<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 3, 1996
COMMISSION FILE NUMBER 1-9659
------------------------
THE NEIMAN MARCUS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
27 BOYLSTON STREET, CHESTNUT HILL, 02167
MASSACHUSETTS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
DELAWARE 95-4119509
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
REGISTRANT'S TELEPHONE NUMBER AND AREA CODE: 617-232-0760
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.01 par value New York Stock Exchange
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 amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of September 6, 1996 was $500,482,247.
There were 38,003,702 shares of Common Stock outstanding as of September 6,
1996.
================================================================================
<PAGE> 2
THE NEIMAN MARCUS GROUP, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED AUGUST 3, 1996
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I
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 and Related Stockholder
Matters............................................................... 4
Item 6. Selected Financial Data................................................. 5
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 6
Item 8. Financial Statements and Supplementary Data............................. 11
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 11
PART III
Item 10. Directors and Executive Officers of the Registrant...................... 11
Item 11. Executive Compensation.................................................. 14
Item 12. Security Ownership of Certain Beneficial Owners and Management.......... 24
Item 13. Certain Relationships and Related Transactions.......................... 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........ 26
Signatures.........................................................................
</TABLE>
i
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
The Neiman Marcus Group, Inc. (together with its operating divisions and
subsidiaries, the "Company") is a Delaware corporation which commenced
operations in August 1987. Harcourt General, Inc. ("Harcourt General"), a
Delaware corporation based in Chestnut Hill, Massachusetts, owns approximately
59% of the outstanding Common Stock of the Company ("Common Stock") and 100% of
the outstanding 6% Cumulative Convertible Preferred Stock ("6% Preferred Stock")
and 9 1/4% Cumulative Redeemable Preferred Stock ("9 1/4% Preferred Stock," and
together with the 6% Preferred Stock, "Preferred Stock") of the Company. In
addition, two of Harcourt General's directors and virtually all of its officers
and corporate staff, including its Chairman and its Chief Executive Officer,
occupy similar positions with the Company. For more information about the
relationship between the Company and Harcourt General, see Note 1 to the Summary
Compensation Table (in Item 11), Item 12, and Notes 6 and 7 to the Consolidated
Financial Statements in Item 14 below. Harcourt General is a public company
subject to the reporting requirements of the Securities Exchange Act of 1934.
For further information about Harcourt General, reference may be made to the
reports filed by Harcourt General from time to time with the Securities and
Exchange Commission.
On September 10, 1996, the Company authorized the filing of a Registration
Statement (the "Registration Statement") with the Securities and Exchange
Commission (Registration No. 333-11721) for a public offering of 8,000,000
shares of the Company's Common Stock, excluding 1,200,000 shares subject to an
underwriters' over-allotment option (the "Offering"). The proceeds from the
Offering will be used by the Company to purchase all of its outstanding
Preferred Stock from Harcourt General at a total purchase price of approximately
$416.4 million, representing 98% of the aggregate stated value of the Preferred
Stock, plus accrued and unpaid dividends on the Preferred Stock through the date
of the closing of the Offering. The total purchase price will be paid with
$135.0 million in shares of Common Stock valued at the public offering price
(the "Stock Payment") and the remainder payable in cash (the "Cash Payment").
The Cash Payment will be funded with the net proceeds of the public offering
and, if necessary, with borrowings under the Company's revolving credit
agreement. To the extent that the underwriters exercise their over-allotment
option, the amount of required borrowings under the Company's revolving credit
agreement will be decreased, and if the amount of the net proceeds from the
Offering exceeds the amount of the Cash Payment, the excess proceeds from the
Offering will be used to pay down amounts outstanding under the Company's
revolving credit facility. After the consummation of the Offering and the
transactions related thereto, Harcourt General will continue to be the majority
shareholder of the Company. For additional information concerning the Offering
and the transactions related thereto, reference may be made to Note 13 to the
Consolidated Financial Statements in Item 14 below and to the Registration
Statement as it may be amended from time to time.
BUSINESS OVERVIEW
The Company, operating through Neiman Marcus Stores, Bergdorf Goodman and
NM Direct, is a high end specialty retailer. The 30 Neiman Marcus stores are in
premier retail locations in major markets nationwide and the two Bergdorf
Goodman stores, the main store and the Bergdorf Goodman Men store, are located
in Manhattan at 58th Street and Fifth Avenue. Neiman Marcus Stores and Bergdorf
Goodman offer high end fashion apparel and accessories primarily from leading
designers. NM Direct, the Company's direct marketing operation, offers a mix of
apparel and home furnishings which is complementary to the Neiman Marcus Stores
merchandise, and it publishes the Horchow catalogues and the world famous Neiman
Marcus Christmas Catalogue.
DESCRIPTION OF OPERATIONS
Neiman Marcus Stores. Neiman Marcus Stores offer women's and men's
apparel, fashion accessories, shoes, cosmetics, furs, precious jewelry,
decorative home accessories, fine china, crystal and silver, gourmet food
products and children's apparel and gift items. In fiscal 1996, 24% of Neiman
Marcus Stores sales were generated from Texas, 30% from the West, 16.5% from the
Midwest, 16.5% from the Northeast and 11% from
1
<PAGE> 4
the Southeast and the remainder through its store catalogues and clearance
centers. Three of the Neiman Marcus stores had revenues of over $100 million in
fiscal 1996 and ten additional stores had revenues over $50 million. No Neiman
Marcus store accounted for more than 7.5% of Neiman Marcus Stores revenues in
fiscal 1996. The average size of the Neiman Marcus stores is approximately
142,000 gross square feet, and the stores range in size from 90,000 gross square
feet to 269,000 gross square feet.
Bergdorf Goodman. The Company operates two Bergdorf Goodman stores in
Manhattan at 58th Street and Fifth Avenue, which is among the most prestigious
and well known retail locations in the world. The main Bergdorf Goodman store
consists of 250,000 gross square feet. The core of Bergdorf Goodman's offerings
includes high end women's apparel and unique fashion accessories from leading
designers. Bergdorf Goodman also features traditional and contemporary
decorative home accessories, precious jewelry, gifts and gourmet foods. Bergdorf
Goodman Men, which opened in August 1990, consists of 66,000 gross square feet
and is dedicated to men's apparel and accessories.
NM Direct. NM Direct offers customers throughout the country the
opportunity to purchase upscale quality designed and crafted merchandise with
the convenience of at-home shopping. NM Direct mailed 71 different catalogues
during fiscal 1996, with an approximate average circulation of 1.25 million
households per catalogue. The total number of catalogues mailed during fiscal
1996 was approximately 89 million. NM Direct primarily offers women's apparel
under the Neiman Marcus name and, through its Horchow catalogue, offers hard
goods such as quality home furnishings, tabletop, linens and decorative
accessories. NM Direct also offers a broad range of more modestly priced items
through its Trifles and Grand Finale lines and continues to publish the world
famous Neiman Marcus Christmas Catalogue.
The Company also operates several small clearance centers which provide an
efficient and controlled outlet for the sale of marked down merchandise from
Neiman Marcus Stores, Bergdorf Goodman and NM Direct.
For additional information concerning the stores operated by the Company,
see Item 2 below.
DISTRIBUTION AND LOGISTICS
In January 1996, the Company commenced operations at its 465,000 square
foot National Service Center ("NSC") in Longview, Texas, consolidating
distribution operations for those Neiman Marcus stores which previously had been
handled by several separate facilities in the Dallas area. The Company also
contracts with a third party in Totowa, New Jersey for the provision of
distribution services to those stores not served by the NSC.
NM Direct distributes its goods from its warehouse and distribution center
in Las Colinas, Texas, near Dallas. By arranging for vendors to "drop-ship"
goods such as furniture, other hard goods and gourmet food directly to the
customer, NM Direct reduces the amount of inventory warehousing. The Company has
contracted with third party carriers to provide NM Direct with 2-day delivery
service with no additional charge to the customer, and it utilizes its carrier
services to automate the process of shipping and invoicing for drop-shipped
merchandise.
COMPETITION
The specialty retail industry is highly competitive and fragmented.
Moreover, the Company's apparel business is especially dependent upon its
designer resources. The Company competes with large specialty retailers,
traditional and better department stores, national apparel chains, designer
boutiques, individual specialty apparel stores and direct marketing firms.
The Company competes for customers principally on the basis of quality,
assortment and presentation of merchandise, customer service, sales and
marketing programs and value, and for quality merchandise and assortment
principally based on relationships with designer resources and purchasing power.
Neiman Marcus Stores and Bergdorf Goodman also compete for customers on the
basis of store ambience, and for real estate opportunities principally on the
basis of their ability to attract customers. NM Direct competes principally on
the basis of quality, assortment and presentation of merchandise, customer
service, price and speed of delivery.
2
<PAGE> 5
EMPLOYEES
At August 3, 1996, Neiman Marcus Stores had 11,000 employees, of whom 3,100
were part-time, Bergdorf Goodman had 1,040 employees, of whom 40 were part-time,
and NM Direct had 1,100 employees, of whom 500 were part-time. All employee
numbers are approximate. None of the employees of Neiman Marcus Stores or NM
Direct are subject to collective bargaining agreements. Approximately 12.1% of
the Bergdorf Goodman employees are subject to collective bargaining agreements.
The Company believes that its relations with its employees are generally good.
The Company's staffing requirements fluctuate during the year as a result of the
seasonality of the retail apparel industry and, accordingly, the Company
generally adds 3,000 to 3,500 more seasonal employees in the second quarter.
CAPITAL EXPENDITURES; SEASONALITY; LIQUIDITY
For information on capital expenditures, seasonality and liquidity, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 below.
ITEM 2. PROPERTIES
<TABLE>
The Company's corporate headquarters are located at Harcourt General's
leased facility in Chestnut Hill, Massachusetts. The operating headquarters for
Neiman Marcus Stores, Bergdorf Goodman and NM Direct are located in Dallas, New
York City, and Las Colinas, Texas, respectively. The aggregate square footage
used in the Company's operations is approximately as follows:
<CAPTION>
OWNED
SUBJECT TO
OWNED GROUND LEASE LEASED TOTAL
--------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Stores.............................. 348,000 1,931,000 2,297,000 4,576,000
Distribution, Support and
Office Facilities and Clearance
Centers........................... 1,170,000 0 634,000 1,804,000
</TABLE>
Leases for Neiman Marcus stores, including renewal options, range from 30
to 99 years. The lease on the Bergdorf Goodman main store expires in 2050, and
the lease on the Bergdorf Goodman Men store expires in 2010, with two 10-year
renewal options. Leases are generally at fixed rentals, and a majority of leases
provide for additional rentals based on sales in excess of predetermined levels.
The Company owns approximately 50 acres of land in Las Colinas, Texas where its
705,000 square foot NM Direct facility is located and also owns approximately 34
acres of land in Longview, Texas where the NSC is located. For further
information on the Company's properties, see "Operating Leases" in Note 11 of
the Notes to the Consolidated Financial Statements in Item 14 below.
<TABLE>
The following table sets forth the location, year operations began and
gross square footage of each Neiman Marcus and Bergdorf Goodman store:
NEIMAN MARCUS STORES
<CAPTION>
CALENDAR GROSS
YEAR SQUARE
LOCATIONS OPENED FEET
--------- -------- ---------
<S> <C> <C>
Dallas (Downtown)....................................... 1907 269,000
Dallas (NorthPark)...................................... 1965 218,000
Houston (Galleria)...................................... 1969 206,000
Bal Harbour, Florida.................................... 1971 94,000
Atlanta................................................. 1972 154,000
St. Louis............................................... 1974 143,000
Northbrook, Illinois.................................... 1976 143,000
Fort Worth.............................................. 1977 119,000
Washington, D.C......................................... 1977 130,000
Newport Beach, California............................... 1978 124,000
Beverly Hills........................................... 1979 170,000
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
CALENDAR GROSS
YEAR SQUARE
LOCATIONS OPENED FEET
--------- -------- ---------
<S> <C> <C>
Dallas (Prestonwood).................................... 1979 123,000
Westchester, New York................................... 1980 138,000
Las Vegas............................................... 1981 103,000
Oak Brook, Illinois..................................... 1981 119,000
San Diego............................................... 1981 106,000
Fort Lauderdale......................................... 1982 92,000
San Francisco........................................... 1982 195,000
Houston (Town & Country)................................ 1983 153,000
Chicago (Michigan Avenue)............................... 1983 188,000
Boston.................................................. 1984 108,000
Palo Alto, California................................... 1985 120,000
McLean, Virginia........................................ 1989 130,000
Denver.................................................. 1990 90,000
Minneapolis............................................. 1991 122,000
Scottsdale, Arizona..................................... 1991 116,000
Troy, Michigan.......................................... 1992 157,000
Short Hills, New Jersey................................. 1995 137,000
King of Prussia, Pennsylvania........................... 1996 145,000
Paramus, New Jersey..................................... 1996 148,000
---------
Total................................................... 4,260,000
=========
</TABLE>
BERGDORF GOODMAN
<TABLE>
<S> <C> <C>
Bergdorf Goodman Main Store............................. 1901 250,000
Bergdorf Goodman Men.................................... 1990 66,000
-------
Total................................................... 316,000
=======
</TABLE>
In addition, the Company plans to open a 160,000 square foot Neiman Marcus
store in Honolulu in August 1998.
