SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended October 31, 1999
Commission File Number 1-4925
HARCOURT GENERAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-1619609
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
27 Boylston Street, Chestnut Hill, Massachusetts 02467
(Address of principal executive offices) (Zip Code)
Registrant's telephone number and area code: 617-232-8200
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
Common Stock, $1.00 par value New York Stock Exchange
Series A Cumulative Convertible New York Stock Exchange
Stock, $1.00 par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
The aggregate market value of the Common Stock
held by non-affiliates of the registrant was $2.118 billion on
January 21, 2000.
There were 51,712,107 shares of Common Stock,
20,020,258 shares of Class B Stock and 812,769 shares of Series A
Cumulative Convertible Stock outstanding as of January 21, 2000.
Documents Incorporated by Reference
Portions of the Company's 1999 Annual Report to
Stockholders are incorporated by reference in Parts I, II and IV
of this Report. Portions of the Proxy Statement for the Annual
Meeting of Stockholders to be held on March 10, 2000 are
incorporated by reference in Part III of this Report.
HARCOURT GENERAL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
TABLE OF CONTENTS
PART I Page No.
Item 1 Business 1
Item 2. Properties 3
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
PART II
Item 5. Market for the Registrant's Common Equity 5
and Related Stockholder Matters
Item 6. Selected Financial Data 5
Item 7. Management's Discussion and Analysis of 5
Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About 5
Market Risk
Item 8. Financial Statements and Supplementary Data 6
Item 9. Changes in and Disagreements with Accountants 6
on Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 6
Item 11. Executive Compensation 8
Item 12. Security Ownership of Certain Beneficial 9
Owners and Management
Item 13. Certain Relationships and Related Transactions 9
PART IV
Item 14. Exhibits, Financial Statement Schedules, 9
and Reports on Form 8-K
Signatures S-1
PART I
ITEM 1. BUSINESS
General
Harcourt General, Inc., a Delaware corporation formed in
1950 (the "Company"), is a leading global multiple-media
publisher providing educational, training and assessment products
and services to classroom, corporate, professional and consumer
markets.
Prior to October 22, 1999, the Company owned a controlling
interest in The Neiman Marcus Group, Inc. ("NMG"), a high-end
specialty retailer. On October 22, 1999, the Company distributed
to its stockholders approximately 21.4 million of the 26.4
million shares of NMG common stock held by the Company (the
"Distribution"). For more information about the Distribution and
the relationship between the Company and NMG, see Note 2 to the
Consolidated Financial Statements in Item 14 below.
The Company operates its business through four principal
segments, described below and in Note 3 to the Consolidated
Financial Statements in Item 14 below.
Education Group. The Education Group is a leading content
provider to classroom and at-home K-12 and supplemental learners
offering a complementary array of value-added products and
services through school, library and direct-to-consumer channels.
The Education Group includes the operations of Harcourt School
Publishers; Holt, Rinehart and Winston ("HRW"); Steck-Vaughn; and
Harcourt Trade Publishers. The Education Group publishes
textbooks and related instructional materials for kindergarten to
grade eight through Harcourt School and for the middle and
secondary education markets through HRW. Steck-Vaughn publishes
supplemental educational materials used in elementary, secondary
and adult education, test preparation materials, and offers
English language literacy programs for training workers for whom
English is a second language. Harcourt Trade publishes
children's books, general adult fiction and nonfiction hardcover
books, and trade paperbacks under the Harvest imprint.
Higher Education Group. The Higher Education Group brings
traditional and technology-enabled content to adults seeking
higher education in traditional and non-traditional settings,
offering a broad array of products and services to the campus-
based, direct-to-consumer and corporate markets. The Higher
Education Group includes Harcourt College Publishers, Harcourt
Learning Direct, Archipelago Productions and Harcourt
Professional Education. Harcourt College publishes textbooks and
other materials for the college and university market under the
Harcourt, Saunders, Dryden and HRW imprints. Harcourt Learning
Direct provides traditional and technology-based distance
learning opportunities in vocational, degree and professional
self-study programs. Harcourt Professional Education conducts
review courses under the BAR/BRI name for individuals preparing
for bar examinations, as well as live-lecture and computer-based
review courses for law and accounting examinations, and publishes
print and electronic information resources, including reference
guides and newsletters for financial, legal and human resources
professionals.
Corporate and Professional Services Group. The Corporate
and Professional Services Group produces technology-based
training, assessment and educational products and services for
the corporate learner market and individual professionals. The
Corporate and Professional Services Group includes the operations
of NETg; The Psychological Corporation; Assessment Systems, Inc.
("ASI"); Drake Beam Morin ("DBM"); and Knowledge Communication,
Inc. ("KCI"). NETg develops and sells self-study information
technology and related professional training products and
services which are delivered by CD-ROM, the Internet, and
corporate intranets to information technology professionals. The
Psychological Corporation provides tests and related products and
services for educational and psychological assessment. ASI
develops and administers computer-based tests and related
services for professional and regulatory licensing and
credentialing and corporate pre-employment testing. DBM is one
of the world's leading organizational and individual transition
consulting firms, assisting organizations and individuals
worldwide in outplacement, career and transition management and
employee selection. KCI provides technology-based professional
development and business skills training.
Worldwide Scientific, Technical and Medical Group. The
Worldwide Scientific, Technical and Medical ("STM") Group is a
leading provider of information products through both traditional
and new technology-enabled channels to health, scientific and
technical professionals worldwide. The STM Group includes
Harcourt Health Sciences, comprised of the global medical
publishing operations of W.B. Saunders, Mosby and Churchill
Livingstone; Academic Press; and Harcourt Publishers
International. Harcourt Health Sciences publishes books,
periodicals and electronic products in the health sciences, and
advertising-based newsletters for health professionals. Academic
Press publishes scholarly books, journals, data bases and
products and value-added services in print and electronic media,
in the life, physical, social and computer sciences.
Harcourt Publishers International is responsible for
international distribution of Harcourt English language products
and the publication of adaptations, translations and indigenous
materials worldwide.
Competition
Numerous companies compete in all of the markets in which
the Company's various businesses operate. The Company believes
that the principal competitive factors in connection with these
businesses are the breadth, quality, timeliness, and price of
products and services; customer service and support; the ability
to acquire intellectual property rights; editorial, marketing,
and distribution capabilities; the ability to maintain key vendor
alliances; ability to compete in non-U.S. markets; the reputation
of the Company; and the Company's financial and management
resources.
Certain Additional Information
Employees
At October 31, 1999, the Company had approximately 13,600
employees worldwide. Approximately 1% of the Company's employees
are subject to collective bargaining agreements.
The Company believes that its relations with its employees
are generally good.
Capital Expenditures; Seasonality; Liquidity; Capital
Resources
For a review of the Company's financial results for fiscal
1999, including information on capital expenditures, seasonality,
liquidity, capital resources and other financial information,
reference is made to the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section on pages
23 through 26 of the Company's Annual Report to Stockholders for
the fiscal year ended October 31, 1999 (the "1999 Annual
Report"), which information is incorporated herein.
Financial Information About Industry Segments and
Geographical Operations
The information set forth under the heading "Description of
Continuing Operations and Segment Information" in Note 3 of the
Notes to Consolidated Financial Statements on pages 34 and 35 of
the 1999 Annual Report is incorporated herein.
Executive Officers of the Registrant
The information set forth under the heading "Executive
Officers" in Item 10 below is incorporated herein.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in leased
facilities in Chestnut Hill, Massachusetts, a suburb of Boston.
At October 31, 1999, the Company operated out of approximately
5.3 million square feet of office and distribution facilities
throughout the world, consisting of approximately 185,000 square
feet of owned office facilities, 2.7 million square feet of
leased office facilities, 1.7 million square feet of owned
distribution facilities, and 700,000 square feet of leased
distribution facilities.
For additional information about the properties of the
Company, see the information contained in Note 12 of the Notes to
Consolidated Financial Statements under the heading "Leases" on
page 42 of the 1999 Annual Report, which is incorporated herein.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various suits and claims
incidental to the ordinary course of its business. The Company
does not believe that the disposition of any such suits or claims
will have a material adverse effect on the financial position or
continuing operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting held on September 15, 1999, the
Company's stockholders approved an amendment to the Company's
Restated Certificate of Incorporation to increase the total
number of shares of authorized capital stock from 320 million to
370 million shares (consisting of 150 million shares of Common
Stock, 80 million shares of Class B Stock, 100 million shares of
a new class of stock denominated as Class C Stock and 40 million
shares of Preferred Stock), and to establish the relative
rights, powers and limitations of the Common, Class B and new
Class C Stock. The votes cast at the Special Meeting were as
follows:
Common Stock Class B Stock
For: 29,406,122 19,990,595
Against: 10,042,920 91
Abstain: 23,888 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The following information contained in the 1999 Annual
Report is incorporated herein:
(i) "Dividends per share" in Note 16 of the Notes to
Consolidated Financial Statements on page 46 of the 1999
Annual Report; and
(ii) "Stock Information" (including the accompanying table
and text) on page 50 of the 1999 Annual Report. In
addition to the information set forth therein with respect
to the Company's Common Stock and Series A Cumulative
Convertible Stock, the Company's Class B Stock is subject
to significant restrictions on transfer and is not listed
or traded on any exchange or in any market. As of January
14, 2000, there were 1,624 record holders of Class B
Stock. For further information with respect to the Class B
Stock, including the ownership by the family of Richard A.
Smith (the Chairman of the Company) of 99.9% of the Class B
Stock, reference is made to the information contained in
the Company's Proxy Statement for the 2000 Annual Meeting
of Stockholders under the heading "Stock Ownership of
Certain Beneficial Owners and Management."
ITEM 6. SELECTED FINANCIAL DATA
The response to this Item is contained in the 1999 Annual
Report under the caption "Five Year Summary (Unaudited)" on page
48 and is incorporated herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The response to this Item is contained in the 1999 Annual
Report under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 23
through 26 and is incorporated herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The response to this Item is contained in the 1999 Annual
Report under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Quantitative and
Qualitative Disclosures about Market Risk" on page 25 and is
incorporated herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and supplementary
data set forth in Item 14 are incorporated herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Directors
The response to this Item regarding the directors of the
Company and compliance with Section 16(a) of the Securities
Exchange Act of 1934 by the Company's officers and directors is
contained in the Proxy Statement for the 2000 Annual Meeting of
Stockholders under the captions "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" and is
incorporated herein.
B. Executive Officers
Set forth below are the names, ages (at January 14, 2000)
and principal occupations for the last five years of each current
executive officer of the Company. All such persons have been
elected to serve until the next annual election of officers and
their successors are elected or until their earlier resignation
or removal.
Richard A. Smith - 75
Chairman of the Company and of The Neiman Marcus Group,
Inc.; Chief Executive Officer of the Company from January
1997 until November 1999; Chief Executive Officer of The
Neiman Marcus Group, Inc. from January 1997 to December
1998; Chief Executive Officer of the Company and The
Neiman Marcus Group, Inc. prior to 1991; Chairman,
President (until November 1995) and Chief Executive
Officer of GC Companies, Inc.; Director of the Company,
The Neiman Marcus Group, Inc. and GC Companies, Inc. Mr.
Smith is the father of Robert A. Smith and the father-in-
law of Brian J. Knez. Mr. Smith is the uncle of Jeffrey
R. Lurie, a director of the Company.
Robert A. Smith - 40
President and Co-Chief Executive Officer of the Company
since November 1999; President and Co-Chief Operating
Officer of the Company from January 1997 to November
1999; Co-Chief Executive Officer of Harcourt, Inc. since
May 1999; Group Vice President of the Company prior
thereto; Co-Chief Executive Officer of The Neiman Marcus
Group, Inc. since May 1999; Chief Executive Officer of
The Neiman Marcus Group, Inc. from December 1998 to May
1999; President and Chief Operating Officer of The Neiman
Marcus Group, Inc. from January 1997 to December 1998;
Group Vice President of The Neiman Marcus Group, Inc.
prior thereto; President and Chief Operating Officer of
GC Companies, Inc. since November 1995; Director of the
Company and of The Neiman Marcus Group, Inc. Mr. Smith
is the son of Richard A. Smith, the brother-in-law of
Brian J. Knez, and the cousin of Jeffrey R. Lurie, a
director of the Company.
Brian J. Knez - 42
President and Co-Chief Executive Officer of the Company
since November 1999; President and Co-Chief Operating
Officer of the Company from January 1997 to November
1999; Co-Chief Executive Officer of The Neiman Marcus
Group, Inc. since May 1999; President (until November
1998) and Chief Executive Officer of Harcourt, Inc. since
May 1995 and Co-Chief Executive Officer since May 1999;
President of the Scientific, Technical, Medical and
Professional Group of Harcourt, Inc. prior thereto;
Director of the Company and of The Neiman Marcus Group,
Inc. Mr. Knez is the son-in-law of Richard A. Smith and
the brother-in-law of Robert A. Smith.
John R. Cook - 58
Senior Vice President and Chief Financial Officer of the
Company and of The Neiman Marcus Group, Inc.; Director of
The Neiman Marcus Group, Inc.
Eric P. Geller - 52
Senior Vice President, General Counsel and Secretary of
the Company and of The Neiman Marcus Group, Inc.
Kathleen A. Bursley - 45
Vice President of the Company since December 1998; Vice
President and General Counsel of Harcourt, Inc.
Peter Farwell - 57
Vice President - Corporate Relations of the Company and
of The Neiman Marcus Group, Inc.
Paul F. Gibbons - 48
Vice President and Treasurer of the Company and of The
Neiman Marcus Group, Inc.
Gerald T. Hughes - 43
Vice President-Human Resources of the Company and of The
Neiman Marcus Group, Inc.
Catherine N. Janowski - 39
Vice President and Controller of the Company and of The
Neiman Marcus Group, Inc. since November 1997; Director,
Corporate Accounting of the Company and of The Neiman
Marcus Group, Inc. prior thereto.
James P. Levy - 59
Vice President of the Company since December 1998;
President and Chief Operating Officer of Harcourt, Inc.
since November 1998; President of Harcourt Education and
Lifelong Learning & Assessment Groups prior thereto.
Gail S. Mann - 48
Vice President-Corporate Law and Associate General
Counsel since August 1999; Vice President, Assistant
General Counsel, Secretary and Clerk, Digital Equipment
Corporation from 1994 until September 1998.
Michael F. Panutich - 51
Vice President - General Auditor of the Company and of
The Neiman Marcus Group, Inc.
Paul Robershotte - 46
Vice President - Strategy and Business Development of the
Company and of The Neiman Marcus Group, Inc. since
February 1999; President and Chief Executive Officer of
Age Wave Communications from February 1996 until June
1998; Executive Vice President and Chief Operating
Officer of Age Wave, Inc. from May 1995 until February
1996; Vice President and Director of Bain & Co. prior
thereto.
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is contained in the Proxy
Statement for the 2000 Annual Meeting of Stockholders under the
captions "Directors' Compensation", "Executive Compensation" and
"Transactions Involving Management" and is incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The response to this Item is contained in the Proxy
Statement for the 2000 Annual Meeting of Stockholders under the
caption "Stock Ownership of Certain Beneficial Owners and
Management" and is incorporated herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this Item is contained in the Proxy
Statement for the 2000 Annual Meeting of Stockholders under the
captions "Executive Compensation" and "Transactions Involving
Management" and is incorporated herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
14(a)(1) Financial Statements
The documents listed below are incorporated herein by
reference to the Company's 1999 Annual Report to
Stockholders:
Consolidated Balance Sheets - October 31, 1999 and
1998.
Consolidated Statements of Operations for the fiscal
years ended October 31, 1999, 1998, and 1997.
Consolidated Statements of Cash Flows for the fiscal
years ended October 31, 1999, 1998 and 1997.
Consolidated Statements of Shareholders' Equity for
the fiscal years ended October 31, 1999, 1998 and
1997.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
14(a)(2) Consolidated Financial Statement Schedules
The document and schedule listed below are filed as
part of this Form 10-K:
Page In
Form 10-K
Independent Auditors' Report on Consolidated
Financial Statement Schedule F-1
Schedule II - Valuation and Qualifying Accounts
and Reserves F-2
All other schedules for which provision is made in the
applicable regulations of the Securities and Exchange Commission
have been omitted because the information is disclosed in the
Consolidated Financial Statements or because such schedules are
not required or are not applicable.
14(a)(3) Exhibits
The exhibits filed as part of this Annual Report are
listed in the Exhibit Index immediately preceding the exhibits.
The Company has identified with an asterisk in the Exhibit Index
each management contract and compensation plan filed as an
exhibit to this Form 10-K in response to Item 14(c) of Form 10-K.
14(b) Reports on Form 8-K
On October 4, 1999, the Company filed a report on Form 8-
K reporting the receipt of a favorable ruling from the Internal
Revenue Service regarding the planned distribution to its
shareholders of most of the Company's equity position in The
Neiman Marcus Group, Inc., and the Company's declaration of a
dividend to its common shareholders of such shares.
On November 1, 1999, the Company filed a report on Form
8-K reporting the distribution on October 22, 1999 of 21,440,960
shares of Class B Common Stock of The Neiman Marcus Group, Inc.
to holders of the Company's Common Stock and Class B Stock.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HARCOURT GENERAL, INC.
By:/s/ Brian J. Knez
Brian J. Knez, President
and Co-Chief Executive Officer
By:/s/ Robert A. Smith
Robert A. Smith, President
and Co-Chief Executive Officer
Dated: January 24, 2000
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
following capacities and on the dates indicated.
Signature Title Date
Principal Executive
Officers:
/s/ Brian J. Knez President and Co-Chief January 24, 2000
Brian J. Knez Executive Officer
/s/ Robert A. Smith President and Co-Chief January 24, 2000
Robert A. Smith Executive Officer
Principal Financial
Officer:
/s/ John R. Cook Senior Vice President and January 24, 2000
John R. Cook Chief Financial Officer
Principal Accounting
Officer:
/s/ Catherine N. Janowski Vice President and January 24, 2000
Catherine N. Janowski Controller
S-1
Directors:
/s/ Richard A. Smith January 24, 2000
Richard A. Smith
/s/ William F. Connell January 24, 2000
William F. Connell
/s/ Gary L Countryman January 24, 2000
Gary L. Countryman
/s/ Jack M. Greenberg January 24, 2000
Jack M. Greenberg
/s/ Brian J. Knez January 24, 2000
Brian J. Knez
/s/ Jeffrey R, Lurie January 24, 2000
Jeffrey R. Lurie
/s/ Lynn Morley Martin January 24, 2000
Lynn Morley Martin
/s/ Maurice Segall January 24, 2000
Maurice Segall
S-2
Directors:
/s/ Robert A. Smith January 24, 2000
Robert A. Smith
/s/ Paula Stern January 24, 2000
Paula Stern
/s/ Hugo Uyterhoeven January 24, 2000
Hugo Uyterhoeven
/s/ Clifton R. Wharton, Jr. January 24, 2000
Clifton R. Wharton, Jr.
S-3
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Harcourt General, Inc.
Chestnut Hill, Massachusetts
We have audited the consolidated financial statements of Harcourt
General, Inc. and its subsidiaries (the "Company") as of October
31, 1999 and 1998, and for each of the three years in the period
ended October 31, 1999, and have issued our report thereon dated
December 9, 1999. Such consolidated financial statements and
report are included in the Company's 1999 Annual Report to
Shareholders and are incorporated herein by reference. Our
audits also included the consolidated financial statement
schedule of the Company listed in Item 14(a)(2). The
consolidated financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 9, 1999
F-1
<TABLE>
Schedule II
HARCOURT GENERAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THREE YEARS ENDED OCTOBER 31, 1999
(In thousands)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
____Additions____
Balance at Charged to Charged
Beginning Costs and To Other Balance at
Description of Period Expenses Accounts Deductions End of Period
________________________________________________________________________________________________
YEAR ENDED OCTOBER 31, 1999
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 40,253 8,564 (1,389) 7,606(C) $ 39,822
(deducted from accounts receivable)
Allowance for book returns (A) $ 71,200 171,740 (4,821) 143,999(D) $ 94,120
(deducted from accounts receivable)
YEAR ENDED OCTOBER 31, 1998
Allowance for doubtful accounts $ 30,318 5,924 13,113(B) 9,102(C) $ 40,253
(deducted from accounts receivable)
Allowance for book returns (A) $ 65,911 84,779 27,930(B) 107,420(D) $ 71,200
(deducted from accounts receivable)
YEAR ENDED OCTOBER 31, 1997
Allowance for doubtful accounts $ 13,832 10,670 13,775 7,959(C) $ 30,318
(deducted from accounts receivable)
Allowance for book returns (A) $ 53,189 102,175 3,915 93,368(D) $ 65,911
(deducted from accounts receivable)
(A) Reflects gross allowance netted against receivable. Reserves for returns to inventory
and recovery of royalties payable are netted directly against those balances and are
not material.
(B) Reflects additions to the allowance from acquisitions during the year.
(C) Write-off uncollectible accounts net of recoveries.
(D) Books actually returned during the year.
</TABLE>
EXHIBIT INDEX
3.1 Restated Certificate of Incorporation of the
Company.
3.2 By-Laws of the Company, as amended.
4.1 Indenture, dated as of May 1, 1987, between the
Company and Manufacturers Hanover Trust Company,
as Trustee, and Terms Agreement, dated March 16,
1988, among the Company,The First Boston
Corporation and Salomon Brothers Inc relating to
the Company's 9 1/2% Subordinated Notes due 2000,
incorporated herein by reference to Exhibit 1 to
the Company's Report on Form 8-K, dated March 16,
1988.
4.2 Indenture dated as of April 23, 1992 between the
Company and Bankers Trust Company, as Trustee,
relating to the Company's 8 1/4% Senior Notes Due
2002 and the Company's 8 7/8% Senior Debentures
Due 2022, incorporated herein by reference to
Exhibit 4.1 to the Company's Registration
Statement on Form S-3, File No. 33-46148.
4.3 First Supplemental Indenture dated as of August
5, 1997 between the Company and Bankers Trust
Company, as Trustee, relating to the Company's
6.70% Senior Notes Due 2007, the Company's 7.20%
Senior Debentures Due 2027, and the Company's
7.30% Senior Debentures Due 2097, incorporated
herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-3,File
No. 333-30621.
4.4 Indenture dated as of May 15, 1986 between
National Education Corporation and Continental
Illinois National Bank and Trust Company of
Chicago, as Trustee,incorporated herein by
reference to Exhibit 4.2 to Amendment No. 1 to
National Education Corporation's Registration
Statement on Form S-3, File No. 33-5552.
4.5 Tripartite Agreement dated as of June 1, 1990
among National Education Corporation, IBJ
Schroder Bank & Trust Company and Continental
Bank, National Association, as resigning Trustee,
incorporated herein by reference to Exhibit 4 to
National Education Corporation's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1990,
File No. 1-6981.
4.6 First Supplemental Indenture dated as of July 21,
1997 among National Education Corporation,
Harcourt General, Inc., and IBJ Schroder Bank &
Trust Company, incorporated herein by reference
to Exhibit 4 to the Company's Registration
Statement on Form 8-A, dated July 22, 1997, File
No. 1-4925.
4.7 Smith-Lurie/Marks Stockholders' Agreement, dated
December 29, 1986, incorporated herein by
reference to Exhibit 4.5 to the Company's Annual
Report on Form 10-K for the fiscal year ended
October 31, 1992.
*10.1 1988 Stock Incentive Plan, incorporated herein by
reference to Exhibit 28.1 to the Company's
Registration Statement on Form S-8, File No. 33-
26079.
*10.2 1997 Incentive Plan, incorporated herein by
reference to Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended
October 31, 1997.
*10.3 1983 Key Executive Stock Purchase Loan Plan, as
amended, incorporated herein by reference to
Exhibit 10.4(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31,
1984.
*10.4 Executive Medical Plan, as amended, incorporated
herein by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1994.
*10.5(a) Supplemental Executive Retirement Plan,
incorporated herein by reference to Exhibit 10.9
to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1988.
*10.5(b) Amendment to Supplemental Executive Retirement
Plan, dated October 26, 1990, incorporated herein
by reference to Exhibit 10.7(b) to the Company's
Annual Report on Form 10-K for the fiscal year
ended October 31, 1990.
*10.6 Deferred Compensation Plan for Non-Employee
Directors,incorporated herein by reference to
Exhibit 10.6 of the Company's Annual Report on
Form 10-K for the fiscal year ended October 31,
1998.
*10.7(a) Amended and Restated Deferred Compensation
Agreement, dated August 27, 1990, between the
Company and Richard A. Smith, incorporated herein
by reference to Exhibit 10.13 of the Company's
Annual Report on Form 10-K for the fiscal year
ended October 31, 1990.
*10.7(b) Deferred Compensation Agreement dated as of December
15, 1994, between the Company and Richard A. Smith,
incorporated herein by reference to Exhibit 10.9(b)
of the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995.
*10.8(a) Split Dollar Life Insurance Agreement, dated as
of June 21, 1990, by and between the Company and
the Richard and Susan Smith 1990 Issue Trust,
under a Declaration of Trust dated as of April 3,
1990, incorporated herein by reference to Exhibit
10.17 to the Company's Annual Report on Form 10-K
for the fiscal year ended October 31, 1991.
*10.8(b) Amendment, dated as of December 15, 1998, to
Split Dollar Life Insurance Agreement, dated as
of June 21, 1990, by and between the Company and
the Richard and Susan Smith 1990 Issue Trust,
under a Declaration of Trust dated as of April 3,
1990, incorporated herein by reference to Exhibit
10.8(b) of the Company's Annual Report on Form10-
K for the fiscal year ended October 31, 1998.
*10.9 Key Employee Deferred Compensation Plan, as
amended, incorporated herein by reference to
Exhibit 10.14 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31,
1994.
10.10 Amended and Restated Intercompany Services
Agreement, dated as of November 1, 1999, between
the Company and The Neiman Marcus Group, Inc.
10.11 Amended and Restated Intercompany Services
Agreementdated as of November 1, 1995, between
the Company and GC Companies, Inc., incorporated
herein by reference to Exhibit 10.11(b) of the
Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1995.
10.12(a) Credit Agreement dated as of July 18, 1997 among
the Company, the banks listed therein, The Chase
Manhattan Bank, as syndication agent, Morgan
Guaranty Trust Company of New York, as
documentation agent, and BankBoston, N.A.,as
administrative agent, incorporated herein by
reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended July 31, 1997.
10.12(b) Amendment dated January 30, 1998 to Credit
Agreement dated as of July 18, 1997 among the
Company, the banks listed therein, The Chase
Manhattan Bank, as syndication agent, Morgan
Guaranty Trust Company of New York, as
documentation agent, and BankBoston, N.A., as
administrative agent, incorporated herein by
reference to Exhibit 10.12(b) to the Company's
Annual Report on Form 10-K for fiscal year ended
October 31, 1998.
10.13 Amended and Restated Agreement and Plan of
Merger, dated as of July 1, 1999, among the
Company, The Neiman Marcus Group, Inc., and
Spring Merger Corporation, incorporated herein by
reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 31,
1999.
10.14 Amended and Restated Distribution Agreement dated
as of July 1, 1999, between the Company and The
Neiman Marcus Group, Inc., incorporated herein by
reference to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 31,
1999.
