt General) present
in person or by proxy at the Stockholders Meeting and voting on such
proposal;
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(b) Harcourt General shall have received a favorable tax ruling from
the Internal Revenue Service as to the Federal income tax consequences of
the Merger and the Distribution;
(c) no court, arbitrator or Governmental Entity shall have issued any
order, and there shall not be any statute, rule or regulation, restraining
or prohibiting the consummation of the Merger or the Distribution and no
proceeding challenging this Agreement or the transactions contemplated
hereby or seeking to prohibit, alter, prevent or materially delay the
Merger or the Distribution shall have been instituted by any Governmental
Entity before any court, arbitrator or governmental body, agency or
official and be pending;
(d) the Class B Common Stock shall have been approved for listing on
the New York Stock Exchange, subject to official notice of issuance;
(e) all actions by or in respect of or filings with any governmental
body, agency, official, or authority required to permit the consummation of
the Merger and the Distribution shall have been obtained, except those that
would not reasonably be expected to have a material adverse affect on any
party's ability to consummate the transactions contemplated by this
Agreement;
(f) the stockholders of Harcourt General shall have approved the
amendment to Harcourt General's Restated Certificate of Incorporation
attached hereto as Exhibit C-1; and
(g) all the conditions to the Distribution set forth in the
Distribution Agreement, other than the consummation of the Merger, shall
have been satisfied.
ARTICLE V
TERMINATION
SECTION 5.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the stockholders of the Company):
(a) by mutual written consent of the Company and Harcourt General;
(b) by either the Company or Harcourt General, if there shall be any
law or regulation that makes consummation of the Merger illegal or
otherwise prohibited or if any judgment, injunction, order or decree
enjoining the Company or Merger Sub from consummating the Merger is entered
and such judgment, injunction, order or decree shall become final and
nonappealable;
(c) by the Company, Merger Sub or Harcourt General, if there shall be
any law or regulation that makes consummation of the Distribution illegal
or otherwise prohibited or if any judgment, injunction, order or decree
enjoining Harcourt General from consummating the Distribution is entered;
(d) by Harcourt General or the Company in the event the Distribution
Agreement is terminated;
(e) by Harcourt General or the Company if, after a vote on the matter
by the Company's stockholders at the Stockholders Meeting, the condition
set forth in Sections 4.1(a) and 4.2(a) is not satisfied; or
(f) by Harcourt General if, after a vote on the matter by Harcourt
General's stockholders at a meeting called for such purpose, the condition
set forth in Section 4.2(f) is not satisfied.
SECTION 5.2. Effect of Termination. If this Agreement is terminated
pursuant to Section 5.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto.
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ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Notices. All notices and other communications hereunder
shall be in writing and hand delivered or mailed by registered or certified mail
(return receipt requested) or sent by any means of electronic message
transmission with delivery confirmed (by voice or otherwise) to the parties at
the following addresses (or at such other addresses for a party as shall be
specified by like notice) and will be deemed given on the date on which such
notice is received:
To Harcourt General or Merger Sub:
c/o Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, Massachusetts 02467
Telecopy: (617) 278-5567
Attn: Chief Executive Officer
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Telecopy: (212) 455-2502
Attn: John G. Finley, Esq.
To the Company:
The Neiman Marcus Group, Inc.
27 Boylston Street
Chestnut Hill, Massachusetts 02467
Telecopy: (617) 278-5567
Attn: Chief Executive Officer
and:
The Independent Directors of the Company
c/o The Secretary of the Company
The Neiman Marcus Group, Inc.
27 Boylston Street
Chestnut Hill, Massachusetts 02467
Telecopy: (617) 278-5567
with a copy to:
Choate Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Telecopy: (617) 248-4000
Attn: Andrew L. Nichols, Esq.
SECTION 6.2. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other party hereto, except that Merger Sub may at any
time prior to the mailing of the Proxy Statement assign all of its rights and
obligations under this Agreement to any other wholly-owned subsidiary of
Harcourt General, and in the case of such assignment, the parties hereto agree
to amend this Agreement to so provide.
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SECTION 6.3. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware.
SECTION 6.4. Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by the other party hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
THE NEIMAN MARCUS GROUP, INC.
By /s/ ERIC P. GELLER
------------------------------------
Name: Eric P. Geller
Title: Senior Vice President,
General Counsel and Secretary
HARCOURT GENERAL, INC.
By /s/ JOHN R. COOK
------------------------------------
Name: John R. Cook
Title: Senior Vice President and
Chief Financial Officer
SPRING MERGER CORPORATION
By /s/ JOHN R. COOK
------------------------------------
Name: John R. Cook
Title: President
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<PAGE> 62
APPENDIX B
EXECUTION COPY
AMENDED AND RESTATED DISTRIBUTION AGREEMENT
BETWEEN
HARCOURT GENERAL, INC.
AND
THE NEIMAN MARCUS GROUP, INC.
DATED AS OF JULY 1, 1999
<PAGE> 63
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. DEFINITIONS................................................. B-2
SECTION 1.1 General..................................................... B-2
SECTION 1.2 References; Interpretation.................................. B-5
ARTICLE II. DISTRIBUTION AND OTHER TRANSACTIONS; CERTAIN COVENANTS...... B-5
SECTION 2.1 The Distribution and Other Transactions..................... B-5
SECTION 2.2 Declaration Date; Further Assurances........................ B-8
SECTION 2.3 Representations and Warranties.............................. B-8
SECTION 2.4 Certain Post-Distribution Transactions...................... B-10
SECTION 2.5 Certain Limitations on Actions by Harcourt General.......... B-11
SECTION 2.6 Right of First Offer........................................ B-11
SECTION 2.7 Smith Family................................................ B-12
ARTICLE III. INDEMNIFICATION............................................. B-12
SECTION 3.1 Indemnification by Neiman Marcus............................ B-12
SECTION 3.2 Indemnification by Harcourt General......................... B-12
SECTION 3.3 Procedures for Indemnification.............................. B-12
SECTION 3.4 Indemnification Payments.................................... B-14
ARTICLE IV. COVENANTS................................................... B-14
SECTION 4.1 Access to Information....................................... B-14
SECTION 4.2 Confidentiality............................................. B-14
SECTION 4.3 Retention of Records........................................ B-14
SECTION 4.4 Litigation Cooperation...................................... B-15
SECTION 4.5 Other Matters............................................... B-15
SECTION 4.6 No Solicitation............................................. B-15
SECTION 4.7 Registration Rights Agreement............................... B-15
SECTION 4.8 Disclosure of Indemnification Obligations................... B-15
ARTICLE V. MISCELLANEOUS............................................... B-16
SECTION 5.1 Complete Agreement; Construction............................ B-16
SECTION 5.2 Counterparts................................................ B-16
SECTION 5.3 Survival of Agreements...................................... B-16
SECTION 5.4 Expenses.................................................... B-16
SECTION 5.5 Notices..................................................... B-16
SECTION 5.6 Waivers..................................................... B-17
SECTION 5.7 Amendments.................................................. B-17
SECTION 5.8 Assignment.................................................. B-17
SECTION 5.9 Successors and Assigns...................................... B-17
SECTION 5.10 Termination................................................. B-17
SECTION 5.11 Subsidiaries................................................ B-17
SECTION 5.12 Third Party Beneficiaries................................... B-17
SECTION 5.13 Title and Headings.......................................... B-18
SECTION 5.14 Exhibits and Schedules...................................... B-18
SECTION 5.15 GOVERNING LAW............................................... B-18
SECTION 5.16 Consent to Jurisdiction..................................... B-18
SECTION 5.17 Severability................................................ B-18
</TABLE>
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AMENDED AND RESTATED DISTRIBUTION AGREEMENT
AMENDED AND RESTATED DISTRIBUTION AGREEMENT, dated as of July 1, 1999,
amending and restating the DISTRIBUTION AGREEMENT, dated as of May 14, 1999
(this "Agreement"), between HARCOURT GENERAL, INC., a Delaware corporation
("Harcourt General"), and THE NEIMAN MARCUS GROUP, INC., a Delaware corporation
("Neiman Marcus").