ITEM 3. LEGAL PROCEEDINGS
The Company presently is engaged in various legal actions which are
incidental to the ordinary conduct of its business. The Company believes that
any liability arising as a result of these actions and proceedings will not have
a material adverse effect on the Company's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
<TABLE>
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol NMG. The following table indicates the quarterly price range of the
Common Stock for the past two fiscal years:
<CAPTION>
1996 1995
----------------- -----------------
QUARTER HIGH LOW HIGH LOW
------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
First........................................... $18.88 $14.63 $15.50 $13.50
Second.......................................... $23.50 $17.13 $15.00 $13.00
Third........................................... $23.13 $17.25 $15.50 $13.00
Fourth.......................................... $30.13 $23.63 $15.88 $13.25
</TABLE>
4
<PAGE> 7
The Company had 12,164 common shareholders of record at September 6, 1996.
Beginning with the third quarter of fiscal 1995, the Company eliminated its
quarterly cash dividend on its Common Stock which previously had been $.05 per
share per quarter. The Company currently does not intend to resume paying cash
dividends on its Common Stock. The Company's revolving credit agreement contains
restrictions on the Company's ability to pay dividends and make other
distributions.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below have been derived
from the Company's audited Consolidated Financial Statements for each of the
five years in the period ended August 3, 1996, and are qualified by reference
to, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7 below, the
Consolidated Financial Statements in Item 14 below, and the other financial
information included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------------
AUGUST 1, JULY 31, JULY 30, JULY 29, AUGUST 3,
1992 1993 1994 1995 1996(1)
---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $1,484,945 $1,667,825 $1,789,461 $1,888,249 $2,075,003
Cost of goods sold including buying
and occupancy costs............................ 1,025,670 1,120,561 1,210,262 1,276,776 1,416,296
Selling, general and administrative
expenses(2).................................... 366,873 412,044 420,667 448,956 485,533
Corporate expenses............................... 13,116 11,898 13,411 12,465 13,719
---------- ---------- ---------- ---------- ----------
Operating earnings(2)............................ 79,286 123,322 145,121 150,052 159,455
Interest expense(2).............................. (32,408) (29,589) (31,878) (33,958) (28,228)
Other income(3).................................. -- 21,741 -- -- --
---------- ---------- ---------- ---------- ----------
Earnings from continuing operations before
income taxes and accounting change............. 46,878 115,474 113,243 116,094 131,227
Income taxes..................................... 19,220 48,499 47,562 48,759 53,803
---------- ---------- ---------- ---------- ----------
Earnings from continuing operations
before accounting change....................... 27,658 66,975 65,681 67,335 77,424
Loss from discontinued operations
net of taxes (including loss on
disposal of $9,873 in 1995)(4)................. (5,806) (8,402) (49,755) (11,727) --
---------- ---------- ---------- ---------- ----------
Earnings before accounting change................ 21,852 58,573 15,926 55,608 77,424
Change in accounting for postretirement
health care benefits, net...................... -- (11,199) -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings..................................... 21,852 47,374 15,926 55,608 77,424
Dividends and accretion on redeemable
preferred stocks(5)............................ (29,197) (29,068) (29,080) (29,092) (29,104)
---------- ---------- ---------- ---------- ----------
Net earnings (loss) applicable to
common shareholders............................ $ (7,345) $ 18,306 $ (13,154) $ 26,516 $ 48,320
========== ========== ========== ========== ==========
Weighted average shares outstanding.............. 35,551 37,577 37,946 37,999 38,218
========== ========== ========== ========== ==========
Amounts per share applicable to
common shareholders:
Earnings (loss) from continuing operations
before accounting change..................... $ (.05) $ 1.00 $ .96 $ 1.01 $ 1.26
Loss from discontinued operations.............. (.16) (.22) (1.31) (.31) --
Accounting change.............................. -- (.30) -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)............................ $ (.21) $ .48 $ (.35) $ .70 $ 1.26
========== ========== ========== ========== ==========
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
AUGUST 1, JULY 31, JULY 30, JULY 29, AUGUST 3,
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Accounts receivable(2)........................... $ 220,388 $ 309,572 $ 362,236 $ 150,110 $ 165,442
Inventories...................................... 307,100 362,567 345,145 359,092 443,948
Property and equipment, net...................... 422,243 416,519 410,913 423,583 457,625
Total assets..................................... 1,141,438 1,278,574 1,323,128 1,108,437 1,252,350
Total debt(6).................................... 345,490 422,299 485,672 256,306 325,197
Redeemable preferred stocks(5)................... 399,562 401,510 403,470 405,442 407,426
Common shareholders' equity...................... (2,919) 24,358 3,716 26,547 75,607
</TABLE>
- ------------
(1) Fiscal 1996 was a 53-week year.
(2) In March 1995 the Company sold all of its Neiman Marcus credit card
receivables to a trust in exchange for certificates representing undivided
interests in such receivables. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Review of Financial
Condition" in Item 7. The securitization resulted in a decrease in finance
charge income (which is recorded as an offset to selling, general and
administrative expenses) and a resulting decrease in operating earnings in
fiscal 1995 and 1996. To provide a meaningful comparison of selling, general
and administrative expenses and operating earnings in fiscal 1995 and 1996
to such items in fiscal 1992 through 1994, the following chart shows each
item as if the securitization had not occurred:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------
AUGUST
JULY 29, 3,
1995 1996
-------- --------
<S> <C> <C>
Selling, general and administrative expenses................................... $441,856 $466,493
Operating earnings............................................................. $157,152 $178,495
</TABLE>
The securitization also had the effect of reducing accounts receivable in
fiscal 1995 by approximately $246 million.
(3) Represents settlement of several disputes with Carter Hawley Hale Stores,
Inc., which had operated the Neiman Marcus and Bergdorf Goodman businesses
prior to 1987.
(4) Reflects the operations of Contempo Casuals, which was sold by the Company
on June 30, 1995. See Note 2 to the Consolidated Financial Statements.
(5) After the consummation of the Offering and the transactions related thereto,
no shares of Preferred Stock will be outstanding.
(6) Includes obligations under capital leases. See Note 5 to the Consolidated
Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's financial performance reflects a favorable environment for
the sale of high end merchandise as well as the strong competitive position of
its three operating entities: Neiman Marcus Stores, Bergdorf Goodman and NM
Direct. Revenues from continuing operations exceeded $2.0 billion for the first
time in fiscal 1996, increasing 16.0% over revenues of $1.8 billion in fiscal
1994. Earnings from continuing operations increased 17.9% from $65.7 million to
$77.4 million during the same period.
Approximately 75% of the Company's revenues are generated by Neiman Marcus
Stores with the balance split approximately equally between Bergdorf Goodman and
NM Direct. In fiscal 1995, the Company solidified its focus on the high end
specialty retail market with the sale of its Contempo Casuals operations, which
is reflected in the Company's financial statements as a discontinued operation.
Revenue growth over the last three fiscal years at Neiman Marcus Stores and
Bergdorf Goodman can be attributed primarily to increases in comparable store
sales during such periods and two new store openings in fiscal 1996. Since
August 1995, the Company has opened three new Neiman Marcus stores, adding
430,000 gross square feet in the Northeast market. The Company also plans to
open a new Neiman Marcus store in Honolulu's Ala Moana Center in August 1998,
which will add approximately 160,000 gross square feet. In fiscal 1996, average
sales per gross square foot reached an all-time high of $380 at Neiman Marcus
Stores and $786 at Bergdorf Goodman, representing a 12.4% and 8.3% increase,
respectively, over fiscal 1994 levels. The Company has consistently focused on
renovating and modernizing its stores to improve productivity, while
concurrently aiming to improve average transaction amounts and comparable sales
growth with programs which are designed to increase the customers' awareness of
other merchandise offerings in the store and serve more of their merchandise
needs. In addition, to meet the demand of their customers for fine merchandise,
over the past two fiscal years Neiman Marcus Stores and Bergdorf Goodman have
placed a greater emphasis on higher quality merchandise at higher opening price
point ranges.
6
<PAGE> 9
In fiscal 1996, the Company's operating earnings rose to $159.5 million
from $150.1 million in fiscal 1995 and $145.1 million in fiscal 1994. The
comparability of these results, however, is affected by the Company's
securitization of its credit card receivables in fiscal 1995 as part of the
Company's overall financing strategy. The sale of these credit card receivables
resulted in a decrease in finance charge income (which is recorded as an offset
to selling, general and administrative expenses) and a resulting decrease in the
Company's operating earnings. This reduction amounted to $19.0 million in fiscal
1996 and $7.1 million in fiscal 1995. Management believes that the fiscal 1997
reduction will be comparable to the reduction experienced in fiscal 1996. The
securitization, however, also reduced interest expense during fiscal 1995 and
1996 as the proceeds were used to repay outstanding debt.
The Company utilizes the LIFO method of accounting for valuing its
inventories, which provides a better matching of revenues with expenses than the
FIFO method which is used by some specialty retail companies. The most important
factors contributing to differences between the LIFO and FIFO methods include
the rate of inflation, inventory levels and markdowns. As a result of these
factors, operating earnings were $0.7 million higher in fiscal 1996, $10.4
million higher in fiscal 1995, and $2.4 million lower in fiscal 1994 than they
would have been using the FIFO method.
Because a substantial portion of the Company's selling, general and
administrative expenses is made up of fixed charges, comparable sales increases
improve the Company's operating profit margin. Management believes that various
programs designed to increase sales, coupled with improved technologies in
merchandising and selling information systems, have contributed to the Company's
increased operating earnings, and will continue to improve productivity and
profitability in the future.
In fiscal 1995, revenues at NM Direct were adversely affected by weak
demand for its apparel merchandise. As a result, NM Direct repositioned its
merchandise assortment, placing greater emphasis on hard goods and home
furnishings and less emphasis on its Horchow apparel offerings. NM Direct may
increase its revenues by selectively entering international markets. NM Direct
entered the catalogue market in Japan in fiscal 1995 with its Horchow catalogue
and is introducing the Neiman Marcus Christmas Catalogue in Japan this holiday
season. NM Direct's results are significantly affected by fluctuations in the
cost of paper and postage. In particular, in fiscal 1995, increased paper and
postage costs had a significant effect on the operating results of NM Direct. In
response, NM Direct reduced the page count and number of its catalogues and
repositioned its merchandise mix as discussed above. These initiatives resulted
in increased revenues and operating earnings in fiscal 1996 for NM Direct.
In addition to opening new stores, the Company continues to make
significant capital investments that it believes will result in increased
productivity. In particular, during fiscal 1994, 1995 and 1996, the Company
invested approximately $90.0 million in remodeling its existing store base. In
fiscal 1997, major projects will include (i) commencing a full remodeling and
expansion of the Fashion Island store in Newport Beach, California and
continuing a partial remodeling and expansion of the Beverly Hills store; (ii)
completing a major renovation of the first floor of Bergdorf Goodman Men, which
will add a new main entrance on Fifth Avenue and greatly improve the
departmental adjacencies and flow of the main floor and (iii) constructing a
beauty salon and spa in the newly acquired ninth floor of the Bergdorf Goodman
main store which will permit expansion of the decorative home business into the
approximately 4,000 square feet of space currently occupied by the existing
beauty salon.
In addition, in fiscal 1996, the Company began operating a new distribution
center for Neiman Marcus Stores, which consolidated the distribution function
previously provided by several older facilities in the Dallas area. In fiscal
1995, the Company completed the expansion of its direct marketing distribution
and fulfillment center for NM Direct and closed its other NM Direct distribution
centers. The Company expects that these facilities will provide future cost
savings and operational efficiencies.
In connection with the repurchase of the Preferred Stock in connection with
the Offering, the Company will incur a nonrecurring, non-cash charge to earnings
applicable to common shareholders. The amount of this charge is dependent upon
the price at which the Common Stock will be sold in the Offering. The Company
will report such amount in its Quarterly Report on Form 10-Q for the quarter in
which such charge is incurred. For additional information concerning this
charge, see Note 13 to the Consolidated Financial Statements in Item 14 below.
7
<PAGE> 10
<TABLE>
OPERATING RESULTS
In fiscal 1996, the reporting period included 53 weeks as compared to 52
weeks in each of fiscal years 1995 and 1994.
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
-------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Neiman Marcus Stores............................. $1,311.5 $1,398.8 $1,566.7
Bergdorf Goodman................................. 229.5 241.5 251.9
NM Direct........................................ 248.5 247.9 256.4
-------- -------- --------
Total............................................ $1,789.5 $1,888.2 $2,075.0
======== ======== ========
OPERATING EARNINGS(1)
Neiman Marcus Stores............................. $ 119.8 $ 132.3 $ 134.0
Bergdorf Goodman................................. 10.3 16.6 16.5
NM Direct........................................ 28.4 13.7 22.7
Corporate expenses............................... (13.4) (12.5) (13.7)
-------- -------- --------
Total............................................ $ 145.1 $ 150.1 $ 159.5
======== ======== ========
OPERATING PROFIT MARGINS(1)
Neiman Marcus Stores............................. 9.1% 9.5% 8.6%
Bergdorf Goodman................................. 4.5% 6.9% 6.6%
NM Direct........................................ 11.4% 5.5% 8.9%
Total(2)......................................... 8.1% 7.9% 7.7%
<FN>
- ---------------
(1) In fiscal 1995 and fiscal 1996 operating earnings and operating profit
margins include the impact of the Company's credit card receivables
securitization. For comparison purposes, excluding the impact of the
Company's credit card receivables securitization, operating earnings for
Neiman Marcus Stores and NM Direct would have been $138.3 and $14.8 in
fiscal 1995 and $150.4 and $25.4 in fiscal 1996, respectively and the
operating profit margins would have been 9.9% and 6.0% in fiscal 1995 and
9.6% and 9.9% in fiscal 1996, respectively. See "Review of Financial
Condition" below.
(2) After corporate expenses.
</TABLE>
FISCAL 1996 VERSUS FISCAL 1995
Revenues in fiscal 1996 increased 9.9% to $2.08 billion from $1.89 billion
in fiscal 1995. The revenue growth was primarily attributable to a 5.4% increase
in comparable sales and, to a lesser extent, the opening of two new Neiman
Marcus stores during the year. Additionally, fiscal 1996 included 53 weeks,
while fiscal 1995 consisted of 52 weeks. The 53rd week is not included in
comparable sales.