13.1 The following sections of the 1999 Annual Report
to Stockholders ("1999 Annual Report") which are
expressly incorporated by reference into this
Annual Report on Form 10-K:
Management's Discussion and Analysis of
Financial Condition and Results of
Operations at pages 23 through 26 of the
1999 Annual Report.
Consolidated Financial Statements and the
Notes thereto at pages 27 through 46 of the
1999 Annual Report.
Independent Auditors' Report at page 47 of
the 1999 Annual Report.
The information appearing under the caption
"Five Year Summary (Unaudited)" on page 48
of the 1999 Annual Report.
The information appearing under the caption
"Stock Information" (including the
accompanying tables and text)on page 50 of
the 1999 Annual Report.
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
HARCOURT GENERAL, INC.
(Originally incorporated under the name
MID-WEST DRIVE-IN THEATRES, INC. on November 1, 1950)
FIRST: The name of the Corporation is HARCOURT GENERAL,
INC.
SECOND: Its registered office in the State of Delaware is
located at Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name and address of
its registered agent is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801.
THIRD: The nature of the business, or objects or purposes
to be transacted, promoted or carried on are:
To own, operate, and manage hotels or motels; to purchase
and acquire land, buildings, leases, contracts, options,
corporate shares, trust certificates and any and all other
property, rights or interests in hotel or motel enterprises, to
buy, sell, lease and deal in hotel or motel furnishings,
equipment and supplies of every kind.
To own, operate and manage places of amusement, including
motion pictures, theatrical productions, vaudeville exhibitions,
bowling alleys, sports arenas, skating rinks, and all other
athletic and recreational facilities for public exhibition or
participation, and other enterprises incidental thereto; to
purchase and acquire land, buildings, leases, contracts, options,
corporate shares, trust certificates and any and all other
property, rights or interests in amusement enterprises or
activities in connection therewith; to buy, sell, lease and deal
in apparatus, furnishings, equipment and supplies of every kind
used or useful in amusement enterprises, and contracts for every
variety of entertainment, and to construct and erect buildings or
other structures of any and every kind required or incidental to
the purposes of this Corporation; to borrow money and contract
indebtedness for all proper corporate purposes, to issue bonds,
notes and other evidences of indebtedness therefor, to secure the
same by franchises, rights, property, assets and goodwill of this
Corporation; and to assume or guarantee and secure in like manner
the leases, contracts or other obligations and the payment of any
dividends on any stock or shares and the principal or interest on
any bonds, notes or other evidences of indebtedness of any
person, firm, association, trust or other corporation, and to
lend money to or advance money in behalf of any person, firm,
association, trust or other corporation, in which this
Corporation has an interest.
To lend money, to advance money in behalf of, or invest in
the stock, bonds, notes, debentures or other securities of any
person, firm, association, trust or corporation engaged in the
business of acquiring, building, equipping or operating
restaurants, particularly, but without limitation, curb service
restaurants so called, or engage in the business of acquiring
real estate or interests in real estate upon which restaurants
are to be constructed.
To engage in the business of buying, preparing and selling
foods and beverages of all kinds and to operate restaurants,
liquor lounges, snack bars or refreshment stands in conjunction
with, or as an incident to, any of the other enterprises in which
the Corporation may be engaged.
To purchase, lease or otherwise acquire, own, hold, use,
develop, improve and otherwise deal in and with, and sell,
convey, mortgage, lease, exchange, transfer and otherwise dispose
of real estate and any interests in real estate.
To lend money, to advance money on behalf of, or invest in
the stocks, bonds, notes, debentures, securities or obligations
of any person, firm, association, trust or corporation engaged in
an enterprise organized for any of the purposes hereinbefore
enumerated in this Article Third.
To engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law
of Delaware, whether or not similar or related or incidental to
or useful or advantageous in or in connection with any of the
purposes or enterprises hereinbefore enumerated in this Article
Third.
FOURTH: The total number of shares of capital stock of all
classes which this Corporation shall have authority to issue
shall be 370,000,000 shares to wit: (a) 150,000,000 shares of
Common Stock with a par value of $1.00 per share; (b) 80,000,000
shares of Class B Stock with a par value of $1.00 per share; (c)
100,000,000 shares of Class C Stock with a par value of $1.00 per
share; and (d) 40,000,000 shares of Preferred Stock with a par
value of $1.00 per share.
The powers, preferences and the relative, participating,
optional and other rights and the qualifications, limitations and
restrictions thereof, of each class of stock, and the express
grant of authority to the Board of Directors to fix by resolution
the designations and the powers, preferences and rights of each
share of Preferred Stock and the qualifications, limitations and
restrictions thereof which are not fixed by this Amended and
Restated Certificate of Incorporation, are as follows:
A. Common Stock, Class B Stock and Class C Stock
I. Dividends, etc. Subject to the rights of the holders
of Preferred Stock, and subject to any other provisions of this
Amended and Restated Certificate of Incorporation, as amended
from time to time, holders of Common Stock, Class B Stock and
Class C Stock shall be entitled to receive such dividends and
other distributions in cash, stock or property of the Corporation
as may be declared thereon by the Board of Directors from time to
time out of assets or funds of the Corporation legally available
therefor, provided that in the case of cash dividends, if at any
time a cash dividend is paid on the Common Stock, a cash dividend
will also be paid on the Class C Stock, in an amount per share of
Class C Stock equal to the amount of the cash dividend paid on
each share of the Common Stock and a cash dividend will also be
paid on the Class B Stock in an amount per share of Class B Stock
equal to 90% of the amount of the cash dividend paid on each
share of the Common Stock (rounded down, if necessary, to the
nearest one-hundredth of a cent), and provided, further, that in
the case of dividends or other distributions payable in stock of
the Corporation other than Preferred Stock, including
distributions pursuant to stock splits or divisions of stock of
the Corporation other than Preferred Stock, which occur after the
initial issuance of shares of Class B Stock by the Corporation,
only shares of Common Stock shall be distributed with respect to
Common Stock, only shares of Class B Stock in an amount per share
equal to the amount per share paid with respect to the Common
Stock shall be distributed with respect to Class B Stock and only
shares of Class C Stock in an amount per share equal to the
amount per share paid with respect to the Common Stock shall be
distributed with respect to the Class C Stock, and that, in the
case of any combination or reclassification of the Common Stock,
the shares of Class B Stock shall also be combined or
reclassified and the shares of Class C Stock shall also be
combined or reclassified so that the number of shares of Class B
Stock outstanding immediately following such combination or
reclassification and the number of shares of Class C Stock
outstanding immediately following such combination or
reclassification shall bear the same relationship to the number
of shares outstanding immediately prior to such combination or
reclassification as the number of shares of Common Stock
outstanding immediately following such combination or
reclassification bears to the number of shares of Common Stock
outstanding immediately prior to such combination or
reclassification and provided further, that in the case of
dividends or other distributions payable in property, if at any
time such a dividend is paid on the Common Stock, a dividend will
also be paid on the Class C Stock, at the same rate or ratio of
shares or other property per share of Class C Stock as is paid on
each share of Common Stock; provided that if rights to purchase
Common Stock or rights that, upon adjustment, may be exercised to
purchase Common Stock are issued to holders of Common Stock,
rights to purchase Class C Stock or rights that, upon adjustment,
may be exercised to purchase Class C Stock shall be issued at the
same rate or ratio to the holders of Class C Stock. The
Corporation shall not issue rights, warrants or options to
holders of Common Stock, Class B Stock and/or Class C Stock
entitling them to subscribe for or purchase shares of Class C
Stock at a price per share less than the market price per share
of Common Stock on the record date for such distribution, unless,
in the judgment of the Board of Directors, the conversion rate
for the Series A Stock (as defined below) shall have been
adjusted pursuant to the terms of Section B hereof to the extent,
if any, required in order to adequately account for such
issuance.
II. Voting.
(a) At every meeting of the stockholders every holder of
Common Stock shall be entitled to one (1) vote in person or by
proxy for each share of Common Stock standing in his name on the
transfer books of the Corporation, every holder of Class B Stock
shall be entitled to one (1) vote in person or by proxy for each
share of Class B Stock standing in his name on the transfer books
of the Corporation and every holder of Class C Stock shall be
entitled to one-tenth (1/10th) of one vote in person or by proxy
for each share of Class C Stock standing in his name on the
transfer books of the Corporation, except that each holder of
Class B Stock shall be entitled to ten (10) votes per share on
the election of any directors at any stockholders' meeting if
more than 20% of the shares of Common Stock outstanding on the
record date for such meeting are beneficially owned by, or if
more than 20% of the total voting power attributable to the
shares of the Common Stock outstanding on the record date for
such meeting are voted either directly or by proxy for a person
or persons other than those nominated by the Board of Directors
by, a person or group of persons acting in concert (unless such
person or group is also the beneficial owner of a majority of the
shares of Class B Stock on such record date).
(b) In addition to and not in lieu of any vote required by
the General Corporation Law of Delaware, the provisions of this
Amended and Restated Certificate of Incorporation shall not be
modified, revised, altered or amended, repealed or rescinded in
whole or in part, without the affirmative vote of the holders of
a majority of the shares of the Common Stock and of a voting
majority of the shares of the Class B Stock, each voting
separately as a class.
(c) The Corporation may not effect or consummate:
(1) any merger or consolidation of the Corporation
with or into any other corporation;
(2) any sale, lease, exchange or other disposition of
all or substantially all of the assets of the
Corporation to or with any other person; or
(3) any dissolution of the Corporation;
unless and until such transaction is authorized by the vote, if
any, required by Article Eighth of this Amended and Restated
Certificate of Incorporation and by Delaware law; and unless and
until such transaction is authorized by a majority of the voting
power of the shares of Common Stock and of Class B Stock entitled
to vote, each voting separately as a class, but the foregoing
shall not apply to any merger or other transaction described in
the preceding subparagraphs (1) and (2) if the other party to the
merger or other transaction is a Subsidiary of the Corporation.
For purposes of this paragraph (c) a "Subsidiary" is any
corporation more than 50% of the voting securities of which are
owned directly or indirectly by the Corporation; and a "person"
is any individual, partnership, corporation or entity.
(d) Following the initial issuance of shares of Class B
Stock, the Corporation may not effect the issuance of any
additional shares of Class B Stock (except in connection with
stock splits and stock dividends) unless and until such issuance
is authorized by the holders of a majority of the voting power of
the shares of Common Stock and of Class B Stock entitled to vote,
each voting separately as a class.
(e) Every reference in this Amended and Restated
Certificate of Incorporation to a majority or other proportion of
shares of stock shall refer to such majority or other proportion
of the votes of such shares of stock.
(f) Except as may be otherwise required by law or by this
Article Fourth, the holders of Common Stock, Class B Stock and
Class C Stock shall vote together as a single class, subject to
any voting rights which may be granted to holders of Preferred
Stock.
(g) For the avoidance of doubt, no director shall, for
purposes of paragraph (f) of Article Eighth hereof, be deemed to
be "pecuniarily interested" in any issuance of Class C Stock if
such director would not be so interested but for the ownership,
directly or indirectly, of Class B Stock by (or the extent of the
voting power represented by shares of Class B Stock, or Common
Stock issued upon the conversion of Class B Stock, held by) such
director or any other person or entity or any relationship of
such director to or with such other person or entity.
III. Transfer.
(a) No person holding shares of Class B Stock of record
(hereinafter called a Class B Holder) may transfer, and the
Corporation shall not register the transfer of, such shares of
Class B Stock, whether by sale, assignment, gift, bequest,
appointment or otherwise, except to a Permitted Transferee. A
Permitted Transferee shall mean, with respect to each person from
time to time shown as the record holder of shares of Class B
Stock:
(i) In the case of a Class B Holder who is a natural
person;
(A) The spouse of such Class B Holder, any lineal
descendant of a grandparent of such Class B Holder, and any
spouse of such lineal descendant (which lineal descendants, their
spouses, the Class B Holder, and his or her spouse are herein
collectively referred to as "Class B Holder's Family Members");
(B) The trustee of a trust (including a voting trust)
principally for the benefit of such Class B Holder and/or one or
more of his or her Permitted Transferees described in each
subclause of this clause (i) other than this subclause (B),
provided that such trust may also grant a general or special
power of appointment to one or more of such Class B Holder's
Family Members and may permit trust assets to be used to pay
taxes, legacies and other obligations of the trust or of the
estates of one or more of such Class B Holder's Family Members
payable by reason of the death of any such Family Members;
(C) Any organization contributions to which are
deductible for federal income, estate or gift tax purposes of any
split-interest trust described in Section 4947 of the Internal
Revenue Code, as it may from time to time be amended (hereinafter
called a "Charitable Organization");
(D) A corporation a majority of the beneficial
ownership of outstanding capital stock of which entitled to vote
for the election of directors is owned by, or a partnership a
majority of the beneficial ownership of the partnership interests
of which entitled to participate in the management of the
partnership are held by, the Class B Holder or his or her
Permitted Transferees determined under this clause (i), provided
that if by reason of any change in the ownership of such stock or
partnership interests, such corporation or partnership would no
longer qualify as a Permitted Transferee, all shares of Class B
Stock then held by such corporation or partnership shall, upon
the election of the corporation given by written notice to such
corporation or partnership, without further act on anyone's part,
be converted into shares of Common Stock effective upon the date
of the giving of such notice, and stock certificates formerly
representing such shares of Class B Stock shall thereupon and
thereafter be deemed to represent the like number of shares of
Common Stock; and
(E) The estate of such Class B Holder.
(ii) In the case of a Class B Holder holding the shares
of Class Stock in question as trustee pursuant to a trust (other
than a Charitable Organization or a trust described in clause
(iii) below), "Permitted Transferee" means (A) any person
transferring Class B Stock to such trust and (B) any Permitted
Transferee of any such transferor determined pursuant to clause
(i) above.
(iii) In the case of a Class B Holder holding the
shares of Class B Stock in question as trustee pursuant to a
trust (other than a Charitable Organization) which was
irrevocable on the record date (hereinafter in this Section III
called the "Record Date") for determining the persons to whom the
Class B Stock is first issued by the Corporation, "Permitted
Transferee" means (A) any person to whom or for whose benefit
principal may be distributed either during or at the end of the
term of such trust whether by power of appointment or otherwise
and (B) any Permitted Transferee of any such person determined
pursuant to clause (i) above.
(iv) In the case of a Class B Holder which is a
Charitable Organization holding record and beneficial ownership
of the shares of Class B Stock in question, '"Permitted
Transferees" means any Class B Holder.
(v) In the case of a Class B Holder which is a
corporation or partnership (other than a Charitable Organization)
acquiring record and beneficial ownership of the shares of Class
B Stock in question upon its initial issuance by the Corporation,
"Permitted Transferee" means (A) any partner of such partnership,
or stockholder of such corporation, on the Record Date, (3) any
person transferring such shares of Class B Stock to such
corporation or partnership, and (C) any Permitted Transferee of
any such person, partner, or stockholder referred to in
subclauses (A) and (B) of this clause (v), determined under
clause (i) above.
(vi) In the case of a Class B Holder which is a
corporation or partnership (other than a Charitable Organization
or a corporation or partnership described in clause (v) above)
holding record and beneficial ownership of the shares of Class B
Stock in question, "Permitted Transferee" means (A) any person
transferring such shares of Class B Stock to such corporation or
partnership and (B) any Permitted Transferee of any such
transferor determined under clause (i) above.
(vii) In the case of a Class B Holder which is the
estate of a deceased Class B Holder, or which is the estate of a
bankrupt or insolvent Class B Holder, which holds record and
beneficial ownership of the shares of Class B Stock in question,
"Permitted Transferee" means a Permitted Transferee of such
deceased, bankrupt or insolvent Class B Holder as determined
pursuant to clause (i), (ii), (iii), (iv), (v) or (vi) above, as
the case may be.
(b) Notwithstanding anything to the contrary set forth
herein, any Class B Holder may pledge such Holder's shares of
Class B Stock to a pledgee pursuant to a bona fide pledge of such
shares as collateral security for indebtedness due to the
pledgee, provided that such shares shall not be transferred to or
registered in the name of the pledgee and shall remain subject to
the provisions of this Section III. In the event of foreclosure
or other similar action by the pledgee, such pledged shares of
Class B Stock may only be transferred to a Permitted Transferee
of the pledgor or converted into shares of Common Stock, as the
pledgee may elect.
(c) For purposes of this Section III:
(i) The relationship of any person that is derived by
or through legal adoption shall be considered a natural
one.
(ii) Each joint owner of shares of Class B Stock shall
be considered a "Class B Holder" of such shares.
(iii) A minor for whom shares of Class B Stock are
held pursuant to a Uniform Gifts to Minors Act or
similar law shall be considered a Class Holder of such
shares.
(iv) Unless otherwise specified, the term "person"
means both natural persons and legal entities.
(v) Without derogating from the election conferred
upon the Corporation pursuant to subclause (D) of
clause (i) above, each reference to a corporation shall
include any successor corporation resulting from merger
or consolidation; and each reference to a partnership
shall include any successor partnership resulting from
the death or withdrawal of a partner.
(d) Any transfer of shares of Class B Stock not permitted
hereunder shall result in the conversion of the transferee's
shares of Class B Stock into shares of Common Stock, effective
the date on which certificates representing such shares are
presented for transfer on the books of the Corporation. The
Corporation may, in connection with preparing a list of
stockholders entitled to vote at any meeting of stockholders, or
as a condition to the transfer or the registration of shares of
Class B Stock on the Corporation's books, require the furnishing
of such affidavits or other proof as it deems necessary to
establish that any person is the beneficial owner of shares of
Class B Stock or is a Permitted Transferee.
(e) At any time when the number of outstanding shares of
Class B Stock as reflected on the stock transfer books of the
Corporation falls below 12 1/2% of the aggregate number of the
issued and outstanding shares of the Common Stock, Class B Stock
and Series A Stock of the Corporation, or the Board of Directors
and the holders of a majority of the outstanding shares of Class
B Stock approve the conversion of all of the Class B Stock into
Common Stock, then, immediately upon the occurrence of either
such event the outstanding shares of Class B Stock shall be
converted into shares of Common Stock. In the event of such a
conversion, certificates formerly representing outstanding shares
of Class B Stock shall thereupon and thereafter be deemed to
represent the like number of shares of Common Stock.
(f) Shares of Class B Stock shall be registered in the
names of the beneficial owners thereof and not in "street" or
"nominee" name. For this purpose, a "beneficial owner" of any
shares of Class B Stock shall mean a person who, or an entity
which, possesses the power, either singly or jointly, to direct
the voting or disposition of such shares. The Corporation shall
note on the certificates for shares of Class B Stock the
restrictions on transfer and registration of transfer imposed by
this Section III.
IV. Conversion Rights.
(a) Subject to the terms and conditions of this Section IV,
each share of Class B Stock shall be convertible at any time or
from time to time, at the option of the respective holder
thereof, at the office of any transfer agent for Class B Stock,
and at such other place or places, if any, as the Board of
Directors may designate, or, if the Board of Directors shall fail
so to designate, at the principal office of the Corporation
(attention of the Secretary of the Corporation), into one (1)
fully paid and nonassessable share of Common Stock. Upon
conversion, the Corporation shall make no payment or adjustment
on account of dividends accrued or in arrears on Class B Stock
surrendered for conversion or on account of any dividends on the
Common Stock issuable on such conversion. Before any holder of
Class B Stock shall be entitled to convert the same into Common
Stock, he shall surrender the certificate or certificates for
such Class B Stock at the office of said transfer agent (or other
place as provided above), which certificate or certificates, if
the Corporation shall so request, shall be duly endorsed to the
Corporation or in blank or accompanied by proper instruments of
transfer to the Corporation or in blank (such endorsements or
instruments of transfer to be in form satisfactory to the
Corporation), and shall give written notice to the Corporation at
said office that he elects so to convert said Class B Stock in
accordance with the terms of this Section IV, and shall state in
writing therein the name or names in which he wishes the
certificate or certificates for Common Stock to be issued. Every
such notice of election to convert shall constitute a contract
between the holder of such Class B Stock and the Corporation,
whereby the holder of such Class B Stock shall be deemed to
subscribe for the amount of Common Stock which he shall be
entitled to receive upon such conversion, and, in satisfaction of
such subscription, to deposit the Class B Stock to be converted
and to release the Corporation from all liability thereunder, and
thereby the Corporation shall be deemed to agree that the
surrender of the certificate or certificates therefor and the
extinguishment of liability thereon shall constitute full payment
of such subscription for Common Stock to be issued upon such
conversion. The Corporation will as soon as practicable after
such deposit of a certificate or certificates for Class B Stock,
accompanied by the written notice and the statement above
prescribed, issue and deliver at the office of said transfer
agent (or other place as provided above) to the person for whose
account such Class B Stock was so surrendered, or to his nominee
or nominees, a certificate or certificates for the number of full
shares of Common Stock to which he shall be entitled as
aforesaid. Subject to the provisions of subsection (c) of this
Section IV, such conversion shall be deemed to have been made as
of the date of such surrender of the Class B Stock to be
converted; and the person or persons entitled to receive the
Common Stock issuable upon conversion of such Class B Stock shall
be treated for all purposes as the record holder or holders of
such Common Stock on such date.
(b) The issuance of certificates for shares of Common Stock
upon conversion of shares of Class B Stock shall be made without
charge for any stamp or other similar tax in respect of such
issuance. However, if any such certificate is to be issued in a
name other than that of the holder of the share or shares of
Class B Stock converted, the person or persons requesting the
issuance thereof shall pay to the Corporation the amount of any
tax which may be payable in respect of any transfer involved in
such issuance or shall establish to the satisfaction of the
Corporation that such tax has been paid.
(c) The Corporation shall not be required to convert Class
B Stock, and no surrender of Class B Stock shall be effective for
that purpose, while the stock transfer books of the Corporation
are closed for any purpose; but the surrender of Class B Stock
for conversion during any period while such books are so closed
shall become effective for conversion immediately upon the
reopening of such books, as if the conversion had been made on
the date such Class B Stock was surrendered.
(d) The Corporation covenants that it will at all times
reserve and keep available, solely for the purpose of issue upon
conversion of the outstanding shares of Class B Stock, such
number of shares of Common Stock as shall be issuable upon the
conversion of all such outstanding shares, provided that nothing
contained herein shall be construed to preclude the Corporation
from satisfying its obligations in respect of the conversion of
the outstanding shares of Class B Stock by delivery of shares of
Common Stock which are held in the treasury of the Corporation.
The Corporation covenants that if any shares of Common Stock,
required to be reserved for purposes of conversion hereunder,
require registration with or approval of any governmental
authority under any federal or state law before such shares of
Common Stock may be issued upon conversion, the Corporation will
use its best efforts to cause such shares to be duly registered
or approved, as the case may be. The Corporation will endeavor
to list the shares of Common Stock required to be delivered upon
conversion prior to such delivery upon each national securities
exchange, if any, upon which the outstanding Common Stock is
listed at the time of such delivery. The Corporation covenants
that all shares of Common Stock which shall be issued upon
conversion of the shares of Class B Stock, will, upon issue, be
fully paid and nonassessable and not entitled to any preemptive
rights.
(e) The Class C Stock shall not be convertible into another
class of stock or any other security of the Corporation except
that the Class C Stock shall be automatically converted into
Common Stock upon any dissolution, liquidation or winding up of
the affairs of the Corporation, whether voluntary or involuntary.
V. Liquidation Rights.
In the event of any dissolution, liquidation or winding up
of the affairs of the Corporation, whether voluntary or
involuntary, after payment or provision for payment of the debts
and other liabilities of the Corporation, the holders of each
series of Preferred Stock shall be entitled to receive, out of
the net assets of the Corporation, an amount for each share equal
to the amount fixed and determined by the Board of Directors in
any resolution or resolutions providing for the issuance of any
particular series of Preferred Stock, plus an amount equal to all
dividends accrued and unpaid on shares of such series to the date
fixed for distribution, and no more, before any of the assets of
the Corporation shall be distributed or paid over to the holders
of Common Stock. After payment in full of said amounts to the
holders of Preferred Stock of all series other than the
Corporation's Series A Cumulative Convertible Stock, $1.00 par
value (hereinafter the "Series A Stock"), and after payment of
the full amount provided for the holders of Series A Stock in
accordance with the first sentence of Section B.3. of this
Article Fourth, the remaining assets and funds of the Corporation
shall be divided among and paid ratably to the holders of Common
Stock (including those persons who shall become holders of Common
Stock by reason of converting their shares) in a manner not
inconsistent with the provisions of Section B.3. of this Article
Fourth regarding the rights of the holders of Series A Stock in
any such liquidation, dissolution or winding up. If, upon such
dissolution, liquidation or winding up, the assets of the
Corporation distributable as aforesaid among the holders of
Preferred Stock of all series shall be insufficient to permit
full payment to them of said preferential amounts, then such
assets shall be distributed among such holders, first in the
order of their respective preferences, and second, as to such
holders who are next entitled to such assets and who rank equally
with regard to such assets, ratably in proportion to the
respective total amounts which they shall be entitled to receive
as provided in this Section V. A merger or consolidation of the
Corporation with or into any other corporation or a sale or
conveyance of all or any part of the assets of the Corporation
(which shall not in fact result in the liquidation of the
Corporation and the distribution of assets to stockholders) shall
not be deemed to be a voluntary or involuntary liquidation or
dissolution or winding up of the Corporation within the meaning
of this Section V.
B. Preferred Stock.
The Board of Directors is hereby authorized from time to
time to provide by resolution for the issuance of shares of
Preferred Stock in one or more series not exceeding the aggregate
number of shares of Preferred Stock authorized by this Amended
and Restated Certificate of Incorporation, as amended from time
to time; and to determine with respect to each such series the
voting powers, if any (which voting powers if granted may be full
or limited), designations, preferences and relative,
participating, optional or other special rights and the
qualifications, limitations or restrictions appertaining thereto,
including without limiting the generality of the foregoing, the
voting rights appertaining to shares of Preferred Stock of any
series (which may be one vote per share or a fraction of a vote
per share, and which may be applicable generally or only upon the
happening and continuance of stated events or conditions), the
rate of dividend to which holders of Preferred Stock of any
series may be entitled (which may be cumulative or
noncumulative), the rights of holders of Preferred Stock of any
series in the event of liquidation, dissolution or winding up of
the affairs of the Corporation, and the rights (if any) of
holders of Preferred Stock of any series to convert or exchange
such shares of Preferred Stock of such series for shares of any
other class of capital stock (including the determination of the
price or prices or the rate or rates applicable to such rights to
convert or exchange and the adjustment thereof, the time or times
during which the right to convert or exchange shall be applicable
and the time or times during which a particular price or rate
shall be applicable).
Before the Corporation shall issue any shares of Preferred
Stock of any series, a certificate setting forth a copy of the
resolution or resolutions of the Board of Directors, fixing the
voting powers, designations, preferences, the relative,
participating, optional or other rights, if any, and the
qualifications, limitations and restrictions, if any,
appertaining to the shares of Preferred Stock of such series, and
the number of shares of Preferred Stock of such series authorized
by the Board of Directors to be issued shall be made under seal
of the Corporation and signed by the president or vice president
and by the secretary or an assistant secretary of the Corporation
and acknowledged by such president or vice president as provided
by the laws of the State of Delaware and shall be filed and a
copy thereof recorded in the manner prescribed by the laws of the
State of Delaware.
The powers, preferences and the relative, participating,
optional and other rights, and the qualifications, limitations
and restrictions thereof of the series of Preferred Stock of the
Corporation designated Series A Stock are as follows:
1. Designation and Number of Shares. The distinctive
serial designation of the series shall be Series A Cumulative
Convertible Stock, $1.00 par value. The number of shares of
Series A Stock which the Corporation is authorized to issue is
initially established at 10,000,000, which number of shares may
be increased (if, and to the extent that, the Amended and
Restated Certificate of Incorporation shall be further amended to
increase the authorized number of shares of Preferred Stock) or
decreased (but not below the number of shares of Series A Stock
then outstanding) from time to time by the Board of Directors of
the Corporation.