WHEREAS, Harcourt General will own, immediately prior to the
Recapitalization (as defined below), 21,440,960 shares of Common Stock, par
value $.01 per share, of Neiman Marcus ("Common Stock") and HGI Investment
Trust, a wholly-owned subsidiary of Harcourt General ("HGI"), will own 4,988,542
shares of Common Stock (the "Retained Shares");
WHEREAS, simultaneously with the execution hereof, Neiman Marcus and Spring
Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of
Harcourt General ("Merger Sub"), are entering into an Amended and Restated
Agreement and Plan of Merger dated as of the date hereof (as amended,
supplemented or otherwise modified from time to time, the "Recapitalization
Agreement"), pursuant to which, among other things, Merger Sub will merge with
and into Neiman Marcus with the following consequent capital stock changes: (i)
21,440,960 shares of the Common Stock held by Harcourt General will be
contributed to Merger Sub and, as of the Declaration Date (as defined herein),
will automatically be canceled and retired with no securities or other
consideration issued in exchange therefor, (ii) all of the common stock of
Merger Sub, owned by Harcourt General, will be converted into 21,440,960 shares
of a new Class B Common Stock, par value $.01 per share, of Neiman Marcus
("Class B Common Stock" and, together with the Class A Common Stock, the "Neiman
Marcus Common Stock"), which class of stock will be entitled to elect at least
82% of the members of the board of directors of Neiman Marcus and in all other
respects will be substantially identical to the Class A Common Stock and (iii)
all other shares of Common Stock will be converted into Class A Common Stock,
par value $.01 per share, of Neiman Marcus ("Class A Common Stock"), including
4,988,542 shares of Common Stock held by HGI, which class of stock shall be
entitled to elect up to 18% of the members of the board of directors of Neiman
Marcus (the "Recapitalization");
WHEREAS, the Board of Directors of Harcourt General has determined that it
is appropriate, desirable and in the best interests of Harcourt General and its
stockholders to distribute on the Distribution Date all the shares of Class B
Common Stock that Harcourt General will receive in the Recapitalization, on the
terms and subject to the conditions set forth in this Agreement, to the holders
of record of the Common Stock, par value $1.00 per share, of Harcourt General
and the Class B Stock, par value $1.00 per share, of Harcourt General
(collectively, "Harcourt General Common Stock"), as of the Distribution Record
Date (as defined herein), on a pro rata basis (the "Distribution");
WHEREAS, Harcourt General will submit a request for a ruling (as it may be
amended from time to time, the "Ruling Request") from the Internal Revenue
Service to the effect that the Distribution will be a tax-free distribution
within the meaning of Section 355 of the Code (as defined herein);
WHEREAS, each of Harcourt General and Neiman Marcus has determined that it
is necessary and desirable to set forth the principal corporate transactions
required to effect the Distribution and the Recapitalization and to set forth
other agreements that will govern certain other matters following the
Distribution.
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NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1 General. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or
other regulatory or administrative agency, body or commission or any
arbitration tribunal.
(b) "Affiliate" shall mean, when used with respect to a specified
person, another person that controls, is controlled by, or is under common
control with the person specified. As used herein, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through
the ownership of voting securities or other interests, by contract or
otherwise.
(c) "Assets" shall mean assets, properties and rights (including
goodwill), wherever located (including in the possession of vendors or
other third parties or elsewhere), whether real, personal or mixed,
tangible, intangible or contingent, in each case whether or not recorded or
reflected or required to be recorded or reflected on the books and records
or financial statements of any Person.
(d) "Authorized Capital Amendment" shall mean an amendment to the
Neiman Marcus Certificate of Incorporation providing for an increase in
authorized capital and the creation of a new class of low-vote common stock
having one-tenth (1/10) of one vote per share.
(e) "Business Entity" shall mean any corporation, partnership, limited
liability company or other entity which may legally hold title to Assets.
(f) "Class A Common Stock" shall have the meaning set forth in the
recitals hereto.
(g) "Class B Common Stock" shall have the meaning set forth in the
recitals hereto.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the Treasury regulations promulgated thereunder, including any
successor legislation.
(i) "Commission" shall mean the U.S. Securities and Exchange
Commission.
(j) "Declaration Date" shall mean the date on which (i) the Harcourt
General Board of Directors shall declare the dividend constituting the
Distribution and (ii) the certificate of merger effecting the
Recapitalization shall be filed with the Secretary of State of the State of
Delaware.
(k) "DGCL" shall mean the General Corporation Law of the State of
Delaware.
(l) "Distribution" shall have the meaning set forth in the recitals
hereto.
(m) "Distribution Agent" shall mean the distribution agent selected by
Harcourt General to effect the Distribution.
(n) "Distribution Date" shall mean the date determined by the Board of
Directors of Harcourt General following the consummation of the
Recapitalization for the mailing of certificates of Class B Common Stock to
stockholders of Harcourt General in the Distribution.
(o) "Distribution Record Date" shall mean the date determined by the
Board of Directors of Harcourt General as the record date for the
determination of the holders of record of Harcourt General Common Stock
entitled to receive shares of Class B Common Stock in the Distribution.
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(p) "Effective Time" shall mean immediately prior to the midnight, New
York time, that ends the 24-hour period comprising the Distribution Date.
(q) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
(r) "Form 8-A" shall mean a Neiman Marcus registration statement on
Form 8-A pursuant to which the Class B Common Stock shall be registered
under the Exchange Act, including all amendments thereto.
(s) "Governance Amendments" shall mean (i) an amendment to the Neiman
Marcus Certificate of Incorporation establishing a range for the number of
directors on the Neiman Marcus Board of Directors from six to nine, the
actual number to be determined exclusively by resolution of the Neiman
Marcus Board of Directors, and a provision that prohibits the alteration or
repeal of this provision without the vote of 66 2/3% of the total voting
power of the outstanding shares of Neiman Marcus voting stock voting
together as a single class and (ii) an amendment to the Neiman Marcus
Certificate of Incorporation providing for a requirement that the approval
of 66 2/3% of the total voting power of the outstanding shares of Neiman
Marcus is necessary to approve any merger or consolidation, any sale,
lease, exchange or other disposition of all or substantially all of Neiman
Marcus' assets and unless approved by two-thirds of the Neiman Marcus Board
of Directors, any issuance of voting securities of Neiman Marcus that would
require stockholder approval.
(t) "Governmental Authority" shall mean any federal, state, local,
foreign or international court, government, department, commission, board,
bureau, agency, official or other regulatory, administrative or
governmental authority.
(u) "Harcourt General Business" shall mean each and every business
conducted at any time by Harcourt General or any Subsidiary of Harcourt
General (other than Neiman Marcus and its subsidiaries) prior to the
Effective Time, except the Neiman Marcus Business.
(v) "Harcourt General Common Stock" shall have the meaning set forth
in the recitals hereto.
(w) "Harcourt General Group" shall mean Harcourt General and each
Person (other than any member of the Neiman Marcus Group) that is a
Subsidiary of Harcourt General immediately prior to the Effective Time.
(x) "Harcourt General Indemnitees" shall mean Harcourt General, each
member of the Harcourt General Group, each of their respective present and
former directors, officers, employees and agents and each of the heirs,
executors, successors and assigns of any of the foregoing except Neiman
Marcus Indemnitees; provided that any Person who is a present or former
director, officer, employee or agent (or is an heir, executor, successor or
assign of such Person) of Harcourt General or any member of the Harcourt
General Group (excluding the Neiman Marcus Group) shall be covered by this
definition in such capacity.
(y) "Harcourt General Liabilities" shall mean collectively, all
Liabilities of Harcourt General or any Subsidiary of Harcourt General
(other than Neiman Marcus and its Subsidiaries) immediately prior to the
Effective Time, except the Neiman Marcus Liabilities.
(z) "Indemnifiable Losses" shall mean any and all losses, Liabilities,
claims, damages, demands, costs or expenses (including reasonable
attorneys' fees and any and all out-of-pocket expenses) reasonably incurred
in investigating, preparing for or defending against any Actions or
potential Actions or in settling any Action or potential Action or in
satisfying any judgment, fine or penalty rendered in or resulting from any
Action.
(aa) "Indemnifying Party" shall have the meaning set forth in Section
3.3.
(bb) "Indemnitee" shall have the meaning set forth in Section 3.3.
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(cc) "Intercompany Services Agreement" shall mean the agreement, dated
as of July 24, 1987, between Harcourt General (formerly General Cinema
Corporation) and The Neiman Marcus Group, Inc.
(dd) "IRS Ruling" shall have the meaning set forth in Section
2.1(b)(i).
(ee) "Liabilities" shall mean any and all losses, claims, charges,
debts, demands, actions, causes of action, suits, damages, obligations,
payments, costs and expenses, sums of money, accounts, reckonings, bonds,
specialties, indemnities and similar obligations, exonerations, covenants,
contracts, controversies, agreements, promises, doings, omissions,
variances, guarantees, make whole agreements and similar obligations, and
other liabilities, including all contractual obligations, whether absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, and including those arising
under any law, rule, regulation, Action, threatened or contemplated Action
(including the costs and expenses of demands, assessments, judgments,
settlements and compromises relating thereto and attorneys' fees and any
and all costs and expenses, whatsoever reasonably incurred in
investigating, preparing or defending against any such Actions or
threatened or contemplated Actions), order or consent decree of any
governmental or other regulatory or administrative agency, body or
commission or any award of any arbitrator or mediator of any kind, and
those arising under any contract, commitment or undertaking, including
those arising under this Agreement or the Recapitalization Agreement, in
each case, whether or not recorded or reflected or required to be recorded
or reflected on the books and records or financial statements of any
person.