Cost of goods sold increased 10.9% to $1.42 billion in fiscal 1996,
primarily due to higher sales volume. As a percentage of revenues, cost of goods
sold was 68.3% in fiscal 1996 compared to 67.6% in fiscal 1995. The higher
percentage is primarily due to higher markdowns during the holiday season.
Selling, general and administrative expenses increased 8.1% to $485.5
million in fiscal 1996 from $449.0 million in fiscal 1995, primarily due to new
store openings, higher selling costs and lower finance charge income. As a
percentage of revenues, selling, general and administrative expenses were 23.4%
in fiscal 1996 compared to 23.8% in fiscal 1995. The Company's securitization of
its credit card receivables, which was completed in March 1995, reduced finance
charge income, and thereby increased selling, general and administrative
expenses, by approximately $19.0 million in fiscal 1996 and $7.1 million in
fiscal 1995.
8
<PAGE> 11
Corporate expenses, which consist primarily of charges for salaries,
benefits and overhead for the individuals who provide services under the
intercompany services agreement with Harcourt General, legal fees and
professional fees, increased $1.2 million in fiscal 1996 to $13.7 million,
compared to $12.5 million in the prior year. The increase is primarily
attributable to higher compensation expense resulting from the Company's
employees accepting the cash value of certain stock options rather than
exercising such options for shares of Common Stock.
Operating earnings increased to $159.5 million in fiscal 1996 from $150.1
million in the prior year. The increase is attributable to higher sales volume
at each of the Company's operating entities, partially offset by the full year
impact of the credit card receivables securitization. Operating earnings at NM
Direct improved significantly in comparison to fiscal 1995, due to increased
revenues and lower paper and postage expenses.
Interest expense decreased 16.9% to $28.2 million in fiscal 1996, primarily
due to lower debt levels resulting from the use of the proceeds from the
Company's credit card receivables securitization in March 1995 to pay down
outstanding debt.
The Company's effective income tax rate decreased to 41% in fiscal 1996
from 42% in fiscal 1995. The decrease was attributable to lower state income
taxes.
FISCAL 1995 VERSUS FISCAL 1994
Revenues in fiscal 1995 increased to $1.89 billion from $1.79 billion in
fiscal 1994. The 5.5% increase was attributable to comparable sales growth
resulting from increased transaction volume and a higher average transaction
amount at both Neiman Marcus Stores and Bergdorf Goodman. Revenues at NM Direct
were essentially flat compared to fiscal 1994.
Cost of goods sold increased 5.5% to $1.28 billion in fiscal 1995,
primarily due to incremental merchandise sold. Neiman Marcus Stores and Bergdorf
Goodman both experienced improved gross profit through increased transaction
volume and higher average transaction amounts, partially offset by higher
markdowns. The improvements at Neiman Marcus Stores and Bergdorf Goodman were
offset by lower gross profit at NM Direct, primarily as a result of lower retail
markups and higher markdowns. As a percentage of revenues, cost of goods sold
was unchanged at 67.6% in fiscal 1995 compared to fiscal 1994.
Selling, general and administrative expenses increased 6.7% in fiscal 1995
to $449.0 million. The increase was a result of both higher sales volume and
higher sales promotion expenses. As a percentage of revenues, selling, general
and administrative expenses were 23.8% in fiscal 1995 compared to 23.5% in
fiscal 1994. The securitization of the Company's credit card receivables, which
was completed in March 1995, had the effect of reducing finance charge income by
$7.1 million in fiscal 1995.
Corporate expenses decreased 7.1% to $12.5 million in fiscal 1995 compared
to fiscal 1994. This decrease was primarily due to lower fees under the
intercompany services agreement with Harcourt General and lower professional
fees.
Operating earnings increased to $150.1 million from $145.1 million in the
prior year. Neiman Marcus Stores and Bergdorf Goodman operating earnings
improved primarily as a result of increased transaction volume. NM Direct
operating earnings decreased substantially primarily as a result of higher paper
and postage costs in fiscal 1995.
Interest expense increased 6.5% in fiscal 1995 to $34.0 million, reflecting
higher interest rates on bank borrowings and higher average outstanding
borrowings during the first half of fiscal 1995.
The Company's effective income tax rate was unchanged at 42% in fiscal
1995.
The loss from discontinued operations of $11.7 million in fiscal 1995
included $1.9 million of after-tax Contempo Casuals operating losses and an
after-tax loss on disposal of $9.9 million. In fiscal 1994, the after-tax loss
from discontinued Contempo Casuals operations was $49.8 million, which included
an after-tax restructuring charge of $28.1 million.
9
<PAGE> 12
REVIEW OF FINANCIAL CONDITION
In fiscal 1996, the Company had sufficient cash flows from operations and
its revolving credit agreement to finance its working capital needs, capital
expenditures and preferred dividend requirements. Operating activities provided
net cash of $42.7 million in fiscal 1996 compared to $105.7 million in fiscal
1995. Despite the increase in net earnings from $55.6 million in fiscal 1995 to
$77.4 million in fiscal 1996, cash provided by operations decreased primarily
due to higher inventory levels and accounts receivable balances attributable to
new Neiman Marcus stores.
The Company's capital expenditures consisted principally of construction of
new stores and a new distribution and service center, and renovations of
existing stores. The Company opened new Neiman Marcus stores in Short Hills, New
Jersey in August 1995, in King of Prussia, Pennsylvania in February 1996 and in
Paramus, New Jersey in August 1996. Capital expenditures were $85.7 million in
fiscal 1996, $93.5 million in fiscal 1995 and $65.1 million in fiscal 1994.
Additional store renovation plans include the remodeling of certain Neiman
Marcus stores and the expansion and remodeling of both Bergdorf Goodman stores.
Capital expenditures are currently estimated to approximate $75.0 million in
fiscal 1997.
During fiscal 1996, the Company increased its bank borrowings by $109.9
million which included borrowings made in May 1996 to repay $40.0 million of
senior notes. At August 3, 1996, the Company had $340.0 million available under
its $500.0 million revolving credit facility, which expires in April 2000. In
August 1996, an additional $52.0 million of senior notes were paid on maturity
through borrowings under the revolving credit facility. The Company believes
that following the consummation of the Offering and the transactions completed
thereby, it will have sufficient financial resources to fund its planned capital
expenditures, operating requirements, and the retirement of the Company's
remaining $80.0 million of senior notes which become due in December 1996.
Beginning with the third quarter of fiscal 1995, the Company eliminated its
quarterly cash dividend on the Common Stock (previously $.05 per share per
quarter). Elimination of this dividend conserves approximately $7.6 million of
cash annually for use in the Company's operations. In fiscal 1996, the Company
paid aggregate dividends of $27.1 million on the Preferred Stock. The
consummation of the Offering and the related transactions will eliminate the
required future dividend and sinking fund payments on the Preferred Stock.
In March 1995, the Company sold all of its Neiman Marcus credit card
receivables through a subsidiary to a trust in exchange for certificates
representing undivided interests in such receivables. Certificates representing
an undivided interest in $246.0 million of these receivables were sold to third
parties in a public offering of $225.0 million 7.60% Class A certificates and
$21.0 million 7.75% Class B certificates. The Company's subsidiary will retain
the remaining undivided interest in the receivables not represented by the Class
A and Class B certificates. A portion of that interest is subordinated to the
Class A and Class B certificates. The Company will continue to service all
receivables for the trust. This sale had the effect of decreasing accounts
receivable and outstanding debt by $246.0 million.
SEASONALITY
The specialty retail industry is seasonal in nature, and a
disproportionately high level of the Company's sales and earnings typically are
generated in the fall and holiday selling seasons. The Company's working capital
requirements and inventories increase substantially in the first quarter in
anticipation of the holiday selling season.
IMPACT OF INFLATION
The Company has adjusted selling prices to maintain certain 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 has not
had a material effect on the Company's results of operations during the last
three fiscal years, except as discussed above in "Overview" with respect to the
LIFO method of inventory valuation.
10
<PAGE> 13
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). The Statement establishes a fair value-based method of
accounting for stock-based compensation plans, which may be recognized or
disclosed at the Company's option. The Company will adopt the disclosure
approach under SFAS 123 beginning in fiscal year 1997.
In June 1996, the FASB issued Statement of Financial Accounting Standard
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (SFAS 125), which is effective for transactions
entered into after December 31, 1996. The Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. The effect of adopting SFAS 125 is not expected
to be material to the Company's financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and supplementary data set forth in
Item 14 are incorporated herein by reference.
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
Below are the names, ages at September 6, 1996, and principal occupations
for the last five years of each director of the Company.
Class I Directors -- Terms expire at 1998 Annual Meeting
Richard A. Smith -- 71
Director since 1987 Chairman of the Board of the Company and of
Harcourt General; Chairman of the Board, President
(until November 1, 1995) and Chief Executive
Officer of GC Companies, Inc. since December 1993;
Chief Executive Officer of the Company and of
Harcourt General until December 1991; Director of
Harcourt General, GC Companies, Inc., Liberty
Mutual Insurance Company, Liberty Mutual Fire
Insurance Company, Liberty Financial Companies,
Inc., Bank of Boston Corporation and its principal
subsidiary, The First National Bank of Boston. Mr.
Smith is the father of Robert A. Smith, Group Vice
President of the Company and a director of Harcourt
General.
Robert J. Tarr, Jr. -- 52
Director since 1987 President, Chief Executive Officer (since December
1991) and Chief Operating Officer of the Company
and of Harcourt General; Director of Harcourt
General, Open Market, Inc. and John Hancock Mutual
Life Insurance Company.
11
<PAGE> 14
Class II Directors -- Terms expire at 1999 Annual Meeting
Walter J. Salmon -- 65
Director since 1987 Stanley Roth, Sr. Professor of Retailing, Graduate
School of Business Administration, Harvard
University; Director of Hannaford Bros. Co., The
Quaker Oats Company, Circuit City Stores, Inc.,
Luby's Cafeterias, Inc. and Harrah's Entertainment,
Inc.
Matina S. Horner -- 57
Director since 1993 Executive Vice President of the Teachers Insurance
and Annuity Association-College Retirement Equities
Fund (TIAA-CREF) and President Emerita of Radcliffe
College since 1989; President of Radcliffe College
for 17 years prior thereto; Director of Boston
Edison Company.
Class III Director -- Term expires at 1997 Annual Meeting
Jean Head Sisco -- 71
Director since 1987 Partner in Sisco Associates, international
management consultants; Director of Textron, Inc.,
Sante Fe Pacific Gold Corp., Washington Mutual
Investors Fund, Chiquita Brands International,
Inc., The American Funds Tax-Exempt Series I and
K-Tron International, Inc.
B. Executive Officers Who Are Not Directors
Below are the names, ages at September 6, 1996, and principal occupations
for the last five years of each executive officer of the Company who is not also
a director 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.
John R. Cook -- 55 Senior Vice President and Chief Financial Officer
of the Company and of Harcourt General since
September 1992; Senior Vice President -- Finance
and Administration and Chief Financial Officer of
NACCO Industries, Inc. prior thereto.
Stephen C. Elkin -- 53 Chairman and Chief Executive Officer of Bergdorf
Goodman since May 1994; President and Chief
Operating Officer of Bergdorf Goodman prior
thereto.
Peter Farwell -- 53 Vice President -- Corporate Relations of the
Company and of Harcourt General.
Bernie Feiwus -- 48 President and Chief Executive Officer of NM Direct
since October 1991; Executive Vice President of
Neiman Marcus -- Horchow Mail Order Division from
March 1991 to October 1991.
Eric P. Geller -- 49 Senior Vice President and General Counsel of the
Company and of Harcourt General since May 1992;
Secretary of the Company since January 1992 and of
Harcourt General since December 1991; Vice
President, Associate General Counsel and Assistant
Secretary of the Company and of Harcourt General
prior thereto.
Paul F. Gibbons -- 45 Vice President and Treasurer of the Company and of
Harcourt General since August 1992; Vice President
and Treasurer of GC Companies, Inc. since March
1994; Vice President -- Taxation of the Company and
of Harcourt General prior to August 1992.
12
<PAGE> 15
Gerald T. Hughes -- 39 Vice President -- Human Resources of the Company
and of Harcourt General since June 1994; Associate
General Counsel of the Company and of Harcourt
General with responsibility for labor and
employment matters from August 1992 to June 1994;
Labor Counsel of the Company and of Harcourt
General prior thereto.
Dawn Mello -- 64 President of Bergdorf Goodman since May 1994 and
from 1983 to 1989; Executive Vice President and
Creative Director Worldwide of Guccio Gucci SpA
from October 1989 to May 1994.
Michael F. Panutich -- 48 Vice President -- General Auditor of the Company
and of Harcourt General since June 1993; Vice
President -- Accounting of the Company and of
Harcourt General prior thereto.
Stephen C. Richards -- 40 Vice President and Controller of the Company and of
Harcourt General since June 1993; Vice President
and Controller of GC Companies, Inc. since January
1994; Partner, Deloitte & Touche prior to June
1993.
Gerald A. Sampson -- 55 President and Chief Operating Officer of Neiman
Marcus Stores since April 1993; Chairman of May
Company California, a division of May Department
Stores Company, from 1991 to January 1993.
Craig B. Sawin -- 40 Vice President -- Planning and Analysis of the
Company and of Harcourt General.