2. Dividends.
(a) Subject to full dividends accrued on the outstanding
shares of any Preferred Stock ranking senior to the Series A
Stock in respect of the payment of dividends for all past
dividend periods and for the then current dividend period having
been paid or declared and set apart for payment, holders of the
Series A Stock shall be entitled to receive, but only when and as
declared by the Board of Directors out of funds legally available
for the declaration and payment of dividends, cumulative
dividends as fixed by the provisions of this paragraph, and no
more, payable in cash quarterly on October 29, 1982 and
thereafter on the last day of January, April, July and October in
each year, to holders of record of the Series A Stock on the
respective dates fixed in advance for this purpose by the Board
of Directors prior to the payment of each such dividend. The
quarterly dividend to be paid on each share of Series A Stock
shall be the sum of (x) $.03 (adjusted, if necessary, in
accordance with Section 2(f)), and (y) the product of (i) the
amount of the dividend or dividends (including special dividends,
if any) paid or to be paid in cash on each share of Common Stock
during the quarter ending on the date on which the Series A Stock
dividend is payable, and (ii) the conversion rate (as defined in
Section 4 below).
(b) Such dividends shall accrue and be cumulative as
follows: as to shares issued prior to the record date for the
first dividend payment, from the date of issuance; as to shares
issued during the period commencing immediately after the record
date for a dividend and terminating at the close of business on
the payment date for such dividend, from such dividend payment
date; and otherwise, from the quarterly payment date next
preceding the date of issue of such shares.
(c) Accumulations of dividends accrued on any shares of the
Series A Stock shall not bear interest.
(d) No dividend (other than a dividend in Common Stock, in
Class B Stock or in any other class of stock of the Corporation
ranking junior to the Series A Stock in respect of the payment of
dividends) shall be declared or paid or set aside for payment,
nor shall any other distribution be declared or made upon the
Common Stock, upon the Class B Stock or upon any other stock
ranking junior to the Series A Stock in respect of the payment of
dividends, nor shall any Common Stock, Class B Stock or any other
class of stock of the Corporation ranking junior to the Series A
Stock in respect of the payment of dividends be redeemed,
purchased or otherwise acquired for any consideration by the
Corporation or by any corporation more than fifty percent of the
voting securities of which are owned, directly or indirectly, by
the Corporation, while any of the Series A Stock is outstanding,
unless, in each case, all dividends accrued on all outstanding
shares of the Series A Stock for all past dividend periods shall
have been paid or declared and set apart for payment.
(e) As used in this certificate, accrued dividends shall
mean the sum of amounts in respect of shares of Series A Stock
then outstanding which, as to each share, shall be an amount
computed from the date from which dividends on such share become
cumulative to the date with reference to which the expression is
used, irrespective of whether such amount or any part thereof
shall have been declared as dividends or there shall have existed
any funds legally available for the declaration or payment
thereof, less the aggregate of all dividends paid on such share.
(f) If the Corporation shall declare a dividend on its
Common Stock in shares of its Common Stock, the Board of
Directors may in its discretion, and in lieu of any adjustment in
the conversion rate (as defined in Section 4 below), declare a
dividend on the Series A Stock in shares of its Series A Stock
and provide for the issuance of said shares in accordance with
this Article Fourth such that the number of shares of Series A
Stock distributed on each share of Series A Stock then
outstanding shall equal the number of shares of Common Stock
distributed on each share of Common Stock then outstanding. In
the event a dividend payable in Series A Stock is declared
pursuant to this paragraph (f), the amount of $.03 set forth in
clause (x) of Section 2(a), or such other amount as shall have
resulted from any previous adjustments made in accordance with
this paragraph (f), shall be adjusted by multiplying such amount
by a fraction the numerator of which shall be the number of
shares of Series A Stock outstanding on the record date for such
dividend and the denominator of which shall be the sum of the
number of shares of Series A Stock outstanding on the record date
for such dividend and the number of shares of Series A Stock
payable thereon pursuant to the declaration of such dividend. In
such event, the amount of $20 set forth in the first and third
sentences of Section 3, or such other amount as shall have
resulted from any previous adjustments made in accordance with
this paragraph (f), shall be adjusted by multiplying such amount
by the same fraction used in accordance with the immediately
preceding sentence.
3. Liquidation Rights.
In the event of any liquidation, dissolution or winding up
(whether voluntary or involuntary) of the Corporation, holders of
the Series A Stock shall be entitled to be paid in cash from the
net assets of the Corporation available for distribution (after
the prior claims of the holders of any Preferred Stock ranking
senior to the Series A Stock shall have been satisfied) the sum
of $20 per share (adjusted, if necessary, in accordance with
Section 2(f)) plus dividends accrued on each share to the date
fixed for payment thereof, before any amount shall be paid to
holders of the Common Stock. If the net assets of the
Corporation available for distribution are insufficient to allow
payment in full to be made to the holders of the Series A Stock
as provided in the immediately foregoing sentence, the holders of
the Series A Stock shall be paid, ratably, in proportion to the
full distributive amounts to which they are respectively
entitled. If the net assets of the Corporation available for
distribution are sufficient to allow payment in full to be made
to the holders of the Series A Stock as provided in the first
sentence of this Section 3, the holders of the Common Stock shall
be entitled to be paid in cash out of the net assets, if any,
remaining for distribution a sum per share equal to the amount
obtained by dividing $20 (adjusted, if necessary, in accordance
with Section 2(f)) by the conversion rate (as defined in Section
4, below), or, if such remaining net assets are insufficient to
allow payment of such amount per share, then that amount per
share derived by dividing the total amount of such remaining net
assets by the number of shares of Common Stock then outstanding.
After giving effect to the distributive amounts payable to
holders of the Series A Stock and of the Common Stock as
aforesaid, all such holders shall be entitled to share ratably in
the net assets, if any, remaining for distribution, each share of
Common Stock being valued as one share and each share of Series A
Stock being valued as the number of shares equal to the product
of one share and the conversion rate (as defined in Section 4,
below), for this purpose. Neither the purchase or redemption by
the Corporation of stock of any class, in any manner permitted by
law, nor the consolidation or merger of the Corporation with or
into any other corporation or corporations, nor the sale or
transfer by the Corporation of all or any part of its properties
or assets, shall be deemed to be a liquidation, dissolution or
winding up of the Corporation for the purposes of this Section 3.
No holder of Series A Stock shall be entitled to receive any
amounts with respect thereto upon any liquidation, dissolution or
winding up of the Corporation other than the amounts provided for
in this Section 3.
4. Conversion Rights.
(a) Conversion Rate and Procedures.
(i) Subject to the terms and conditions of this
Section 4, the shares of Series A Stock shall be convertible at
any time or from time to time, at the option of the respective
holders thereof, at the office of any transfer agent for Series A
Stock, and at such other place or places, if any, as the Board of
Directors may designate, or, if the Board of Directors shall fail
so to designate, at the principal office of the Corporation
(attention of the Secretary of the Corporation), into fully paid
and nonassessable shares (calculated as to each conversion to the
nearest 1/100th of a share) of Common Stock at the rate of one
share of Common Stock for each one share of Series A Stock
surrendered for conversion, subject to the adjustments
hereinafter specified. The term "conversion rate" as used herein
shall mean, as of any time, the number of shares or fraction of
shares of Common Stock into which one full share of Series A
Stock shall be entitled to be converted. Upon conversion, the
Corporation shall make no payment or adjustment on account of
dividends accrued or in arrears on Series A Stock surrendered for
conversion or on account of any dividends on the Common Stock
issuable on such conversion. Before any holder of Series A Stock
shall be entitled to convert the same into Common Stock, he shall
surrender the certificate or certificates for such Series A Stock
at the office of said transfer agent (or other place as provided
above), which certificate or certificates, if the Corporation
shall so request, shall be duly endorsed to the Corporation or in
blank or accompanied by proper instruments of transfer to the
Corporation or in blank (such endorsements or instruments of
transfer to be in form satisfactory to the Corporation), and
shall give written notice to the Corporation at said office that
he elects so to convert said Series A Stock in accordance with
the terms of this Section 4, and shall state in writing therein
the name or names in which he wishes the certificate or
certificates for Common Stock to be issued. Every such notice of
election to convert shall constitute a contract between the
holder of such Series A Stock and the Corporation, whereby the
holder of such Series A Stock shall be deemed to subscribe for
the amount of Common Stock which he shall be entitled to receive
upon such conversion, and, in satisfaction of such subscription,
to deposit the Series A Stock to be converted and to release the
Corporation from all liability thereunder, and thereby the
Corporation shall be deemed to agree that the surrender of the
certificate or certificates therefor and the extinguishment of
liability thereon, shall constitute full payment of such
subscription for Common Stock to be issued upon such conversion.
The Corporation will as soon as practicable after such deposit of
a certificate or certificates for Series A Stock, accompanied by
the written notice and the statement above prescribed, issue and
deliver at the office of said transfer agent (or other place as
provided above) to the person for whose account such Series A
Stock was so surrendered, or to his nominee or nominees, a
certificate or certificates for the number of full shares of
Common Stock to which he shall be entitled as aforesaid, and if
the certificate or certificates surrendered evidence a greater
number of shares than the number of shares to be converted, one
or more certificates evidencing the shares of Series A Stock not
to be converted, and together with a cash adjustment of any
fraction of a share as hereinafter stated, if not evenly
convertible. Subject to the provisions of paragraph (ii) of this
Section 4(a), such conversion shall be deemed to have been made
as of the date of such surrender of the Series A Stock to be
converted; and the person or persons entitled to receive the
Common Stock issuable upon conversion of such Series A Stock
shall be treated for all purposes as the record holder or holders
of such Common Stock on such date.
(ii) The Corporation shall not be required to convert
Series A Stock, and no surrender of Series A Stock shall be
effective for that purpose, while the stock transfer books of the
Corporation are closed for any purpose; but the surrender of
Series A Stock for conversion during any period while such books
are so closed shall, subject to the provisions of paragraph (iii)
of this subsection 4(a), become effective for conversion
immediately upon the reopening of such books, as if the
conversion had been made on the date such Series A Stock was
surrendered, and at the conversion rate in effect at the date of
such surrender.
(iii) The right of each holder of Series A Stock to
convert shall be limited as follows:
(A) For purposes of this paragraph (iii), the term
"Conversion Year" shall mean each twelve-month period commencing
March 1 (except that the initial period commencing October 29,
1982 and ending February 28, 1983 shall also be deemed to be a
"Conversion Year"), the term "Proration Period" shall mean the
first fifteen days of the Conversion Year, and the term
"Conversion Limit" shall be a number equal to ten percent of the
total number of shares of Series A Stock which shall have been
issued by the Corporation as of the beginning of the relevant
Conversion Year. The total number of shares which shall have been
issued by the Corporation as of the beginning of any Conversion
Year, for purposes of calculating the Conversion Limit for such
Conversion Year in accordance with the immediately preceding
sentence, shall mean the aggregate number of shares of Series A
Stock issued by the Corporation, without reduction for shares
reacquired by the Corporation through conversion, purchase or
otherwise (whether or not any such reacquired shares shall have
been canceled); provided, however, that reacquired shares which
are reissued by the Corporation shall not again be counted for
the purpose of determining the total number of shares issued by
the Corporation hereunder.
(B) Shares of Series A Stock surrendered for
conversion during any Proration Period shall not be converted
during such Proration Period, but, subject to the following
limitation, shall be converted promptly after the expiration of
such Proration Period. If, during such Proration Period, the
number of shares of Series A Stock surrendered for conversion
shall exceed the Conversion Limit, conversions shall be made on a
pro rata basis, each holder having surrendered shares being
deemed to have surrendered that percentage of such shares which
is equal to the ratio of the Conversion Limit to the total number
of shares of Series A Stock actually surrendered for conversion
during such Proration Period.
(C) During the period of a Conversion Year following
the Proration Period of such Conversion Year, shares of Series A
Stock surrendered for conversion shall not be converted if, prior
to the date of such surrender (but during such Conversion Year),
a number of shares of Series A Stock equal to or greater than the
Conversion Limit has been surrendered for conversion.
(D) If, on any day during the period of a Conversion
Year following the Proration Period of such Conversion Year, the
number of shares of Series A Stock surrendered, when taken
together with the number of such shares previously surrendered
for conversion during such Conversion Year, exceeds the
Conversion Limit (the Conversion Limit as to such Conversion Year
not having been exceeded prior to such day), then each holder
having surrendered such shares for conversion on such day shall
be deemed to have surrendered that percentage of such shares so
surrendered which is equal to the ratio of (x) the difference
between the Conversion Limit and the number of such shares
surrendered for conversion during such Conversion Year but prior
to such day, to (y) the number of such shares surrendered for
conversion on such day.
(E) If the implementation of the proration provisions
of this paragraph (iii) should result in any fractional shares of
Series A Stock, such fractional shares shall be ignored for the
purpose of conversion pursuant to this Section 4, and, although
fewer shares than the number equal to the Conversion Limit may as
a result of ignoring such fractional shares have been converted
during any Conversion Year, no further conversions of Series A
Stock shall be effected until the following Conversion Year.
(F) All shares of Series A Stock surrendered for
conversion and not converted by reason of the limitations imposed
by this paragraph (iii) shall be returned to the holder together
with the Common Stock, if any, issued upon conversion of the
Series A Stock surrendered with such unconverted shares.
(G) Notwithstanding the foregoing provisions of this
paragraph (iii), no limitations on the number of shares of Series
A Stock which may be converted shall apply if the Board of
Directors shall approve a transaction in which the Corporation is
to be consolidated or merged with or into any other corporation
or corporations, and one of the other corporations is to be the
surviving entity (or, if the Corporation is to be the surviving
entity, at least a majority of the shares of Common Stock of the
Corporation to be outstanding immediately following such
transaction shall as a result thereof be owned by one person or
by a group of persons acting in concert), or all or substantially
all of the properties and assets of the Corporation are to be
sold or transferred, or if the Board of Directors shall recommend
a tender offer for at least a majority of the Common Stock as
being in the best interests of the holders of the Common Stock,
or if the Board of Directors shall direct that notice be given to
all holders of shares of Common Stock and Preferred Stock of the
Corporation that the Conversion Limit applicable to the Series A
Stock is suspended until a specified date or eliminated
altogether.
(b) Adjustments.
(i) In case the Corporation shall (A) declare a dividend on
its Common Stock in shares of its capital stock except in any
case where a dividend on its Series A Stock also shall have been
declared pursuant to Section 2(f), (B) subdivide outstanding
shares of its Common Stock, (C) combine outstanding shares of its
Common Stock into a smaller number of shares, or (D) issue by
reclassification of its shares of Common Stock (including any
such reclassification in connection with a consolidation or
merger in which the Corporation is the continuing corporation)
any shares of capital stock, then the conversion rate in effect
at the time of the record date for such dividend or of the
effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the
holder of any Series A Stock surrendered for conversion after
such time shall be entitled to receive the number and kind of
shares which he would have owned or have been entitled to receive
had such Series A Stock been converted immediately prior to such
time. Such adjustment shall be made successively whenever any
event listed above shall occur.
(ii) In case the Corporation shall fix a record date for the
issuance of rights, warrants or options to all holders of its
Common Stock and/or Class B Stock entitling them to subscribe for
or purchase shares of Common Stock and/or Class B Stock at a
price per share less than the current market price per share of
Common Stock (as defined in paragraph (v) below) on such record
date, the conversion rate after such record date shall be
determined by multiplying the conversion rate in effect
immediately prior to such record date by a fraction, of which the
numerator shall be the number of shares of Common Stock and Class
B Stock outstanding on such record date plus the number of
additional shares of Common Stock and/or Class B Stock to be
offered for subscription or purchase, and of which the
denominator shall be the number of shares of Common Stock and
Class B Stock outstanding on such record date plus the number of
shares of Common Stock and/or Class B Stock which the aggregate
offering price of the total number of shares so to be offered
would purchase at such current market price. Such adjustment
shall be made successively whenever such a record date is fixed.
In the event that such rights, warrants or options are not so
issued, the conversion rate shall again be adjusted to be the
conversion rate which would then be in effect if such record date
had not been fixed. To the extent that such rights, warrants or
options expire unexercised, the conversion rate shall be
readjusted to the conversion rate which would then be in effect
had the adjustments made as of the record date for the issuance
of such rights, warrants or options been made upon the basis of
the issuance of rights, warrants or options to subscribe for or
purchase only the number of shares of Common Stock and/or Class B
Stock as to which such rights, warrants or options were actually
exercised. In the case of an issuance by the Corporation to all
holders of its Common Stock and/or Class B Stock of rights,
warrants or options entitling them to subscribe for or purchase
securities convertible into, exchangeable for or carrying a right
to purchase shares of Common Stock and/or Class B Stock
(collectively, "Convertible Securities"), for purposes of this
paragraph (ii), such issuance shall be deemed to be an issuance
of rights, warrants or options to such holders entitling them to
subscribe for or purchase Common Stock and/or Class B Stock at an
aggregate offering price equal to the aggregate offering price of
the Convertible Securities plus the minimum aggregate amount (if
any) payable upon conversion of such shares or securities into
Common Stock and/or Class B Stock.
(iii) In case the Corporation shall fix a record date
for the making of a distribution to all holders of its Common
Stock and/or Class B Stock (including any such distribution made
in connection with a consolidation or merger in which the
Corporation is the continuing corporation) of evidences of its
indebtedness or assets (excluding dividends paid in, or
distributions of, cash to the extent permitted by law) or
subscription rights, warrants or options (excluding those
referred to in paragraph (ii) above), the conversion rate after
such record date shall be determined by multiplying the
conversion rate in effect immediately prior to such record date
by a fraction, of which the numerator shall be the current market
price per share of Common Stock (as defined in paragraph (v)
below) on such record date, and of which the denominator shall be
such current market price per share of Common Stock, less the
fair market value (as determined by the Board of Directors, whose
determination shall be conclusive in the absence of fraud) of the
portion of the assets or evidences of indebtedness so to be
distributed, or of such subscription rights, warrants or options
applicable, to one share of Common Stock. Such adjustment shall
be made successively whenever such a record date is fixed; and in
the event that such distribution is not so made, the conversion
rate shall again be adjusted to be the conversion rate which
would then be in effect if such record date had not been fixed.
(iv) In case of any reclassification or change of
outstanding Common Stock and/or Class B Stock, or in case of any
consolidation or merger of the Corporation with or into another
corporation, or in case of any sale or conveyance to another
corporation or entity (other than by mortgage or pledge) of all
or substantially all of the properties and assets of the
Corporation, the Corporation (or its successor in such
consolidation or merger, or the purchaser of such properties and
assets) shall make appropriate provision so that the holder of
each share of Series A Stock then outstanding shall have the
right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable
upon such reclassification, change, consolidation, merger, sale
or conveyance, by a holder of the number of shares of Common
Stock into which such Series A Stock might have been converted
immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance, and shall have no
other conversion rights under these provisions; provided, that
effective provision shall be made, in the Articles or Certificate
of Incorporation of the resulting or surviving corporation or
otherwise, so that the provisions set forth herein for the
protection of the conversion rights of Series A Stock shall
thereafter be applicable, as nearly as reasonably may be, to any
such other shares of stock and other securities and property
deliverable upon conversion of the Series A Stock remaining
outstanding or other convertible preferred stock or other
securities received by the holders of Series A Stock in place
thereof; and provided, further, that any such resulting or
surviving corporation shall expressly assume the obligation to
deliver, upon the exercise of the conversion privilege, such
shares, securities or property as the holders of the Series A
Stock remaining outstanding, or other convertible preferred stock
received by the holders in place thereof, shall be entitled to
receive pursuant to the provisions hereof, and to make provisions
for the protection of the conversion right as above provided. In
case securities or property other than Common Stock shall be
issuable or deliverable upon conversion as aforesaid, then all
reference in this paragraph (iv) shall be deemed to apply, so far
as appropriate and as nearly as may be, to such other securities
or property. The subdivision or combination of the number of
shares of Common Stock at any time outstanding into a greater or
lesser number of shares of Common Stock (whether with or without
par value) shall not be deemed to be a reclassification of the
Common Stock of the Corporation for the purposes of this
paragraph (iv).
(v) For the purpose of any computation under paragraphs
(ii) and (iii) of this subsection 4(b), the current market price
per share of Common Stock on any record date shall be deemed to
be the average of the daily closing prices for the thirty
consecutive business days commencing forty-five business days
before such date. The closing price for each day shall be the
last sale price (regular way) or, in case no such sale takes
place on such day, the average of the closing bid and asked
prices (regular way), in either case on the composite tape, or,
if the Common Stock is not quoted on the composite tape, on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which the Common Stock is
listed or admitted to trading, or if it is not listed or admitted
to trading on any such securities exchange, the average of the
closing bid and asked prices as furnished by any member of the
National Association of Securities Dealers, Inc. selected from
time to time by the Corporation for that purpose.
(vi) No adjustment in the conversion rate shall be required
unless such adjustment (plus any adjustments not previously made
by reason of this paragraph (vi), would require an increase or
decrease of at least one percent in such rate; provided, however,
that any adjustments which by reason of this paragraph (vi) are
not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this
Section 4 shall be made to the nearest cent or to the nearest
1/l00th of a share, as the case may be.
(vii) Upon occurrence of any of the events described in
paragraphs (i) through (iv) above, the Corporation shall promptly
(A) file with the transfer agent or agents for the Series A Stock
a statement signed by the President or one of the Vice Presidents
of the Corporation and by its Treasurer or Assistant Treasurer,
disclosing the nature of such event, the conversion rate in
effect immediately thereafter and the kind and amount of stock or
other securities or property into which Series A Stock shall be
convertible after such event, and (B) cause a notice containing a
summary of the information set forth in said statement to be
mailed to the holders of record of Series A Stock. Where
appropriate, such notice may be given in advance and included as
a part of a notice required to be mailed under the provisions of
subsection 4(c) hereof.
(viii) In any case in which this subsection 4(b) shall
require that an adjustment shall become effective immediately
after a record date for an event, the Corporation may defer until
the occurrence of such event (A) issuing to the holder of Series
A Stock converted after such record date and before the
occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment
required by such event over and above the shares issuable upon
such conversion before giving effect to such adjustment and (B)
paying to such holder an amount in cash in lieu of a fractional
share pursuant to subsection 4(f) hereof; provided, however, the
Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive
such additional shares of Common Stock (or other securities or
property, as the case may be), and such cash, upon the occurrence
of the event requiring such adjustment.
(ix) Except as otherwise expressly provided in this
subsection 4(b), no adjustment in the conversion rate shall be
made by reason of the issuance or sale, in exchange for cash,
property or services, of shares of Common Stock and/or Class B
Stock, or any securities convertible into or exchangeable for
shares of Common Stock and/or Class B Stock, or securities
carrying the right to purchase any of the foregoing.
(x) Any determination as to fair market value or as to
whether an adjustment in the conversion rate in effect hereunder
is required pursuant to paragraphs (i) through (iv) of this
subsection 4(b), or as to the amount of any such adjustment, if
required, shall be binding upon the holders of Series A Stock and
the Corporation if made in good faith by the Board of Directors.
(xi) In the event that at any time, as a result of an
adjustment made pursuant to paragraph (i) or paragraph (iv) of
this subsection 4(b), the holder of any shares of Series A Stock
thereafter surrendered for conversion shall become entitled to
receive any shares of capital stock of the Corporation other than
shares of Common Stock, thereafter the number of such other
shares so receivable upon conversion of any shares of Series A
Stock shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in
paragraphs (i) through (x) above, and the provisions of
subsections (a) and (c) through (h) of this Section 4 with
respect to the Common Stock shall apply on like terms to any such
other shares.
(c) Advance Notice of Certain Events.
In case at any time:
(i) the Corporation shall authorize the issuance to all
holders of its Common Stock of rights, warrants or options to
subscribe for or purchase shares of its Common Stock or of any
other subscription rights, warrants or options; or
(ii) the Corporation shall authorize the distribution to all
holders of its Common Stock of evidences of its indebtedness or
assets (other than dividends paid in, or distributions of, cash
to the extent permitted by law); or
(iii) there is any consolidation or merger to which the
Corporation is a party and for which approval of any
shareholders of the Corporation is required, or a conveyance or
transfer of all or substantially all of the properties and assets
of the Corporation, or a tender offer for at least a majority of
the Common Stock which has been recommended by the Board of
Directors as being in the best interests of the holders of the
Common Stock; or
(iv) there is a total voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; or
(v) the Corporation proposes to take any action (other than
actions of the character described in paragraph (i) of subsection
4(b) above) which would require an adjustment of the conversion
rate pursuant to subsection 4(b) above; then the Corporation
shall cause to be filed with the transfer agent or agents for the
Series A Stock, and shall cause to be mailed to the holders of
record of the outstanding Series A Stock, at least twenty days
(or ten days in any case specified in clause (i) or (ii) above or
in the case of a recommended tender offer as specified in
clause (iii) above) prior to the applicable record date (or
effective date if there shall be no record date) hereinafter
specified, a notice stating (A) the date as of which the holders
of Common Stock of record to be entitled to receive any such
rights, warrants, options or distribution are to be determined,
or (B) the date on which any such consolidation, merger,
conveyance, transfer, tender offer, dissolution, liquidation
or winding up is expected to become effective, and the date as
of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock
for securities or other property, if any, deliverable upon
such distribution, right, warrant, option, consolidation,
merger, conveyance, transfer, tender offer, dissolution,
liquidation or winding up. The failure to give the notice
required by this subsection 4(c) or any defect therein shall
not affect the legality or validity of any distribution,
right, warrant, option, consolidation, merger, conveyance,
transfer, tender offer, dissolution, liquidation, or winding up,
or the vote upon any such action.
(d) Status of Stock Converted.
All shares of Series A Stock which shall have been
surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such
shares, including the right, if any, to receive notices and to
vote, shall forthwith cease and terminate except only the right
of the holders thereof to receive Common Stock in exchange
therefor.
(e) Shares Reserved for Conversion.
The Corporation shall at all times reserve and keep
available, out of its authorized and unissued stock, solely for
the purpose of effecting the conversion of Series A Stock, such
number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all shares of Series A
Stock from time to time outstanding.
(f) Fractions Upon Conversion.
No fractional shares of Common Stock are to be issued upon
conversion, but in lieu thereof the Corporation will pay therefor
a cash adjustment (computed to the nearest cent) in an amount
equal to such fraction of the market price per share of Common
Stock computed on the basis of the last reported sale price
(regular way) on the business day which next precedes the date of
conversion, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices (regular way) of
Common Stock, in either case on the composite tape, or, if the
Common Stock is not quoted on the composite tape, on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which the Common Stock is
listed or admitted to trading, or if the Common Stock is not
listed or admitted to trading on any such securities exchange,
the average of the closing bid and asked prices on said last
trading day as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to
time by the Corporation for that purpose.
(g) Taxes Upon Conversion.
The Corporation will pay any and all issue and other taxes
that may be payable in respect of any issue or delivery of shares
of Common Stock on conversion of Series A Stock pursuant to this
Section 4. The Corporation shall not, however, be required to pay
any tax which may be payable in respect of any transfer involved
in the issue and delivery of Common Stock in a name other than
that in which the Series A Stock so converted was registered, and
no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Corporation the
amount of any such tax, or has established, to the satisfaction
of the Corporation, that such tax has been paid.