(ff) "Material Adverse Effect" shall mean, with respect to any Person,
any change, effect, event, occurrence or development that is, individually
or in the aggregate, materially adverse to the business, operations,
assets, liabilities, condition (financial or otherwise), results of
operations or prospects of such Person.
(gg) "Neiman Marcus" shall have the meaning set forth in the heading
of this Agreement.
(hh) "Neiman Marcus Business" shall mean each and every business
conducted at any time prior to, on or after the Effective Time by Neiman
Marcus or any Subsidiary of Neiman Marcus or other Business Entity
controlled by Neiman Marcus, whether or not such Subsidiary is a Subsidiary
of Neiman Marcus or such Business Entity is controlled by Neiman Marcus on
the date hereof.
(ii) "Neiman Marcus Group" shall mean Neiman Marcus and each Person
that is a Subsidiary of Neiman Marcus immediately prior to the Effective
Time.
(jj) "Neiman Marcus Indemnitees" shall mean Neiman Marcus, each member
of the Neiman Marcus Group, each of their respective present and former
directors, officers, employees and agents and each of the heirs, executors,
successors and assigns of any of the foregoing.
(kk) "Neiman Marcus Liabilities" shall mean, collectively, any and all
Liabilities whatsoever that arise out of, result from, are related to, or
are enforceable against, Neiman Marcus or any Subsidiary of Neiman Marcus
or any Business Entity controlled by Neiman Marcus, whether or not such
Subsidiary was a Subsidiary of Neiman Marcus or such Business Entity was
controlled by Neiman Marcus prior to, on or after the date hereof, or the
ownership or operation of the Neiman Marcus Business, whether such
Liabilities arise before, on or after the Effective Time and whether known
or unknown, fixed or contingent, including:
(i) any and all Liabilities arising from or based upon "controlling
person" liability relating to the Proxy Statement (or any amendment
thereto) or any other report or document filed by Neiman Marcus with the
Commission at any time before, on or after the Effective Time; and
(ii) any and all Liabilities that are expressly contemplated by
this Agreement or the Recapitalization Agreement (or the Schedules
hereto or thereto) as Liabilities to be assumed by Neiman Marcus or any
member of the Neiman Marcus Group or to remain with Neiman Marcus or any
member of the Neiman Marcus Group, and all Liabilities of Neiman Marcus
under this Agreement and the Recapitalization Agreement.
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(ll) "NYSE" shall mean the New York Stock Exchange, Inc.
(mm) "Person" shall mean any natural person, Business Entity,
corporation, business trust, joint venture, association, company,
partnership, other entity or government, or any agency or political
subdivision thereof.
(nn) "Proxy Statement" shall have the meaning set forth in the
Recapitalization Agreement.
(oo) "Recapitalization" shall have the meaning set forth in the
recitals hereto.
(pp) "Recapitalization Agreement" shall have the meaning set forth in
the recitals hereto.
(qq) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
(rr) "Subsidiary" shall mean any corporation, partnership or other
entity of which another entity (i) owns, directly or indirectly, ownership
interests sufficient to elect a majority of the Board of Directors (or
persons performing similar functions) (irrespective of whether at the time
any other class or classes of ownership interests of such corporation,
partnership or other entity shall or might have such voting power upon the
occurrence of any contingency) or (ii) is a general partner or an entity
performing similar functions (e.g., a trustee).
(ss) "Third Party Claim" shall have the meaning set forth in Section
3.3.
SECTION 1.2 References; Interpretation. References in this Agreement to
any gender include references to all genders, and references to the singular
include references to the plural and vice versa. The words "include", "includes"
and "including" when used in this Agreement shall be deemed to be followed by
the phrase "without limitation". Unless the context otherwise requires,
references in this Agreement to Articles, Sections, Exhibits and Schedules shall
be deemed references to Articles and Sections of, and Exhibits and Schedules to,
such Agreement. Unless the context otherwise requires, the words "hereof",
"hereby" and "herein" and words of similar meaning when used in this Agreement
refer to this Agreement in its entirety and not to any particular Article,
Section or provision of this Agreement.
ARTICLE II.
DISTRIBUTION AND OTHER TRANSACTIONS;
CERTAIN COVENANTS
SECTION 2.1 The Distribution and Other Transactions.
(a) The Distribution. Subject to the conditions set forth in Section
2.1(b) of this Agreement, on the Declaration Date the Board of Directors of
Harcourt General shall declare the Distribution upon the terms set forth in this
Agreement. To effect the Distribution, Harcourt General shall cause the
Distribution Agent to distribute, on the Distribution Date, on a pro rata basis
and taking into account Section 2.1(c), to the holders of record of Harcourt
General Common Stock on the Distribution Record Date, all shares of Class B
Common Stock held by Harcourt General on the Distribution Date. During the
period commencing on the date the certificates representing shares of Class B
Common Stock are delivered to the Distribution Agent and ending upon the date(s)
on which certificates evidencing such shares are mailed to holders of record of
Harcourt General Common Stock on the Distribution Record Date or on which
fractional shares of Class B Common Stock are sold on behalf of such holders,
the Distribution Agent shall hold the certificates representing shares of Class
B Common Stock on behalf of such holders. Harcourt General shall deliver to the
Distribution Agent the share certificates representing the shares of Class B
Common Stock held by Harcourt General which are to be distributed to the holders
of Harcourt General Common Stock in the Distribution. Neiman Marcus agrees, if
required by Harcourt General, to provide all certificates evidencing shares of
Class B Common Stock that Harcourt General shall require in order to effect the
Distribution.
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(b) Conditions to the Distribution. The Harcourt General Board of
Directors shall declare a dividend constituting the Distribution on the
Declaration Date following the satisfaction or waiver by Harcourt General, as
determined by Harcourt General in its sole discretion, of the conditions set
forth below:
(i) A private letter ruling from the Internal Revenue Service shall
have been obtained, and shall continue in effect, providing that, among
other things, the Recapitalization and the Distribution will qualify as
tax-free transactions for federal income tax purposes under Sections 354
and 355 of the Code (the "IRS Ruling"); such ruling shall be in form and
substance satisfactory to Harcourt General in its sole discretion; and
Harcourt General and Neiman Marcus shall have complied with all conditions
set forth in such ruling that are required to be complied with prior to the
Distribution;
(ii) Any material governmental approvals and consents necessary to
consummate the Distribution and the other transactions contemplated hereby
and by the Recapitalization Agreement shall have been obtained and shall be
in full force and effect;
(iii) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Distribution and the other transactions
contemplated hereby and by the Recapitalization Agreement shall be in
effect and no other event outside the control of Harcourt General shall
have occurred or failed to occur that prevents the consummation of the
Distribution;
(iv) The transactions contemplated hereby shall be in compliance with
applicable federal and state securities and other applicable laws;
(v) Each of Neiman Marcus and Harcourt General shall have received
such consents, and shall have received executed copies of such agreements
or amendments of agreements, as Harcourt General shall deem appropriate in
connection with the completion of the Distribution or the transactions
contemplated by this Agreement and the Recapitalization Agreement;
(vi) The Recapitalization shall have been consummated;
(vii) The Form 8-A shall have been filed with the Commission and there
shall be no impediment to the certification by the NYSE to the Commission
of the listing of the Class B Common Stock;
(viii) The Class B Common Stock shall have been approved for listing
on the NYSE, subject to official notice of issuance;
(ix) The stockholders of Harcourt General shall have approved an
amendment to the Harcourt General Certificate of Incorporation creating a
class of low-vote common stock;
(x) The Board of Directors of Harcourt General shall have received an
opinion of Lazard Freres as to the fairness of the Distribution to the
Harcourt General stockholders from a financial point of view;
(xi) The Board of Directors of Harcourt General shall have received a
customary opinion as to the legality of the dividend constituting the
Distribution under Delaware law;
(xii) The Board of Directors of Harcourt General shall have received a
customary opinion as to the Distribution not constituting a sale, lease,
exchange or other disposition of all or substantially all of its assets;
(xiii) Each of the representations and warranties of Neiman Marcus set
forth in this Agreement shall have been true and correct when made and
shall be true and correct as of the Declaration Date; and Neiman Marcus
shall have performed or complied with all agreements and covenants required
to be performed by it under this Agreement and the Recapitalization
Agreement at or prior to the Declaration Date; and Harcourt General shall
have received a certificate of the chief financial officer of Neiman Marcus
as to the foregoing;
(xiv) All actions and other documents and instruments deemed necessary
or advisable in connection with the transactions contemplated hereby shall
have been taken or executed, as the case may be, in form and substance
satisfactory to Harcourt General; and
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(xv) No event or development shall have occurred which the Board of
Directors of Harcourt General determines, in its sole discretion, makes the
Distribution not in the best interests of Harcourt General and/or its
stockholders.
The foregoing conditions are for the sole benefit of Harcourt General and shall
not give rise to or create any duty on the part of Harcourt General to waive or
not waive any such condition.