Robert A. Smith -- 37 Group Vice President of the Company since January
1992 and of Harcourt General since December 1991;
President and Chief Operating Officer of GC
Companies, Inc. since November 1, 1995; Vice
President -- Corporate Development of the Company
from March 1989 to January 1992; Vice
President -- Corporate Development of Harcourt
General from December 1988 to December 1991;
Director of Harcourt General. Mr. Smith is the son
of Richard A. Smith, the Chairman of the Company
and of Harcourt General.
Burton M. Tansky -- 58 Chairman and Chief Executive Officer of Neiman
Marcus Stores since May 1994; Chairman and Chief
Executive Officer of Bergdorf Goodman from February
1992 to May 1994; Vice Chairman of Bergdorf Goodman
from February 1991 to February 1992.
C. Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than 10%
of the Company's Common Stock to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. The Company believes that all filing requirements
applicable to its insiders were complied with during fiscal 1996.
13
<PAGE> 16
ITEM 11. EXECUTIVE COMPENSATION
<TABLE>
SUMMARY COMPENSATION TABLE(1)
The following table provides information on the compensation provided by
the Company during fiscal 1996, 1995 and 1994 to the Company's Chief Executive
Officer and the five most highly paid executive officers of the Company during
fiscal 1996.
<CAPTION>
LONG-TERM
COMPENSATION(2)
---------------------
AWARDS
ANNUAL COMPENSATION ---------------------
----------------------------------------------- RESTRICTED
OTHER ANNUAL STOCK ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(3) ($)(4) ($)(5) (#) ($)(6)
- --------------------------- ------ -------- -------- ------------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
R. J. Tarr, Jr.(1) 1996 -- -- -- -- -- --
President, Chief Executive 1995 -- -- -- -- -- --
Officer and Chief Operating 1994 -- -- -- -- -- --
Officer
B. Tansky 1996 $650,000 $292,500 -- $153,750 -- $16,866
Chairman and Chief 1995 $600,000 $230,640 $160,339 -- 25,000 $14,560
Executive Officer of 1994 $543,750 $122,640 -- -- 21,500 $10,647
Neiman Marcus Stores
G. Sampson 1996 $475,000 $190,000 -- -- 12,000 $12,854
President and Chief 1995 $450,000 $150,480 -- $ 71,875 -- $12,687
Operating Officer of 1994 $431,250 $172,500 -- -- 10,000 $ 6,421
Neiman Marcus Stores
S. Elkin 1996 $480,000 -- -- $115,313 -- $17,170
Chairman and Chief 1995 $450,000 $ 22,500 -- -- 20,000 $15,812
Executive Officer of 1994 $391,875 $ 65,262 -- -- 10,000 $ 9,650
Bergdorf Goodman
D. Mello(7) 1996 $350,000 $ 67,900 -- $ 53,813 -- $ 8,496
President of 1995 $325,000 $ 50,000 -- -- 15,000 $ 2,418
Bergdorf Goodman 1994 $ 50,416 $ 28,438 -- -- -- $ 612
B. Feiwus 1996 $325,000 $126,750 -- $ 76,875 10,000 $10,026
President and Chief 1995 $300,000 -- -- -- 10,000 $ 7,314
Executive Officer of NM 1994 $275,000 $ 88,000 -- -- 7,500 $ 5,883
Direct
<FN>
- ---------------
(1) Under the terms of an Intercompany Services Agreement, Harcourt General
provides certain management, accounting, financial, legal, tax, personnel
and other corporate services to the Company, including the services of
certain senior officers of Harcourt General who are also senior officers of
the Company, in consideration of a fee based on Harcourt General's direct
and indirect costs of providing the corporate services. The level of
services and fees are subject to the approval of the Special Review
Committee of the Board of Directors of the Company, which consists solely
of directors who are independent of Harcourt General. During fiscal 1996,
1995 and 1994, the Company paid or accrued approximately $6.9 million, $6.5
million and $6.9 million, respectively, to Harcourt General for all of its
services under the Intercompany Services Agreement. With the exception of
Mr. Tarr, the senior officers of Harcourt General, who derive all of their
compensation directly from Harcourt General, are not included in this
table. Mr. Tarr is also the President and Chief Executive Officer of
Harcourt General. All of Mr. Tarr's cash and non-cash compensation is paid
by Harcourt General pursuant to Mr. Tarr's employment agreement with
Harcourt General. Of the amounts paid by the Company to Harcourt General
under the Intercompany Services Agreement for fiscal 1996, 1995 and 1994,
approximately $2.3 million, $2.4 million and $2.3 million, respectively,
were attributable to Mr. Tarr's services. These amounts include costs
related to Mr. Tarr's base compensation, bonuses, benefits and amounts
necessary to fund his retirement benefits, all of which are direct
obligations of Harcourt General.
(2) The Company does not have a long-term compensation program that includes
long-term incentive payouts. No stock appreciation rights were granted to
any of the named executive officers during the years reported in the table.
During fiscal 1996, certain named executive officers surrendered vested
options to purchase shares of Common Stock in consideration of payments
from the Company representing the
</TABLE>
14
<PAGE> 17
difference between the closing price of the Common Stock on the New York
Stock Exchange on the respective dates on which the options were
surrendered and the various option exercise prices. For additional
information concerning these transactions, see "Aggregated Option/SAR
Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values,"
below.
(3) Bonus payments are reported with respect to the year in which the related
services were performed.
(4) No disclosure regarding items included in this category is required unless
the amounts in any year for any named executive officer exceed the lesser
of $50,000 or 10% of the annual salary and bonus for the named executive
officer. Of the $160,339 reported with respect to Mr. Tansky in this column
for fiscal 1995, $140,236 was attributable to relocation-related
reimbursements paid by the Company in fiscal 1995 in connection with his
position as Chairman and Chief Executive Officer of Neiman Marcus Stores
(Mr. Tansky previously was Chairman and Chief Executive Officer of Bergdorf
Goodman).
(5) Calculated by multiplying the closing price of the Common Stock on the New
York Stock Exchange on the date of grant by the number of shares awarded.
Twenty percent of an award of restricted Common Stock are freed from the
restrictions on transfer each year, commencing one year after the date of
grant, provided that the recipient continues to be employed by the Company
on the anniversary date of the grant. Holders of restricted stock are
entitled to vote their restricted shares. In the event of termination of
employment for any reason, other than death or permanent disability,
restricted shares are forfeited by the holders and revert to the Company.
At the end of fiscal 1996, the named executive officers' restricted stock
holdings and market values (based on the New York Stock Exchange closing
price of $27.375 for the Common Stock at fiscal year end) were as follows:
Mr. Tansky -- 10,000 shares ($273,750); Mr. Sampson -- 4,000 shares
($109,500); Mr. Elkin -- 8,500 shares ($232,688); Ms. Mello -- 3,500 shares
($95,813) and Mr. Feiwus -- 5,400 shares ($147,825). The restricted shares
held by Mr. Tansky and Ms. Mello were granted in fiscal 1996, the
restricted shares held by Mr. Sampson were granted in fiscal 1995, and the
restricted shares held by Messrs. Elkin and Feiwus were granted in fiscal
1996 and fiscal 1992.
(6) The items accounted for in this column include the cost to the Company of
matching contributions under (a) the Company's Key Employee Deferred
Compensation Plan or the Employee Savings Plan (401(k) Plan) and (b) group
life insurance premiums. For fiscal 1996, such amounts for each of the
named executive officers were, respectively, as follows: Mr.
Tansky -- $13,146 and $3,720; Mr. Sampson -- $9,351 and $3,503; Mr.
Elkin -- $7,538 and $9,632; Ms. Mello -- $6,000 and $2,496; and Mr.
Feiwus -- $4,844 and $5,182.
(7) Ms. Mello rejoined the Company in May 1994. As a condition of employment,
Ms. Mello was guaranteed a minimum bonus of $50,000 for fiscal 1995.
15
<PAGE> 18
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
The following table provides information regarding options granted under
the Company's 1987 Stock Incentive Plan during the fiscal year ended August 3,
1996 to the executive officers named in the Summary Compensation Table.
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------
% OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM(2)
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#)(3) YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
R. Tarr(4).......................... -- -- -- -- -- --
B. Tansky(5)........................ -- -- -- -- -- --
G. Sampson.......................... 12,000 9.33% $15.375 9/09/05 $116,031 $294,045
S. Elkin(5)......................... -- -- -- -- -- --
D. Mello(5)......................... -- -- -- -- -- --
B. Feiwus(5)........................ 10,000 7.78% $15.375 9/09/05 $ 96,693 $245,038
<FN>
- ---------------
(1) No stock appreciation rights were granted to any named executive officer
during fiscal 1996.
(2) These potential realizable values are based on assumed rates of appreciation
required by applicable regulations of the Securities and Exchange
Commission.
(3) All option grants are non-qualified stock options having a term of 10 years
and one day. They become exercisable at the rate of 20% on each of the first
five anniversary dates of the grant.
(4) None of the executive officers of Harcourt General who are also officers of
the Company, including Mr. Tarr, participate in the Company's 1987 Stock
Incentive Plan.
(5) Each of Messrs. Tansky, Elkin, Feiwus, and Ms. Mello, received grants of
restricted stock in fiscal 1996. For details, see the Summary Compensation
Table and Note 5 thereto, above.
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
The following table provides information regarding the number and value of
stock options held at August 3, 1996 by the executive officers named in the
Summary Compensation Table.
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
AUGUST 3, 1996(#) AUGUST 3, 1996($)
--------------------- -----------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#)(1) REALIZED($)(2) UNEXERCISABLE UNEXERCISABLE(3)
- ---- ----------------- -------------- --------------------- -----------------
<S> <C> <C> <C> <C>
R. Tarr, Jr.(4)......... -- -- -- --
B. Tansky............... -- -- 46,600/39,900 $629,100/531,462
G. Sampson.............. -- -- 4,000/18,000 $ 51,500/221,250
S. Elkin................ 4,649 $ 36,695 46,350/26,000 $570,900/346,750
D. Mello................ 1,500 $ 18,000 1,500/12,000 $ 19,500/156,000
B. Feiwus............... 16,711 $105,354 0/24,500 $ 0/312,688
<FN>
- ---------------
(1) The number of shares listed in this column for each of the named executive
officers represents the surrender of vested options to purchase shares of
Common Stock at various exercise prices. The Company paid the executive
officers the respective amounts shown in the second column of this table in
connection with such surrenders. Those amounts were calculated based on the
difference between the
</TABLE>
16
<PAGE> 19
closing price of the Common Stock on the New York Stock Exchange on the
respective dates on which the options were surrendered and the various
option exercise prices.
(2) Represents the difference between the closing price of the Common Stock on
The New York Stock Exchange on the date of exercise and the option exercise
price.
(3) The value of unexercised in-the-money options is calculated by multiplying
the number of underlying shares by the difference between the closing price
of the Common Stock on the New York Stock Exchange at fiscal year end
($27.375) and the option exercise price for those shares. These values have
not been realized. The closing price of the Common Stock on the New York
Stock Exchange on September 6, 1996 was $32.625.
(4) None of the executive officers of Harcourt General who are also officers of
the Company, including Mr. Tarr, participate in the Company's 1987 Stock
Incentive Plan.
DIRECTORS COMPENSATION
Directors who are not affiliated with the Company or Harcourt General each
receive an annual retainer of $20,000 and a fee of $1,500 per Board of Directors
meeting attended, plus travel and incidental expenses (an aggregate of $3,348 in
fiscal 1996) incurred in attending meetings and carrying out their duties as
directors. They also receive a fee of $500 (the Chairperson receives $1,000) for
each committee meeting attended. If a director is unable to attend a meeting in
person but participates by telephone, he or she receives one-half of the fee
that would otherwise be payable.
PENSION PLANS
The Company maintains a funded, qualified pension plan known as The Neiman
Marcus Group, Inc. Retirement Plan (the "Retirement Plan"). Most non-union
employees over age 21 who have completed one year of service with 1,000 or more
hours participate in the Retirement Plan, which pays benefits upon retirement or
termination of employment. The Retirement Plan is a "career-average" plan, under
which a participant earns each year a retirement annuity equal to 1% of his or
her compensation for the year up to the Social Security wage base and 1.5% of
his or her compensation for the year in excess of such wage base. Benefits under
the Retirement Plan become fully vested after five years of service with the
Company.
The Company also maintains a Supplemental Executive Retirement Plan (the
"SERP"). The SERP is an unfunded, nonqualified plan under which benefits are
paid from the Company's general assets to supplement Retirement Plan benefits
and Social Security. Executive, administrative and professional employees (other
than those employed as salespersons) with an annual base salary at least equal
to a self-adjusting minimum ($100,000 as of August 3, 1996) are eligible to
participate. At normal retirement age (age 65), a participant with 25 or more
years of service is entitled to payments under the SERP sufficient to bring his
or her combined annual benefit from the Retirement Plan and SERP, computed as a
straight life annuity, up to 50% of the participant's highest consecutive 60
month average of annual pensionable earnings, less 60% of his or her estimated
annual primary Social Security benefit. If the participant has fewer than 25
years of service, the combined benefit is proportionately reduced. In computing
the combined benefit, "pensionable earnings" means base salary, including any
salary which may have been deferred. Benefits under the SERP become fully vested
after five years of service with the Company.
The following table shows the estimated annual pension benefits payable to
employees in various compensation and years of service categories. The estimated
benefits apply to an employee retiring at age 65 in 1996 who elects to receive
his or her benefit in the form of a straight life annuity. These benefits
include amounts attributable to both the Retirement Plan and the SERP and are in
addition to any retirement benefits that might be received from Social Security.