(h) Affidavit of Mailing.
An affidavit of the transfer agent or transfer agents for
the Series A Stock or of the Secretary of the Corporation to the
effect that any notice provided for in this Section 4 has been
mailed shall, in the absence of fraud, be prima facie evidence of
the facts stated therein.
5. Voting Rights.
(a) Except as set forth in this Section 5 and as required
by applicable law, the holders of Series A Stock shall not be
entitled to vote.
(b) If and whenever accrued dividends on Series A Stock
shall not have been paid or declared and a sum sufficient for the
payment thereof set aside, in an amount equivalent to six
quarterly dividends on all shares of Series A Stock at the time
outstanding, then and in such event the holders of Series A Stock
and each other series of Preferred Stock now or hereafter issued
which shall be accorded such class voting right by the Board of
Directors and which shall have the right to elect two directors
as the result of a prior or subsequent default in payment of
dividends on such series (each such other series being
hereinafter called "Other Series of Preferred Stock"), voting
separately as a class without regard to series, shall be entitled
to elect two directors, and the holders of all shares otherwise
entitled to vote for directors, voting separately as a class,
shall be entitled to elect the remaining members of the Board of
Directors. Such special voting rights of the holders of Series A
Stock may be exercised until all dividends in default on the
Series A Stock shall have been paid in full or declared and funds
sufficient therefor set aside, and when so paid or provided for
such special voting rights of the holders of Series A Stock shall
cease, but subject always to the same provisions for the vesting
of such special voting rights in the case of any such future
dividend default or defaults. At any time after such special
voting rights shall have so vested in the holders of Series A
Stock, the Secretary of the Corporation may, and upon the written
request of the holders of record of ten percent or more in number
of shares of Series A Stock and each Other Series of Preferred
Stock then outstanding addressed to him at the principal
executive office of the Corporation shall, call a special meeting
of the holders of Preferred Stock so entitled to vote, for the
election of the directors to be elected by them as herein
provided to be held within fifty days after such call and at such
place and upon such notice provided by law and in the bylaws for
the holding of meetings of shareholders; provided, however, that
the Secretary shall not be required to call such special meeting
in the case of any such request received less than ninety days
before the date fixed for any annual meeting of shareholders, and
if in such case such special meeting is not called, the holders
of Preferred Stock so entitled to vote shall be entitled to
exercise the special voting rights provided in this paragraph at
such annual meeting. If any such special meeting required to be
called as above provided shall not be called by the Secretary
within thirty days after receipt of any such request, then the
holders of record of ten percent or more in number of shares of
Series A Stock and each Other Series of Preferred Stock then
outstanding may designate in writing one of their number to call
such meeting, and the person so designated may, at the expense of
the Corporation, call such meeting to be held at the place and
upon the notice above provided, and for that purpose shall have
access to the stock books of the Corporation. No such special
meeting and no adjournment thereof shall be held on a date later
than thirty days before the annual meeting of the shareholders or
a special meeting held in place thereof next succeeding the time
when the holders of Series A Stock become entitled to elect
directors as above provided. If, at any meeting so called or at
any annual meeting held while the holders of shares of Series A
Stock have the special voting rights provided for in this
paragraph, the holders of not less than forty percent of the then
outstanding shares of Series A Stock and each Other Series of
Preferred Stock are present in person or by proxy, which
percentage shall be sufficient to constitute a quorum for the
election of additional directors as herein provided, the then
authorized number of directors of the Corporation shall be
increased by two, as of the time of such special meeting or the
time of the first such annual meeting held while such holders
have said special voting rights and such quorum is present, and
the holders of the Series A Stock and each Other Series of
Preferred Stock, voting as a class, shall be entitled to elect
the additional directors so provided for. If the directors of the
Corporation are then divided into classes under provisions of the
Amended and Restated Certificate of Incorporation, as amended, or
the bylaws, the two additional directors shall be members of
those respective classes of directors in which a vacancy is
created as a result of such increase in the authorized number of
directors. Upon the election at such meeting by the holders of
the shares of Series A Stock and each Other Series of Preferred
Stock, voting as a class for the two directors they are entitled
so to elect, the persons so elected, together with such persons
as may be or may have been elected as directors by the holders of
all shares otherwise entitled to vote for directors, shall
constitute the duly elected directors of the Corporation. The
additional directors so elected by holders of Series A Stock and
each Other Series of Preferred Stock, voting as a class, shall
serve until the next annual meeting or until their respective
successors shall be elected and qualified, or if any such
director is a member of a class of directors under provisions
dividing the directors into classes as aforesaid, each such
director shall serve until the annual meeting at which the term
of office of his class shall expire or until his successor shall
be elected and shall qualify, and at each subsequent meeting of
shareholders at which the directorship of any director elected by
the vote of holders of Series A Stock and each Other Series of
Preferred Stock under the special voting rights set forth in this
paragraph is up for election said special voting rights shall
apply in the re-election of such director or in the election of
his successor, provided, however, that whenever the holders of
Series A Stock and each Other Series of Preferred Stock shall be
divested of the special rights to elect two directors as above
provided, the terms of office of all persons elected as directors
by the holders of Series A Stock and each Other Series of
Preferred Stock, voting as a class, or elected to fill any
vacancies resulting from the death, resignation, or removal of
directors so elected by the holders of Series A Stock and each
Other Series of Preferred Stock, shall forthwith terminate and
the authorized number of directors shall be reduced accordingly.
If, at any time after a special meeting of shareholders or an
annual meeting of shareholders at which the holders of Series A
Stock and each Other Series of Preferred Stock have elected
additional directors as provided above, and while the holders of
Series A Stock and each Other Series of Preferred Stock shall be
entitled to elect two directors, the number of directors who have
been elected by the holders of Series A Stock and each Other
Series of Preferred Stock (or who by reason of one or more
resignations, deaths or removals have succeeded any directors so
elected) shall by reason of resignation, death or removal be less
than two but at least one, the vacancy in the directors elected
by the holders of the Series A Stock and each Other Series of
Preferred Stock may be filled by the remaining director elected
by such holders, and failing such election within thirty days
after such vacancy arises, or if there shall not be incumbent at
least one director elected by such holders, the Secretary of the
Corporation may, and upon the written request of the holders of
record of ten percent or more in number of shares of Series A
Stock and each Other Series of Preferred Stock then outstanding
addressed to him at the principal office of the Corporation
shall, call a special meeting of the holders of Preferred Stock
so entitled to vote, for an election to fill such vacancy or
vacancies, to be held within fifty days after such call and at
the place and upon the notice provided by law and in the bylaws
for the holding of meetings of shareholders; provided, however,
that the Secretary shall not be required to call such special
meeting in the case of any such request received less than ninety
days before the date fixed for any annual meeting of
shareholders, and if in such case such special meeting is not
called, the holders of Preferred Stock so entitled to vote shall
be entitled to fill such vacancy or vacancies at such annual
meeting. If any such special meeting required to be called as
above provided shall not be called by the Secretary within thirty
days after receipt of any such request, then the holders of
record of ten percent or more in number of shares of Series A
Stock and each Other Series of Preferred Stock then outstanding
may designate in writing one of their number to call such
meeting, and the person so designated may, at the expense of the
Corporation, call such meeting to be held at the place and upon
the notice above provided, and for that purpose shall have access
to the stock books of the Corporation; no such special meeting
and no adjournment thereof shall be held on a date later than
thirty days before the annual meeting of the shareholders or a
special meeting held in place thereof next succeeding the time
when the holders of Series A Stock and each Other Series of
Preferred Stock become entitled to elect directors as above
provided.
(c) So long as any shares of Series A Stock shall be
outstanding, the Corporation shall not, without the affirmative
vote or written consent of the holders of a majority of the
number of shares of Series A Stock at the time outstanding, amend
the Amended and Restated Certificate of Incorporation to increase
the authorized number of shares of Preferred Stock.
(d) So long as any shares of Series A Stock shall be
outstanding, the Corporation shall not, without the affirmative
vote or written consent of the holders of two-thirds of the
number of shares of Series A Stock at the time outstanding, amend
the Amended and Restated Certificate of Incorporation to:
(i) change the designations, preferences, limitations
or other relevant rights of the Series A Stock;
(ii) effect an exchange, reclassification or
cancellation of all or part of the Series A Stock;
(iii) effect an exchange or create a right of
exchange of another class or series into Series A
Stock;
(iv) change the Series A Stock into the same or a
different number of shares of the same or another class
or series; or
(v) cancel or otherwise affect dividends on the shares
of Series A Stock which have accrued but have not been
declared.
C. Authorized Shares of Capital Stock.
Except as may be provided in the terms and conditions fixed
by the Board of Directors for any series of Preferred Stock, the
number of authorized shares of any class or classes of stock of
the Corporation may be increased or decreased by the affirmative
vote of the holders of a majority of the outstanding shares of
stock of the Corporation entitled to vote.
D. Preemptive or Preferential Rights of Stockholders.
No stockholder of this Corporation shall have any preemptive
or preferential right to purchase or subscribe to any shares of
any class of this Corporation now or hereafter to be authorized,
or any notes, debentures, bonds or other securities convertible
into or carrying options or warrants to purchase shares of any
class, now or hereafter to be authorized, whether or not the
issue of any such shares, or such notes, debentures, bonds or
other securities, would adversely affect the dividend or voting
rights of such stockholder, other than such rights, if any, as
the Board of Directors in its discretion from time to time may
grant, and at such price as the Board of Directors in its
discretion may fix; and the Board of Directors may issue shares
of any class of this Corporation, or any notes, debentures, bonds
or other securities convertible into or carrying options or
warrants to purchase shares of any class, without offering any
such shares or securities, either in whole or in part, to the
existing stockholders of any class.
FIFTH: The minimum amount of capital with which the
Corporation will commence business is One Thousand Dollars
($1,000.00).
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The private property of the stockholders shall not
be subject to the payment of corporate debts to any extent
whatever.
EIGHTH: The following provisions are inserted for the
regulation and conduct of the affairs of the Corporation, and it
is expressly provided that they are intended to be in furtherance
and not in limitation or exclusion of the powers elsewhere
conferred herein or in the by-laws or conferred by law:
(a) The Board of Directors may at any time set apart out of
any of the funds of the Corporation available for dividends a
reserve or reserves for any proper purpose and may at any time
reduce or abolish any such reserve.
(b) Except as may be otherwise expressly required by law or
by other provisions of this Amended and Restated Certificate of
Incorporation or the by-laws, the Board of Directors shall have
and may exercise, transact, manage, promote and carry on all of
the powers, authorities, businesses, objects and purposes of the
Corporation, provided, however, that the directors may not effect
or consummate:
(1) any merger or consolidation of the Corporation or any
Subsidiary with or into any other corporation;
(2) any sale, lease, exchange or other disposition of all
or substantially all of the assets of the Corporation to or with
any other person; or
(3) any issuance or transfer by the Corporation or any
Subsidiary of any voting securities of the Corporation or any
Subsidiary to any other person except for voting securities
issued pursuant to stock option, purchase, bonus or other plans
for natural persons who are directors, employees, consultants
and/or agents of the Corporation and its Subsidiaries; unless and
until such transaction is authorized by the affirmative vote of
the holders of at least 66 2/3% of the outstanding stock of the
Corporation entitled to vote generally in the election of
directors considered for the purposes of this Article Eighth as
one class, but the foregoing requirement shall not apply, and the
provisions of Delaware law relating to the percentage of
stockholder approval, if any, shall apply to
(i) any merger or other transaction described in the
preceding subparagraphs (1), (2) and (3) if the other party to
the merger or other transaction is a Subsidiary of the
Corporation, or
(ii) any merger or other transaction described in the
preceding subparagraphs (1), (2) and (3) if at any time prior to
its consummation the transaction has been approved by a
resolution adopted by not less than two-thirds of all of the
directors then in office.
For purposes of this Article Eighth a "Subsidiary" is any
corporation more than 50% of the voting securities of which are
owned directly or indirectly by the Corporation; and a "person"
is any individual, partnership, corporation or entity.
(c) The election of directors need not be by ballot unless
the by-laws so require and no director need be a stockholder.
(d) By-laws not inconsistent with the Certificate of
Incorporation may be made, and by-laws may be altered, amended or
repealed in the manner therein specified provided (1) that no
inconsistency with the Certificate of Incorporation results from
such alteration or repeal, (2) that the Board of Directors shall
not alter, amend or repeal Sections 3.1 to 3.4 inclusive and
Section 13 of the by-laws as amended at the 1978 Annual Meeting
of Stockholders without the approval of the holders of at least
66 2/3% of the outstanding stock of the Corporation entitled to
vote generally in the election of directors, considered for the
purposes of this paragraph (d) as one class, and (3) that no
change of the time or place of the meeting for the election of
directors shall be made within 60 days next before the day on
which such meeting is to be held, and that in case of any change
of such time or place, notice thereof shall be given to each
stockholder in person or by letter mailed to his last known post-
office address at least 20 days before the meeting is held.
(e) The Board of Directors may from time to time determine
whether and to what extent and at what times and places and
under what conditions and regulations the accounts and books and
papers of the Corporation, or any of them, shall be open to the
inspection of the stockholders, and no stockholder shall have any
right to inspect any account, book or document of the
Corporation, except as and to the extent expressly provided by
law with reference to the right of stockholders to examine the
original or duplicate stock ledger, or otherwise expressly
provided by law, or except as expressly authorized by resolution
of the Board of Directors.
(f) A director of this Corporation shall not, in the
absence of fraud, be disqualified by his office from dealing or
contracting with the Corporation, either as vendor, vendee or
otherwise, nor in the absence of fraud, shall any contract or
other transaction of the Corporation be void or voidable or
otherwise affected by reason of the fact that any director, or
any firm or association in which any director is a member, or any
corporation of which any director is an officer, director or
stockholder, or any trust of which any director is a trustee or
beneficiary, is in any way pecuniarily interested in such
contract or transaction, provided that at the meeting of the
Board of Directors or of any committee thereof having authority
in the premises, authorizing or confirming said contract or
transaction, the interest of such director, firm, association,
corporation, or trust and in the case of a firm, association,
corporation, or trust, the relation of such director thereto, is
disclosed or made known to the meeting; nor shall any director be
liable to account to the Corporation for any profit realized by
him from or through any such contract or transaction of this
Corporation, by reason of the fact that he or any firm or
association of which he is a member, or any corporation of which
he is an officer, director or stockholder, or any trust of which
he is a trustee or beneficiary, was pecuniarily interested in
such transaction or contract. Directors so interested may be
counted when present at meetings of the Board of Directors or of
any such committee for the purpose of determining the existence
of a quorum. No such interested director shall vote to authorize
or confirm any such contract or transaction, and if he does so
vote his vote shall be disregarded; but in respect of any
contract or transaction with any wholly-owned subsidiary of the
Corporation, or with any corporation in which such director is
interested only by virtue of being a director or officer or both,
and not as a stockholder, such director may vote and act as
freely as though his interests in such corporation did not exist.
Any contract, transaction or act of the Corporation or of the
Board of Directors or of any committee thereof, or of any
officer, which shall be ratified by a majority in interest of
stockholders having voting power, at any annual meeting or at a
special meeting called for the purpose, shall be as valid and as
binding as though ratified by every stockholder of the
Corporation. In any situation in which a director should disclose
his pecuniary interest in a contract or transaction as provided
for in this section, it shall not be necessary for him to
disclose the extent or the details of such pecuniary interest.
(g) The Board of Directors may issue all or any part of the
authorized stock of the Corporation at such times and on such
lawful conditions as it may from time to time determine; and no
stockholders shall have any preemptive right to subscribe for
any issue of the Corporation's stock or of any other securities.
(h) To the fullest extent permitted by the Delaware
General Corporation Law as the same exists or may hereafter be
amended, a director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director. Any repeal or modification of
the foregoing sentence by the stockholders of the Corporation
shall not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or
modification.
NINTH: Meetings may be held without the State of Delaware
if the by-laws so provide. The books of the Corporation may be
kept (subject to any provisions contained in the statute) outside
of the State of Delaware at such place or places as may be from
time to time designated by the Board of Directors or in the by-
laws of the Corporation. No action required or permitted to be
taken by the stockholders of the Corporation may be taken except
at the annual meeting of the stockholders or at a special meeting
of the stockholders duly called for as provided by the by-laws of
the Corporation. The stockholders entitled to vote generally in
the election of directors, considered for the purposes of this
Article Ninth as one class, shall have the authority to remove
any director of the Corporation with or without cause as provided
in the by-laws of the Corporation.
TENTH: The Corporation reserves the right to modify,
revise, alter, amend, change, repeal, or rescind any provision
contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon the stockholders herein
are granted subject to this reservation, provided, however, that
the provisions of Paragraphs (b), (c) and (d) of Article Eighth,
and the provisions of Articles Ninth and Tenth of this Amended
and Restated Certificate of Incorporation shall not be modified,
revised, altered or amended, repealed or rescinded, in whole or
in part, except by the affirmative vote of the holders of not
less than 66 2/3% of the outstanding stock entitled to vote
generally in the election of directors considered for the
purposes of this Article Tenth as one class.
IN WITNESS WHEREOF, this Restated Certificate of
Incorporation, which restates and integrates but does not further
amend the provisions of the Amended and Restated Certificate of
Incorporation of the Corporation as heretofore amended or
supplemented, and which has been duly adopted by the Board of
Directors and the stockholders of the Corporation in accordance
with the provisions of Section 242 and 245 of the Delaware
General Corporation Law, has been duly executed by an authorized
officer of the Corporation on this 14th day of December, 1999.
HARCOURT GENERAL, INC.
By: /s/ Eric P. Geller
Name: Eric P. Geller
Office: Senior Vice President, General
Counsel and Secretary
Incorporates amendments and other charter documents dated:
March 14, 1986
March 13, 1987
March 15, 1993
March 14, 1997
September 15, 1999
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
HARCOURT GENERAL, INC.
(As amended through June 18, 1999)
Section 1. GENERAL
These by-laws shall be subject to all requirements and
provisions of law applicable to the corporation, including, without
limitation, the General Corporation Law of the State of Delaware
("the GCL") and to all requirements and provisions of the Company's
Restated Certificate of Incorporation, as amended from time to time
(the "Certificate of Incorporation").
Section 2. STOCKHOLDERS
2.1. Annual Meeting. The annual meeting of stockholders shall
be held at such date, place and time as shall be designated from
time to time by the board of directors and stated in the notice of
the meeting, at which they shall elect directors in the manner
provided in the Certificate of Incorporation and in these by-laws
and transact such other business as may be required by law or by
these by-laws or as may be specified by the chairman of the board
or by a majority of the directors then in office or by vote of the
board of directors and of which notice was given in the notice of
the meeting.
2.2. Special Meetings. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders
entitled to vote at such meeting may be called at any time by the
chairman of the board, by a majority of the directors then in
office or by vote of the board of directors, and a special meeting
of the stockholders entitled to vote at such meeting shall be
called by the secretary, or in the case of the death, absence,
incapacity or refusal of the secretary, by any assistant secretary
or some other officer, upon written application of one or more
stockholders who are entitled in the aggregate to cast at least 30%
of the total number of votes represented by shares of capital stock
issued and outstanding and entitled to vote at the meeting. Any
such call shall state the time, place and purposes of the meeting.
2.3. Place of Meetings. Except as otherwise provided in the
Certificate of Incorporation, all meetings of the stockholders
entitled to vote thereat shall be held at such place within the
United States as shall be designated by the chairman of the board,
by a majority of the directors then in office or by vote of the
board of directors. Any adjourned session of any meeting of such
stockholders shall be held at the place designated in the vote of
adjournment.
2.4. Notice of Meetings. Except as otherwise provided by law
or by the Certificate of Incorporation and subject to Section 6
hereof, a written notice of each meeting of stockholders, stating
the place, date and hour and the purpose or purposes of the
meeting, shall be given not less than ten nor more than fifty days
before the meeting to each stockholder entitled to vote thereat,
and to each stockholder who, by law, by the Certificate of
Incorporation or by these by-laws is entitled to notice, by leaving
such notice with him or at his residence or usual place of business
or by depositing such notice in the United States mail, postage
prepaid, addressed to such stockholder at his address as it appears
on the records of the corporation. Such notice shall be given by
the secretary or an assistant secretary or by an officer designated
by the board of directors. If a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if
the time and place are announced at the meeting at which the
adjournment is taken, except that if the adjournment is for more
than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at
the meeting.
2.5. Voting and Proxies. Subject to Section 7 of these by-
laws, each stockholder of record of Common Stock and Class B Stock
shall, at every meeting of stockholders, have one vote for each
share of capital stock held by him which is entitled to be voted at
said meeting and each holder of record of Class C Stock shall, at
every meeting of stockholders, have one-tenth of one vote for each
share of capital stock held by him which is entitled to be voted at
said meeting, except that each share of Class B Stock will entitle
the holder thereof to ten votes on the election of directors at any
stockholders' meeting under the circumstances described in the
Certificate of Incorporation.
2.6. List of Stockholders. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder so
entitled and the number of shares of each class or series entitled
to be voted at said meeting, registered in the name of each
stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to
the meeting, either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is
to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
2.7. Quorum of Stockholders. Except as otherwise provided by
law, the Certificate of Incorporation or these by-laws, at any
meeting of the stockholders a quorum shall consist of the holders
of stock representing a majority of the voting power of all classes
of stock issued and outstanding and entitled to vote at the meeting
physically present or represented by proxy. Any stock of the
corporation belonging to the corporation at the time of any meeting
or any adjourned session thereof shall neither be entitled to vote
nor counted for quorum purposes; provided, however, that this
sentence shall not be construed as limiting the right of the
corporation to vote its own stock held by it in a fiduciary
capacity. Any meeting may be adjourned from time to time by a
majority of the votes properly cast upon the question, whether or
not a quorum is present.
2.8. Action by Vote. When a quorum is present at any meeting,
all elections of directors shall be determined by a plurality of
the shares present in person or represented by proxy and entitled
to vote on the election of directors and, as to any other matter,
the vote of a majority of shares present in person or represented
by proxy and entitled to be cast on such matter shall decide any
such matter brought before such meeting, unless the question is one
upon which, by express provisions of the GCL or of the Certificate
of Incorporation or of these by-laws, a different vote is required,
in which case such express provision shall govern and control the
decision of such matter.
2.9. Voting Power Counted. For the avoidance of doubt, every
reference in these by-laws to a majority or other proportion of
shares of stock shall refer to such majority or other proportion of
the votes of such shares of stock, provided that this Section 2.9
shall be deemed inapplicable to Section 3.5 of these by-laws to the
extent that the application of this Section 2.9 would alter, amend
or repeal such Section 3.5.
Section 3. BOARD OF DIRECTORS
3.1. Number, Classification and Composition of Board of
Directors. The number of members of the whole board of directors
shall consist of not more than eighteen nor less than six. The
exact number of directors within the maximum and minimum
limitations specified herein may be fixed from time to time by
resolution of a majority of the board of directors or by the
stockholders at the annual meeting. The directors shall be elected
at the annual meeting of stockholders, except as provided in this
Section 3.1 and in Section 3.3. The directors shall be divided into
three classes, designated Class A, Class B and Class C,
respectively, such classes to be as nearly equal in size as
possible. At the 1978 Annual Meeting of Stockholders, Class A
directors shall be elected to hold office until the 1979 Annual
Meeting of Stockholders, Class B directors to hold office until the
1980 Annual Meeting of Stockholders and Class C directors to hold
office until the 1981 Annual Meeting of Stockholders. At each
annual election of directors after the 1978 Annual Meeting of
Stockholders, the successors to the directors of the class whose
term shall expire in that year shall be elected to hold office for
a term to expire at the third Annual Meeting of Stockholders
following the annual meeting at which such directors were elected.
In case of any decrease or increase in the number of directors, the
increase or decrease shall be distributed among the several classes
as equally as possible, as shall be determined by the affirmative
vote of a majority of the directors at the time of such increase or
decrease.
The number of members of the board of directors may be
decreased at any time or from time to time by action of the
directors to any number not less than three, but only to eliminate
vacancies existing by reason of the death, resignation or removal
of one or more directors. No director need be a stockholder.
3.2. Tenure. Each director of each class shall hold office
until the earlier to occur of the following: (a) the date on which
a director of the same class succeeding him is elected and
qualified, (b) the date of any meeting of stockholders at which
directors of his class are elected, if his election has not been
recommended by the directors pursuant to the provisions of Section
3.5(b), whether by reason of a reduction in the number of directors
of the corporation, or otherwise, or (c) the date of his
resignation, removal or death.
3.3. Vacancies. Vacancies and any newly created directorships
resulting from any increase in the authorized number of directors
may be filled by vote of a majority of the directors then in office
though less than a quorum and each director so chosen shall hold
office subject to the provisions of these by-laws, until the
expiration of the term of the class to which he has been chosen or
until his successor is duly elected and qualified. When one or more
directors shall resign from the board effective at a future date a
majority of the directors then in office shall have power to fill
such a vacancy or vacancies, the vote or action by writing thereon
to take effect when such resignation or resignations shall become
effective.
3.4. Removal of Directors. Any director or the entire board
of directors may be removed with or without cause by the
affirmative vote of the holders of not less than 66 2/3% of the
outstanding stock of the corporation entitled to vote in the
election of directors, considered for this purpose as one class,
taking such action at an annual meeting of stockholders or at a
special meeting of stockholders duly called for such purpose.
3.5. Committees.
(a) There shall at all times exist the following committees of
the board of directors: Nominating Committee, Audit Committee,
Compensation Committee and Executive Committee.
Nominating Committee. The functions of the Nominating
Committee shall include consideration of the composition of the
board of directors and recommendation of individuals for election
as directors of the corporation. The Nominating Committee shall
also make recommendations to the board of directors concerning the
structure and membership of the various committees of the board of
directors, consult with the chief executive officer of the
corporation on questions of management, organization and
succession, and provide the board of directors with such guidance
on these matters as the board may seek from time to time.
Audit Committee. The functions of the Audit Committee shall
include the review of the scope of the services of the
corporation's independent auditors and the responsibilities of the
corporation's internal audit department and a continuing review of
the corporation's internal procedures and controls. The Audit
Committee shall annually review the corporation's audited financial
statements, consider the qualifications and fees of the independent
auditors of the corporation and make recommendations to the board
of directors as to the selection of the auditors and the scope of
their audit services.
Compensation Committee. The functions of the Compensation
Committee shall include the review or determination of salaries,
benefits and other compensation for officers and key employees of
the corporation and its subsidiaries and the administration of the
corporation's stock option plans.
Executive Committee. The Executive Committee shall have the
authority to manage the affairs of the corporation in the intervals
between meetings of the board, except that the Executive Committee
may not (a) declare a dividend or authorize the issuance or
repurchase of stock or other securities of the corporation,
(b) amend the Certificate of Incorporation, (c) adopt an agreement
of merger or consolidation, (d) impose a lien on substantially all
the assets of the corporation, (e) recommend to the stockholders
any action requiring their approval, (f) amend these by-laws,
(g) rescind any action taken by the board, (h) change the
membership of any committee of the board at any time, (i) fill
vacancies of the board, or (j) discharge any committee of the board
at any time.