(c) Sale of Fractional Shares. In response to the request of Neiman Marcus
that no fractional shares of Class B Common Stock be distributed in the
Distribution, Harcourt General shall appoint the Distribution Agent as agent for
each holder of record of Harcourt General Common Stock who would receive in the
Distribution any fractional share of Class B Common Stock. The Distribution
Agent shall aggregate all such fractional shares and sell them in an orderly
manner after the Distribution Date in the open market and, after completion of
such sales, distribute a pro rata portion of the net proceeds from such sales,
based upon the gross selling price of all such fractional shares, to each
shareholder of Harcourt General who would otherwise have received a fractional
share. Harcourt General shall reimburse the Distribution Agent for its
reasonable costs, expenses and fees (including selling expenses) in connection
with the sale of fractional shares of Class B Common Stock and the distribution
of the proceeds thereof in accordance with this Section 2.1(c).
(d) Other Actions. (i) Harcourt General and Neiman Marcus shall prepare
and mail, at such time as determined by Harcourt General, to the holders of
Harcourt General Common Stock, such information concerning Neiman Marcus, its
business, operations and management, the Distribution and the tax consequences
thereof and such other matters as Harcourt General shall reasonably determine or
as may be required by law. Neiman Marcus agrees to cooperate with Harcourt
General in the preparation of, and provide any information reasonably requested
by Harcourt General for inclusion in, such mailing. Harcourt General and Neiman
Marcus will prepare, and Neiman Marcus will, to the extent required under
applicable law, file with the Commission any such documentation, including any
no action letters or other requests for interpretive or regulatory assistance,
if any, which Harcourt General determines are necessary or desirable to
effectuate the Distribution and the other transactions contemplated hereby and
by the Recapitalization Agreement and Harcourt General and Neiman Marcus shall
each use its reasonable best efforts to obtain all necessary approvals from the
Commission with respect thereto as soon as practicable.
(ii) Harcourt General and Neiman Marcus shall take all such action as may
be necessary or appropriate under the securities or blue sky laws of the United
States (and any comparable laws under any foreign jurisdiction) in connection
with the Distribution and the other transactions contemplated hereby and by the
Recapitalization Agreement.
(iii) Neiman Marcus shall prepare and file, and shall use its reasonable
best efforts to have approved, subject to official notice of issuance, an
application for the listing on the NYSE of the Class B Common Stock to be
distributed in the Distribution.
(iv) Subject to Section 2.1(d)(vii), Neiman Marcus shall prepare and file
the Form 8-A (which may include or incorporate by reference information
contained in the Proxy Statement) with the Commission as promptly as practicable
following the execution hereof, and shall use its best efforts to cause the Form
8-A to become effective under the Exchange Act immediately following the
consummation of the Recapitalization on the Declaration Date or as soon
thereafter as practicable.
(v) On or prior to the Distribution Date, each of Harcourt General and
Neiman Marcus shall consummate those other transactions in connection with the
Distribution (including the Recapitalization) that are contemplated by the
Ruling Request and any related submissions by Harcourt General to the Internal
Revenue Service.
(vi) In addition to those matters specifically set forth above, Harcourt
General and Neiman Marcus also shall take all reasonable steps necessary and
appropriate to cause the conditions set forth in Section 2.1(b) to be satisfied
and to effect the Distribution on the Distribution Date.
(vii) Neiman Marcus agrees that it shall not file with the Commission any
report or other document that contains any disclosure relating to the
Distribution, this Agreement, the Recapitalization Agreement or any of
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the transactions contemplated hereby or thereby without the prior written
consent of Harcourt General with respect to such disclosure, which consent shall
not be unreasonably withheld.
(viii) Prior to the Distribution Date, Neiman Marcus shall not amend, and
the Neiman Marcus Board of Directors shall not approve any amendment to, Neiman
Marcus's restated Certificate of Incorporation, other than the Governance
Amendments, the Authorized Capital Amendment and the amendments to the
Certificate of Incorporation that will take effect upon the filing of the
certificate of merger with the Secretary of State of the State of Delaware in
connection with the Recapitalization in accordance with the terms of the
Recapitalization Agreement.
(ix) Harcourt General agrees to vote, or cause to be voted, all shares of
Neiman Marcus Common Stock owned by it in favor of the adoption of the
Recapitalization Agreement, the Governance Amendments and the Authorized Capital
Amendment.
(x) Harcourt General and Neiman Marcus shall enter into an Amended and
Restated Intercompany Services Agreement, pursuant to which Harcourt General
will continue to provide corporate services to Neiman Marcus.
(xi) Except as set forth above in clause (x), all agreements and
arrangements existing on the date hereof between Harcourt General or any of its
Subsidiaries on the one hand and Neiman Marcus and any of its Subsidiaries on
the other hand, whether written or oral, shall continue in full force and effect
in accordance with their terms and consistent with past practice from the date
hereof, through the Distribution Date and thereafter.
SECTION 2.2 Declaration Date; Further Assurances. (a) The parties agree
that the Declaration Date shall occur as soon as reasonably practicable
following the satisfaction or waiver of the conditions to the declaration of the
Distribution set forth in Section 2.1(b). To the extent any action of the Board
of Directors of Neiman Marcus or Harcourt General is necessary to consummate the
Distribution, the parties shall cause their respective Boards of Directors to
meet telephonically or at the same location on the Declaration Date and each
shall take such corporate action at such meeting as shall be required to effect
the transactions contemplated hereby and by the Recapitalization Agreement.
Immediately following such meetings, Neiman Marcus shall take all actions
required to consummate the Recapitalization in accordance with the terms of the
Recapitalization Agreement, including the filing of the certificate of merger
relating to the Recapitalization with the Secretary of State of the State of
Delaware.
(b) Subject to Harcourt General's right to terminate this Agreement in
accordance with Section 5.10, in case at any time after the date hereof any
further action is reasonably necessary or desirable to carry out the
Recapitalization or Distribution or any other purpose of this Agreement or the
Recapitalization Agreement, the proper officers of each party to this Agreement
shall take all such necessary action, and shall execute and deliver all
necessary instruments related thereto. Without limiting the foregoing, and
subject as aforesaid, Harcourt General and Neiman Marcus shall use their
respective reasonable best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements or otherwise to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, promptly to obtain all consents and approvals, to
enter into all amendatory agreements (including, without limitation, agreeing to
such other amendments or modifications of this Agreement in order to obtain the
IRS Ruling), to make all filings and applications that may be required for the
consummation of the transactions contemplated by this Agreement and the
Recapitalization Agreement, including all applicable governmental and regulatory
filings, and to permit each other to review and comment on all correspondence
and filings related to the foregoing.
SECTION 2.3 Representations and Warranties. (a) Neiman Marcus hereby
represents and warrants to Harcourt General as follows:
(i) Organization; Good Standing. Neiman Marcus is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all corporate power required to consummate the
transactions contemplated hereby and by the Recapitalization Agreement.
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(ii) Authorization. The execution, delivery and performance by Neiman
Marcus of this Agreement and the Recapitalization Agreement and the
consummation by Neiman Marcus of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the
part of Neiman Marcus, other than the approval of the Recapitalization by
the stockholders of Neiman Marcus. Each of this Agreement and the
Recapitalization Agreement constitutes, and each other agreement or
instrument executed and delivered or to be executed and delivered by Neiman
Marcus pursuant to this Agreement or the Recapitalization Agreement will,
upon such execution and delivery, constitute a legal, valid and binding
obligation of Neiman Marcus, enforceable against Neiman Marcus in
accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at
law) and an implied covenant of good faith and fair dealing.
(iii) Consents and Filings. Except (w) for the filing of a
certificate of merger in connection with the Recapitalization and any other
filings required to be made with the Secretary of State of the State of
Delaware, (x) for the IRS Ruling, (y) for the filing of the Proxy Statement
and the Form 8-A and any other reports or documents required to be filed
under the Exchange Act and (z) for any filings required to be made with the
NYSE, no consent of, or filing with, any Governmental Entity which has not
been obtained or made is required for or in connection with the execution
and delivery of this Agreement or the Recapitalization Agreement by Neiman
Marcus, and the consummation by Neiman Marcus of the transactions
contemplated hereby or thereby.
(iv) Noncontravention. Except in the case of any consents that will
be obtained prior to the Distribution Date, the execution, delivery and
performance of this Agreement and the Recapitalization Agreement by Neiman
Marcus does not, and the consummation by Neiman Marcus of the transactions
contemplated hereby and thereby will not, (i) violate any applicable
federal, state or local statute, law, rule or regulation, (ii) violate any
provision of the Certificate of Incorporation or By-Laws of Neiman Marcus
or (iii) violate any provision of, or result in the termination or
acceleration of, or entitle any party to accelerate any obligation or
indebtedness under, any mortgage, lease, franchise, license, permit,
agreement, instrument, order, arbitration award, judgment or decree to
which Neiman Marcus or any of its Subsidiaries is a party or by which any
of them are bound, except for, in the case of clause (iii) above, such
violations that would not result in a Material Adverse Effect with respect
to Neiman Marcus or prevent Harcourt General from complying with the terms
and provisions of this Agreement or the Recapitalization Agreement in any
material respect.