17
<PAGE> 20
<TABLE>
ESTIMATED ANNUAL RETIREMENT BENEFITS
UNDER RETIREMENT PLAN AND SERP(1)
<CAPTION>
AVERAGE TOTAL YEARS OF SERVICE
PENSIONABLE -------------------------------------------------------------
EARNINGS 5 10 15 20 25 OR MORE
- ----------- ------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
$300,000............................. $30,000 $ 60,000 $ 90,000 $120,000 $150,000
400,000............................. 40,000 80,000 120,000 160,000 200,000
500,000............................. 50,000 100,000 150,000 200,000 250,000
600,000............................. 60,000 120,000 180,000 240,000 300,000
700,000............................. 70,000 140,000 210,000 280,000 350,000
800,000............................. 80,000 160,000 240,000 320,000 400,000
<FN>
- ---------------
(1) The amounts actually payable will be lower than the amounts shown above,
since the above amounts will be reduced by 60% of the participant's
estimated primary Social Security benefit.
</TABLE>
<TABLE>
The following table shows the pensionable earnings and credited years of
service for the executive officers named in the Summary Compensation Table as of
August 3, 1996 and years of service creditable at age 65. Credited service may
not exceed 25 years for purpose of calculating retirement benefits under any of
the Company's retirement plans.
<CAPTION>
PENSIONABLE EARNINGS YEARS OF SERVICE
FOR YEAR ENDED -------------------------------
NAME AUGUST 3, 1996 AT AUGUST 3, 1996 AT AGE 65
---- -------------------- ----------------- ---------
<S> <C> <C> <C>
R. Tarr, Jr.(1)......................... -- -- --
B. Tansky............................... $650,000 --(2) 20(2)
G. Sampson.............................. 475,000 --(3) 20(3)
S. Elkin................................ 480,000 18 25
D. Mello................................ 350,000 15 15
B. Feiwus............................... 325,000 16 25
<FN>
- ---------------
(1) Mr. Tarr does not participate in the Company's Retirement Plan or SERP.
(2) Under Mr. Tansky's employment agreement with the Company, for purposes of
determining his retirement benefits under the SERP, Mr. Tansky will be
credited with 5/3 times his years of service with the Company provided (i)
he remains continuously employed by the Company until his 65th birthday or
(ii) the Company fails to extend his employment beyond January 31, 2000 in a
manner set forth in his February 1, 1997 employment agreement; otherwise,
Mr. Tansky's accrued service under the SERP will be calculated in the normal
manner. Mr. Tansky is 58 years old.
(3) For purposes of determining Mr. Sampson's retirement benefits under the
SERP, Mr. Sampson will be credited with 20/13 times his years of service
with the Company provided he remains continuously employed by the Company
until his 65th birthday; otherwise, Mr. Sampson's accrued service under the
SERP will be calculated in the normal manner. Mr. Sampson is 55 years old.
</TABLE>
EMPLOYMENT AND SEVERANCE AGREEMENTS
Burton Tansky. The Company and Mr. Tansky have entered into successive
employment agreements (effective May 1, 1994 and February 1, 1997) pursuant to
which Mr. Tansky is employed as Chairman and Chief Executive Officer of Neiman
Marcus Stores through January 31, 2000. In the event Mr. Tansky is terminated
without cause within 24 months of a change of control of the Company, or if
within 24 months of such a change of control Mr. Tansky resigns because he is
not permitted to continue in a position comparable in duties and
responsibilities to that which he held prior to the change of control, Mr.
Tansky will be entitled to receive his then-current base compensation for 18
months. If the Company terminates Mr. Tansky's employment during the term of the
Employment Agreement for any reason other than for cause or other than because
of his total disability or death, Mr. Tansky will continue to receive his base
compensation and benefits
18
<PAGE> 21
until January 31, 2001 or for 18 months following termination, whichever is
greater. If the Company determines not to extend Mr. Tansky's employment beyond
January 31, 2000, the Company will pay to Mr. Tansky his then-current base
compensation through January 31, 2001, which amount will be reduced by any
amounts earned by him from other employment between August 1, 2000 and January
31, 2001, and the Company will credit Mr. Tansky with service pursuant to the
SERP as if he had remained employed by the Company until age 65.
Gerald A. Sampson. Pursuant to an agreement between Mr. Sampson and the
Company, effective September 1996, Mr. Sampson is entitled to receive severance
payments in the event his employment with the Company is terminated in certain
situations. If the Company terminates Mr. Sampson's employment other than for
cause or other than due to his total disability or death, Mr. Sampson shall have
the right to receive an amount equal to his then-current annual base salary,
payable in 12 monthly installments. Mr. Sampson will also be entitled to receive
such payments if his employment is terminated by a successor to the Company
within 24 months of a change of control of the Company without cause or other
than due to his total disability or death, or if within 24 months of such a
change of control Mr. Sampson resigns because he is not permitted to continue in
a position comparable in duties and responsibilities to that which he held prior
to the change of control. Beginning six months following the date of a covered
termination or resignation, all amounts to be paid under such agreement shall be
reduced by the amount Mr. Sampson receives as compensation or severance related
to other employment. Mr. Sampson has agreed to provide the Company with 3 months
advance notice of his intent to resign from the Company provided that such
resignation does not follow a change of control of the Company.
Stephen C. Elkin. Pursuant to an agreement between Mr. Elkin and Bergdorf
Goodman, effective September 1993, Mr. Elkin is entitled to receive severance
payments in the event his employment with Bergdorf Goodman is terminated in
certain situations. If the Company terminates Mr. Elkin's employment other than
for cause or other than due to his total disability or death, he will receive an
amount equal to one and one half times his then-current base salary, which
amount will be paid to him in 18 monthly installments following such termination
but will be reduced by any amounts received by him from other employment during
the period beginning six months following his termination and ending at the end
of the 18 month period. Mr. Elkin will also be entitled to receive such payments
in the event his employment is terminated without cause within 24 months of a
change of control of either Bergdorf Goodman or the Company, or in the event he
resigns within 24 months of a change of control because he is not permitted to
continue in a position comparable in duties and responsibilities to that which
he held before the change of control.
Dawn Mello. Pursuant to an agreement between Ms. Mello and Bergdorf
Goodman, effective May 1994, Ms. Mello is entitled to receive severance payments
in the event her employment with Bergdorf Goodman is terminated in certain
situations. If the Company terminates Ms. Mello's employment other than for
cause or other than due to her total disability or death, Ms. Mello will receive
an amount equal to her then-current annual salary, which amount will be paid in
12 monthly installments following such termination but will be reduced by any
amounts received by her from other employment during the period beginning six
months and ending 12 months following such termination.
Bernie Feiwus. Pursuant to an agreement between Mr. Feiwus and NM Direct,
effective October 1995, Mr. Feiwus is entitled to receive severance payments in
the event his employment with NM Direct is terminated in certain situations. If
the Company terminates Mr. Feiwus' employment without cause within 24 months of
a change of control of the Company or of NM Direct, or if within 24 months after
such a change of control Mr. Feiwus resigns his employment because he is not
permitted to continue in a position comparable in duties and responsibilities to
that which he held before the change of control, he will receive an amount equal
to one and one half times his then-current annual base salary, which amount will
be paid in 18 monthly installments following such termination but will be
reduced by any amounts received by him from other employment during the period
beginning six months and ending 18 months following such termination.
19
<PAGE> 22
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, Richard A. Smith, Chairman of the Board of Directors of
the Company, served on the Boards of Directors of Liberty Mutual Insurance
Company and Liberty Mutual Fire Insurance Company (collectively, "Liberty
Mutual"). Gary L. Countryman, who served as a director of the Company and the
Chairman of the Company's Compensation Committee until his resignation from
these positions on January 19, 1996, is the Chairman and Chief Executive Officer
of Liberty Mutual. Liberty Mutual underwrites most of the Company's insurance
policies. These insurance policies contain terms which, in the judgment of
management, are no less favorable than could be obtained from other insurance
companies. During fiscal 1996, the Company paid to Liberty Mutual an aggregate
of approximately $2.2 million in premiums and administrative fees.
------------------------
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934, each as amended, that might incorporate future filings, including this
Form 10-K, in whole or in part, the following Compensation Committee Report on
Executive Compensation and Stock Performance Graph shall not be deemed to be
incorporated by reference into any such filings, nor shall such sections of this
Report be deemed to be incorporated into any future filings made by the Company
under the Securities Act of 1933 or the Securities Exchange Act of 1934.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of Walter J. Salmon (Chairman),
Matina S. Horner and Jean Head Sisco. The members of the Compensation Committee
are all independent directors.
The principal responsibility of the Committee is to review the performance
of, and determine the compensation for, the executive officers of the Company
who are not also executive officers of Harcourt General. The individuals in this
group include Messrs. Tansky, Sampson, Elkin, Feiwus and Ms. Mello, all of whom
are named executive officers in the Summary Compensation Table. The compensation
of Harcourt General's executive officers, most of whom are also executive
officers of the Company, is determined by Harcourt General's Compensation
Committee.
Compensation Policies
The principal objectives of the Company's executive compensation program
are to reward competitively its executive officers in order to attract and
retain excellent management and to provide incentives that will most sharply
focus the attention of those individuals on the goal of increasing the
profitability of the Company and its operating divisions over both the short and
long terms.
Early in each fiscal year, the Committee considers the recommendations of
the Chief Executive Officer, which are supported by data generated by the
Company's Human Resources Department, for each component of compensation of the
Company's executive officers. The Committee reviews those recommendations and
then approves them or makes such modifications as it deems appropriate.
The principal components of the Company's compensation program are:
Base Salary
Base salary is determined with reference both to salary survey
information from recognized compensation consulting firms and to each
executive officer's level of responsibility, experience and performance.
The salary survey data is used to establish benchmark amounts for both base
salary and total cash compensation for each executive position. Comparisons
are made to a range of retail companies or to divisions within such
companies, with the principal selection criteria for comparisons being
similar revenues to the division within the Company. While there are no
hard and fast rules which bind the Committee, the Company generally sets
its salary and total cash compensation benchmarks (assuming that maximum
bonuses are achieved) for executive officers at the 75th percentile of the
comparison
20
<PAGE> 23
group of companies in order to compete for and retain the best management
talent available. Because the Company competes for executive talent with a
broad range of companies, the Committee does not limit its comparison
information for compensation purposes to the companies included in the peer
group in the Stock Performance Graph.
The Committee reviews in detail the base salary levels for each of the
principal executive officers of the Company. While the Committee uses the
benchmarks as a reference point, a particular individual's base salary may
vary from the benchmark depending upon his or her salary history,
experience, individual performance, contractual obligations of the Company,
guidelines established by the Chief Executive Officer with respect to
salary increases for the entire Company and the subjective judgment of the
Committee.
Annual Incentive Plan
The determination of annual bonuses is based principally on the
achievement of performance objectives by the operating division for which
the executive is responsible and the individual executive's own
performance. For some executive officers, a small component of their bonus
eligibility depends on the Company's overall performance.
Shortly after the beginning of each fiscal year, the Compensation
Committee considers the recommendations of the Chief Executive Officer for
the Company's and each division's performance goals for the current year,
the executive officers who should participate in the annual incentive plan
for that year, and the maximum bonus values attainable by them. The
Committee approves those recommendations with such modifications as it
deems appropriate.
For fiscal 1996, the plan provided for maximum bonuses ranging from
35% to 45% of base salary. Eligibility for the divisional performance
component of the bonus was determined based on a weighting of several
factors, the most important of which was operating earnings before
corporate expenses. Other factors included return on net assets and working
capital as a percentage of sales. Similar factors will be used by the
Committee in determining bonuses for fiscal 1997. In addition, each of the
Company's executive officers prepares and reaches agreement with the Chief
Executive Officer on individual performance goals which must be achieved in
addition to the performance targets in order for an executive to receive
his or her full bonus. Individual performance goals typically include
achievement of specific tasks.
The bonuses actually awarded to the executive officers for fiscal 1996
were determined by an assessment of all of these factors, as well as
certain subjective factors.
Absent extraordinary circumstances, if the financial performance
targets are exceeded, bonus awards are not increased over the maximum bonus
values established by the Committee. If the performance targets are not
met, bonus awards will, in all probability, be reduced at the discretion of
the Committee. If the Company and/or the relevant division falls
sufficiently short of its performance target, there is a presumption that
bonuses would not be paid absent special circumstances. Factors such as the
performance of a business unit for which the executive officer is
responsible and achievement of individual performance goals are considered
in the decision to award a bonus. If corporate and/or division performance
targets are met, but an individual falls short of his or her performance
goals, the individual's bonus could be reduced or eliminated in the
discretion of the Committee.
The bonus program is intended to put substantial amounts of total cash
compensation at risk with the intent of focusing the attention of the
executives on achieving both the Company's and their division's performance
goals and their individual goals, thereby contributing to profitability and
building shareholder value.
Stock Incentives
The Committee's purpose in awarding equity based incentives,
principally in the form of stock options which vest over a five year period
and terminate ten years from the date of grant and in the form
21
<PAGE> 24
of restricted stock which vests over a five year period, is to achieve as
much as possible an identity of interest between the executives and the
long term interest of the stockholders. The principal factors considered in
determining which executive officers (including the named executive
officers) were awarded equity based compensation in the 1996 fiscal year,
and in determining the types and amounts of such awards, were salary
levels, equity awards granted to executives at competing retail companies,
as well as the performance, experience and level of responsibility of each
executive.
Compensation of the Chief Executive Officer
Mr. Tarr is also the Chief Executive Officer of Harcourt General, which
owns a majority of the outstanding Common Stock. All of Mr. Tarr's cash and
non-cash compensation is paid directly by Harcourt General to Mr. Tarr pursuant
to an employment agreement between Mr. Tarr and Harcourt General which was
approved by the Harcourt General Compensation Committee and became effective in
November 1991. Mr. Tarr receives no compensation directly from the Company.