The board of directors may, by resolution adopted by a
majority of the whole board, establish or terminate the existence
of any additional committees which may consist of individuals who
are not members of the board of directors, which committees may be
standing committees or ad hoc committees, for the purpose of making
recommendations to the board of directors and otherwise assisting
it in the furtherance of its duties. Except as the directors may
otherwise determine, any committee may make rules for the conduct
of its business.
In addition to the committees referred to above and those
other committees of the board of directors which may be established
by the board of directors pursuant to the GCL, the board may
appoint one or more directors to serve with one or more officers or
employees of the corporation as a committee, which shall not have
any of the powers of the board of directors in the management of
the business and affairs of the corporation but which, unless
otherwise provided by the board, shall administer any employee
benefit programs instituted by the corporation.
(b) The Nominating Committee shall not recommend to the board
of directors any individual or individuals for election to the
board of directors or for appointment to the Nominating Committee,
the Audit Committee or the Compensation Committee, if, after such
election or appointment, a majority of the board of directors or
any such Committee, as the case may be, shall not consist of
"independent directors" (as defined below).
The board of directors shall nominate individuals for election
to the board of directors by the stockholders, may elect
individuals to the board of directors to fill any vacancies which
may occur, and shall appoint individuals to the Nominating
Committee, the Audit Committee, the Compensation Committee and the
Executive Committee, and in the case of the Executive Committee may
appoint one or more alternates, provided that it shall not make any
such nomination or appointment if it has not been recommended by
the Nominating Committee.
The board of directors may remove any individual, with or
without cause, from the Nominating Committee, the Audit Committee
or the Compensation Committee, provided that, following such
removal, a majority of such Committee shall consist of "independent
directors" (as defined below), and may remove any individual, with
or without cause, from the Executive Committee.
"Independent directors" are directors (a) who are not the
lineal descendants (whether by blood or adoption) of Philip Smith,
the deceased founder of the corporation, (b) who are not the
spouses of such lineal descendants, (c) who are not at the time of
determination, and shall not have been at any time preceding such
time, officers, or, within ten years preceding such time, employees
of the corporation or any of its subsidiaries or affiliates,
(d) who are not at the time of determination the beneficial owners
of more than 5% of the issued and outstanding stock of any class of
the corporation's stock, and (e) who are not officers, employees,
directors or partners of any person who at the time of
determination is a holder of more than 5% of the issued and
outstanding shares of any class of the corporation's stock.
The Nominating Committee will carefully consider all
suggestions timely received from any stockholder of nominees for
director of the corporation where the nominee has confirmed in
writing to the Nominating Committee his or her desire to serve as
a director of the corporation and where the credentials of the
nominee meet the standards generally applied by the Nominating
Committee, that is, such credentials are of the highest order and
demonstrate a background and competence in business and financial
matters related to the business of the corporation. The proxy
statement for each annual meeting will contain a notice, in the
then appropriate form, of this provision of the by-laws.
(c) Neither the provisions of Section 3.5(b) of the by-laws,
nor of this Section 3.5(c), shall be altered, amended or repealed
except by a vote of not less than a majority of the outstanding
shares of Common Stock and Class B Stock, each voting separately as
a class.
3.6. Regular Meetings. Regular meetings of the board of
directors may be held without call or notice at such places and at
such times as the board may from time to time determine, provided
that notice of the first regular meeting following any such
determination shall be given to absent directors. A regular meeting
of the directors may be held without call or notice immediately
after and at the same place as the annual meeting of the
stockholders.
3.7. Special Meetings. Special meetings of the board of
directors may be called by the chairman of the board or by two or
more directors and may be held at any time and at any place
designated in the call of the meeting, reasonable notice thereof
being given to each director by the secretary or an assistant
secretary or by the chairman of the board or one of the directors
calling the meeting.
3.8. Notice. It shall be reasonable notice to a director to
send notice by mail at least forty-eight hours or by telegram or
facsimile transmission at least twenty-four hours before the
meeting addressed to him at his usual or last known business or
residence address or to give notice to him in person or by
telephone at least twenty-four hours before the meeting. Notice of
a meeting need not be given to any director who waives notice as
provided in Section 6. Notice of a meeting need not specify the
purposes of the meeting.
3.9. Quorum. Except as may be otherwise provided by law, the
Certificate of Incorporation or these by-laws, at any meeting of
the directors a majority of the directors then in office shall
constitute a quorum; a quorum shall not in any case be less than
one-third of the total number of directors nor less than two
directors. Any meeting may be adjourned from time to time by a
majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without
further notice.
3.10. Action by Vote. Except as may be otherwise provided by
law, the Certificate of Incorporation or these by-laws, the vote of
a majority of the directors present at a meeting at which a quorum
is present shall be the act of the board of directors.
3.11. Participation in Meeting. Members of the board of
directors or any committee designated by such board may participate
in a meeting of such board or committee by means of conference
telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 3.11 shall
constitute presence in person at such meeting.
3.12. Action by Writing. Any action required or permitted to
be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting if all members of
the board or of such committee, as the case may be, consent thereto
in writing and the writing or writings are filed with the minutes
of the proceedings of the board or of such committee.
Section 4. OFFICERS AND AGENTS
4.1. Enumeration; Qualification. The officers of the
corporation shall be a chairman of the board, a vice chairman of
the board, a president, a treasurer, a secretary, and such other
officers, if any, as the board of directors may in its discretion
elect or choose, including one or more vice presidents, with or
without some special designation. The corporation may also have
such agents, if any, as the board of directors may in its
discretion choose. Any number of offices may be held by the same
person. If the office of any officer becomes vacant, the board of
directors may elect or choose a successor. Any officer may be
required by the directors to give bond for the faithful performance
of his duties to the corporation in such amount and with such
sureties as the directors may determine.
4.2. Powers. Subject to law, each officer shall have, in
addition to the duties and powers set forth in these by-laws, such
duties and powers as are commonly incident to his office and such
duties and powers as the board of directors may from time to time
designate.
4.3. Election. The officers may be elected or chosen by the
board of directors at their first meeting following the annual
meeting of the stockholders or at any other time.
4.4. Tenure. Each officer shall hold office until the first
meeting of the board of directors following the next annual meeting
of the stockholders and until his successor is chosen and
qualified, unless a shorter period shall have been specified by the
terms of his election or appointment, or until he sooner dies,
resigns, is removed or becomes disqualified. Each agent shall
retain his authority at the pleasure of the board of directors.
4.5. Chairman of the Board; President and Chief Executive
Officer; Vice Chairman; Vice Presidents. The chairman of the board
shall preside at all meetings of the stockholders and of the board
of directors at which he is present. In the absence of the chairman
of the board, the president and chief executive officer shall
preside at all meetings of the stockholders and of the board of
directors at which he is present.
The chairman of the board, the vice chairman, the president
and any vice presidents shall have such duties and powers as shall
be designated from time to time by the board of directors.
4.6. Treasurer. The treasurer shall be in charge of the
corporation's funds. He shall have such other duties and powers as
may be designated from time to time by the board of directors or
the chairman or the vice chairman of the board.
4.7. Secretary. The secretary shall record all the
proceedings of the meetings of the stockholders, of the board of
directors and of committees of the board of directors. In his
absence from any such meeting a temporary secretary chosen at the
meeting shall record the proceedings thereof.
The secretary shall have charge of the stock ledger (which
may, however, be kept by any transfer agent or agents of the
corporation). He shall have such other duties and powers as may be
designated from time to time by the board of directors or the
chairman of the board.
Section 5. RESIGNATIONS AND REMOVALS
Any director or officer may resign at any time by delivering
his resignation in writing to the chairman of the board or the
secretary or to the board of directors. Such resignation shall take
effect at the time stated therein, or if no time be so stated then
upon its delivery, and without in either case the necessity of its
being accepted unless the resignation shall so state.
The board of directors may at any time remove from office any
officer either with or without cause. The board of directors may at
any time terminate or modify the authority of any agent.
Section 6. WAIVER OF NOTICE
Whenever any notice is required to be given by law or under
the provisions of the Certificate of Incorporation or of these by-
laws, a written waiver thereof, signed by the person or persons
entitled to such notice, whether before or after the time stated
therein or otherwise fixed for the meeting or other event for which
notice is waived, shall be deemed equivalent to such notice.
Attendance of a person at a meeting shall constitute a waiver of
such notice of such meeting, except as otherwise provided in the
GCL. Neither the business to be transacted at, nor the purpose of,
any meeting or such other event need be specified in any written
waiver of notice.
Section 7. TRANSFER OF SHARES OF STOCK AND RECORD DATE
7.1. Transfer on Books. The transfer of stock of the
corporation and the certificates which represent the stock shall be
governed by the GCL. Except as may be otherwise required by law or
by the provisions of Section 7.2 of these by-laws, the corporation
shall be entitled to treat the record holder of stock as shown on
its stock ledger as the owner of such stock for all purposes until
the shares have been properly transferred on the stock ledger of
the corporation.
7.2. Record Date. Except as otherwise provided in the
Certificate of Incorporation: (a) In order that the corporation may
determine the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or entitled to
receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any
other lawful action, the board of directors may fix, in advance, a
record date, which shall not be more than sixty nor less than ten
days (or such longer period as may be required by law) before the
date of such meeting, nor more than sixty days prior to any other
action;
(b) If no record date is fixed
(1) The record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be
at the close of business on the day next preceding the day on
which notice is given, or, if notice is waived, at the close
of business on the day next preceding the day on which the
meeting is held;
(2) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on
which the board of directors adopts the resolution relating
thereto;
(c) A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the board
of directors may fix a new record date for the adjourned meeting.
Section 8. STOCK CERTIFICATES
Every holder of stock in the corporation shall be entitled to
have a certificate signed by, or in the name of, the corporation by
the chairman or vice chairman of the board, or the president or a
vice president, and by the treasurer or an assistant treasurer, or
the secretary or an assistant secretary of the corporation
certifying the number of shares owned by him in the corporation. If
such certificate is countersigned (1) by a transfer agent other
than the corporation or its employee, or (2) by a registrar other
than the corporation or its employee, the signatures of the
officers of the corporation may be facsimiles. In case any officer
who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer at the date of issue.
Certificates of stock shall be in such form as shall, in conformity
with law, be prescribed from time to time by the board of
directors.
In the case of the alleged loss or destruction or the
mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms in conformity with law
as the board of directors may prescribe.
Section 9. INDEMNIFICATION
(a) Subject to paragraph (d) of this Section 9 the corporation
shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or competed action,
suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director or
officer of the corporation or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that
his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the corporation, or
is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by him
in connection with the defense or settlement of such action or suit
if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery of the State of Delaware or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view
of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
(c) To the extent that a director or officer of the
corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in paragraphs
(a) and (b), or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless
ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the
circumstances because he has met the applicable standard of conduct
set forth in paragraphs (a) and (b). Such determination shall be
made (1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit
or proceedings, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (3) by the
stockholders.
Notwithstanding anything contained in the Section 9 to the
contrary, the corporation shall not be required to indemnify any
person against any liability, cost or expense (including attorneys'
fees) incurred by such person in connection with any action, suit
or proceeding voluntarily initiated or prosecuted by such person
unless the initiation or prosecution of such action, suit, or
proceeding by such person was authorized by a majority of the full
board of directors, provided, however, that a majority of the full
board of directors may, after any such action, suit or proceeding
has been initiated or prosecuted, in its discretion, indemnify any
such person against any such liability, cost or expense.
(e) Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be
paid by the corporation in advance of the final disposition of such
action, suit or proceeding as authorized by the board of directors
upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation as
authorized in this Section 9. Such expenses (including attorneys'
fees) incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification provided by this Section 9 shall not
be exclusive of any other rights of indemnification, to which those
indemnified may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to
action in his official capacity and as to action in another
capacity while holding such office, and nothing contained in this
Section 9 shall be deemed to limit the right of the corporation,
acting pursuant to a vote of the stockholders or disinterested
directors, to provide indemnification and advancement of expenses
to employees and agents of this corporation to the same extent as
such indemnification and advancement of expenses may be provided to
directors and officers of the corporation, provided that any such
indemnification shall be provided to such employees and agents on
an individual basis. The indemnification and advancement of
expenses authorized by this Section 9 shall, unless otherwise
provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of
such a person.
(g) To the extent obtainable, the corporation may purchase and
maintain insurance with reasonable limits on behalf of any person
who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such
liability under the provisions of this Section 9 or otherwise.
(h) Each person who is or becomes a director or officer as
aforesaid shall be deemed to have served or to have continued to
serve in such capacity in reliance upon the indemnity herein
provided for in this Section 9.
(i) For purposes of this Section 9, reference to "the
corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or
agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand
in the same position under this Section 9 with respect to the
resulting or surviving corporation as he would have with respect to
such constituent corporation if its separate existence had
continued.
(j) For purposes of this Section 9, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any services as a
director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this Section 9.
Section 10. CORPORATE SEAL
The seal of the corporation shall, subject to alteration by
the directors, consist of a flat-faced circular die with the word
"Delaware", together with the name of the corporation and the year
of its organization, cut or engraved thereon. Said seal may be used
by causing it or a facsimile thereof to be impressed or affixed or
in any other manner reproduced.
Section 11. EXECUTION OF PAPERS
Except as the board of directors may generally or in
particular cases authorize the execution thereof in some other
manner, all deeds, mortgages, leases, transfers, contracts, bonds,
notes, checks, drafts and other obligations made, accepted or
endorsed by the corporation shall be signed by the chairman or the
vice chairman of the board, by the president or by one of the vice
presidents or by the treasurer.
Section 12. FISCAL YEAR
Except as from time to time otherwise provided by the board of
directors, the fiscal year of the corporation shall end on
October 31.
Section 13. AMENDMENTS
Except as set forth in Section 3.5(c), these by-laws may be
made, altered, amended or repealed by vote of a majority of the
directors in office or by vote of the holders of a majority of the
outstanding stock entitled to vote, provided that the provisions of
Sections 3.1 to 3.4 inclusive of the by-laws and of this Section 13
shall not be altered, amended or repealed except by a vote of not
less than 66 2/3% of the stock outstanding and entitled to vote in
the election of directors, considered for this purpose as one
class.
EXHIBIT 10.10
AMENDED AND RESTATED
INTERCOMPANY SERVICES AGREEMENT
This Amended and Restated Intercompany Services Agreement ("Agreement"),
dated as of November 1, 1999, between Harcourt General, Inc., a Delaware
corporation ("Harcourt General"), and The Neiman Marcus Group, Inc., a
Delaware corporation (the "Company").
WHEREAS, Harcourt General has provided corporate services to the Company
pursuant to the Intercompany Services Agreement between Harcourt General
(formerly known as General Cinema Corporation) and the Company dated July 24,
1987 (the "Original Agreement");
WHEREAS, as of the date hereof and, in connection with a
recapitalization of the Company, Harcourt General has distributed all of the
Company's Class B Common Stock to the holders of record of Harcourt General's
Common Stock and Class B Stock;
WHEREAS, the Company wishes to continue to achieve cost-savings where
possible through centralized purchasing of certain corporate services;
WHEREAS, to achieve such cost-savings, Harcourt General and the Company
wish to amend and restate the Original Agreement and provide for the ongoing
provision of Corporate Services (as defined in paragraph 1 below) by Harcourt
General to the Company; and
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained in this Agreement, Harcourt General and the Company
hereby agree as follows:
1. Corporate Services To Be Made Available.
(a) For the period provided for under paragraph 6 hereof, Harcourt
General agrees to make available to the Company such services (collectively,
the "Corporate Services") as to which the respective Chief Executive Officers
of Harcourt General and the Company may from time to time agree, on the terms
provided herein. If either or both parties have co-Chief Executive Officers,
any one co-Chief Executive Officer of a party may act singly hereunder on
behalf of that party.
(b) Without limiting the generality or flexibility of paragraph 1(a),
the Corporate Services shall initially consist of the following services (the
"Initial Services"):
(i) the management advice and services of Harcourt General's
Chairman, President and Co-Chief Executive Officers, Chief Financial Officer,
General Counsel, and their respective staffs, it being understood that any
such officer may hold corresponding offices with both Harcourt General and the
Company;
(ii) strategic planning advice and services, to be provided
by Harcourt General's strategy and business planning staff;
(iii) financial advice and services, including, without
limitation, assistance with respect to the raising of capital, investment
analysis, cash and treasury management, and risk management services, to be
provided by Harcourt General's treasury staff;
(iv) corporate investor and public relations advice and
services, to be provided by Harcourt General's corporate relations staff;
(v) accounting advice and services, including, without
limitation, financial reporting and the preparation of financial statements
and disclosure documents required under the federal securities laws, to be
provided by Harcourt General's controller's staff;
(vi) accounting, payroll, and bookkeeping advice and
services, to be provided by Harcourt General's accounting staff;
(vii) internal auditing advice and services, to be provided
by Harcourt General's internal auditing staff;
(viii) personnel advice and services, including, without
limitation, the administration of employee insurance plans, pension plans,
supplemental executive retirement plan, and other employee benefits plans, to
be provided by Harcourt General's human resources staff;
(ix) legal advice and services, including, without
limitation, assistance with respect to claims which may be or have been
asserted or are the subject of litigation, the preparation and review of
documents involving loans, financing transactions, real estate matters,
contractual documents and disclosure documents relating to reporting
requirements under the federal securities laws, consultation related to legal
and administrative proceedings, and compliance with applicable laws and
regulations, to be provided by Harcourt General's internal legal staff;
(x) tax advice and services, including, without limitation, the
preparation of federal, state and local tax returns, to be provided by
Harcourt General's internal tax staff;
(xi) assistance in organizational matters associated with
shareholders meetings and meetings of the board of directors and the
committees of the board, assistance in preparation of certain public
documents, including, without limitation, preparation of annual and quarterly
reports and proxy statements, and in the administration of the Company's cash
and equity incentive plans, to be provided by Harcourt General's corporate
staff;
(xii) real estate advice and services, including, without
limitation, evaluation, development and negotiation activities, and lease
administration, to be provided by Harcourt General's corporate staff;
(xiii) purchasing advice and services, including, without
limitation, assistance in the preparation and evaluation of supply contracts
and communications contracts, to be provided by Harcourt General's corporate
staff; and
(xiv) such other services, not specified above, which are of the
type normally performed by the corporate staffs of public corporations, to be
provided by Harcourt General's corporate staff.
(c) For purposes of the avoidance of doubt, the Initial Services shall
constitute the Corporate Services unless and until modified in accordance with
the provisions of paragraph 1(a) or 6(a) of this Agreement.
2. Standard of Conduct.
(a) In providing Corporate Services to the Company, Harcourt General's
officers and employees shall conduct themselves in accordance with the
Company's written policies and procedures and, shall provide the Corporate
Services with the same degree of care, skill and prudence customarily
exercised by such officers and employees for the benefit of Harcourt General
in connection with Harcourt General's operations. Notwithstanding the
foregoing, in providing the Corporate Services, Harcourt General and its
directors, officers and employees will not be responsible for, and shall have
no liability for, any Losses arising out of the performance by Harcourt
General of the Corporate Services, except to the extent arising out of the
gross negligence or willful misconduct of Harcourt General or its directors,
officers or employees. Harcourt General shall indemnify, defend and hold
harmless the Company, its affiliates, and their respective directors, officers
and employees from and against any and all Losses incurred by the Company
arising as a result of the gross negligence or willful misconduct of Harcourt
General or its directors, officers or employees in connection with the
performance of the Corporate Services hereunder, except in circumstances where
the party that would otherwise be indemnified hereunder is found by a court of
competent jurisdiction to have acted with gross negligence or to have engaged
in willful misconduct.
(b) The Company shall indemnify, defend and hold harmless Harcourt
General, its affiliates, and their respective directors, officers and
employees from and against any and all Losses incurred by Harcourt General
arising as a result of Harcourt General having provided Corporate Services,
except in circumstances where the party that would otherwise be indemnified
hereunder is found by a court of competent jurisdiction to have acted with
gross negligence or to have engaged in willful misconduct.
(c) In no event shall Harcourt General, the Company, their respective
affiliates, or their respective directors, officers or employees be liable for
any indirect, special or consequential damages in connection with or arising
out of this Agreement.
(d) For purposes of this paragraph, the term "Losses" shall mean any
and all losses, liabilities, demands, claims, actions or causes of action,
assessments, losses, fines, penalties, costs, damages and/or expenses
(including, without limitation, the reasonable fees and expenses of attorneys
and other professionals).
3. Cost of Services.
(a) The parties hereby ratify the previously made determination of the
probable level of corporate services to be provided by Harcourt General under
the Original Agreement for the Company's current fiscal year, and the
estimated fee and payment schedule therefor. The parties agree that such
estimated fee shall be subject to adjustment in accordance with paragraph 3(b)
of this Agreement.
(b) Not less than thirty (30) days prior to each successive fiscal
year of the Company, Harcourt General and the Company shall estimate the
probable level of Corporate Services to be provided under this Agreement for
the fiscal year in question, and shall budget the estimated amount of the fee
to be paid by the Company to Harcourt General therefor on the assumption that
such estimated level of Corporate Services will actually be provided. In
determining each such estimate and subsequent adjustment, Harcourt General and
the Company shall value Corporate Services based on Harcourt General's direct
and indirect costs allocable thereto, calculated in accordance with Harcourt
General's usual accounting practices. As soon as practicable after the end of
each of the Company's fiscal quarters (including the Company's current fiscal
quarter), Harcourt General and the Company shall, based on a detailed review,
determine the actual level of Corporate Services rendered by Harcourt General
during such fiscal quarter, and the Company shall pay Harcourt General the
applicable adjusted fee within 15 business days of presentation of a statement
therefor. Harcourt General shall cause its employees to record or otherwise
apportion the time they devote in providing Corporate Services to the Company,
in order to facilitate such review and determination and to permit a proper
adjustment to be made.
(c) The Company also agrees to reimburse Harcourt General, within 15
business days of presentation of invoices therefor, for all reasonable out-of-
pocket expenses incurred by Harcourt General in providing Corporate Services,
including reasonable expenses for outside professional services incurred by
Harcourt General for the benefit of the Company.
(d) The failure of the Company to make any payment to Harcourt General
hereunder within 30 days of the date such payment is due shall result in the
Company owing Harcourt General interest at the rate of 10% per annum on the
amount due from the date payable to the actual payment date.
4. Requirement of Approval By Independent Directors of the Company. All
determinations on behalf of the Company made pursuant to paragraphs 3 and 6
hereof must be approved by a committee consisting solely of directors of the
Company who are not employed by or otherwise affiliated with Harcourt General
(the "Independent Committee"). In carrying out its duties pursuant to this
Agreement, the Independent Committee may retain such independent accountants,
lawyers and other experts as it deems necessary or prudent to retain, and the
expenses of all such professionals shall be reimbursed by the Company.
5. Information and Witnesses. Harcourt General shall provide to the
Company and the Company shall provide to Harcourt General, upon the other's
written request, at reasonable times, full and complete access to, and
duplication rights with respect to, any and all Information, as defined below,
as the other may reasonably request and require, and Harcourt General shall
use its best efforts to make available to the Company, and the Company shall
use its best efforts to make available to Harcourt General, upon the other's
written request, the officers, directors, employees and agents of Harcourt
General and of the Company, respectively, as witnesses to the extent that such
persons may reasonably be required in connection with any legal,
administrative or other proceedings in which the Company or Harcourt General,
as the case may be, may from time to time be a party; provided, however, that
neither Harcourt General nor the Company need provide any Information or make
available witnesses to the other to the extent that doing so would (i)
unreasonably interfere with the performance by any person of such person's
duties to the party to which a request under this paragraph 5 is made or
otherwise cause unreasonable burden to such party, (ii) result in a waiver of
any attorney-client or work product privilege of such party or its legal
counsel, (iii) require either Harcourt General or the Company to provide any
Information which relates to the subject matter of any legal, administrative
or other proceeding in which Harcourt General and the Company are adverse
parties, or (iv) result in any breach of any agreement with a third party; and
provided, further, that the party providing Information or making available
witnesses pursuant to this paragraph 5 shall be entitled to receive from the
other party, upon presentation of reasonably detailed invoices therefor,
payment of its reasonable out-of-pocket costs (including, without limitation,
the reasonable fees and expenses of attorneys and other professionals)
incurred in connection with providing Information or making witnesses
available. The term Information as used in this paragraph 5 means any books,
records, contracts, instruments, data, facts and other information in the
possession or under the control of either Harcourt General or the Company and
necessary or desirable for use in legal, administrative or other proceedings
or for auditing, accounting or tax purposes.
6. Term of Agreement.
(a) This Agreement shall become effective as of the date hereof, and
shall continue in effect thereafter unless terminated with respect to the
performance of Corporate Services in whole or in part by either party upon not
less than 180 days written notice. Termination of Corporate Services in part
shall not result in the termination of this Agreement. Termination of
Corporate Services in whole shall result in the termination of this Agreement
except that the obligations of the parties under paragraphs 2, 3, 4, 5, 6, 8
and 9 shall continue after such termination.
(b) Notwithstanding the foregoing, Harcourt General shall have the
right (but not the obligation) to terminate this Agreement immediately and
without the requirement of notice at any time upon the first to occur of the
date on which (i) the Company sells, or enters into a definitive agreement to
sell, all or substantially all of its assets to any one or more persons (other
than Harcourt General), (ii) the Company merges, or enters into a definitive
agreement to merge, with any person other than Harcourt General, or (iii) any
person or group of persons acquires the right (as a consequence of share
ownership, contractual right or otherwise) to elect or designate a majority of
the board of directors of the Company.
(c) Upon termination of this Agreement in part, an appropriate
revision of fees shall be made.
(d) Upon termination of this Agreement in whole, a final fee
adjustment on the basis described in paragraph 3(b) shall be made within 90
days.
(e) Notwithstanding the fact that this Agreement amends and restates
the Original Agreement, (i) the obligations of Harcourt General and the
Company in paragraph 2 of the Original Agreement shall continue to the extent
relating to periods prior to the date hereof, and (ii) the obligations of
Harcourt General and the Company in paragraph 4 of the Original Agreement
shall continue and shall be subsumed into the obligations under paragraph 5 of
this Agreement.
7. Independence. All employees and representatives of Harcourt General
providing the Corporate Services to the Company will be deemed for purposes of
all compensation and employee benefits to be employees or representatives of
Harcourt General and not employees or representatives of the Company. Except
to the extent such employees and representatives are elected officers of the
Company, in performing such services such employees and representatives will
be under the direction, control and supervision of Harcourt General (and not
of the Company) and Harcourt General will have the sole right to exercise all
authority with respect to the employment (including termination of
employment), assignment and compensation of such employees and
representatives.
8. Independent Contractor. The relationship of Harcourt General to the
Company which is created hereunder is that of an independent contractor. This
Agreement is not intended to create and shall not be construed as creating
between the Company and Harcourt General the relationship of affiliate,
principal and agent, joint venture, partnership, or any other similar
relationship, the existence of which is hereby expressly denied.
9. Confidentiality. Any and all information which is not generally known
to the public which is exchanged between the parties in connection with the
performance of this Agreement, whether of a technical or business nature,
shall be considered to be confidential. The parties agree that confidential
information shall not be disclosed to any third party or parties without the
written consent of the other party, except as permitted below. Each party
shall take reasonable measures to protect against disclosure of confidential
information by its officers, employees and agents. Confidential information
shall not include any information (i) which is or becomes part of the public
domain other than as a result of the breach of a party's obligation hereunder,
(ii) which is obtained from third parties who are not bound by confidentiality
obligations or (iii) which is required to be disclosed by law, under
compulsion of legal process, or by the rules of any state or Federal
regulatory agency or any securities exchange (including NASDAQ) on which the
Company's or Harcourt General's securities might be listed for trading. The
provisions of this paragraph shall survive the termination of this Agreement.