(v) Litigation. There are no actions or suits against Neiman Marcus
pending, or to the knowledge of Neiman Marcus, threatened which seek to,
and Neiman Marcus is not subject to any judgments, decrees or orders which,
enjoin or rescind the transactions contemplated by this Agreement or the
Recapitalization Agreement or otherwise prevent Neiman Marcus from
complying with the terms and provisions of this Agreement or the
Recapitalization Agreement in any material respect.
(vi) Change of Control Adjustments. Except as would not result in a
Material Adverse Effect with respect to Neiman Marcus and except in the
case of any consents that will be obtained prior to the Distribution Date,
neither the Recapitalization nor the Distribution nor any of the other
transactions contemplated hereby or by the Recapitalization Agreement will
(x) constitute a "change of control" or otherwise result in the increase or
acceleration of any benefits, including to employees of Neiman Marcus,
under any agreement to which Neiman Marcus or any of its Subsidiaries is a
party or by which it or any of its Subsidiaries is bound, or (y) result in
any adjustment of the number of shares subject to, or the terms of,
including exercise price, any outstanding employee stock options of Neiman
Marcus.
(b) Harcourt General hereby represents and warrants to Neiman Marcus as
follows:
(i) Organization; Good Standing. Harcourt General is a corporation
duly incorporated, validly existing and in good standing under the laws of
the State of Delaware and has all corporate power required to consummate
the transactions contemplated hereby.
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(ii) Authorization. The execution, delivery and performance by
Harcourt General of this Agreement and the consummation by Harcourt General
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Harcourt General, other than the
formal declaration of the Distribution. This Agreement constitutes, and
each other agreement or instrument executed and delivered or to be executed
and delivered by Harcourt General pursuant to this Agreement will, upon
such execution and delivery, constitute, a legal, valid and binding
obligation of Harcourt General, enforceable against Harcourt General in
accordance with its terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at
law) and an implied covenant of good faith and fair dealing.
(iii) Consents and Filings. Except (w) for the filing of a
certificate of merger in connection with the Recapitalization, a
certificate of amendment to the Harcourt General Certificate of
Incorporation and any other filings required to be made with the Secretary
of State of the State of Delaware, (x) for the IRS Ruling, (y) for the
filing of the Proxy Statement, the Form 8-A and a proxy statement in
respect of the proposed amendment to Harcourt General's Certificate of
Incorporation referred to in Section 2.1(b)(ix) and any other reports or
documents required to be filed under the Exchange Act and (z) for any
filings required to be made with the NYSE, no material consent of, or
filing with, any Governmental Entity which has not been obtained or made is
required for or in connection with the execution and delivery of this
Agreement by Harcourt General, and the consummation by Harcourt General of
the transactions contemplated hereby.
(iv) Noncontravention. Except in the case of any consents that will
be obtained prior to the Distribution Date, the execution, delivery and
performance of this Agreement and the Recapitalization Agreement by
Harcourt General does not, and the consummation by Harcourt General of the
transactions contemplated hereby and thereby will not, (i) violate any
applicable federal, state or local statute, law, rule or regulation, or
(ii) violate any provision of the Certificate of Incorporation or By-Laws
of Harcourt General or (iii) violate any provision of, or result in the
termination or acceleration of, or entitle any party to accelerate any
obligation or indebtedness under, any mortgage, lease, franchise, license,
permit, agreement, instrument, order, arbitration award, judgment or decree
to which Harcourt General or any of its Subsidiaries is a party or by which
any of them are bound, except for, in the case of clause (iii) above, such
violations that would not prevent Harcourt General from complying with the
terms and provisions of this Agreement or the Recapitalization Agreement in
any material respect.
SECTION 2.4 Certain Post-Distribution Transactions. (a)(i) Neiman Marcus
shall comply and shall cause its Subsidiaries to comply with and otherwise not
take action inconsistent with each representation and statement made to the
Internal Revenue Service in connection with the request by Harcourt General for
a ruling letter in respect of the Distribution as to certain tax aspects of the
Distribution and (ii) until two years after the Distribution Date, Neiman Marcus
will maintain its status as a company engaged in the active conduct of a trade
or business, as defined in Section 355(b) of the Code.
(b) Neiman Marcus agrees that until two years after the Distribution Date,
it will not (i) merge or consolidate with or into any other corporation, (ii)
liquidate or partially liquidate, (iii) sell or transfer all or substantially
all of its assets (within the meaning of Rev. Proc. 77-37, 1977-2 C.B. 568) in a
single transaction or series of related transactions, (iv) redeem or otherwise
repurchase any Neiman Marcus stock (other than as described in Section
4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696), or (v) take any other action
or actions which in the aggregate (and taking into account the Recapitalization)
would have the effect of causing or permitting one or more persons to acquire
directly or indirectly stock representing a 50 percent or greater interest
(within the meaning of Section 355(e) of the Code) in Neiman Marcus, unless
prior to taking any such action set forth in the foregoing clauses (i) through
(v), Neiman Marcus has obtained (and provided to Harcourt General) a written
opinion in form and substance reasonably acceptable to Harcourt General of a law
firm reasonably acceptable to Harcourt General, or Harcourt General has obtained
(at the reasonable request and at the expense of Neiman Marcus) a supplemental
ruling from the Internal Revenue Service, that such action or actions will not
result in (i) the Distribution failing to qualify under Section 355(a) of the
Code or (ii) the Neiman Marcus shares failing to qualify as qualified property
for purposes of Section 355(c)(2) of
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the Code by reason of Section 355(e) of the Code. Harcourt General agrees to
cooperate with Neiman Marcus in obtaining such opinion or, as the case may be,
to use its commercially reasonable best efforts in obtaining any supplemental
ruling reasonably requested by Neiman Marcus, including, where appropriate, by
providing written representations as to factual events that transpired prior to
the Distribution Date.
(c) Notwithstanding anything to the contrary herein, if Neiman Marcus (or
any of its Subsidiaries) fails to comply with any of its obligations under
Sections 2.4(a) and 2.4(b) above or takes or fails to take any action (including
any action referred to in Section 2.4(a) or clauses (i) through (v) of Section
2.4(b) without regard to when such action occurs) on or after the Distribution
Date, and such failure to comply, action or omission contributes to a
determination that (i) the Distribution fails to qualify under Section 355(a) of
the Code or (ii) the Neiman Marcus shares fail to qualify as qualified property
for purposes of Section 355(c)(2) of the Code by reason of Section 355(e) of the
Code, then Neiman Marcus shall indemnify and hold harmless Harcourt General and
each member of the consolidated group of which Harcourt General is a member from
and against any and all federal, state and local taxes, including any interest,
penalties or additions to tax, imposed upon or incurred by Harcourt General, any
member of its group or any stockholder of Harcourt General as a result of the
failure of the Distribution to qualify under Section 355(a) of the Code or the
application of Section 355(e) (including any taxes payable by reason of any
payment made pursuant to this Section 2.4(c)). The obligation of Neiman Marcus
to indemnify Harcourt General pursuant to the preceding sentence shall not be
affected by the delivery of any legal opinion or supplemental ruling under
Section 2.4(b), unless the circumstances described in clause (i) or (ii) of this
Section 2.4(c) shall occur solely by reason of (x) the failure of a
representation made by Harcourt General pursuant to the last sentence of Section
2.4(b) to be true and correct in all material respects, (y) a material omission
in any such representation or (z) a breach by Harcourt General or any of the
Shared Representatives (as defined in Section 4.6) of any of the covenants
contained in Section 4.6; provided, however, that in the event that Harcourt
General or any of the Shared Representatives shall have breached any of such
covenants, which breach shall have been disclosed to a director of Neiman Marcus
that is not affiliated with Harcourt General (an "Independent Director"), and
notwithstanding such breach, a majority of the Independent Directors shall
determine (as evidenced in writing) to proceed with a Transaction Proposal (as
defined in Section 4.6), the indemnity provided by this Section 2.4(c) shall not
be affected.
SECTION 2.5 Certain Limitations on Actions by Harcourt General. Subject
to the representations and undertakings required by Harcourt General to be made
in order to obtain the IRS Ruling, following the Distribution, in matters
requiring a vote of the holders of Class A Common Stock, for such time as
Harcourt General holds the Retained Shares, Harcourt General will vote the
Retained Shares in proportion to the votes cast affirmatively or negatively by
all other holders of Class A Common Stock voting.