However, pursuant to the Intercompany Services Agreement between the Company and
Harcourt General, Harcourt General provides certain management and other
corporate services to the Company, including Mr. Tarr's services as Chief
Executive Officer. During fiscal 1996, the Company paid or accrued approximately
$6.9 million to Harcourt General for all of its services under the Intercompany
Services Agreement, of which approximately $2.3 million was attributable to Mr.
Tarr's services. While the Special Review Committee of the Company reviews each
year the appropriateness of the charges by Harcourt General to the Company under
the Intercompany Services Agreement, neither this Committee nor the Special
Review Committee plays any role in determining the compensation that Mr. Tarr,
or any other executive officer of Harcourt General, receives from Harcourt
General.
Compliance with the Internal Revenue Code
The Internal Revenue Code (the "Code") generally disallows a tax deduction
to public companies for compensation in excess of $1 million per year which is
not "performance based" paid to each of the executive officers named in the
Summary Compensation Table. The Committee and the Board of Directors recently
approved The Neiman Marcus Group 1997 Incentive Plan, subject to approval by the
stockholders of the Company at the 1997 Annual Meeting. If this Plan is approved
by the stockholders, it will allow the Committee to continue to award stock
incentives and cash bonuses based on objective criteria and consistent with past
practice. The stock incentives and cash bonuses awarded under the Plan will be
characterized as "performance based" compensation and therefore will be fully
deductible by the Company.
The Committee will continue to monitor the requirements of the Code and to
determine what actions should be taken by the Company in order to preserve the
tax deduction for executive compensation to the maximum extent, consistent with
the Company's continuing goals of providing the executives of the Company with
appropriate incentives and rewards for their performance.
COMPENSATION COMMITTEE
Walter J. Salmon, Chairman
Matina S. Horner
Jean Head Sisco
22
<PAGE> 25
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Company's Common Stock against the cumulative total return during the five
fiscal years ended August 3, 1996 of (i) the Standard & Poor's 500 Index and
(ii) a peer group index consisting of Tiffany & Co. and Nordstrom, Inc. The
graph assumes a $100 investment in the Company's Common Stock and in each index
company at August 3, 1991, and that all dividends were reinvested. The common
stocks of the companies in the peer group index have been weighted annually to
reflect relative stock market capitalization. The comparisons provided in this
graph are not intended to be indicative of possible future performance of the
Company's stock.
STOCK PERFORMANCE GRAPH
<TABLE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
THE NEIMAN MARCUS GROUP, INC., S&P 500 INDEX, AND PEER INDEX
<CAPTION>
THE NEIMAN
MEASUREMENT PERIOD MARCUS GROUP, S&P 500 IN-
(FISCAL YEAR COVERED) INC. DEX PEER INDEX
- --------------------- ------------- ----------- ----------
<S> <C> <C> <C>
03-AUG-91 100.00 100.00 100.00
01-AUG-92 83.67 113.54 62.36
31-JUL-93 91.04 123.20 61.48
30-JUL-94 96.97 129.03 94.49
29-JUL-95 98.47 161.79 89.93
03-AUG-96 172.13 194.77 101.62
</TABLE>
23
<PAGE> 26
<TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of September 6, 1996, with
respect to the beneficial ownership of the Common Stock by (i) each person known
to the Company to own beneficially more than 5% of the outstanding shares of
Common Stock; (ii) each executive officer named in the Summary Compensation
Table; (iii) each director of the Company; and (iv) all directors and current
executive officers of the Company as a group.
<CAPTION>
NUMBER PERCENT
OF SHARES OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) STOCK
------------------------------------ ---------- ---------
<S> <C> <C>
Harcourt General, Inc.(2)...................................... 22,572,360 59.40%
27 Boylston Street
Chestnut Hill, MA 02167
Gabelli Funds, Inc.(3)......................................... 5,391,800 14.19%
One Corporate Center
Rye, NY 10580
Neuberger & Berman, L.P.(4).................................... 2,384,300 6.27%
605 Third Avenue
New York, NY 10158
Burton M. Tansky(5)............................................ 69,900 *
Gerald A. Sampson(6)........................................... 29,400 *
Stephen Elkin(7)............................................... 77,380 *
Dawn Mello(8).................................................. 8,000 *
Bernie Feiwus(9)............................................... 29,784 *
Matina S. Horner............................................... -- *
Walter J. Salmon............................................... 8,942 *
Jean Head Sisco................................................ 1,134 *
Richard A. Smith(10)........................................... -- *
Robert J. Tarr, Jr.(10)........................................ -- *
All current executive officers and directors as a group (19
persons)(11)................................................. 224,540 *
<FN>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated in the following footnotes, each stockholder
referred to above has sole voting and investment power with respect to the
shares listed.
(2) Harcourt General holds approximately 59% of the outstanding Common Stock
and 100% of the outstanding 6% Preferred Stock. At August 3, 1996, each
share of 6% Preferred Stock was convertible into 9.12 shares of Common
Stock at a price of $41.12 per share of Common Stock. The closing price of
the Common Stock on the New York Stock Exchange on September 6, 1996 was
$32.625. Harcourt General also holds 100% of the outstanding 9 1/4%
Preferred Stock, which has no conversion rights.
Richard A. Smith, Chairman of the Board of Directors of the Company and of
Harcourt General, his sister, Nancy L. Marks, and certain members of their
families may be regarded as controlling persons of Harcourt General, and
therefore of the Company. The shares of Harcourt General Class B Stock and
Harcourt General Common Stock beneficially owned by or for the benefit of
the Smith family constitute approximately 28% of the aggregate number of
outstanding equity securities of Harcourt General. Each share of Harcourt
General voting stock entitles the holder thereof to one vote on all matters
submitted to Harcourt General's stockholders, except that each share of
Harcourt General Class B Stock (virtually all of which is owned by the
Smith family) entitles the holder thereof to ten votes on the election of
directors at any Harcourt General stockholders' meeting under certain
circumstances. Accordingly, as to any elections in which the Harcourt
General Class B Stock would carry ten votes per share at a Harcourt General
stockholders' meeting, the Smith family would have approximately 80% of the
combined voting power of the Harcourt General voting securities.
Under the definition of "beneficial ownership" in Rule 13d-3 of the Rules
and Regulations promulgated under the Securities Exchange Act of 1934, as
amended, the Smith family and the members of Harcourt General's Board of
Directors may be deemed to be the beneficial owners of the securities of
</TABLE>
24
<PAGE> 27
the Company beneficially owned by Harcourt General in that they may be
deemed to share with Harcourt General the power to direct the voting and/or
disposition of such securities. However, this information should not be
deemed to constitute an admission that any such person or group of persons
is the beneficial owner of such securities.
Assuming the completion of the Offering and the related transactions,
Harcourt General will continue to own a majority of the issued and
outstanding shares of Common Stock.
(3) The information reported is based on a Schedule 13G dated July 10, 1995
filed with the Securities and Exchange Commission (the "Commission") by the
Gabelli Funds, Inc. and its affiliates (collectively, the "Gabelli
Affiliates"). The Gabelli Affiliates have sole voting power with respect to
5,115,900 shares and sole dispositive power with respect to all of the
shares shown in the table.
(4) The information reported is based on a Schedule 13G dated February 12, 1996
filed with the Commission by Neuberger & Berman, L.P. Neuberger & Berman
has sole voting power with respect to 215,700 shares shown in the table.
(5) Includes 59,900 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of September 6, 1996. Also includes
10,000 shares of restricted stock over which Mr. Tansky has voting but not
dispositive power.
(6) Includes 8,400 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of September 6, 1996. Also includes
4,000 shares of restricted stock over which Mr. Sampson has voting but not
dispositive power.
(7) Includes 54,350 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of September 6, 1996. Also includes
8,500 shares of restricted stock over which Mr. Elkin has voting but not
dispositive power.
(8) Includes 4,500 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of September 6, 1996. Also includes
3,500 shares of restricted stock over which Ms. Mello has voting but not
dispositive power.
(9) Includes 6,500 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of September 6, 1996. Also includes
5,400 shares of restricted stock over which Mr. Feiwus has voting but not
dispositive power.
(10) The members of the Board of Directors of Harcourt General, including
Messrs. Smith and Tarr, may be deemed to be the beneficial owners of the
securities of the Company owned by Harcourt General. However, this
information should not be deemed to be an admission that any such person or
group is the beneficial owner of such securities.
(11) Excludes the beneficial ownership of securities of the Company which may be
deemed to be attributed to Messrs. Smith and Tarr (see Notes 2 and 10
above). Includes 133,650 shares of Common Stock which are subject to
outstanding options exercisable within 60 days of September 6, 1996. Also
includes 31,400 shares of restricted stock over which individuals in the
group have voting but not dispositive power.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH PRINCIPAL STOCKHOLDER -- INTERCOMPANY SERVICES AGREEMENT
See Note 1 to the Summary Compensation Table in Item 11 above.
TRANSACTIONS WITH DIRECTORS
See "Compensation Committee Interlocks and Insider Participation" in Item
11 above.
25
<PAGE> 28
TRANSACTIONS WITH OFFICERS
During fiscal 1996 and through September 6, 1996, the maximum aggregate
principal amount of loans that Mr. Sampson had outstanding from the Company was
$227,891. These loans were incurred pursuant to the Company's Key Executive
Stock Purchase Loan Plan (the "Loan Plan"). These loans were used by Mr. Sampson
to purchase 15,000 shares of Common Stock in the open market and to discharge
certain tax liabilities incurred in connection with the release of restrictions
on Common Stock previously granted to Mr. Sampson. The loans are secured by a
pledge of the purchased shares and they bear interest at an annual rate of 5%,
payable quarterly. Pursuant to the terms of the Loan Plan, the loans will become
due and payable seven months after Mr. Sampson's employment with the Company
terminates. No other officer of the Company had outstanding loans under the Loan
Plan in excess of $60,000 during fiscal 1996 or subsequent thereto.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14(A)(1) CONSOLIDATED FINANCIAL STATEMENTS
The documents listed below are filed as part of this Form 10-K:
<TABLE>
<CAPTION>
PAGE IN
FORM 10-K
---------
<S> <C>
Independent Auditors' Report...................................... F-2
Consolidated Balance Sheets....................................... F-3
Consolidated Statements of Operations............................. F-4
Consolidated Statements of Cash Flows............................. F-5
Consolidated Statements of Common Shareholders' Equity............ F-6
Notes to Consolidated Financial Statements........................ F-7
</TABLE>
14(A)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The report and schedule listed below are filed as part of this Form 10-K:
<TABLE>
<CAPTION>
PAGE IN
FORM 10-K
---------
<S> <C>
Independent Auditors' Report on Consolidated Financial Statement
Schedule........................................................ F-18
Schedule II -- Valuation and Qualifying Accounts and Reserves..... F-19
</TABLE>
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 on Form 10-K are listed in
the Exhibit Index immediately preceding the exhibits. 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 is identified with an asterisk in the Exhibit Index.
14(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter ended
August 3, 1996.
26
<PAGE> 29
<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Cash Flows................................................. F-5
Consolidated Statements of Common Shareholders' Equity................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
Independent Auditors' Report on Consolidated Financial Statement Schedule............. F-18
Schedule II -- Valuation and Qualifying Accounts and Reserves......................... F-19
</TABLE>
F-1
<PAGE> 30
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
The Neiman Marcus Group, Inc.