10. Miscellaneous.
(a) Nonassignability of Agreement. This Agreement shall not be
assignable, in whole or in part, directly or indirectly, whether by operation
of law or otherwise, by either party hereto without the prior written consent
of the other (which consent may be withheld in the sole discretion of the
party whose consent is required), and any attempt to assign any rights or
obligations arising under this Agreement without such consent shall be void;
provided, however, that the provisions of this Agreement shall be binding
upon, inure to the benefit of and be enforceable by Harcourt General and the
Company and their respective successors and permitted assigns.
(b) Further Assurances. Subject to the provisions hereof, each of the
parties hereto shall make, execute, acknowledge and deliver such other actions
and documents as may be reasonably required in order to effectuate the
purposes of this Agreement, and to comply with all applicable laws,
regulations, orders and decrees, and obtain all required consents and
approvals and make all required filings with any governmental agency, other
regulatory or administrative agency, commission or similar authority, as may
be reasonably necessary or desirable in this connection.
(c) Waivers. No failure or delay on the part of Harcourt General or
the Company in exercising any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, or any
abandonment or discontinuance of steps to enforce such a right, preclude any
other or further exercise thereof or the exercise of any other right. No
modification or waiver of any provision of this Agreement nor consent to any
departure by Harcourt General or the Company therefrom shall in any event be
effective unless the same shall be in writing, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. Any consent or waiver by the Company under this paragraph 10(c) must
be approved by the Independent Committee.
(d) Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the transactions contemplated
hereby.
(e) Amendments. Except as provided in paragraph 1 with respect to
changes in the level of Corporate Services which may be agreed by the
respective Chief Executive Officers of Harcourt General and the Company
without approval of or authorization by their respective Boards of Directors
and Section 6(a) with respect to the termination of the provision of Corporate
Services in whole or in part by the Company, this Agreement may be amended or
supplemented only in writing executed by the parties hereto under
authorization by their respective Boards of Directors (including, in the case
of the Company, the approval of the Independent Committee).
(f) Notices. All notices, approvals and other communications provided
for herein shall be validly given, made or served, if in writing and delivered
personally, by telegram or be telephonic facsimile transmission, or sent by
registered mail, postage prepaid, to:
The Company at:
27 Boylston Street
Chestnut Hill, MA 02467
Attention: Chief Executive Officer
and to:
The Independent Directors of the Company
c/o The Secretary of the Company
27 Boylston Street
Chestnut Hill, MA 02467
Harcourt General at:
27 Boylston Street
Chestnut Hill, MA 02467
Attention: Chief Executive Officer
and shall become effective upon receipt.
(g) Governing Law. Despite any different result required by any
conflicts of law provisions, this Agreement shall be governed by the laws of
the Commonwealth of Massachusetts.
(h) Force Majeure. Anything else in this Agreement notwithstanding,
Harcourt General shall be excused from performance hereunder while, and to the
extent that, its performance is prevented by fire, drought, explosion, flood,
invasion, rebellion, earthquake, civil commotion, strike or labor disturbance,
governmental or military authority, act of God, mechanical failure or any
other event or casualty beyond the reasonable control of Harcourt General,
whether similar or dissimilar to those enumerated in this paragraph. In the
event of any of the foregoing occurrences, the Company shall be responsible
for making its own alternative arrangements with respect to the interrupted
services.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
HARCOURT GENERAL, INC. THE NEIMAN MARCUS GROUP, INC.
By: /s/ John R. Cook By: /s/ Eric P. Geller
John R. Cook, Senior Vice President Eric P. Geller, Senior Vice President,
and Chief Financial Officer General Counsel and Secretary
EXHIBIT 13.1
[START PAGE 23]
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
>
>OPERATING RESULTS FROM CONTINUING OPERATIONS
The following table presents revenues and operating earnings by
business:
<TABLE>
<CAPTION>
Years ended October 31 (in thousands) 1999 1998 1997
>REVENUES
<S> <C> <C> <C>
Education Group $ 581,465 $ 563,533 $ 478,044
Higher Education Group 365,996 354,759 260,287
Corporate and Professional Services Group 497,573 416,610 292,127
Worldwide STM Group 697,588 527,005 451,290
-----------------------------------
Total revenues $2,142,622 $1,861,907 $1,481,748
-----------------------------------
>OPERATING EARNINGS (LOSS)
Education Group $ 105,401 $ 92,255 $ 58,226
Higher Education Group 43,985 23,633 (22,090)
Corporate and Professional Services Group 34,046 15,896 (16,929)
Worldwide STM Group 117,537 100,875 93,712
Purchased in-process research and
development and other charges - - (277,227)
Corporate expenses (21,320) (18,109) (19,631)
-----------------------------------
Total operating earnings (loss) $ 279,649 $ 214,550 ($ 183,939)
-----------------------------------
</TABLE>
>OPERATING RESULTS FROM CONTINUING OPERATIONS
> Education Group
Revenues from the Education Group increased $17.9 million, or
3.2%, in 1999; and $85.5 million, or 17.9%, in 1998. The 1999
increase is primarily attributable to higher elementary math
and social studies program sales, offset in part by lower
secondary school publishing sales in comparison to the prior
year. The 1998 increase reflected primarily the acquisition of
the Steck-Vaughn supplemental educational publishing business,
as well as higher secondary publishing sales.
Operating earnings from the Education Group increased $13.1
million, or 14.2%, in 1999; and $34.0 million, or 58.4%, in
1998. The 1999 increase resulted primarily from the increased
elementary sales, offset by higher plate amortization costs, as
well as lower amortization of intangible assets at Steck-
Vaughn. The 1998 increase resulted primarily from higher
revenues, higher profits and lower amortization costs at Steck-
Vaughn, and excluded $59.5 million of purchased research and
development and other charges incurred in the 1997 period
concurrently with the acquisition of NEC.
[END PAGE 23]
[START PAGE 24]
> Higher Education Group
Revenues from the Higher Education Group increased $11.2
million, or 3.2%, in 1999; and $94.5 million, or 36.3%, in
1998. The 1999 increase is primarily due to higher sales of
college titles and professional education revenues, offset by a
decrease in sales at Harcourt Learning Direct, the Company's
distance learning operations. In 1998, revenues increased
significantly compared to 1997 due primarily to the inclusion
of revenues for the full fiscal year from Harcourt Learning
Direct, acquired in June 1997.
Operating earnings from the Higher Education Group increased
$20.4 million, or 86.1%, in 1999; and $45.7 million, to
earnings of $23.6 million in 1998 compared to a loss in 1997.
The 1999 increase is primarily attributable to higher sales,
lower amortization of intangible assets at Harcourt Learning
Direct, and to a lesser extent, lower marketing costs. The 1998
increase resulted primarily from the inclusion of Harcourt
Learning Direct and lower amortization costs, and excluded
$23.6 million of non-recurring charges incurred in the 1997
period concurrently with the acquisition of NEC.
> Corporate and Professional Services Group
Revenues from the Corporate and Professional Services Group
increased $81.0 million, or 19.4%, in 1999; and $124.5 million,
or 42.6%, in 1998. The 1999 increase is primarily attributable
to higher sales at Drake Beam Morin (DBM), the Group's
professional services and outplacement business, higher sales
at NETg, the Group's technology-based training business, as
well as higher sales from the test administration and scoring
businesses. In 1998 revenues increased significantly compared
to 1997 due primarily to the inclusion of revenues for the full
fiscal year from NETg, as well as from higher test scoring and
administration revenues.
Operating earnings from the Corporate and Professional
Services Group increased $18.2 million, or 114.2%, in 1999; and
$32.8 million, to earnings of $15.9 million in 1998 compared to
a loss in 1997. The 1998 increase resulted primarily from
higher sales at DBM and the Group's professional education
business, and excluded $173.6 million of purchased research and
development and other charges incurred in the 1997 period
concurrently with the acquisition of NEC.
> Worldwide Scientific, Technical and Medical (STM) Group
Revenues from the Worldwide STM Group increased $170.6 million,
or 32.4%, in 1999; and $75.7 million, or 16.8%, in 1998. The
1999 increase represents primarily the inclusion of revenues of
Mosby, acquired in October 1998, which were included for the
full fiscal year in 1999. The 1998 increase is attributable to
the acquisition of Churchill Livingstone in September 1997, as
well as to higher book and journal subscription revenues at
Academic Press, the Group's scientific publishing company.
Operating earnings from the Worldwide STM Group increased
$16.7 million, or 16.5%, in 1999; and $7.2 million, or 7.6%, in
1998. The 1999 increase is primarily due to the inclusion of
the results of Mosby, offset by amortization of acquisition
costs. The 1998 increase resulted primarily from inclusion of
results of Churchill Livingstone for the full fiscal year,
higher revenues at Academic Press, and excluded $20.6 million
of purchased research and development and other charges
incurred in the 1997 period concurrently with the acquisition
of NEC.
> Corporate expenses
Corporate expenses increased $3.2 million, or 17.7%, in 1999;
and decreased $1.5 million, or 7.8%, in 1998. The increase in
1999 resulted primarily from higher salaries and professional
service fees. The decrease in 1998 was primarily due to the
compensation expense recognized in 1997 in connection with the
resignation of the Company's former chief executive officer.
> Investment and other income
Investment and other income increased $7.9 million to $12.8
million in fiscal 1999. The increase resulted primarily from a
gain of $6.4 million on the sale of the Conviser CPA Review
Course, as well as a gain of $3.0 million from the sale of
securities. Investment and other income decreased $24.1 million
to $4.9 million in fiscal 1998, compared to $29.0 million in
fiscal 1997. The Company liquidated its investment portfolio in
June 1997 to partially fund the acquisition of NEC.
> Interest expense
Interest expense increased $20.8 million, or 24.0%, in 1999;
and increased $18.4 million, or 27.1%, in 1998. The increase in
1999 is primarily due to interest on borrowings under the
Company's revolving credit facility, which was used to fund the
acquisition of Mosby in October 1998. The increase in interest
expense in 1998 was primarily due to the interest incurred on
fixed-rate debt issued by the Company in August 1997, the
proceeds from which were used to partially fund the
acquisitions of NEC and Churchill Livingstone.
[END PAGE 24]
[START PAGE 25]
> LIQUIDITY AND CAPITAL RESOURCES
The following discussion analyzes liquidity and capital
resources by operating, investing and financing activities as
presented in the Company's consolidated statements of cash
flows.
Cash provided by operating activities in 1999 was $358.6
million compared to $269.3 million in 1998. Cash provided by
the Company's operations and borrowings under its revolving
credit facility was sufficient to fund working capital, capital
expenditures, acquisitions and dividend requirements. The most
significant change in working capital was an increase in
accounts receivable of $47.5 million, which was primarily due
to higher sales.
Cash flows used by investing activities were $248.1 million
in 1999 and consisted primarily of expenditures for
prepublication costs. In October 1998, the Company paid
approximately $413.7 million to acquire Mosby, Inc., a
professional health sciences publisher; the purchase price was
funded with borrowings under the Company's revolving credit
facility. The Company expects capital expenditures to
approximate $230.0 million in fiscal 2000.
The Company repaid $105.0 million under its revolving credit
facility in 1999. This facility is used to fund working capital
requirements, capital expenditures and dividend requirements as
needed. At October 31, 1999, the Company had $380.0 million
available under its $750.0 million revolving credit facility,
which expires in July 2002. The Company expects to use this
facility to repay subordinated notes of $125 million that
mature in March 2000. Additionally, a subsidiary of the Company
borrowed $19.6 million under a term loan which matures in
October 2004.
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 expenditures, as well as
its operating and dividend requirements.
> Quantitative and qualitative disclosures about market risk
The market risk inherent in the Company's financial instruments
and position represents the potential loss arising from adverse
changes in interest rates. The Company does not enter into
financial instruments for trading purposes.
At October 31, 1999 and 1998 the fair value of the Company's
fixed-rate debt was estimated at $927.7 million and $983.7
million, respectively, using quoted market prices and
comparable publicly-traded issues. Such fair values were less
than carrying value by approximately $39.5 million at October
31, 1999 and greater than the carrying value by approximately
$13.9 million at October 31, 1998. Market risk is estimated as
the potential change in fair value resulting from a
hypothetical 10% adverse change in interest rates, and amounted
to approximately $50.7 million at October 31, 1999.
At October 31, 1999 and 1998 the Company had approximately
$389.6 million and $475.0 million, respectively, of variable
rate borrowings outstanding under its revolving credit
facilities and a term loan, which approximated fair value. A
hypothetical 10% adverse change in interest rates for this
variable rate debt would have an approximate $2.1 million
negative effect on the Company's pre-tax earnings and cash
flows.
At October 31, 1999 and 1998 the carrying value of the put
option issued in connection with the acquisition of
GartnerLearning was $20.0 million, which approximated fair
value. Market risk is estimated as the potential change in
market value of the put option resulting from a hypothetical
10% adverse change in the value of NETg, and would have an
approximately $2.8 million negative effect on the Company's
earnings.
> Impact of inflation
The Company adjusts selling prices to maintain profit levels
and will continue to do so as competitive conditions permit. In
general, management believes that the impact of inflation or of
changing prices is not material to the financial position or
results of operations of its business segments.
> Year 2000 date conversion
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 has
implemented plans to ensure that the operations of such systems
will not be adversely affected by the Year 2000 date change. As
of the date of this report, the Company has not experienced any
significant problems with its hardware and software systems
related to the Year 2000 date change.
[END PAGE 25]
[START PAGE 26]
The Company has 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. 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 have been successfully 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.
> Seasonality
The Company's businesses are seasonal in nature. More than one-
half of the Company's annual operating earnings are
historically generated in the third quarter of its fiscal year,
since that quarter includes the important educational
publishing selling season.
Conversely, operating losses have historically been reported
in the first and second quarters during a period when
publishing revenues are at their lowest levels.
> Dividends
The Company has a long-standing practice of returning a portion
of its earnings and cash flows to shareholders through the
payment of cash dividends. In October 1999, the Board of
Directors voted to increase the quarterly cash dividend on the
Common Stock to 21 cents per share. The Board also increased
the quarterly cash dividend on the Series A Stock to 23.85
cents per share and on the Class B Stock to 18.9 cents per
share. Following the Company's spin-off of its specialty retail
operations, the dividend on the Series A Stock was increased to
28.26 cents per share for the first quarter of fiscal 2000, in
accordance with the Company's charter.
> RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
which will require recognition of all derivatives as either
assets or liabilities on the balance sheet at fair value. The
Company is currently evaluating the effect of implementing SFAS
133, which will be effective for fiscal 2001.
> 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 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; the
seasonal and cyclical nature of the markets for the Company's
products and services; failure of the Company or third parties
to be Year 2000 compliant; changes in domestic or international
economic conditions; changes in public funding for the
Company's educational products and services; and changes in
purchasing patterns in the Company's markets.
[END PAGE 26]
[START PAGE 27]
CONSOLIDATED STATEMENTS
OF OPERATIONS
<TABLE>
<CAPTION>
Years ended October 31 (in thousands except for per share amounts) 1999 1998 1997
<S> <C> <C> <C>
Revenues $2,142,622 $1,861,907 $1,481,748
Costs applicable to revenues 697,278 628,495 586,568
Selling, general and administrative expenses 1,144,375 1,000,753 885,488
Purchased in-process research and development expense - - 174,000
Corporate expenses 21,320 18,109 19,631
-----------------------------------
OPERATING EARNINGS (LOSS) 279,649 214,550 (183,939)
Investment and other income 12,791 4,880 28,984
Interest expense (107,210) (86,436) (67,989)
-----------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST 185,230 132,994 (222,944)
Income tax benefit (expense) (68,535) (45,952) 25,169
-----------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST 116,695 87,042 (197,775)
Minority interest in net losses of subsidiaries 3,653 559 -
-----------------------------------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 120,348 87,601 (197,775)
Earnings from discontinued specialty retail operations, net
of income taxes of $42,364, $37,838 and $33,612 63,482 54,015 82,653
-----------------------------------
NET EARNINGS (LOSS) $183,830 $141,616 ($115,122)
-----------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Basic 71,103 70,837 70,812
-----------------------------------
Diluted 72,168 72,141 70,812
-----------------------------------
BASIC AMOUNTS PER COMMON SHARE:
Continuing operations $1.68 $1.22 ($2.81)
Discontinued specialty retail operations .89 .77 1.17
-----------------------------------
Basic net earnings (loss) $2.57 $1.99 ($1.64)
-----------------------------------
DILUTED AMOUNTS PER COMMON SHARE:
Continuing operations $1.67 $1.21 ($2.81)
Discontinued specialty retail operations .88 .75 1.17
-----------------------------------
Diluted net earnings (loss) $2.55 $1.96 ($1.64)
-----------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
[END PAGE 27]
[START PAGE 28]
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31 (in thousands) 1999 1998
>ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and equivalents $ 24,144 $ 58,556
Accounts receivable, net 473,577 425,998
Inventories 212,771 207,518
Deferred income taxes 80,716 90,736
Other current assets 39,549 32,836
---------------------------
Total current assets 830,757 815,644
---------------------------
PROPERTY AND EQUIPMENT
Land, buildings and improvements 94,512 100,034
Fixtures and equipment 218,038 226,150
---------------------------
312,550 326,184
Less accumulated depreciation and amortization (183,746) (175,877)
---------------------------
Total property and equipment, net 128,804 150,307
---------------------------
OTHER ASSETS
Prepublication costs, net 322,346 281,068
Investment in The Neiman Marcus Group, Inc. 119,414 -
Goodwill, net 1,409,485 1,535,811
Other intangible assets, net 52,538 69,042
Other 86,761 75,265
---------------------------
Total other assets 1,990,544 1,961,186
---------------------------
Net assets of discontinued specialty retail operations - 462,741
---------------------------
Total assets $2,950,105 $3,389,878
---------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
[END PAGE 28]
[START PAGE 29]
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
October 31 (in thousands) 1999 1998
>LIABILITIES
CURRENT LIABILITIES
Notes payable and current maturities of long-term liabilities $ 6,868 $ 4,050
Accounts payable 203,521 192,308
Other current liabilities 483,168 540,622
---------- ----------
Total current liabilities 693,557 736,980
---------- ----------
LONG-TERM LIABILITIES
Notes and debentures 1,356,804 1,444,842
Other long-term liabilities 182,842 178,565
Deferred income taxes 55,946 81,023
---------- ----------
Total long-term liabilities 1,595,592 1,704,430
---------- ----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 19,093 22,746
>SHAREHOLDERS' EQUITY
PREFERRED STOCK
Series A Cumulative Convertible - $1 par value; issued and outstanding - 863
and 914 shares 863 914
COMMON STOCKS
Class B Stock - $1 par value; issued and outstanding - 20,021 shares 20,021 20,021
Common Stock - $1 par value; issued and outstanding - 51,146 and 51,008 shares 51,146 51,008
PAID-IN CAPITAL 317,037 745,679
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) 2,269 (15,407)
RETAINED EARNINGS 250,527 123,507
---------- ----------
Total shareholders' equity 641,863 925,722
---------- ----------
Total liabilities and shareholders' equity $2,950,105 $3,389,878
---------- ----------
See Notes to Consolidated Financial Statements.
</TABLE>
[END PAGE 29]
[START PAGE 30]
CONSOLIDATED STATEMENTS
OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Years ended October 31 (in thousands) 1999 1998 1997
>CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $183,830 $141,616 ($115,122)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Discontinued specialty retail operations (63,482) (54,015) (82,653)
Amortization of prepublication costs 136,582 123,849 154,247
Depreciation and other amortization 118,909 119,272 127,271
Minority interest (3,653) (559) -
Purchased in-process research and development - - 174,000
Deferred income taxes 39,503 39,734 (72,465)
Other 3,890 5,698 (15,790)
Changes in assets and liabilities:
Accounts receivable (47,507) (64,934) (46,299)
Inventories (5,643) 19,961 (2,685)
Other current assets 186 12,340 28,735
Accounts payable and other current liabilities (4,053) (73,638) 10,309
-----------------------------------
Net cash provided by operating activities 358,562 269,324 159,548
-----------------------------------
>CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (226,549) (194,137) (142,002)
Purchases of available-for-sale investments - - (408,304)
Sales of available-for-sale investments - - 325,767
Maturities of available-for-sale investments - - 324,591
Acquisition of NEC, net of cash acquired - (40,512) (839,620)
Acquisition of Mosby, net of cash acquired - (413,733) -
Acquisition of Churchill Livingstone, net of cash acquired - - (92,500)
Other acquisitions and investing activities (21,596) (27,139) (7,184)
-----------------------------------
Net cash used for investing activities (248,145) (675,521) (839,252)
-----------------------------------
>CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (repayments) of revolving credit facilities, net (105,000) 460,722 -
Proceeds from borrowings 19,630 - 514,000
Repayment of debt (2,845) (5,949) (214,772)
Repurchase of Common Stock - - (20,139)
Cash dividends paid (56,810) (53,948) (51,149)
Other financing activities 196 (1,855) (2,656)
----------------------------------
Net cash provided by (used for) financing activities (144,829) 398,970 225,284
>CASH AND EQUIVALENTS
Decrease during the year (34,412) (7,227) (454,420)
Beginning balance 58,556 65,783 520,203
-----------------------------------
Ending balance $24,144 $58,556 $65,783
-----------------------------------
>SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash payments (refunds) for:
Interest $106,701 $84,461 $59,880
-----------------------------------
Income taxes ($ 7,460) $13,379 $119,900
-----------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
[END PAGE 30]
[START PAGE 31]
CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Common Series A Paid-in Income Retained
(in thousands) Stocks Stock Capital (Loss) Earnings Total
<S> <C> <C> <C> <C> <C> <C>
Balance at November 1, 1996 $71,119 $1,152 $743,947 ($4,493) $221,807 $1,033,532
Net loss - - - - (115,122) (115,122)
Other comprehensive loss, net of tax,
including foreign currency translation
and other - - - (2,620) - (2,620)
----------
Comprehensive loss (117,742)
Cash dividends paid - - - - (51,149) (51,149)
Conversion of Series A Stock 29 (27) (2) - - -
Repurchase of Common Stock (442) - - - (19,697) (20,139)
Other equity transactions, net 49 - 987 - - 1,036
----------------------------------------------------------------
Balance at October 31, 1997 70,755 1,125 744,932 (7,113) 35,839 845,538
Net earnings - - - - 141,616 141,616
Other comprehensive loss, net of tax,
including foreign currency translation
and other - - - (8,294) - (8,294)
-------
Comprehensive income 133,322
Cash dividends paid - - - - (53,948) (53,948)
Conversion of Series A Stock 232 (211) (21) - - -
Other equity transactions, net 42 - 768 - - 810
----------------------------------------------------------------
Balance at October 31, 1998 71,029 914 745,679 (15,407) 123,507 925,722
Net earnings - - - - 183,830 183,830
Other comprehensive income, net of tax:
Net unrealized investment gains - - - 16,750 - 16,750
Foreign currency translation and other - - - 926 - 926
-------
Comprehensive income 201,506
Spin-off of specialty retail operations - - (431,214) - - (431,214)
Cash dividends paid - - - - (56,810) (56,810)
Conversion of Series A Stock 58 (51) (7) - - -
Other equity transactions, net 80 - 2,579 - - 2,659
----------------------------------------------------------------
Balance at October 31, 1999 $71,167 $863 $317,037 $2,269 $250,527 $641,863
----------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
[END PAGE 31]
[START PAGE 32]
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
>NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
> Principles of consolidation
The consolidated financial statements include the accounts of
Harcourt General, Inc. (the Company or Harcourt General) and
its majority-owned subsidiaries. Harcourt General is a leading
global multiple-media publisher and service provider for the
educational, assessment, training and professional information
markets. All significant intercompany accounts and transactions
are eliminated.
Except as indicated, amounts reflected in the consolidated
financial statements or disclosed in the notes to the
consolidated financial statements relate to the Company's
continuing operations, and prior year amounts have been
restated and reclassified to conform with the current
presentation.
> Cash and equivalents
Cash and equivalents consist of cash in banks and money market
accounts. Cash and equivalents are stated at cost plus accrued
interest, which approximates fair value. The Company's practice
is to invest cash with financial institutions that have
acceptable credit ratings and to limit the amount of credit
exposure to any one financial institution.
> Short-term investments
In May 1997, all of the Company's short-term investments were
sold to partially fund the acquisition of National Education
Corporation, resulting in a realized loss of $.4 million in
fiscal 1997.
> Inventories
Inventories, consisting primarily of finished goods, are stated
at the lower of cost or market. Substantially all inventories
are valued using the last-in, first-out (LIFO) method.
> Property and equipment
Property and equipment are stated at cost. Depreciation and
amortization are provided using straight-line or accelerated
methods over the estimated useful lives of the related assets
or over the terms of the related leases, if shorter. When
property and equipment are retired or have been fully
depreciated or amortized, the cost and the related accumulated
depreciation and amortization are eliminated from the
respective accounts. Gains or losses arising from the
dispositions are reported as income or expense. Maintenance and
repair costs are charged to expense as incurred, and renewals
and improvements that extend the useful lives of assets are
capitalized.
> Prepublication costs
Prepublication costs are amortized primarily using the sum-of-
the-years-digits method over the estimated useful lives of the
publications, ranging from one to five years.
> Investment in The Neiman Marcus Group, Inc.
The investment in The Neiman Marcus Group, Inc. (the
investment) consisted of approximately 10 percent of the
outstanding common equity of The Neiman Marcus Group, Inc. as
of October 31, 1999 and is accounted for as an available-for-
sale security. This investment is marked to market on a
quarterly basis and is classified as long-term as the Company
intends to hold it for at least one year. At October 31, 1999
the gross unrealized gain on the investment was $19.1 million.
> Goodwill and other intangible assets
Amortization of goodwill and publishing rights is recorded
using the straight-line method over their estimated useful
lives, ranging from 10 to 40 years. Other intangible assets
consist of course libraries, customer leads and contracts, and
existing technology, and are amortized using accelerated
methods over their estimated useful lives, ranging from one to
five years.
[END PAGE 32]
[START PAGE 33]
> Long-lived assets
Upon occurrence of an event or a change in circumstances which
indicates that the carrying amount of an asset may not be
recoverable, the Company compares the carrying value of its
long-lived assets against projected undiscounted cash flows to
determine any impairment and to evaluate the reasonableness of
the depreciation or amortization periods. Should an impairment
be identified, the long-lived assets are then written down to
their fair value.
> Other long-term liabilities
Other long-term liabilities of the Company consist primarily of
a liability for postretirement health care benefits and
provisions for other employee benefits.
> Derivatives
The Company uses treasury lock agreements (a derivative) as a
means of managing interest-rate risk associated with
anticipated debt transactions. The differentials to be received
or paid under these contracts designated as hedges are deferred
and amortized to interest expense over the remaining life of
the associated debt. Derivative financial instruments are not
held for trading purposes.
> Income taxes
Income taxes are calculated in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." SFAS 109 requires the asset and liability method
of accounting for income taxes.
> Revenue recognition
The Company recognizes revenues principally upon shipment of
products. Subscription revenues are generally collected in
advance and are deferred and recognized pro-rata upon
fulfillment. Contract revenues are recognized as services are
provided.