SECTION 2.6 Right of First Offer. (a) Commencing immediately after the
consummation of the Distribution, and prior to the second anniversary of the
Distribution Date, Harcourt General shall not, and shall not permit any
Subsidiary to, sell, exchange or transfer ("Transfer"), other than to a direct
or indirect wholly owned Subsidiary of Harcourt General, Neiman Marcus or
pursuant to a bona fide merger, tender offer, exchange offer, consolidation or
other similar transaction in which the opportunity to Transfer shares is made
available on the same basis to all holders of Class A Common Stock, a number of
shares of Class A Common Stock in any 60-day period representing 5% or more of
the outstanding shares of Class A Common Stock and Class B Common Stock, taken
together, unless Harcourt General shall have given to Neiman Marcus at least ten
days' prior written notice (the "Right of First Offer") that it or its
Subsidiary is considering effecting such a Transfer (a "Transferor's Notice").
Such notice shall state (i) the number of shares of Class A Common Stock that
Harcourt General or its Subsidiary may Transfer (the "Offered Securities") and
(ii) the price, if applicable, at which Harcourt General or its Subsidiary would
be willing to Transfer the Offered Securities, other than in a "block trade" or
other public offering (a "Public Sale"), including to a third party (the
"Private Price"), and/or if Harcourt General or its Subsidiary anticipates the
possibility of a Transfer of such shares in a Public Sale, a statement to such
effect. Upon receipt of the Transferor's Notice, Neiman Marcus, acting through
its Board of Directors, shall have ten days (the "Offer Period") to elect to
purchase the Offered Securities at a price in cash equal to (x) the Private
Price or (y) if no Private Price has been stated by Harcourt General, the
closing price on the New York Stock Exchange
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Composite Transactions Tape (the "NYSE Tape") on the trading day immediately
preceding the date of the Transferor's Notice. The foregoing Right of First
Offer shall not apply to any Transfer for shares of stock or other property, so
long as the transferee in any such Transfer shall agree in writing to be bound
by the provisions of this Section 2.6.
(b) If Neiman Marcus does not exercise its Right of First Offer, then
Harcourt General or its Subsidiary shall have the right, for a period ending
upon the later of (i) 120 days from the expiration of the Offer Period, (ii) 45
days after such time as a registration statement filed with respect to such
Offered Securities shall be declared effective by the Commission or (iii) 15
days after the expiration of such time as the parties to any transaction
reasonably require to comply with applicable United States federal and state
laws and regulations, to Transfer or, in the case of Harcourt General, cause its
Subsidiary to Transfer all or any portion of the Offered Securities at a price
no less than (i) if the Transferor's Notice sets forth a Private Price, the
Private Price or (ii) if the Transferor's Notice does not set forth a Private
Price, (A) in a Public Sale, 90% of the low sales price on the NYSE Tape on the
trading day on which such Transfer is made (as opposed to the settlement date of
such Transfer) or (B) in a Transfer other than a Public Sale, the low sales
price on the NYSE Tape on the trading day on which an agreement to Transfer is
made. If Harcourt General or its Subsidiary does not Transfer or, in the case of
Harcourt General, cause its Subsidiary to Transfer all or any portion of the
Offered Securities within the time period provided for in this Section 2.6(b),
the Right of First Offer in this Section 2.6 shall again become applicable with
respect to any Transfer of shares of Class A Common Stock by Harcourt General or
its Subsidiary.
(c) If Neiman Marcus exercises its Right of First Offer, the closing of the
purchase of the Offered Securities with respect to which such right has been
exercised shall take place on the 15th day after the later of (i) the date
Neiman Marcus gives notice of such exercise and (ii) the expiration of such time
as the parties may reasonably require in order to comply with applicable United
States federal and state laws and regulations, which in no event shall be more
than 45 days after the date specified in clause (c)(i).
(d) Upon exercise by Neiman Marcus of its Right of First Offer under this
Section 2.6, Neiman Marcus and Harcourt General or, if applicable, its
Subsidiary, shall be legally obligated to consummate the purchase contemplated
thereby and shall use their respective reasonable best efforts to make all
necessary filings and to secure any approvals required and to comply as soon as
practicable with all applicable United States federal and state laws and
regulations in connection therewith; provided, however, that Harcourt General or
its Subsidiary may determine, at any time prior to the consummation of a
Transfer to Neiman Marcus, not to Transfer or, in the case of Harcourt General,
cause its Subsidiary to Transfer the Offered Securities, in which case all of
the provisions of this Section 2.6 shall again become applicable with respect to
any Transfer of shares of Class A Common Stock by Harcourt General or its
Subsidiary.
SECTION 2.7 Smith Family. Harcourt General shall use its commercially
reasonable best efforts to procure the agreement of each member of the Smith
family currently reporting its ownership of Harcourt General Common Stock on
Schedule 13D under the Exchange Act (the "Smith Stockholders") that, for a
period of 180 days from the Distribution Date, such Smith Stockholder shall not
Transfer any shares of Class B Common Stock held by such Smith Stockholder other
than to any other Smith Stockholder or any other Person to whom such Smith
Stockholder would be permitted to transfer shares of Class B Stock of Harcourt
General in accordance with the Harcourt General Certificate of Incorporation
(including for bona fide estate planning or charitable purposes); provided,
however, that such Smith Stockholder shall be permitted to Transfer shares of
Class B Common Stock pursuant to a bona fide tender offer, exchange offer,
merger, consolidation or similar transaction in which the opportunity to
Transfer shares is made available on the same basis to all holders of Class B
Common Stock.
ARTICLE III.
INDEMNIFICATION
SECTION 3.1 Indemnification by Neiman Marcus. Except as otherwise
specifically set forth in any provision of this Agreement, Neiman Marcus shall
indemnify, defend and hold harmless the Harcourt General Indemnitees from and
against any and all Indemnifiable Losses of the Harcourt General Indemnitees
arising
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out of, by reason of or otherwise in connection with the Neiman Marcus
Liabilities or alleged Neiman Marcus Liabilities, including any breach by Neiman
Marcus of any representation, warranty, covenant or other provision of this
Agreement or the Recapitalization Agreement.
SECTION 3.2 Indemnification by Harcourt General. Except as otherwise
specifically set forth in any provision of this Agreement, Harcourt General
shall indemnify, defend and hold harmless the Neiman Marcus Indemnitees from and
against any and all Indemnifiable Losses of the Neiman Marcus Indemnitees
arising out of, by reason of or otherwise in connection with the Harcourt
General Liabilities or alleged Harcourt General Liabilities, including any
breach by Harcourt General of any representation, warranty, covenant or other
provision of this Agreement or the Recapitalization Agreement.
SECTION 3.3 Procedures for Indemnification.
(a) Third Party Claims. If a claim or demand is made against a Neiman
Marcus Indemnitee or a Harcourt General Indemnitee (each, an "Indemnitee") by
any person who is not a party to this Agreement (a "Third Party Claim") as to
which such Indemnitee is entitled to indemnification pursuant to this Agreement,
such Indemnitee shall notify the party which is or may be required pursuant to
the terms hereof to make such indemnification (the "Indemnifying Party") in
writing, and in reasonable detail, of the Third Party Claim promptly (and in any
event within 15 business days) after receipt by such Indemnitee of written
notice of the Third Party Claim; provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent the Indemnifying Party shall have been actually prejudiced as a
result of such failure (except that the Indemnifying Party shall not be liable
for any expenses incurred during the period in which the Indemnitee failed to
give such notice). Thereafter, the Indemnitee shall deliver to the Indemnifying
Party, promptly (and in any event within five business days) after the
Indemnitee's receipt thereof, copies of all notices and documents (including
court papers) received by the Indemnitee relating to the Third Party Claim. Any
Indemnitee shall cooperate with the Indemnifying Party in the defense or
prosecution of any Third Party Claim, including by providing or causing to be
provided records and witnesses as soon as reasonably practicable after receiving
any request therefor from or on behalf of the Indemnifying Party.
If a Third Party Claim is made against an Indemnitee with respect to which
a claim for indemnification is made pursuant to Section 3.1 or Section 3.2
hereof, the Indemnifying Party shall be entitled to participate in the defense
thereof and, if it so chooses and acknowledges in writing its obligation to
indemnify the Indemnitee therefor, to assume the defense thereof with counsel
selected by the Indemnifying Party; provided that such counsel is not reasonably
objected to by the Indemnitee. Should the Indemnifying Party so elect to assume
the defense of a Third Party Claim, the Indemnifying Party shall, within 30 days
(or sooner if the nature of the Third Party Claim so requires), notify the
Indemnitee of its intent to do so, and the Indemnifying Party shall thereafter
not be liable to the Indemnitee for legal or other expenses subsequently
incurred by the Indemnitee in connection with the defense thereof; provided,
that such Indemnitee shall have the right to employ counsel to represent such
Indemnitee if, in such Indemnitee's reasonable judgment, a conflict of interest
between such Indemnitee and such Indemnifying Party exists in respect of such
claim which would make representation of both such parties by one counsel
inappropriate, and in such event the fees and expenses of such separate counsel
shall be paid by such Indemnifying Party. If the Indemnifying Party assumes such
defense, the Indemnitee shall have the right to participate in the defense
thereof and to employ counsel, subject to the proviso of the preceding sentence,
at its own expense, separate from the counsel employed by the Indemnifying
Party, it being understood that the Indemnifying Party shall control such
defense. The Indemnifying Party shall be liable for the fees and expenses of
counsel employed by the Indemnitee for any period during which the Indemnifying
Party has failed to assume the defense thereof (other than during the period
prior to the time the Indemnitee shall have given notice of the Third Party
Claim as provided above). If the Indemnifying Party so elects to assume the
defense of any Third Party Claim, all of the Indemnitees shall cooperate with
the Indemnifying Party in the defense or prosecution thereof, including by
providing or causing to be provided, records and witnesses as soon as reasonably
practicable after receiving any request therefor from or on behalf of the
Indemnifying Party.