Chestnut Hill, Massachusetts
We have audited the accompanying consolidated balance sheets of The Neiman
Marcus Group, Inc. and subsidiaries as of August 3, 1996 and July 29, 1995, and
the related consolidated statements of operations, common shareholders' equity
and cash flows for each of the three fiscal years in the period ended August 3,
1996. 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 The Neiman
Marcus Group, Inc. and subsidiaries as of August 3, 1996 and July 29, 1995, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended August 3, 1996, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
August 29, 1996,
(September 10, 1996 as to Note 13)
F-2
<PAGE> 31
THE NEIMAN MARCUS GROUP, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
JULY 29, AUGUST 3,
1995 1996
---------- ----------
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents.............................................. $ 13,695 $ 12,659
Accounts receivable, less allowance for doubtful accounts of
$6,100 and $5,800.............................................. 150,110 165,442
Merchandise inventories........................................... 359,092 443,948
Deferred income taxes............................................. 17,102 21,666
Other current assets.............................................. 38,410 45,368
---------- ----------
TOTAL CURRENT ASSETS...................................... 578,409 689,083
---------- ----------
PROPERTY AND EQUIPMENT
Land, buildings and improvements.................................. 342,551 396,541
Fixtures and equipment............................................ 200,664 271,852
Construction in progress.......................................... 84,956 36,431
---------- ----------
628,171 704,824
Less accumulated depreciation and amortization.................... 204,588 247,199
---------- ----------
PROPERTY AND EQUIPMENT, NET....................................... 423,583 457,625
---------- ----------
OTHER ASSETS........................................................ 106,445 105,642
---------- ----------
$1,108,437 $1,252,350
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities of long-term liabilities..... $ 11,859 $ 35,576
Accounts payable.................................................. 170,672 192,146
Accrued liabilities............................................... 152,049 146,326
---------- ----------
TOTAL CURRENT LIABILITIES................................. 334,580 374,048
---------- ----------
LONG-TERM LIABILITIES
Notes and debentures.............................................. 242,000 292,000
Other long-term liabilities....................................... 69,056 69,940
---------- ----------
TOTAL LONG-TERM LIABILITIES............................... 311,056 361,940
---------- ----------
DEFERRED INCOME TAXES............................................... 30,812 33,329
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCKS (redemption value $424,923)............. 405,442 407,426
COMMON STOCK
Common stock -- $.01 par value
Authorized -- 100,000,000 shares
Issued and outstanding -- 37,959,646 and 38,003,702 shares..... 380 380
ADDITIONAL PAID-IN CAPITAL.......................................... 82,366 83,106
ACCUMULATED DEFICIT................................................. (56,199) (7,879)
---------- ----------
$1,108,437 $1,252,350
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 32
THE NEIMAN MARCUS GROUP, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
YEARS ENDED
----------------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
Revenues............................................... $1,789,461 $1,888,249 $2,075,003
Cost of goods sold including buying and occupancy
costs................................................ 1,210,262 1,276,776 1,416,296
Selling, general and administrative expenses........... 420,667 448,956 485,533
Corporate expenses..................................... 13,411 12,465 13,719
---------- ---------- ----------
Operating earnings..................................... 145,121 150,052 159,455
Interest expense....................................... 31,878 33,958 28,228
---------- ---------- ----------
Earnings from continuing operations before income
taxes................................................ 113,243 116,094 131,227
Income taxes........................................... 47,562 48,759 53,803
---------- ---------- ----------
Earnings from continuing operations.................... 65,681 67,335 77,424
Loss from discontinued operations, net of taxes
(including loss on disposal of $9,873 in 1995)....... (49,755) (11,727) --
---------- ---------- ----------
Net earnings........................................... 15,926 55,608 77,424
Dividends and accretion on redeemable preferred
stocks............................................... (29,080) (29,092) (29,104)
---------- ---------- ----------
Net earnings (loss) applicable to common
shareholders......................................... $ (13,154) $ 26,516 $ 48,320
========== ========== ==========
Weighted average shares outstanding.................... 37,946 37,999 38,218
========== ========== ==========
Amounts per share applicable to common shareholders:
Earnings from continuing operations.................. $ .96 $ 1.01 $ 1.26
Loss from discontinued operations.................... (1.31) (.31) --
---------- ---------- ----------
Net earnings (loss).................................. $ (.35) $ .70 $ 1.26
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 33
THE NEIMAN MARCUS GROUP, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED
-----------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings................................................... $ 15,926 $ 55,608 $ 77,424
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization................................ 48,086 48,397 56,305
Deferred income taxes........................................ (7,131) 259 (2,047)
Change in net assets of discontinued operations.............. 22,162 8,317 --
Other........................................................ 4,963 (3,479) 2,447
Changes in current assets and liabilities:
Accounts receivable.......................................... (52,664) (34,584) (15,332)
Merchandise inventories...................................... 17,422 (38,709) (84,856)
Accounts payable and accrued liabilities..................... (1,975) 63,005 15,751
Other........................................................ (13,203) 6,846 (6,958)
-------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................... 33,586 105,660 42,734
-------- --------- --------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Additions to property and equipment............................ (65,074) (93,514) (85,736)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings of debt............................................. 73,800 17,065 109,917
Repayment of debt.............................................. (11,307) (247,276) (41,571)
Proceeds from receivables securitization....................... -- 245,965 --
Common stock issued............................................ 100 112 740
Dividends paid................................................. (34,709) (30,917) (27,120)
-------- --------- --------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES........... 27,884 (15,051) 41,966
-------- --------- --------
CASH AND EQUIVALENTS
Decrease during the year....................................... (3,604) (2,905) (1,036)
Beginning balance.............................................. 20,204 16,600 13,695
-------- --------- --------
Ending balance................................................. $ 16,600 $ 13,695 $ 12,659
======== ========= ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest..................................................... $ 31,504 $ 34,466 $ 27,816
======== ========= ========
Income taxes................................................. $ 34,258 $ 17,614 $ 56,523
======== ========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 34
THE NEIMAN MARCUS GROUP, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
------ ------ ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance -- August 1, 1993............................ 37,938 $379 $82,154 $(58,175)
Net earnings......................................... -- -- -- 15,926
Accretion of redeemable preferred stock.............. -- -- -- (1,960)
Common dividends..................................... -- -- -- (7,589)
Preferred dividends.................................. -- -- -- (27,120)
Other equity transactions............................ 13 1 100 --
------ ---- ------- --------
Balance -- July 30, 1994............................. 37,951 380 82,254 (78,918)
Net earnings......................................... -- -- -- 55,608
Accretion of redeemable preferred stock.............. -- -- -- (1,972)
Common dividends..................................... -- -- -- (3,797)
Preferred dividends.................................. -- -- -- (27,120)
Other equity transactions............................ 9 -- 112 --
------ ---- ------- --------
Balance -- July 29, 1995............................. 37,960 380 82,366 (56,199)
Net earnings......................................... -- -- -- 77,424
Accretion of redeemable preferred stock.............. -- -- -- (1,984)
Preferred dividends.................................. -- -- -- (27,120)
Other equity transactions............................ 44 -- 740 --
------ ---- ------- --------
Balance -- August 3, 1996............................ 38,004 $380 $83,106 $ (7,879)
====== ==== ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 35
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF REPORTING
The Company's specialty retailing businesses include Neiman Marcus Stores,
NM Direct and Bergdorf Goodman. The consolidated financial statements include
the accounts of all of the Company's wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The Company's
fiscal year ends on the Saturday closest to July 31. In fiscal 1996, the
reporting period included 53 weeks as compared to 52 weeks in each of fiscal
years 1995 and 1994.
CASH AND EQUIVALENTS
Cash and equivalents consist of cash and highly liquid investments with
maturities of three months or less from the date of purchase.
MERCHANDISE INVENTORIES
Inventories are stated at the lower of cost or market. Substantially all of
the Company's inventories are valued using the retail method on the last-in,
first-out (LIFO) basis. While the Company believes that the LIFO method provides
a better matching of costs and revenues, some specialty retailers use the
first-in, first-out (FIFO) method and, accordingly, the Company has provided the
following data for comparative purposes.
If the FIFO method of inventory valuation had been used to value all
inventories, merchandise inventories would have been $13.5 million and $14.2
million higher than reported at August 3, 1996 and July 29, 1995, respectively.
As a result of using the LIFO valuation method, net earnings were $0.4 million
higher in 1996, $6.0 million higher in 1995, and $1.4 million lower in 1994 than
they would have been using the FIFO method.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided on a straight-line basis over
the shorter of the estimated useful lives of the related assets or the lease
term. Buildings and improvements are depreciated over 15 to 30 years while
fixtures and equipment are depreciated over 2 to 15 years.
When property and equipment are retired or have been fully depreciated, the
cost and the related accumulated depreciation are eliminated from the respective
accounts. Gains or losses arising from dispositions are reported as income or
expense.
Intangibles are amortized on a straight-line basis over their estimated
useful lives, not exceeding 40 years. Amortization expense was $3.7 million in
1996, $3.7 million in 1995 and $3.8 million in 1994.
In 1996 the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," and determined that no impairment loss need be
recognized. On an annual basis 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.
INCOME TAXES
Income taxes are calculated in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes." SFAS 109
requires the asset and liability method of accounting for income taxes.
F-7
<PAGE> 36
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECEIVABLES AND FINANCE CHARGE INCOME
The Company's credit operations generate finance charge income, which is
recognized as income when earned and is recorded as a reduction of selling,
general and administrative expenses. Finance charge income amounted to $47.7
million in 1996, $55.9 million in 1995 and $54.3 million in 1994. The
securitization of the Company's credit card receivables, which was completed in
March 1995, had the effect of reducing finance charge income by $19.0 million in
1996 and $7.1 million in 1995.
Concentration of credit risk with respect to trade receivables is limited
due to the large number of customers to whom the Company extends credit. Ongoing
credit evaluation of customers' financial position is performed, and collateral
is not required as a condition of extending credit. The Company maintains
reserves for potential credit losses.
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Earnings (loss) per share information reflects the earnings and losses of
the Company applicable to common shareholders. The dividend and accretion
requirements of the redeemable preferred stocks are deducted from earnings from
continuing operations of the Company to arrive at net earnings (loss) applicable
to common shareholders. Earnings (loss) per common share is based upon the
weighted average number of common and, when dilutive, common equivalent shares
outstanding during the year.
PREOPENING EXPENSES
Costs associated with the opening of new stores are expensed as incurred.
SIGNIFICANT ESTIMATES
In the process of preparing its consolidated financial statements, the
Company estimates the appropriate carrying value of certain assets and
liabilities which are not readily apparent from other sources. The primary
estimates underlying the Company's consolidated financial statements include
allowances for doubtful accounts, accruals for pension and postretirement
benefits and other matters. Actual results could differ from these estimates.
Management bases its estimates on historical experience and on various
assumptions which are believed to be reasonable under the circumstances.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation.
2. DISCONTINUED OPERATIONS
On June 30, 1995, the Company sold its Contempo Casuals operations to The
Wet Seal, Inc. for approximately $1.0 million of Wet Seal Class A Common Stock
and $100,000 in cash. The consolidated financial statements have been restated
to present Contempo Casuals as a discontinued operation.
The losses from discontinued operations recorded for the fiscal years ended
1995 and 1994 are net of applicable income tax benefits of $1.3 million and
$36.0 million, respectively. The loss on disposal in 1995 of $9.9 million is net
of $7.1 million of applicable income tax benefits.
Revenues related to the discontinued Contempo Casuals operations were
$207.2 million in 1995 and $303.4 million in 1994.
F-8
<PAGE> 37
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
3. OTHER ASSETS
Other assets consisted of the following:
<CAPTION>
AUGUST
JULY 29, 3,
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Trademarks................................................... $ 73,000 $ 73,000
Goodwill..................................................... 22,729 22,729
Other assets................................................. 35,805 38,677
-------- --------
131,534 134,406
Accumulated amortization..................................... (25,089) (28,764)
-------- --------
$106,445 $105,642
======== ========
</TABLE>
<TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<CAPTION>
JULY 29, AUGUST 3,
1995 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Accrued salaries and related charges......................... $ 29,878 $ 26,336
Self-insurance reserves...................................... 27,433 27,860
Income taxes payable......................................... 17,957 17,285
Other........................................................ 76,781 74,845
-------- --------
$152,049 $146,326
======== ========
</TABLE>
<TABLE>
5. LONG-TERM LIABILITIES
Long-term liabilities consisted of the following:
<CAPTION>
INTEREST JULY 29, AUGUST 3,
RATE 1995 1996
---------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving credit agreement (a).................... Variable $ 77,100 $186,500
Senior notes (b).................................. Various 172,000 132,000
Capital lease obligations (c)..................... 7.63-10.25% 7,206 6,697
Other long-term liabilities (d)................... Various 66,609 72,319
-------- --------
Total long-term liabilities....................... 322,915 397,516
Less current maturities........................... (11,859) (35,576)
-------- --------
$311,056 $361,940
======== ========
<FN>
(a) The Company has a five year, $500 million revolving credit facility which
expires in April, 2000. The Company may terminate this agreement at any
time on three business days' notice. The rate of interest payable (5.9% at
August 3, 1996) varies according to one of four pricing options selected by
the Company. The revolving credit facility contains, among other
restrictions, provisions limiting the issuance of additional debt, the
amount and type of investments and the payment of dividends.
In addition to its revolving credit facility, the Company borrows from
other banks on an uncommitted basis. Such borrowings are included in notes
payable and current maturities of long-term liabilities and amounted to
$26.5 million at August 3, 1996 and $7.1 million at July 29, 1995.
</TABLE>
F-9
<PAGE> 38
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
(b) Senior notes consisted of the following:
<CAPTION>
INTEREST RATE DUE PRINCIPAL AMOUNT
- ------------- --- ----------------
(IN THOUSANDS)
<S> <C> <C>
9.59% August 1996 $52,000
9.24% December 1996 $40,000
Variable December 1996 $40,000
</TABLE>
The notes have no sinking fund requirements. All fixed rate senior notes
may be redeemed at any time at a premium plus accrued interest. The
variable rate note bears interest at LIBOR plus 0.7% (6.0% at August 3,
1996) and is adjusted semiannually. The notes are classified as long-term,
since the Company has the ability and intent to repay them upon maturity
through borrowings on the revolving credit facility.
(c) The amount of assets under capital leases included in property and
equipment net of amortization was $3.5 million at August 3, 1996 and $4.0
million at July 29, 1995.
(d) Other long-term liabilities consisted primarily of certain employee benefit
obligations, postretirement health care benefits and the liability for
certain scheduled rent increases.
The aggregate maturities of all long-term liabilities and capital lease
obligations are $35.6 million in 1997, $5.6 million in 1998, $5.8 million in
1999, $297.9 million in 2000, $6.1 million in 2001 and $46.5 million thereafter.
6. REDEEMABLE PREFERRED STOCKS
The Company is authorized to issue up to 50,000,000 shares of preferred
stock. The Company's issued and outstanding preferred stocks consist of
1,000,000 shares of 6% Cumulative Convertible Preferred Stock (6% Preferred
Stock) and 500,000 shares of 9 1/4% Cumulative Redeemable Preferred Stock
(9 1/4% Preferred Stock), all of which are owned by Harcourt General, Inc.
(Harcourt General).
The 6% Preferred Stock is entitled to receive cumulative dividends at an
annual rate of 6% on its $374.9 million stated value, to a class vote on certain
matters, to convert on a per share basis into approximately 9.12 shares of
Common Stock subject to certain antidilution adjustments and, upon liquidation
of the Company, is entitled to receive a liquidation distribution equal to its
stated value, together with any accrued and unpaid dividends, before any
distribution to any junior class of stock. The conversion price of the 6%
Preferred Stock at August 3, 1996 was approximately $41.12 per share of Common
Stock acquired upon such conversion; the market value per share of Common Stock
on August 3, 1996 was $27.38. The 6% Preferred Stock may be redeemed by the
Company at a premium over its stated value under certain conditions through
September 1997. Commencing in September 1997 (when a sinking fund for this
purpose commences), the Company is required to redeem annually not less than 5%
of the 6% Preferred Stock at a redemption value of $374.92 per share plus any
accrued dividends. The difference between the redemption value and the carrying
value is being accreted over a thirty-year period.