Certain publications are sold to customers with a right of
return. Revenues are recorded net of a provision for future
returns. Returned goods included in inventory are valued at
estimated realizable value not exceeding cost. Accounts
receivable are reported net of allowances for book returns of
$94.1 million in 1999 and $71.2 million in 1998 and for
doubtful accounts of $39.8 million in 1999 and $40.3 million in
1998.
> Comprehensive income
In 1999, the Company adopted SFAS 130, "Reporting Comprehensive
Income." This statement established new rules for the reporting
and display of comprehensive income and its components. The
Company 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.
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.
For the years ended October 31, 1999, 1998 and 1997,
reclassification adjustments totaled $1.9 million, $0, and $.4
million, respectively.
> Advertising costs
Advertising costs are expensed in the period incurred.
Advertising expenses were $98.5 million, $95.9 million and
$64.7 million in 1999, 1998 and 1997, respectively.
> Earnings per common and common equivalent share
In 1998, the Company adopted SFAS 128, "Earnings Per Share."
All earnings per share amounts for all periods presented have
been restated both to conform to the requirements of SFAS 128
and to reflect the spin-off of the specialty retail operations.
> Significant estimates
In the process of preparing its consolidated financial
statements, the Company estimates the appropriate carrying
values of certain assets and liabilities which are not readily
apparent from other sources. Management bases its estimates on
historical experience and on various assumptions which are
believed to be reasonable under the circumstances. The primary
estimates underlying the Company's consolidated financial
statements include allowances for returns and doubtful
accounts, valuation of inventories and prepublication costs,
and accruals for self-insurance, pension and postretirement
benefits. Actual results could differ from these estimates.
> Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued
SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," which will require recognition of all derivatives
as either assets or liabilities on the balance sheet at fair
value. The Company is currently evaluating the effect of
implementing SFAS 133, which will be effective for fiscal 2001.
[END PAGE 33]
[START PAGE 34]
>NOTE 2.
DISCONTINUED OPERATIONS
The Company's specialty retail operations, which consisted of
its 54 percent ownership of The Neiman Marcus Group, Inc.
(NMG), was spun off on October 22, 1999 in a tax-free
distribution to the Company's shareholders. The Company
distributed 21,440,960 shares of its 26,429,502 shares of NMG
common stock. The Company retained 4,988,542 shares of NMG
Class A Common Stock, which are accounted for as available-for-
sale securities. The Company has agreed to vote the retained
shares on all matters in proportion to the votes cast
affirmatively or negatively by all other holders of NMG Class A
Common Stock. Each common shareholder of the Company received
.3013 of a share of Class B Common Stock of NMG for every share
of Harcourt General Common Stock and Class B Stock held on
October 12, 1999, which was the record date for the
distribution.
The Company's consolidated financial statements have been
restated to reflect the specialty retail operations as a
discontinued operation. Prior to the spin-off, the financial
statements of NMG were consolidated with a lag of one fiscal
quarter. Consequently, the 1999 results of NMG presented as
discontinued operations include the results of NMG for its
fiscal year ended July 31, 1999, which totaled $47.7 million,
and the results of its operations from August 1, 1999 through
October 22, 1999, the distribution date, which totaled $18.0
million.
Under an amended intercompany services agreement, the Company
provides certain management, accounting, financial, legal, tax
and other corporate services to NMG. The fees for these
services are an allocation of the Company's cost and are
subject to the approval of a committee of directors of NMG who
are not affiliated with the Company. This agreement may be
terminated by either party on 180 days' notice. Charges to NMG
were $6.2 million in 1999, $5.4 million in 1998 and $5.7
million in 1997.
Most of the officers of the Company serve in similar
capacities with NMG. Three such officers serve as directors of
both companies.
>NOTE 3.
DESCRIPTION OF CONTINUING OPERATIONS AND SEGMENT INFORMATION
In 1999, the Company adopted SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information," which
established reporting and disclosure standards for an
enterprise's operating segments. Operating segments are defined
as components of an enterprise for which separate financial
information is available and regularly reviewed by the
Company's senior management. The accounting policies of the
operating segments are the same as those described in the
summary of significant accounting policies. The Company's
senior management evaluates the performance of the Company's
assets on a consolidated basis; therefore, separate financial
information for the Company's assets on a segment basis is not
presented.
In applying SFAS 131, the Company identified the following
four reportable segments: Education Group, Higher Education
Group, Corporate and Professional Services Group and Worldwide
Scientific, Technical and Medical (STM) Group. The Education
Group consists of the Company's K-12 and supplemental and trade
publishing operations. The Higher Education Group includes
college, distance learning and graduate test preparation
businesses. The Corporate and Professional Services Group is
comprised of testing and related services, career counseling
and technology-based IT and human resources training. The
Worldwide STM Group includes the Company's scientific,
technical and medical publishing businesses and its
international publishing and distribution operations. Other
includes unallocated corporate items.
[END PAGE 34]
[START PAGE 35]
<TABLE>
The following tables set forth the information for the Company's reportable
segments for the years ended October 31:
<CAPTION>
(in thousands) 1999 1998 1997
>REVENUES:
<S> <C> <C> <C>
Education Group $ 581,465 $ 563,533 $ 478,044
Higher Education Group 365,996 354,759 260,287
Corporate and Professional Services Group 497,573 416,610 292,127
Worldwide STM Group 697,588 527,005 451,290
----------------------------------------
Total $2,142,622 $1,861,907 $1,481,748
----------------------------------------
>OPERATING EARNINGS (LOSS):
Education Group $ 105,401 $ 92,255 ($ 1,241)
Higher Education Group 43,985 23,633 (45,715)
Corporate and Professional Services Group 34,046 15,896 (190,492)
Worldwide STM Group 117,537 100,875 73,140
Other (21,320) (18,109) (19,631)
----------------------------------------
Total $ 279,649 $ 214,550 ($ 183,939)
----------------------------------------
>DEPRECIATION AND AMORTIZATION:
Education Group $ 83,640 $ 81,827 $ 102,932
Higher Education Group 40,903 51,161 86,710
Corporate and Professional Services Group 54,498 54,715 55,060
Worldwide STM Group 74,002 53,588 34,469
Other 2,448 1,830 2,347
----------------------------------------
Total $ 255,491 $ 243,121 $ 281,518
----------------------------------------
>CAPITAL EXPENDITURES:
Education Group $ 110,065 $ 93,752 $ 65,840
Higher Education Group 34,023 29,763 28,637
Corporate and Professional Services Group 24,423 22,791 13,276
Worldwide STM Group 55,475 46,941 33,037
Other 2,563 890 1,212
----------------------------------------
Total $ 226,549 $ 194,137 $ 142,002
----------------------------------------
The following is a schedule of revenues by geographic location:
(in thousands) 1999 1998 1997
>REVENUES:
North America $1,698,263 $1,433,359 $1,157,219
Rest of world 444,359 428,548 324,529
----------------------------------------
Total $2,142,622 $1,861,907 $1,481,748
----------------------------------------
</TABLE>
>NOTE 4.
ACQUISITIONS
> Mosby
On October 9, 1998, the Company completed the acquisition of
Mosby, Inc. for approximately $415 million in cash. Mosby is a
publisher of books, periodicals and electronic products and
services in professional health sciences, including nursing,
allied health and medicine, and is included in the Worldwide
STM Group. The purchase price was funded with borrowings under
the Company's revolving credit facility.
[END PAGE 35]
[START PAGE 36]
The Mosby acquisition has been accounted for under the
purchase method of accounting and, accordingly, the results of
operations of Mosby for the period from October 9, 1998 are
included in the accompanying consolidated financial statements.
The $388.6 million excess of cost over the estimated fair value
of net assets acquired was allocated to goodwill which is
amortized over 30 years. Assets acquired and liabilities
assumed have been recorded at their estimated fair values and
useful lives. In the fourth quarter of fiscal 1999, the Company
completed its final purchase price allocation of Mosby,
resulting in a net reduction of goodwill and other current
liabilities of $26.0 million from the amounts initially
recorded. Acquisition liabilities were $81.9 million at October
31, 1998. In 1999, approximately $31.4 million representing
primarily severance and employee benefit costs was charged
against acquisition liabilities. At October 31, 1999, $24.5
million is included in other current liabilities representing
facility exit costs of $10.5 million, severance (related to
employees terminated prior to October 31, 1999) and employee
benefit obligations of $8.3 million, and other obligations of
$5.7 million.
> GartnerLearning
On August 31, 1998, the Company completed the acquisition of
GartnerLearning, the technology-based IT training operation of
Gartner Group. GartnerLearning was merged with the operations
of NETg, a subsidiary of the Company, which provides self-paced
multimedia training courseware for IT professionals. The
acquisition was accounted for under the purchase method of
accounting and, accordingly, the results of operations of
GartnerLearning for the period from August 31, 1998 are
included in the accompanying consolidated financial statements.
The purchase price for GartnerLearning consisted of $5.0
million in cash and eight percent of the newly combined
company, known as NETg, valued at approximately $28.0 million.
Additionally, under the terms of the investor agreement,
Gartner Group was granted a put option exercisable at any time
between the fourth and sixth anniversary of the acquisition to
require the Company to purchase the minority interest at the
higher of either fair value of eight percent of NETg or $48.0
million, subject to certain provisions. The Company has a call
option to repurchase Gartner Group's interest in NETg on
similar terms. The Company recorded a liability for the
difference between the fair value of eight percent of NETg and
the put option exercise price of $48.0 million. This liability
is adjusted to reflect changes in the fair value of NETg, with
the offset reported as a gain or loss in the consolidated
statement of operations. The $61.9 million excess of cost over
estimated fair value of net assets acquired was allocated to
goodwill, which is amortized on a straight-line basis over 25
years. In the fourth quarter of fiscal 1999, the Company
completed its final purchase price allocation of
GartnerLearning. The final purchase price allocation resulted
in a net reduction of goodwill and other current liabilities of
$3.8 million from the amounts initially recorded. Acquisition
liabilities were $12.7 million at October 31, 1998. In 1999,
approximately $7.4 million was charged against acquisition
liabilities and at October 31, 1999, $1.5 million is included
in other current liabilities consisting of unfulfilled
contractual obligations of $1.1 million and other obligations
of $.4 million.
> National Education Corporation
In June 1997, the Company completed the acquisition of National
Education Corporation (NEC) for a cash purchase price of
approximately $854.4 million. The NEC acquisition has been
accounted for under the purchase method of accounting and,
accordingly, the results of operations of NEC for the period
from June 5, 1997 are included in the accompanying consolidated
financial statements. Based on an independent appraisal,
approximately $174 million of the purchase price was allocated
to purchased in-process research and development. Accordingly,
the Company recorded a non-recurring charge for this purchased
in-process research and development at the date of acquisition.
Through NEC, the Company initially acquired approximately 82
percent of the issued and outstanding shares of Steck-Vaughn
Publishing Corporation (Steck-Vaughn). On January 30, 1998, the
Company completed its acquisition of the minority interest in
Steck-Vaughn for $14.75 per share, or approximately $40.5
million. The transaction had the effect of increasing goodwill
by $29.6 million and decreasing the Company's minority interest
by $10.9 million on the consolidated balance sheet.
In the third quarter of fiscal 1998, the Company completed its
final purchase price allocation of NEC, resulting in a net
reduction of goodwill and other current liabilities of $25.4
million from the amounts initially recorded. The $680.4 million
excess of cost over the estimated fair value of net assets
acquired was allocated to goodwill, of which $265.4 million is
amortized on a straight-line basis over 25 years. The remaining
goodwill is amortized on a straight-line basis over 40 years.
Acquisition liabilities were $52.7 million and $116.7 million at
October 31, 1998 and 1997, respectively. In 1999 and 1998
approximately $22.3 million and $38.6 million were charged
against acquisition liabilities related to the NEC acquisition,
respectively; at October 31, 1999, $30.4 million is included in
other current liabilities consisting primarily of facility and
other related exit costs of $21.5 million, unfulfilled
contractual obligations of $5.0 million and other obligations of
$3.9 million.
[END PAGE 36]
[START PAGE 37]
> Pro forma information
The following unaudited pro forma information presents the
results of operations of the Company as if the acquisitions of
Mosby and GartnerLearning had taken place as of the beginning
of the period presented:
<TABLE>
<CAPTION>
<S> <C>
Year ended October 31 (in thousands, except per share amounts) 1998
Revenues $2,081,212
Earnings from continuing operations $ 44,620
Diluted earnings per share from continuing operations $ .62
</TABLE>
These pro forma results of operations have been prepared for
comparative purposes only and do not purport to be indicative
of the results of operations which actually would have resulted
had the acquisition occurred on the date indicated, or which
may result in the future.
> Other acquisitions
In the periods presented, the Company has acquired several
small publishing and educational services related companies.
The results of operations from these acquired entities are
reflected in the Company's statements of operations from the
date of acquisition. These acquisitions did not materially
impact consolidated results, and therefore no pro forma
information is provided.
>NOTE 5.
OTHER CHARGES
In connection with the acquisition of NEC and the integration
of the NEC businesses into the Company, the Company recorded a
charge of $81.7 million in fiscal 1997, which is included in
costs applicable to revenues ($24.6 million) and selling,
general and administrative expenses ($57.1 million). The charge
reflects costs the Company incurred in connection with the
realignment, consolidation and reorganization of its existing
businesses. These costs consisted primarily of severance and
related employee benefit obligations, consolidation of
facilities and impairment of certain existing assets. At
October 31, 1999, substantially all of the Company's
obligations relative to the integration have been satisfied.
>NOTE 6.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consisted of the
following:
<TABLE>
<CAPTION>
<S> <C> <C>
October 31 (in thousands) 1999 1998
Goodwill $1,616,900 $1,687,115
Accumulated amortization (207,415) (151,304)
---------------------------
Goodwill, net $1,409,485 $1,535,811
---------------------------
Publishing rights $ 238,861 $ 233,775
Acquired intangible assets 96,400 96,400
---------------------------
335,261 330,175
Accumulated amortization (282,723) (261,133)
---------------------------
Other intangibles, net $ 52,538 $ 69,042
---------------------------
</TABLE>
As of October 31, 1999, goodwill consists of approximately
$739.9 million amortized over 40 years, $388.6 million over 30
years and $488.4 million over periods of 25 years or less. As
of October 31, 1998, goodwill consists of approximately $776.9
million amortized over 40 years, $414.6 million over 30 years
and $495.6 million over periods of 25 years or less.
Amortization expense was $76.0 million in 1999, $76.8 million
in 1998 and $82.9 million in 1997.
[END PAGE 37]
[START PAGE 38]
>NOTE 7.
OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
October 31 (in thousands) 1999 1998
Accrued salaries and related charges $ 82,676 $103,291
Self-insurance reserves 27,119 29,458
Unearned subscription income 87,080 84,357
Accrued real estate and related charges 54,426 68,829
Accrued interest 26,561 26,003
Other 205,306 228,684
-------------------------
Total $483,168 $540,622
-------------------------
</TABLE>
>NOTE 8.
NOTES AND DEBENTURES
Notes and debentures of Harcourt General at October 31, 1999
and 1998 were as follows:
<TABLE>
<CAPTION>
(in thousands) Interest Rate Maturity 1999 1998
<S> <C> <C> <C> <C>
Convertible subordinated debentures 6.5% May 2011 $ 45,795 $ 48,640
Revolving credit facility Variable Jul. 2002 370,000 475,000
Senior debt 8.25% Jun. 2002 149,626 149,560
Senior debt 6.7% Jul. 2007 149,676 149,634
Senior debt 8.88% Jun. 2022 148,037 148,018
Senior debt 7.2% Jul. 2027 199,597 199,582
Senior debt 7.3% Jul. 2097 149,443 149,437
Subordinated notes 9.5% Mar. 2000 125,000 124,971
Term bank loan Variable Oct. 2004 19,630 -
--------------------------------------------------
Total notes and debentures $1,356,804 $1,444,842
--------------------------------------------------
</TABLE>
In connection with the acquisition of NEC, the Company
unconditionally assumed all of the obligations of NEC under its
6.5% Convertible Subordinated Debentures due 2011 and the
related Indenture dated May 15, 1986, as amended. The NEC
Debentures are subject to a mandatory annual redemption of $2.9
million in principal and, as a result of the acquisition of NEC
by the Company, are convertible at the option of the holder
into $21.00 for every $25.00 in principal of NEC Debentures.
The Company has a revolving credit facility with 18 banks,
pursuant to which the Company may borrow up to $750 million.
The facility, which expires in July 2002, may be terminated by
the Company at any time on three business days' notice. The
rate of interest payable (5.7% at October 31, 1999) is
determined according to the senior debt rating of the Company
and one of four pricing options selected by the Company. At
October 31, 1999, $370.0 million in borrowings were outstanding
under the facility. The revolving facility contains covenants
which require the Company to maintain certain leverage and
interest coverage ratios.
The subordinated notes with a maturity date of March 2000
have been classified as long-term, because the Company has the
intent and ability to refinance these obligations using the
revolving credit facility.
In October 1999, a subsidiary of the Company entered into a
Canadian dollar denominated term bank loan in the amount of US
$19.6 million that bears interest according to one of two
pricing options selected by the Company (6.2% at October 31,
1999). The loan is guaranteed by the Company and may be prepaid
at any time upon three business days' notice without penalty or
premium.
In anticipation of the Company's August 1997 debt offering,
the Company entered into several forward interest rate lock
agreements which established weighted-average effective
interest rates of 6.83% for the 10-year notes, 7.29% for the 30-
year debentures and 7.40% for the 100-year debentures. In
August 1997, the Company paid $20.5 million to settle such
agreements, which is being amortized over the terms of the
respective debt.
The aggregate maturities of notes and debentures are as
follows: fiscal 2000 - $125.0 million; fiscal 2001 - $2.9
million; fiscal 2002 - $522.5 million; fiscal 2003 - $2.9
million; fiscal 2004 - $22.5 million; all years thereafter -
$681.0 million.
[END PAGE 38]
[START PAGE 39]
>NOTE 9.
SHAREHOLDERS' EQUITY
> Series A Cumulative Convertible Stock
As of October 13, 1999, each share of Series A Stock is
convertible into 1.31 shares of Common Stock and is entitled to
a quarterly dividend equal to the quarterly dividend on each
share of Common Stock multiplied by 1.31, plus $.0075. Each
share of Series A Stock is non-voting and is entitled to a
liquidation preference of $5.00 plus any accrued but unpaid
dividends. Liquidation proceeds remaining after the
satisfaction of such preference and the payment of $4.55 per
share of Common Stock would be distributed ratably to the
holders of Common Stock and Series A Stock. There were 10
million authorized shares of Series A Stock at October 31,
1999.
> Class B Stock and Common Stock
The Class B Stock is not transferable except to family members
and related entities but is convertible at any time on a share-
for-share basis into Common Stock. The holders of Class B Stock
are entitled to cash dividends which are 10 percent lower per
share than the cash dividends paid on each share of Common
Stock. The Class B Stock and the Common Stock are each entitled
to vote separately as a class on charter amendments, mergers,
consolidations and certain extraordinary transactions which are
required to be approved by shareholders under Delaware law.
Under certain circumstances, the holders of Class B Stock have
the right to cast 10 votes per share for the election of
directors. There were 80 million and 150 million shares of
Class B Stock and Common Stock authorized for issuance at
October 31, 1999, respectively.
> Class C Stock
On September 15, 1999, the shareholders voted to authorize a
new class of common stock, Class C Stock, which is entitled to
one-tenth (1/10) of one vote per share on all matters and to
cash dividends equal to any cash dividends payable on the
Common Stock. There were 100 million authorized shares of Class
C Stock at October 31, 1999, none of which has been issued.
> Common stock incentive plans
The Company has established common stock incentive plans
allowing for the granting of stock options, restricted stock
and other stock-based awards to its employees. The Company
applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. The Company has
adopted the disclosure-only provision of SFAS 123, "Accounting
for Stock-Based Compensation."
Had compensation cost for the Company's common stock
incentive plans been determined based on the fair value at the
grant dates for awards under the plans consistent with the
method of SFAS 123, the Company's earnings (loss) from
continuing operations and earnings (loss) per share from
continuing operations for the years ended October 31, 1999,
1998 and 1997 would have been as follows:
<TABLE>
<CAPTION>
(in thousands except for per share amounts) 1999 1998 1997
Earnings (loss) from continuing operations:
<S> <C> <C> <C>
As reported $120,348 $87,601 ($197,775)
Pro forma $116,380 $86,655 ($198,160)
Basic earnings (loss) per share from continuing operations:
As reported $ 1.68 $ 1.22 ($ 2.81)
Pro forma $ 1.63 $ 1.21 ($ 2.81)
Diluted earnings (loss) per share from continuing operations:
As reported $ 1.67 $ 1.21 ($ 2.81)
Pro forma $ 1.61 $ 1.20 ($ 2.81)
</TABLE>
The effects on pro forma net earnings (loss) and earnings
(loss) per share of expensing the estimated fair value of
stock options are not necessarily representative of the
effects on reported net earnings (loss) for future years
due to such factors as the vesting period of the stock
options and the potential for issuance of additional stock
options in future years. In addition, the disclosure
requirements of SFAS 123 are presently applicable only to
options granted subsequent to October 30, 1995.
Options outstanding at October 31, 1999 were granted at
prices (not less than 100 percent of the fair market value
on the date of the grant) varying from $13.35 to $46.24.
In conjunction with the spin-off of the specialty retail
operations on October 22, 1999, the number of shares and
the exercise price of each option outstanding were
modified so that the aggregate fair value of the options
before the spin-off was preserved as of the date of the
spin-off. Accordingly, no charge was recorded in the
consolidated financial statements
[END PAGE 39]
[START PAGE 40]
relative to this modification. Options generally vest
ratably over five years and expire after ten years. There
were 224 employees with options outstanding at October 31,
1999. For all outstanding options at October 31, 1999, the
weighted-average exercise price was $38.61 and the
weighted-average remaining contractual life was
approximately 7.2 years. At October 31, 1999, there were
3.9 million shares of Common Stock available for issuance
under the plan.
The fair value of each option grant is estimated on the date
of the grant using the Black-Scholes option pricing model
with the following assumptions used for grants in 1999, 1998
and 1997, respectively:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Expected life (years) 7 7 7
Expected dividend yield 2.2% 1.7% 1.5%
Expected volatility 26.74% 24.24% 22.16%
Risk-free interest rate 6.0% 5.5% 7.0%
</TABLE>
A summary of the status of the Company's stock options as of
October 31, 1999, 1998, and 1997 and changes during the years
ended on those dates is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year 722,552 $41.66 492,494 $34.08 447,186 $28.84
Granted 383,500 50.57 264,900 54.25 107,350 48.13
SAR Surrenders - - (13,205) 29.24 (5,917) 32.29
Exercised (46,777) 27.43 (14,457) 23.50 (51,522) 17.55
Canceled (37,840) 51.17 (7,180) 45.34 (4,603) 39.77
Adjustment for spin-off of
specialty retail operations 176,958 N/A - - - -
-------------------- ----------------- -----------------
Options outstanding at end of year 1,198,393 $38.61 722,552 $41.66 492,494 $34.08
-------------------- ----------------- -----------------
Options exercisable at end of year 416,283 $29.98 287,922 $29.58 236,151 $26.32
-------------------- ----------------- -----------------
</TABLE>
The weighted-average fair value of options granted in 1999, 1998 and 1997 was
$15.52, $17.09 and $17.51, respectively.
The following table summarizes information about the Company's stock options
as of October 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Range of Shares Weighted-Average Weighted-Average Shares Weighted-Average
Exercise Outstanding Remaining Contractual Exercise Outstanding Exercise
Prices at 10/31/99 Life Price at 10/31/99 Price
<C> <C> <C> <C> <C> <C>
$13.35-$19.94 87,197 1.6 $15.90 87,197 $15.90
$24.48-$28.34 191,427 4.3 $27.19 175,266 $27.09
$35.69-$40.97 108,352 6.9 $36.77 49,711 $35.69
$41.02 115,561 7.1 $41.02 46,151 $41.02
$43.26 409,817 9.1 $43.26 - -
$46.24 286,039 8.1 $46.24 57,958 $46.24
- ----------------------------------------------------------------------- -----------------------------
$13.35-$46.24 1,198,393 7.2 $38.61 416,283 $29.98
- ----------------------------------------------------------------------- -----------------------------
</TABLE>
[END PAGE 40]
[START PAGE 41]
>NOTE 10.
INCOME TAXES
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
Years ended October 31 (in thousands) 1999 1998 1997
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Statutory tax expense (benefit) $64,831 35 $46,547 35 ($78,030) (35)
State income taxes,
net of federal tax effect 2,031 1 1,381 1 1,381 1
In-process research and development - - - - 60,900 28
Dividends received exclusion (754) (1) - - (1,232) (1)
Other permanent items 2,427 2 5,034 4 (1,122) (1)
Change in valuation allowance - - (7,010) (5) (7,066) (3)
---------------------------------------------------------
Income tax expense (benefit)
from continuing operations $68,535 37 $45,952 35 ($25,169) (11)
---------------------------------------------------------
</TABLE>
Income tax expense (benefit) was as follows:
<TABLE>
<CAPTION>
Years ended October 31 (in thousands) 1999 1998 1997
CURRENT
<S> <C> <C> <C>
Federal $19,646 $2,308 $40,013
State 3,125 (4,998) 2,125
Foreign 6,261 8,906 5,158
DEFERRED
Federal 38,923 37,237 (66,844)
State 580 2,499 (5,621)
---------------------------
Income tax expense (benefit) $68,535 $45,952 ($25,169)
---------------------------
</TABLE>
Significant components of the net deferred tax assets stated on a gross basis
were as follows:
<TABLE>
<CAPTION>
October 31 (in thousands) 1999 1998
<S> <C> <C>
GROSS DEFERRED TAX ASSETS
Loss and credit carry forwards $ 33,062 $ 71,212
Accrued liabilities and reserves 57,518 84,451
Employee benefits 21,807 24,452
Postretirement health care benefits 32,892 34,726
Inventories 43,468 36,059
Difference in basis of assets acquired 6,652 14,508
-------------------
Total gross deferred tax assets 195,399 265,408
Valuation allowance (5,824) (60,384)
-------------------
Deferred tax assets, net of allowance $ 189,575 $ 205,024
-------------------
GROSS DEFERRED TAX LIABILITIES
Property, equipment, prepublication costs and intangibles $ 70,013 $ 83,036
Pension and employee benefits accrual 10,710 14,133
Difference in basis of assets acquired 64,233 77,395
Accrued liabilities and reserves 19,849 20,747
-------------------
Total gross deferred tax liabilities 164,805 195,311
-------------------
Net deferred tax assets $ 24,770 $ 9,713
-------------------
</TABLE>
[END PAGE 41]
[START PAGE 42]
The Company has recorded a valuation allowance for certain
temporary differences for which it is likely, at this time,
that the Company will not receive future tax benefit. During
the third quarter of fiscal 1999, 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 because of tax strategies which
became available in the third quarter and the resultant
potential for taxable income in the carry forward periods.
Realization of the remaining deferred tax assets is dependent
on generating sufficient future taxable income. Although
realization is not assured, management believes it is more
likely than not that the remaining net deferred tax assets will
be realized.
At October 31, 1999, the Company had federal and foreign net
operating loss carry forwards of approximately $90.0 million
expiring at various dates through 2011. In addition, the
Company had available $1.3 million of tax credit carry
forwards, with no expiration date, which may be utilized to
offset future regular tax liabilities.
>NOTE 11.