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If the Indemnifying Party acknowledges in writing responsibility for a
Third Party Claim, then in no event will the Indemnitee admit any liability with
respect to, or settle, compromise or discharge, any Third Party Claim without
the Indemnifying Party's prior written consent (which shall not be unreasonably
withheld); provided, however, that the Indemnitee shall have the right to
settle, compromise or discharge such Third Party Claim without the consent of
the Indemnifying Party if (i) the Indemnitee releases the Indemnifying Party
from its indemnification obligation hereunder with respect to such Third Party
Claim, (ii) such settlement, compromise or discharge is solely for money damages
and would not otherwise adversely affect the Indemnifying Party and (iii) such
settlement, compromise or discharge does not subject the Indemnifying Party to
any equitable remedy. If the Indemnifying Party acknowledges in writing
responsibility for a Third Party Claim, the Indemnifying Party shall be
permitted to enter into, and the Indemnitee shall agree to, any settlement,
compromise or discharge of a Third Party Claim that the Indemnifying Party may
recommend and that by its terms obligates the Indemnifying Party to pay the full
amount of the liability in connection with such Third Party Claim and releases
the Indemnitee completely in connection with such Third Party Claim and that
would not otherwise adversely affect the Indemnitee or subject the Indemnitee to
any equitable remedy; provided, however, that the Indemnitee may refuse to agree
to any such proposed settlement, compromise or discharge if the Indemnitee
agrees that the Indemnifying Party's indemnification obligation with respect to
such Third Party Claim shall not exceed the amount that would be required to be
paid by or on behalf of the Indemnifying Party in connection with such proposed
settlement, compromise or discharge; and provided further that the Indemnifying
Party shall not agree to any other settlement, compromise or discharge of a
Third Party Claim not described above without the prior written consent of the
Indemnitee, such consent not to be unreasonably withheld. If an Indemnifying
Party elects not to assume the defense of a Third Party Claim, or fails to
notify an Indemnitee of its election to do so as provided herein, such
Indemnitee may compromise, settle or defend such Third Party Claim.
(b) In the event of payment by an Indemnifying Party to any Indemnitee in
connection with any Third-Party Claim, such Indemnifying Party shall be
subrogated to and shall stand in the place of such Indemnitee as to any events
or circumstances in respect of which such Indemnitee may have any right or claim
relating to such Third-Party Claim against any claimant or plaintiff asserting
such Third-Party Claim. Such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such Indemnifying
Party, in prosecuting any subrogated right or claim.
(c) The remedies provided in this Article III shall be cumulative and shall
not preclude assertion by any Indemnitee of any other rights or the seeking of
any and all other remedies against any Indemnifying Party.
SECTION 3.4 Indemnification Payments. Indemnification required by this
Article III shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or loss,
liability, claim, damage or expense is incurred.
ARTICLE IV.
COVENANTS
SECTION 4.1 Access to Information. (a) Other than in circumstances in
which indemnification is sought pursuant to Article III (in which event the
provisions of such Article will govern), from and after the Distribution Date,
each of Neiman Marcus and Harcourt General shall afford to the other and its
authorized accountants, counsel and other designated representatives reasonable
access during normal business hours, subject to appropriate restrictions for
classified, privileged or confidential information, to the personnel,
properties, books and records of such party and its Subsidiaries insofar as such
access is reasonably required by the other party and relates to such other
party's performance of its obligations under this Agreement or the
Recapitalization Agreement or such party's financial, tax and other reporting
obligations.
(b) A party providing information or access to information to the other
party under this Article IV shall be entitled to receive from the recipient,
upon the presentation of invoices therefor, payments for such amounts, relating
to supplies, disbursements and other out-of-pocket expenses, as may be
reasonably incurred in providing such information or access to information.
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SECTION 4.2 Confidentiality. Each of Neiman Marcus and its Subsidiaries
and Harcourt General and its Subsidiaries shall keep, and shall cause its
consultants and advisors to keep, confidential all information concerning the
other parties in its possession, its custody or under its control (except to the
extent that (A) such information has been in the public domain through no fault
of such party or (B) such information has been later lawfully acquired from
other sources by such party or (C) this Agreement or the Recapitalization
Agreement or any other agreement entered into pursuant hereto or thereto permits
the use or disclosure of such information) to the extent such information (i)
relates to or was acquired during the period up to the Effective Time or
pursuant to Section 4.1, or (ii) is based upon or is derived from information
described in the preceding clause (i), and each party shall not (without the
prior written consent of the other) otherwise release or disclose such
information to any other person, except such party's auditors and attorneys,
unless compelled to disclose such information by judicial or administrative
process or unless such disclosure is required by law and such party has used
commercially reasonable efforts to consult with the other affected party or
parties prior to such disclosure.
SECTION 4.3 Retention of Records. Except as otherwise required by law or
agreed to in writing, each party shall preserve and retain all information
relating to the other party's business in accordance with the record retention
policies of such party as may be in effect from time to time. Notwithstanding
the foregoing, any party may destroy or otherwise dispose of any information at
any time; provided that prior to such destruction or disposal (i) such party
shall provide no less than 90 days prior written notice to the other party,
specifying the information proposed to be destroyed or disposed of and (ii) if
the recipient of such notice shall request in writing prior to the scheduled
date for such destruction or disposal that any of the information proposed to be
destroyed or disposed of be delivered to such requesting party, the party
proposing the destruction or disposal shall promptly arrange for the delivery of
such of the information as was requested at the expense of the requesting party.
SECTION 4.4 Litigation Cooperation. Each of Harcourt General and Neiman
Marcus shall use reasonable efforts to make available to the other party, upon
written request, its officers, directors, employees and agents as witnesses to
the extent that such persons may reasonably be required in connection with any
Action arising out of (i) the business of such other party and its predecessors,
if any, in which the requesting party may from time to time be involved,
provided, that such Action does not involve a claim between either of Harcourt
General or Neiman Marcus against the other or (ii) the matters contained in
Section 2.4 hereof.
SECTION 4.5 Other Matters. Each of Harcourt General and Neiman Marcus
shall negotiate in good faith to execute prior to the Distribution Date such
further certificates, agreements and other documents (including, without
limitation, with respect to transition services, intellectual property, employee
benefits and insurance matters) which are necessary or appropriate to consummate
or implement the transactions contemplated hereby and by the Recapitalization
Agreement.
SECTION 4.6 No Solicitation. (a) Harcourt General agrees that neither it
nor any executive officer of Harcourt General named on Schedule 4.6 to this
Agreement or any director of Harcourt General who is also an executive officer
or director of Neiman Marcus (a "Shared Representative") shall solicit any
offers or proposals regarding (i) any merger, reorganization, share exchange,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving Neiman Marcus, (ii) any purchase or sale of all
or substantially all of the assets of Neiman Marcus or (iii) any issuance or
other sale or transfer of any equity interest in Neiman Marcus held by Harcourt
General (collectively, a "Transaction Proposal"). The obligations set forth in
clauses (i) and (ii) of this Section 4.6(a) shall terminate on the date that is
two years following the Distribution Date and the obligations set forth in
clause (iii) of this Section 4.6(a) shall terminate on the Distribution Date.
(b) Upon receipt of an unsolicited Transaction Proposal, Harcourt General
or any Shared Representative, as the case may be, shall, in Harcourt General's
sole discretion, either (i) promptly reject such Transaction Proposal, subject
to the fiduciary obligations of any Shared Representative to Neiman Marcus or
its stockholders or to such Shared Representative's obligations as an executive
officer of Neiman Marcus, or (ii) refer such Transaction Proposal to Walter J.
Salmon or another Independent Director and to the Person designated pursuant to
Section 5.5 to receive copies of any notices delivered to Neiman Marcus and the
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<PAGE> 79
Independent Directors of Neiman Marcus. In the event that the Independent
Directors determine that such Transaction Proposal should be discussed further
with the party making such Transaction Proposal, the Independent Directors shall
notify Harcourt General in writing, signed by a majority of the Independent
Directors of Neiman Marcus. Harcourt General and the Shared Representatives
shall be permitted to take such steps as they deem appropriate, in their good
faith judgment, in connection with such Transaction Proposal without being
deemed to violate this Section 4.6. The sole remedy for breach by Harcourt
General or any of the Shared Representatives of this Section 4.6 shall be the
elimination of the indemnity obligation of Neiman Marcus set forth in Section
2.4(c), as provided in the last sentence of Section 2.4(c), except as provided
in the proviso to such last sentence of Section 2.4(c).
SECTION 4.7 Registration Rights Agreement. On the Distribution Date,
Harcourt General and Neiman Marcus will enter into a registration rights
agreement providing for two demand registration rights and two shelf
registration rights with respect to the shares of Class A Common Stock to be
held by Harcourt General following the Distribution Date, and otherwise
containing customary provisions reasonably acceptable to both Harcourt General
and Neiman Marcus.
SECTION 4.8 Disclosure of Indemnification Obligations. Neiman Marcus
agrees to disclose from time to time, in its audited consolidated financial
statements included in its Annual Report on Form 10-K, the existence, scope and
material terms of its indemnification obligations pursuant to Section 2.4(c),
for a period commencing on the Distribution Date and ending on the earlier to
occur of (i) the date that is five years from the Distribution Date and (ii)
such time as the Independent Directors of Neiman Marcus determine such
disclosure is no longer necessary.
ARTICLE V.
MISCELLANEOUS
SECTION 5.1 Complete Agreement; Construction. This Agreement and the
Recapitalization Agreement, including the Exhibits and Schedules hereto and
thereto, shall constitute the entire agreement between the parties with respect
to the subject matter hereof and thereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter.
SECTION 5.2 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 5.3 Survival of Agreements. Except as otherwise contemplated by
this Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Distribution Date.
SECTION 5.4 Expenses. Except as set forth on Schedule 5.4 or as otherwise
set forth in this Agreement or in the Recapitalization Agreement, all costs and
expenses incurred in connection with the preparation, execution, delivery and
implementation of this Agreement and the Recapitalization Agreement, and the
Distribution and the other transactions contemplated hereby and thereby shall be
charged to and paid by the party incurring such costs and expenses.
SECTION 5.5 Notices. All notices and other communications hereunder shall
be in writing and hand delivered or mailed by registered or certified mail
(return receipt requested) or sent by any means of electronic message
transmission with delivery confirmed (by voice or otherwise) to the parties at
the following addresses (or at such other addresses for a party as shall be
specified by like notice) and will be deemed given on the date on which such
notice is received:
To Harcourt General:
Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, Massachusetts 02467
Telecopy: 617-278-5567
Attn: Chief Executive Officer
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<PAGE> 80
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Telecopy: 212-455-2502
Attn: John G. Finley, Esq.
To Neiman Marcus:
The Neiman Marcus Group, Inc.
27 Boylston Street
Chestnut Hill, Massachusetts 02467
Telecopy: 617-278-5567
Attn: Chief Executive Officer
and
The Independent Directors of Neiman Marcus
c/o The Secretary of Neiman Marcus
The Neiman Marcus Group, Inc.
27 Boylston Street
Chestnut Hill, Massachusetts 02467
Telecopy: 617-278-5567
with a copy to:
Choate Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Telecopy: 617-248-4000
Attn: Andrew L. Nichols, Esq.
SECTION 5.6 Waivers. The failure of any party to require strict
performance by any other party of any provision in this Agreement will not waive
or diminish that party's right to demand strict performance thereafter of that
or any other provision hereof.
SECTION 5.7 Amendments. Subject to the terms of Section 5.10 hereof, this
Agreement may not be modified or amended except by an agreement in writing
signed by each of the parties hereto.
SECTION 5.8 Assignment. This Agreement shall not be assignable, in whole
or in part, directly or indirectly, by any party hereto without the prior
written consent of the other party hereto, and any attempt to assign any rights
or obligations arising under this Agreement without such consent shall be void.
SECTION 5.9 Successors and Assigns. The provisions to this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and permitted assigns. In addition, the
provisions of this Agreement shall be binding upon any person that acquires,
directly or indirectly, 50% or more of the (i) voting power, in an election of
directors or otherwise, represented by the outstanding common stock, (ii) shares
of outstanding common stock or (iii) assets of Neiman Marcus on or after the
Distribution Date, but Neiman Marcus shall not enter into any agreement with
respect to the foregoing or permit to be consummated any such transaction unless
and until a writing shall be signed by any such person and delivered to Harcourt
General whereby such person agrees to assume the obligations of Neiman Marcus
hereunder.
SECTION 5.10 Termination. This Agreement (including Article III hereof)
may be terminated and the Distribution may be amended, modified or abandoned at
any time prior to the filing of the certificate of merger relating to the
Recapitalization by and in the sole discretion of Harcourt General without the
approval
B-17
<PAGE> 81
of Neiman Marcus or the stockholders of Neiman Marcus; provided that if, at the
time of such termination Neiman Marcus is not in breach of any of its
obligations hereunder or under the Recapitalization Agreement, Harcourt General
shall pay the reasonable out-of-pocket expenses of Neiman Marcus incurred in
connection with this Agreement, the Recapitalization Agreement and the
transactions contemplated hereby and thereby. This Agreement may be terminated
by Neiman Marcus only upon material breach by Harcourt General of a
representation, warranty or covenant contained in this Agreement, which breach
would result in a Material Adverse Effect with respect to Neiman Marcus after
giving effect to the Distribution. In the event of termination of this Agreement
by either party hereto, except as set forth in the next preceding sentence, no
party shall have any liability of any kind to any other party or any other
person. After the filing of the certificate of merger relating to the
Recapitalization, this Agreement may not be terminated except by an agreement in
writing signed by both parties and a majority of the Independent Directors of
Neiman Marcus.
SECTION 5.11 Subsidiaries. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary of such party or
by any entity that is contemplated to be a Subsidiary of such party on or after
the Distribution Date.
SECTION 5.12 Third Party Beneficiaries. Except as provided in Article III
relating to Indemnitees, this Agreement is solely for the benefit of the parties
hereto and their respective Subsidiaries and Affiliates and should not be deemed
to confer upon third parties any remedy, claim, liability, reimbursement, claim
of action or other right in excess of those existing without reference to this
Agreement.
SECTION 5.13 Title and Headings. Titles and headings to sections herein
are inserted for the convenience of reference only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
SECTION 5.14 Exhibits and Schedules. The Exhibits and Schedules shall be
construed with and as an integral part of this Agreement to the same extent as
if the same had been set forth verbatim herein.
SECTION 5.15 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the Commonwealth of Massachusetts
applicable to contracts made and to be performed in the Commonwealth of
Massachusetts.
SECTION 5.16 Consent to Jurisdiction. Each of the parties irrevocably
submits to the exclusive jurisdiction of (a) the Supreme Court of the
Commonwealth of Massachusetts, and (b) the United States District Court for the
District of Massachusetts, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated hereby.
Each of the parties agrees to commence any action, suit or proceeding relating
hereto either in the United States District Court for the District of
Massachusetts or if such suit, action or other proceeding may not be brought in
such court for jurisdictional reasons, in the Supreme Court of the Commonwealth
of Massachusetts. Each of the parties further agrees that service of any
process, summons, notice or document by U.S. registered mail to such party's
respective address set forth above shall be effective service of process for any
action, suit or proceeding in Massachusetts with respect to any matters to which
it has submitted to jurisdiction in this Section 5.16. Each of the parties
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby in (i) the Supreme Court of the Commonwealth of
Massachusetts, or (ii) the United States District Court for the District of
Massachusetts, and hereby further irrevocably and unconditionally waives and
agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
SECTION 5.17 Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions,
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
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<PAGE> 82
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
HARCOURT GENERAL, INC.
By: /s/ JOHN R. COOK
-------------------------------------
Name: John R. Cook
Title: Senior Vice President and
Chief Financial Officer
THE NEIMAN MARCUS GROUP, INC.
By: /s/ ERIC P. GELLER
-------------------------------------
Name: Eric P. Geller
Title: Senior Vice President,
General Counsel and Secretary
B-19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains a summary of financial information extracted from the
Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of
Earnings and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 62,743
<SECURITIES> 185,268
<RECEIVABLES> 577,806
<ALLOWANCES> 41,546
<INVENTORY> 800,747
<CURRENT-ASSETS> 1,847,247
<PP&E> 1,244,289
<DEPRECIATION> 575,475
<TOTAL-ASSETS> 4,649,300
<CURRENT-LIABILITIES> 1,319,829
<BONDS> 1,644,170
0
894
<COMMON> 71,119
<OTHER-SE> 913,864
<TOTAL-LIABILITY-AND-EQUITY> 4,649,300
<SALES> 3,447,084
<TOTAL-REVENUES> 3,447,084
<CGS> 1,805,125
<TOTAL-COSTS> 3,140,312
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 104,185
<INTEREST-EXPENSE> 98,556
<INCOME-PRETAX> 220,185
<INCOME-TAX> 83,670
<INCOME-CONTINUING> 97,418
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,418
<EPS-BASIC> 1.36
<EPS-DILUTED> 1.35
</TABLE>