INVESTMENT AND OTHER INCOME
Investment and other income consisted of the following:
<TABLE>
<CAPTION>
Years ended October 31 (in thousands) 1999 1998 1997
<S> <C> <C> <C>
Interest income $ 2,957 $ 4,880 $24,746
Dividend income - - 4,238
Other income 9,834 - -
---------------------------
Total investment and other income $12,791 $ 4,880 $28,984
---------------------------
</TABLE>
Other income in 1999 includes a gain of $3.0 million from the sale of
securities and a gain of $6.4 million from the sale of the Conviser CPA Review
Course.
> NOTE 12.
COMMITMENTS AND CONTINGENCIES
> Leases
The Company has long-term operating leases primarily for
offices, distribution centers, other facilities and equipment.
Leases are generally for periods of up to 30 years, with
renewal options at fixed rentals.
Rent expense under operating leases for the years ended
October 31 was $78.5 million in 1999, $60.4 million in 1998 and
$52.3 million in 1997.
Assuming renewal options are not exercised, the future
minimum rental payments are as follows: fiscal 2000 - $73.5
million; fiscal 2001 - $58.2 million; fiscal 2002 - $45.5
million; fiscal 2003 - $30.9 million; fiscal 2004 - $22.4
million; all years thereafter - $88.4 million.
> Theatre operations
In December 1993, the Company spun off its theatre operations
to GC Companies, Inc. (GCC), which is listed on the New York
Stock Exchange under the symbol GCX. In connection with the
distribution, GCC and Harcourt General entered into various
agreements which govern their ongoing relationship.
Under the Reimbursement and Security Agreement, GCC granted
to Harcourt General a security interest in the stock of certain
of its theatre subsidiaries in order to secure GCC's obligation
to indemnify Harcourt General from any losses which Harcourt
General may incur due to its secondary liability on theatre
leases which were transferred to GCC as part of the spin-off.
In addition, GCC has agreed to certain financial covenants
designed to protect Harcourt General from incurring such
losses. As of October 31, 1999, GCC's aggregate future rental
payments due under such theatre leases amounted to
approximately $402.5 million.
>Litigation
The Company is involved in various suits and claims in the
ordinary course of business. Management does not believe that
the disposition of such suits and claims will have a material
adverse effect on its financial position or operations.
[END PAGE 42]
[START PAGE 43]
>NOTE 13.
PENSION PLANS AND POSTRETIREMENT HEALTH CARE BENEFITS
In fiscal 1999, the Company adopted SFAS 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits."
The provisions of SFAS 132 provide new disclosure requirements
for pensions and other postretirement benefit plans, but do not
change the measurement or recognition of these plans. SFAS 132
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable and requires
additional information on the changes in benefit obligations
and fair values of plan assets.
The Company has a noncontributory defined benefit pension
plan covering substantially all full-time employees. The
Company also sponsors an unfunded supplemental executive
retirement plan which provides certain employees additional
pension benefits. Benefits under the plans are based on the
employees' years of service and compensation over defined
periods of employment. When funding is required, the Company's
policy is to contribute amounts that are deductible for federal
income tax purposes. Pension plan assets consist primarily of
equity and fixed income securities.
Retirees and active employees hired prior to March 1, 1989
are eligible for certain limited postretirement health care
benefits if they have met certain service and minimum age
requirements. The cost of these benefits is accrued during the
years in which an employee provides services.
Components of net pension expense were as follows:
<TABLE>
<CAPTION>
Years ended October 31 (in thousands) 1999 1998 1997
<S> <C> <C> <C>
Service cost $12,515 $ 8,053 $ 7,490
Interest cost on projected benefit obligation 7,589 5,930 5,022
Expected return on assets (9,745) (8,171) (7,140)
Net amortization and deferral (540) (584) (585)
---------------------------
Net pension expense $ 9,819 $ 5,228 $ 4,787
---------------------------
The periodic postretirement health care benefit cost was as follows:
Years ended October 31 (in thousands) 1999 1998 1997
Service cost $ 425 $ 405 $ 377
Interest cost on accumulated benefit obligation 2,293 2,199 2,157
Net amortization and deferral (1,399) (1,694) (1,810)
---------------------------
Net periodic cost $ 1,319 $ 910 $ 724
---------------------------
</TABLE>
The changes in the benefit obligations and the reconciliations of the funded
status of the Company's plans to the consolidated balance sheets were as
follows:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
October 31 (in thousands) 1999 1998 1999 1998
Change in benefit obligations:
<S> <C> <C> <C> <C>
Benefit obligations at beginning of year $ 93,562 $ 71,485 $ 33,490 $ 29,896
Service cost 12,515 8,053 425 405
Interest 7,589 5,930 2,293 2,199
Acquisitions 12,719 - - -
Benefits paid (3,775) (4,011) (2,593) (2,356)
Actuarial loss (gain) (8,432) 12,105 (3,541) 3,346
-----------------------------------------
Benefit obligation at end of year $114,178 $ 93,562 $ 30,074 $ 33,490
-----------------------------------------
</TABLE>
[END PAGE 43]
[START PAGE 44]
Change in plan assets:
<TABLE>
<CAPTION>
(in thousands) Pension Plans
1999 1998
<S> <C> <C>
Fair value of plan assets at beginning of year $111,264 $105,756
Actual return on assets 11,697 9,446
Company contributions 86 73
Acquisitions 9,758 -
Benefits paid (3,775) (4,011)
-------------------
Fair value of plan assets at end of year $129,030 $111,264
-------------------
</TABLE>
<TABLE>
<CAPTION>
Funded status:
(in thousands) Pension Plans Postretirement Plans
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Fair value of plan assets greater (less) than benefit obligation $ 14,852 $ 17,702 ($ 30,074) ($33,490)
Unrecognized net actuarial gain (27,795) (17,336) (41,274) (39,283)
Unrecognized prior service cost 583 597 (150) -
Unrecognized net obligation at transition (627) (1,255) - -
-----------------------------------------------
Liability recognized in the consolidated balance sheets ( $12,987) ($ 292) ($ 71,498)($ 72,773)
-----------------------------------------------
</TABLE>
Weighted-average assumptions:
<TABLE>
<CAPTION>
Pension Benefits
1999 1998
<S> <C> <C>
Discount rate 7.5% 7.0%
Expected long-term rate of return on plan assets 9.0% 9.0%
Rate of future compensation increases 6.0% 6.0%
</TABLE>
The weighted-average assumptions for postretirement health care
benefits included a discount rate of 7.5 percent in 1999 and
7.0 percent in 1998.
For measurement purposes, a 7.0 percent annual rate of
increase in the per capita cost of covered care benefits was
assumed for fiscal 2000. The rate was assumed to decrease
gradually to 5.0 percent in fiscal 2002 and remain at that
level thereafter.
If the health care trend rate were increased one percentage
point, postretirement health care benefit costs for the year
ended October 31, 1999 would have been $.2 million higher, and
the accumulated postretirement benefit obligation as of October
31, 1999 would have been $2.4 million higher. If the health
care trend rate was decreased one percentage point,
postretirement health care benefit costs for the year ended
October 31, 1999 would have been $.2 million lower, and the
accumulated postretirement benefit obligation as of October 31,
1999 would have been $2.1 million lower.
The Company has a qualified defined contribution 401(k) plan
which covers substantially all employees. Employees make
contributions to the plan, the Company matches 25 percent
of an employee's contribution up to a maximum of six percent of
the employee's compensation. Company contributions for the
years ended October 31, 1999, 1998 and 1997 were $7.0 million,
$5.9 million and $4.6 million, respectively. The Company also
has an employee stock ownership plan which is non-contributory.
[END PAGE 44]
[START PAGE 45]
>NOTE 14.
FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial
instruments are as reported and disclosed in the consolidated
financial statements, and as discussed below.
> Debt
The fair values of the Company's senior debt, subordinated
notes and convertible subordinated debentures were $927.7
million and $983.7 million on October 31, 1999 and 1998,
respectively, and were based upon quoted prices and comparable
publicly-traded issues. The corresponding book values of the
Company's senior debt, subordinated notes and convertible
subordinated debentures were $967.2 million and $969.8 million
on October 31, 1999 and 1998, respectively.
> NOTE 15.
EARNINGS PER SHARE
Pursuant to the provisions of SFAS 128, "Earnings per Share,"
the earnings (loss) from continuing operations and the number
of weighted-average shares used in computing basic and diluted
earnings (loss) per share (EPS) are as follows:
<TABLE>
<CAPTION>
Years ended October 31 (in thousands) 1999 1998 1997
<S> <C> <C> <C>
Earnings (loss) from continuing operations $ 120,348 $87,601 ($ 197,775)
Less: dividends on Series A Cumulative Convertible Stock (816) (881) (944)
------------------------------
Earnings (loss) from continuing operations for computation
of basic EPS 119,532 86,720 (198,719)
Add: dividends on assumed conversion of Series A
Cumulative Convertible Stock 816 881 -
------------------------------
Earnings (loss) from continuing operations for computation
of diluted EPS $ 120,348 $87,601 ($198,719)
------------------------------
Shares for computation of basic EPS from continuing operations 71,103 70,837 70,812
Add: assumed conversion of Series A Cumulative Convertible Stock 987 1,182 -
Add: effect of assumed option exercises 78 122 -
------------------------------
Shares for computation of diluted EPS from continuing operations 72,168 72,141 70,812
------------------------------
</TABLE>
For the year ended October 31, 1999, options to purchase
831,329 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. For the year ended October 31, 1998, options to
purchase 262,800 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. For the year ended October 31, 1997, options to
purchase 492,000 shares of common stock and the assumed
conversion of 1,125,000 shares of Series A Cumulative
Convertible Stock were not included in the computation
diluted EPS because of the net loss in that year.
[END PAGE 45]
[START PAGE 46]
> NOTE 16.
COMPARATIVE QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
1999
<CAPTION>
(in millions except for per share data) Quarter 1 Quarter 2 Quarter 3 Quarter 4 Full Year
<S> <C> <C> <C> <C> <C>
Revenues $ 387.6 $ 378.4 $ 693.0 $ 683.6 $ 2,142.6
-------------------------------------------------
Gross profit $ 244.0 $ 235.7 $ 505.4 $ 460.2 $ 1,445.3
-------------------------------------------------
Earnings (loss) from continuing operations ($ 32.3) ($ 39.4) $ 122.2 $ 69.8 $ 120.3
Earnings from discontinued specialty retail operations 12.8 15.8 18.3 16.6 63.5
-------------------------------------------------
Net earnings (loss) ($ 19.5) ($ 23.6) $ 140.5 $ 86.4 $ 183.8
-------------------------------------------------
Basic amounts per share
Continuing operations ($ .46) ($ .55) $ 1.71 $ .98 $ 1.68
Discontinued specialty retail operations .18 .22 .26 .23 .89
-------------------------------------------------
Basic amounts per share ($ .28) ($ .33) $ 1.97 $ 1.21 $ 2.57
-------------------------------------------------
Diluted amounts per share
Continuing operations ($ .46) ($ .55) $ 1.70 $ .97 $ 1.67
Discontinued specialty retail operations .18 .22 .25 .23 .88
-------------------------------------------------
Diluted amounts per share ($ .28) ($ .33) $ 1.95 $ 1.20 $ 2.55
-------------------------------------------------
Dividends per share
Common Stock $ .20 $ .20 $ .20 $ .21 $ .81
-------------------------------------------------
Class B Stock $ .18 $ .18 $ .18 $ .189 $ .729
-------------------------------------------------
Series A Stock $.2275 $ .2275 $ .2275 $ .2385 $ .9210
-------------------------------------------------
1998
(in millions except for per share data) Quarter 1 Quarter 2 Quarter 3 Quarter 4 Full Year
Revenues $320.1 $ 328.4 $ 613.9 $ 599.5 $1,861.9
-------------------------------------------------
Gross profit $194.1 $ 199.2 $ 423.3 $ 416.8 $1,233.4
-------------------------------------------------
Earnings (loss) from continuing operations ($ 31.0) ($ 34.4) $ 98.8 $ 54.2 $ 87.6
Earnings from discontinued
specialty retail operations 16.6 17.2 12.0 8.2 54.0
-------------------------------------------------
Net earnings (loss) ($ 14.4) ($ 17.2) $ 110.8 $ 62.4 $141.6
-------------------------------------------------
Basic amounts per share
Continuing operations ($ .44) ($ .49) $ 1.39 $ .76 $ 1.22
Discontinued specialty retail operations .23 .24 .17 .12 .77
-------------------------------------------------
Basic amounts per share ($ .21) ($ .25) $ 1.56 $ .88 $ 1.99
-------------------------------------------------
Diluted amounts per share
Continuing operations ($ .44) ($ .49) $ 1.37 $ .75 $ 1.21
Discontinued specialty retail operations .23 .24 .17 .12 .75
-------------------------------------------------
Diluted amounts per share ($ .21) ($ .25) $ 1.54 $ .87 $ 1.96
Dividends per share
Common Stock $ .19 $ .19 $ .19 $ .20 $ .77
-------------------------------------------------
Class B Stock $ .171 $ .171 $ .171 $ .18 $ .693
-------------------------------------------------
Series A Stock $.2165 $ .2165 $ .2165 $ .2275 $.8770
-------------------------------------------------
</TABLE>
[END PAGE 46]
[START PAGE 47]
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS AND SHAREHOLDERS
Harcourt General, Inc.
Chestnut Hill, Massachusetts
We have audited the consolidated balance sheets of Harcourt
General, Inc. and its subsidiaries as of October 31, 1999 and
1998 and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years
in the period ended October 31, 1999. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion the consolidated financial statements referred
to above present fairly, in all material respects, the
financial position of Harcourt General, Inc. and its
subsidiaries as of October 31, 1999 and 1998 and the results of
their operations and their cash flows for each of the three
years in the period ended October 31, 1999 in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
December 9, 1999
STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Harcourt General, Inc. and its subsidiaries
is responsible for the integrity and objectivity of the
financial and operating information contained in this Annual
Report, including the consolidated financial statements covered
by the Independent Auditors' Report. These statements were
prepared in conformity with generally accepted accounting
principles and include amounts that are based on the best
estimates and judgments of management.
The Company maintains a system of internal financial controls
which provides management with reasonable assurance that
transactions are recorded and executed in accordance with its
authorization, that assets are properly safeguarded and
accounted for, and that records are maintained so as to permit
preparation of financial statements in accordance with
generally accepted accounting principles. This system includes
written policies and procedures, an organizational structure
that segregates duties, and a comprehensive program of periodic
audits by the internal auditors. The Company has policies and
guidelines which require employees to maintain a high level of
ethical standards.
In addition, the Audit Committee of the Board of Directors,
consisting solely of outside directors, meets periodically with
management, the internal auditors and the independent auditors
to review internal accounting controls, audit results and
accounting principles and practices, and to recommend the
selection of independent auditors to the Board of Directors.
/s/ John R. Cook
John R. Cook
Senior Vice President and Chief Financial Officer
/s/ Catherine N. Janowski
Catherine N. Janowski
Vice President and Controller
[END PAGE 47]
[START PAGE 48}
FIVE YEAR SUMMARY (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands except for per share amounts) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
REVENUES $2,142,622 $1,861,907 $1,481,748 $1,214,916 $1,146,487
OPERATING EARNINGS (LOSS) $ 279,649 $ 214,550($ 183,939) $ 188,448 $ 171,771
Investment and other income 12,791 4,880 28,984 27,329 39,945
Interest expense (107,210) (86,436) (67,989) (54,654) (54,777)
---------------------------------------------------------
EARNINGS (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
AND MINORITY INTEREST 185,230 132,994 (222,944) 161,123 156,939
Income tax benefit (expense) (68,535) (45,952) 25,169 (44,516) (44,124)
Minority interest in net losses
of subsidiaries 3,653 559 - - -
---------------------------------------------------------
EARNINGS (LOSS) FROM
CONTINUING OPERATIONS 120,348 87,601 (197,775) 116,607 112,815
Discontinued specialty retail operations, net 63,482 54,015 82,653 74,244 53,068
---------------------------------------------------------
NET EARNINGS (LOSS) $ 183,830 $ 141,616($ 115,122) $ 190,851 $ 165,883
---------------------------------------------------------
Depreciation and amortization $ 255,491 $ 243,121 $ 281,518 $ 120,014 $ 126,650
Capital expenditures $ 226,549 $ 194,137 $ 142,002 $ 156,919 $ 126,539
Total assets $2,950,105 $3,389,878 $2,816,107 $2,315,184 $2,188,409
Total long-term liabilities $1,595,592 $1,704,430 $1,186,018 $ 567,263 $ 678,031
BASIC AMOUNTS PER
COMMON SHARE:
Continuing operations $ 1.68 $ 1.22($ 2.81) $ 1.62 $ 1.49
Discontinued specialty retail operations 0.89 0.77 1.17 1.04 0.71
---------------------------------------------------------
Basic net earnings (loss) $ 2.57 $ 1.99($ 1.64) $ 2.66 $ 2.20
---------------------------------------------------------
DILUTED AMOUNTS PER
COMMON SHARE:
Continuing operations $ 1.67 $ 1.21($ 2.81) $ 1.60 $ 1.47
Discontinued specialty retail operations 0.88 0.75 1.17 1.02 0.69
---------------------------------------------------------
Diluted net earnings (loss) $ 2.55 $ 1.96($ 1.64) $ 2.62 $ 2.16
---------------------------------------------------------
Dividends paid on common stock $ .81 $ .77 $ .73 $ .69 $ .65
---------------------------------------------------------
</TABLE>
[END PAGE 48]
[START PAGE 50]
SHAREHOLDER INFORMATION
Requests for general information or published financial
information can be made in writing to the Corporate Relations
Department, Harcourt General, Inc., 27 Boylston Street, Chestnut
Hill, MA 02467. Telephone: (617) 232-8200. To request printed
financial information or leave a message for the Company's
Transfer Agent, individuals may call The Shareholder Line at
(800) 225-9194, Extension 2345. News and information about
Harcourt General, Inc. is also available on the Internet's World
Wide Web at www.harcourtgeneral.com.
Automatic dividend reinvestment and cash stock purchase plan
The Plan provides shareholders with a convenient way to purchase
Common shares by reinvesting their Common and Series A cash
dividends and/or by investing additional cash amounts. The
Company will absorb all brokerage and agency fees for stock
purchased in connection with the Plan. For further information,
please call The Shareholder Line or write to: Harcourt General,
Inc., c/o BankBoston, N.A., Automatic Dividend Reinvestment Plan,
Post Office Box 8040, Boston, MA 02266.
Transfer agent and registrar for Common, Series A and Class B
stock
BankBoston, N.A.
c/o EquiServe Limited Partnership
Shareholder Services Division
Post Office Box 8040
Mail Stop 45-01-05
Boston, MA 02266-8040
(800) 730-4001
Form 10-K
The Company's Form 10-K as filed with the Securities and Exchange
Commission is available upon written request to the Corporate
Relations Department of the Company.
Annual meeting
The Annual Meeting of Shareholders will be held on Friday, March
10, 2000 at 10:00 a.m. at the Company's Corporate Headquarters,
27 Boylston Street, Chestnut Hill, Massachusetts.
Stock information
Harcourt General's Common Stock and Series A Cumulative
Convertible Stock are traded on the New York Stock Exchange under
the symbols H and HPRA, respectively. The following table
indicates the quarterly price range of the Common Stock and
Series A Stock for the past two fiscal years. Following an
adjustment related to the spin-off of The Neiman Marcus Group,
the Series A Shares are convertible into Common Stock on a 1:1.31
basis.
<TABLE>
<CAPTION>
Common Stock* 1999 1998
Quarter High Low High Low
<S> <C> <C> <C> <C>
First $54.94 $47.63 $55.38 $50.75
Second $50.00 $43.94 $56.88 $50.88
Third $54.00 $46.31 $61.69 $52.00
Fourth $47.13 $36.75 $56.13 $42.56
Series A Stock 1999 1998
Quarter High Low High Low
First $60.00 $55.00 $61.00 $55.75
Second $51.25 $48.13 $61.00 $59.00
Third $56.75 $49.75 $67.50 $56.50
Fourth $52.00 $45.00 $61.25 $45.00
*-With the exception of the fourth quarter
"low" price in fiscal 1999, these stock prices
are prior to the tax-free distribution of
shares in The Neiman Marcus Group, which was
effective on October 22, 1999.
</TABLE>
Harcourt General had 7,121 and 7,555 Common shareholders of
record at October 31, 1999 and 1998, respectively, and 435 and
494 Series A shareholders of record at October 31, 1999 and 1998,
respectively. Each share of Series A Stock is convertible into
1.31 shares of Common Stock at any time.
Corporate Address
Harcourt General, Inc.
27 Boylston Street
Chestnut Hill, MA 02467
(617) 232-8200
Harcourt General is an Equal Opportunity Employer
[END PAGE 50]
EXHIBIT 21.1
HARCOURT GENERAL, INC.
SUBSIDIARIES
JURISDICTION
OF
SUBSIDIARY INCORPORATION
A.K.R. Conseil France
A.S.I. (UK) Ltd. United Kingdom
Academic Press Limited England
Alison Licensing, Inc. Delaware
Assessment Systems, Inc. Delaware
Bailliere Tindall Limited England
California College for Health Sciences California
Career Care, Inc. Delaware
Cyberna Ltee Montreal
DBM Australia Limited Delaware
DBM Belgium Belgium
DBM Career Management (Singapore) Pte Ltd Singapore
DBM France, S.A. France
DBM International, Inc. Delaware
DBM New Zealand Limited New Zealand
DBM Training and Consulting, Inc. Delaware
Deltak Ges.m.b.H Austria
Drake Beam Morin-Canada, Inc. Ontario
Drake Beam Morin Career Management Limited Hong Kong
Drake Beam Morin, Inc. Delaware
Drake Beam Morin Montreal, Inc. Montreal
Drake Beam Morin plc England and Wales
Educalivres Group Inc. - Group Educalivres Inc. Quebec
Educatief B.V. Netherlands
Edunetics Corporation Delaware
Edunetics International B.V. Netherlands
Edunetics Limited Israel
English Language Institute, Inc. Delaware
Eurodidakt B.V. Netherlands
Eurodidakt Holding B.V. Netherlands
Executive In Residence, Inc. New York
Foundation for Marine Animal Husbandry, Inc. Florida
GMN, Inc. Delaware
Grune & Stratton Limited England
HG Land Co., Inc. Delaware
HGI Investment Trust Massachusetts
HGI Securities Corp. Massachusetts
HRW and WBS Canada Corporation, Inc. New York
HRW Distributors, Inc. Delaware
Harcourt, Inc. Delaware
Harcourt Anytime Anywhere Learning Pty Ltd England
Harcourt Asia Pte Ltd Singapore
Harcourt Australia Pty Limited Australia
Harcourt Brace Andina, S.A. Columbia
Harcourt Brace Argentina, S.A. Argentina
Harcourt Brace de Espana, S.A. Spain
Harcourt Brace de Mexico, S.A. de C.V. Mexico
Harcourt Brace de Venezuela, C.A. Venezuela
Harcourt Brace & Company India Pvt. Ltd. India
Harcourt Canada, Ltd. Ontario
Harcourt FSC, Inc. US Virgin
Islands
Harcourt Hong Kong Limited Hong Kong
Harcourt India Pvt Ltd India
Harcourt Learning Direct (Australasia) Pty Ltd Australia
Harcourt New Zealand Pty Limited Australia
Harcourt Publishers Limited England
Harcourt Japan, Inc. Japan
Harcourt Professional Education Group, Inc. Delaware
Harcourt Publishers International, Inc. Delaware
Harcourt General Charitable Foundation, Inc. Massachusetts
Harcourt General Services, Inc. Delaware
Harcourt Learning Direct, Inc. Massachusetts
Holt, Rinehart and Winston Limited England
Human Nature, Inc. Delaware
ICS Acquisition Company Florida
ICS Intangibles Holding Company California
ICS Learning Systems, Inc. Delaware
Innovation Research, Inc. Delaware
International Correspondence Schools, Inc. Pennsylvania
International Correspondence Schools Limited England
International Correspondence Schools New Zealand
(New Zealand) Limited
International Correspondence Schools England
(Overseas) Limited
Intertext Group Limited England
Intext International Sales Corp. Delaware
James Martin Insight, Inc. Illinois
KO Corporation Delaware
Kentucky School of Technology, Inc. Delaware
Knowledge Communication, Inc. Delaware
Laureate Canada Inc. Ontario
Louisiana CPA Review, Inc. Delaware
M-Mash, Inc. Colorado
Miller Comprehensive CPA Review, Inc. Delaware
Morgan Kaufmann Publishers, Incorporated California
Mosby Holdings Corp. Delaware
Mosby, Inc. Missouri
Mosby International Limited United Kingdom
Mosby Italia Srl Italy
Mosby Parent Corp. Delaware
Mosby Publishers Australia Pty Limited Australia
NBD Incorporated Delaware
NETG Applied Learning GmbH Germany
NETG Applied Learning GmbH Austria
NETG Direct, Inc. Delaware
NETG Harcourt AB Sweden
NETG Holding, Inc. Delaware
NETg, Inc. Delaware
NETG Limited United Kingdom
NETG S.A. France
N.T.I. Nederlands Talen Instituut B.V. Netherlands
National Education Centers, Inc. California
National Education Corporation Delaware
National Education Credit Corporation California
National Education Enterprises, Inc. California
National Education International Corp. California
National Education Payroll Corp. California
National Education Training Group, Inc. Nevada
National Learning Systems, Inc. Delaware
SV Distribution Company Delaware
Spring Merger Corporation Delaware
Spectrum Interactive Incorporated Delaware
Steck-Vaughn Company Delaware
Steck-Vaughn Publishing Corporation Delaware
T & A D Poyser Limited England
The Family Education Company Delaware
The Neiman Marcus Group, Inc. Delaware
The Psychological Corporation New York
The Psychological Corporation Limited England
The School of Accountancy Limited Scotland
W. B. Saunders Company Limited England
Wolfe Medical Publications Limited United Kingdom
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration
Statements of Harcourt General, Inc. on Form S-3 (Nos. 33-13936,
33-46148, and 333-30621) and Form S-8 (Nos. 33-26079 and 333-
42349) of our report dated December 9,1999, appearing in and
incorporated by reference in the Annual Report on Form 10-K of
Harcourt General, Inc. for the year ended October 31, 1999.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains a summary of financial information extracted from the
Consolidated Balance Sheet and Consolidated Statement of Operations and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> OCT-31-1999
<CASH> 24,144
<SECURITIES> 0
<RECEIVABLES> 513,399
<ALLOWANCES> 39,822
<INVENTORY> 212,771
<CURRENT-ASSETS> 830,757
<PP&E> 312,550
<DEPRECIATION> 183,746
<TOTAL-ASSETS> 2,950,105
<CURRENT-LIABILITIES> 693,557
<BONDS> 1,356,804
0
863
<COMMON> 71,167
<OTHER-SE> 569,833
<TOTAL-LIABILITY-AND-EQUITY> 2,950,105
<SALES> 2,142,622
<TOTAL-REVENUES> 2,142,622
<CGS> 697,278
<TOTAL-COSTS> 1,862,973
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 180,304
<INTEREST-EXPENSE> 107,210
<INCOME-PRETAX> 185,230
<INCOME-TAX> 68,535
<INCOME-CONTINUING> 120,348
<DISCONTINUED> 63,348
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 183,830
<EPS-BASIC> 2.57
<EPS-DILUTED> 2.55
</TABLE>