The 9 1/4% Preferred Stock has a stated value of $100 per share and is
entitled to receive cumulative dividends at an annual rate of 9 1/4% on its
aggregate stated value of $50 million. The 9 1/4% Preferred Stock is not
redeemable until July 31, 1998 except under certain limited circumstances, is
redeemable at a premium for a twelve month period beginning July 31, 1998, and
at par thereafter and must be redeemed in full by July 31, 2001. The 9 1/4%
Preferred Stock has a liquidation preference equal to its stated value plus
accrued and unpaid dividends. The 9 1/4% Preferred Stock ranks equal to the 6%
Preferred Stock and is senior to the Common Stock of the Company with respect to
dividends and the distribution of assets upon liquidation or dissolution of the
Company. If dividends payable on the 9 1/4% Preferred Stock are in arrears for
six full quarters or any mandatory redemption is in arrears, the holders of the
9 1/4% Preferred Stock, voting together as one class with other series of the
Company's preferred stock, shall be entitled to elect two members to the
F-10
<PAGE> 39
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's Board of Directors. The 9 1/4% Preferred Stock also contains
restrictions regarding the issuance of senior securities and the consolidation
or merger of the Company and sales of assets.
7. COMMON SHAREHOLDERS' EQUITY
OWNERSHIP BY AND RELATIONSHIP WITH HARCOURT GENERAL
Harcourt General owns approximately 22.6 million shares of Common Stock and
all of the outstanding Redeemable Preferred Stocks. The shares presently owned
by Harcourt General represent approximately 67% of the voting power and fully
converted equity of the Company.
The Company and Harcourt General are parties to an agreement pursuant to
which Harcourt General provides certain management, accounting, financial,
legal, tax and other corporate services to the Company. The fees for these
services are based on Harcourt General's costs and are subject to the approval
of a committee of directors of the Company who are independent of Harcourt
General. This agreement may be terminated by either party on 180 days' notice.
Charges to the Company under this agreement were $6.9 million in 1996, $6.5
million in 1995 and $6.9 million in 1994.
The Company's Chairman of the Board; President, Chief Executive Officer and
Chief Operating Officer; Senior Vice President and Chief Financial Officer;
Senior Vice President and General Counsel; as well as certain other officers,
serve in similar capacities with Harcourt General. The first two named officers
also serve as directors of both companies.
COMMON STOCK
Common Stock is entitled to dividends as declared by the Board of
Directors, and each share carries one vote. Holders of Common Stock have no
cumulative voting, conversion, redemption or preemptive rights.
COMMON STOCK INCENTIVE PLAN
The Company has established a common stock incentive plan allowing for the
granting of stock options, stock appreciation rights (SARs) and stock-based
awards to its employees. The aggregate number of shares of Common Stock that may
be issued pursuant to the plan is 1.3 million shares. At August 3, 1996, there
were 179,060 shares of Common Stock available for grant under the plan.
Options outstanding at August 3, 1996 were granted at prices (not less than
100% of the fair market value on the date of the grant) varying from $11.63 to
$19.27 per share and expire between 1996 and 2005. There were 93 employees with
options outstanding at August 3, 1996. The weighted average exercise price for
all outstanding shares at August 3, 1996 was $14.41.
The Company has allowed SAR treatment in connection with the exercise of
certain options. Optionees allowed SAR treatment surrender an exercisable option
in exchange for an amount of cash equal to the excess of the market price of the
Common Stock at the time of surrender over the option exercise price.
F-11
<PAGE> 40
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
Option activity was as follows:
<CAPTION>
YEARS ENDED
---------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
-------- ------- --------
<S> <C> <C> <C>
Options outstanding -- beginning of year............ 684,136 666,348 784,864
Granted........................................... 214,100 228,050 128,600
SAR surrenders.................................... (43,715) (13,470) (202,192)
Exercised......................................... (10,401) (1,644) (2,900)
Canceled.......................................... (177,772) (94,420) (55,295)
-------- ------- --------
Options outstanding -- end of year.................. 666,348 784,864 653,077
======== ======= ========
Exercisable options -- end of year.................. 294,800 356,064 239,247
======== ======= ========
</TABLE>
8. INCOME TAXES
<TABLE>
Income tax expense was as follows:
<CAPTION>
YEARS ENDED
---------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................. $37,800 $39,965 $47,517
State............................................... 8,736 9,136 8,333
------- ------- -------
46,536 49,101 55,850
------- ------- -------
Deferred:
Federal............................................. 1,835 668 (1,588)
State............................................... (809) (1,010) (459)
------- ------- -------
1,026 (342) (2,047)
------- ------- -------
Income tax expense.................................... $47,562 $48,759 $53,803
======= ======= =======
</TABLE>
The Company's effective income tax rate was 41% in 1996 and 42% in 1995 and
1994. The difference between the statutory federal tax rate and the effective
tax rate is due primarily to state income taxes.
<TABLE>
Significant components of the Company's net deferred income tax liability
stated on a gross basis were as follows:
<CAPTION>
JULY 29, AUGUST 3,
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred income tax assets:
Financial accruals and reserves.............................. $22,297 $19,468
Employee benefits............................................ 22,471 25,941
Inventories.................................................. 3,256 8,006
Deferred lease payments...................................... 3,735 3,481
Other........................................................ 3,960 3,566
------- -------
Total deferred tax assets............................ 55,719 60,462
------- -------
</TABLE>
F-12
<PAGE> 41
THE NEIMAN MARCUS GROUP, INC.
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<CAPTION>
JULY 29, AUGUST 3,
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred income tax liabilities:
Excess tax depreciation...................................... (57,257) (59,128)
Pension accrual.............................................. (5,933) (7,178)
Other assets previously deducted on tax return............... (6,239) (5,819)
-------- --------
Total deferred tax liabilities....................... (69,429) (72,125)
-------- --------
Net deferred tax liability..................................... $(13,710) $(11,663)
======== ========
</TABLE>
9. PENSION PLANS
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.
The Company's general funding policy is to contribute amounts that are
deductible for federal income tax purposes. Pension plan assets consist
primarily of equity and fixed income securities.
<TABLE>
Components of net pension expense were as follows:
<CAPTION>
YEARS ENDED
--------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost......................................... $ 4,800 $ 5,800 $ 5,700
Interest cost on projected benefit obligation........ 7,200 7,900 8,300
Actual return on assets.............................. (2,700) (7,500) (12,100)
Net amortization and deferral........................ (3,000) 1,200 5,700
------- ------- --------
Net pension expense.................................. $ 6,300 $ 7,400 $ 7,600
======= ======= ========
</TABLE>
<TABLE>
The accounting assumptions used in the computation of pension expense were
as follows:
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Discount rate........................................ 7.5% 7.5% 7.5%
Long-term rate of return on plan assets.............. 9.0% 9.0% 9.0%
Rate of increases in future compensation levels...... 5.0% 5.0% 5.0%
</TABLE>
F-13
<PAGE> 42
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
The plans' funded status and amounts recognized in the consolidated balance
sheets were as follows:
<CAPTION>
JULY 29, 1995 AUGUST 3, 1996
-------------------- ---------------------
FUNDED UNFUNDED FUNDED UNFUNDED
PLAN PLAN PLAN PLAN
------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Vested benefit obligation................ $73,600 $ 11,400 $ 90,500 $ 13,200
======= ======== ======== ========
Accumulated benefit obligation........... $77,200 $ 13,400 $ 94,000 $ 15,300
======= ======== ======== ========
Projected benefit obligation............. $91,700 $ 23,100 $108,000 $ 25,200
Pension plan assets at fair value........ 91,300 -- 106,600 --
------- -------- -------- --------
Underfunded projected obligation......... (400) (23,100) (1,400) (25,200)
Net amortization and deferral............ 12,600 2,600 16,200 3,100
Unrecognized net obligation at transition
and unrecognized prior service cost.... 2,200 3,900 1,900 3,500
------- -------- -------- --------
Pension asset (liability) recognized in
the consolidated balance sheets........ $14,400 $(16,600) $ 16,700 $(18,600)
======= ======== ======== ========
</TABLE>
The Company has a qualified defined contribution 401(k) plan, which covers
substantially all employees. Employees make contributions to the plan, and the
Company matches 25% of an employee's contribution up to a maximum of 6% of the
employee's compensation. Company contributions for the years ended August 3,
1996, July 29, 1995 and July 30, 1994 were $2.3 million, $2.2 million, and $1.9
million, respectively.
10. POSTRETIREMENT HEALTH CARE BENEFITS
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. The Company paid
postretirement health care benefit claims of $1.2 million during 1996, $1.4
million during 1995 and $1.8 million during 1994.
<TABLE>
The actuarial present value of accumulated postretirement health care
benefit obligations and the amounts recognized in the consolidated balance
sheets were as follows:
<CAPTION>
JULY 29, AUGUST 3,
1995 1996
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Retirees......................................................... $11,364 $11,692
Fully eligible active plan participants.......................... 1,470 3,488
Other active plan participants................................... 3,943 3,587
------- -------
Accumulated postretirement benefit obligation.................... 16,777 18,767
Unrecognized net gain............................................ 2,350 1,003
------- -------
Total.................................................. $19,127 $19,770
======= =======
</TABLE>
F-14
<PAGE> 43
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
The periodic postretirement health care benefit cost was as follows:
<CAPTION>
YEARS ENDED
-----------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net periodic cost:
Service cost.......................................... $ 286 $ 300 $ 222
Interest cost on accumulated benefit obligation....... 1,288 1,249 1,621
------ ------ ------
Total......................................... $1,574 $1,549 $1,843
====== ====== ======
</TABLE>
A health care cost trend rate of 10% was assumed in measuring the
accumulated postretirement health care benefit obligation at August 3, 1996,
gradually declining to 5% by the year 2002. Measurement of the accumulated
postretirement health care benefit obligation was based on an assumed 7.5%
discount rate in 1996, 1995 and 1994. An increase of 1% in the health care cost
trend rate would increase the accumulated postretirement health care benefit
obligation as of August 3, 1996 by $2.2 million. The effect of this change on
the annual net periodic postretirement health care benefit cost would be an
increase of approximately $262,000.
11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company's operations are conducted primarily in leased properties which
include retail stores, distribution centers and other facilities. Substantially
all leases are for periods of up to thirty years with renewal options at fixed
rentals, except that certain leases provide for additional rent based on
revenues in excess of predetermined levels.
<TABLE>
Rent expense under operating leases was as follows:
<CAPTION>
YEARS ENDED
-----------------------------------
JULY 30, JULY 29, AUGUST 3,
1994 1995 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rent.......................................... $28,600 $29,300 $29,200
Rent based on revenues................................ 9,100 8,400 10,700
------- ------- -------
Total rent expense.......................... $37,700 $37,700 $39,900
======= ======= =======
</TABLE>
Future minimum lease payments, excluding renewal options, under operating
leases are as follows: 1997 -- $30.8 million; 1998 -- $29.4 million;
1999 -- $28.5 million; 2000 -- $28.4 million; 2001 -- $27.8 million; all years
thereafter -- $520.6 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 any such suits
and claims will have a material adverse effect upon the results of operations or
the financial position of the Company.
LETTERS OF CREDIT
The Company had approximately $5.0 million of outstanding irrevocable
letters of credit relating to purchase commitments at August 3, 1996.
F-15
<PAGE> 44
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FAIR VALUE OF 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.
SECURITIZATION OF CREDIT CARD RECEIVABLES
In March 1995 the Company sold all of its Neiman Marcus credit card
receivables through a subsidiary to a trust in exchange for certificates
representing undivided interests in such receivables. Certificates representing
an undivided interest in $246.0 million of these receivables were sold to third
parties in a public offering of $225.0 million of 7.60% Class A certificates and
$21.0 million of 7.75% Class B certificates. The Company used the proceeds from
this offering to pay down existing debt. The Company's subsidiary will retain
the remaining undivided interest in the receivables not represented by the Class
A and Class B certificates. A portion of that interest is subordinated to the
Class A and Class B certificates. The Company will continue to service all
receivables for the trust.
In anticipation of the securitization, the Company entered into several
forward interest rate lock agreements. The agreements allowed the Company to
establish a weighted average effective rate of approximately 8.0% on the
certificates issued as part of the securitization. During March 1995, the
Company paid $5.4 million to settle all of its interest rate lock agreements.
INTEREST RATE SWAP
During September 1991, the Company entered into an interest rate swap
agreement having a notional principal amount of $50.0 million that effectively
fixed the interest rate on $50.0 million of the Company's variable rate debt at
8.94%. The amount to be paid or received is accrued as interest rates change and
is recognized over the life of the agreement. The interest rate swap matures in
September 1996. The fair value of the interest rate swap is the amount at which
it could be settled, based on estimates obtained from dealers. The estimated
unrealized pre-tax loss on the interest rate swap was approximately $0.7 million
at August 3, 1996, $1.5 million at July 29, 1995 and $2.8 million at July 30,
1994. This amount changes during the life of the swap as a function of maturity,
interest rates and the credit standing of the parties to the swap agreement. The
incremental pre-tax interest expense incurred due to the interest rate swap
agreement was $1.2 million in 1996, $1.0 million in 1995 and $2.3 million in
1994.
13. COMPANY PUBLIC OFFERING
On September 10, 1996, the Company authorized the filing of a Registration
Statement with the Securities and Exchange Commission for a public offering of
8,000,000 shares of the Company's Common Stock (excluding 1,200,000 shares
subject to an over-allotment option). The Company will purchase all of its
outstanding preferred stock from Harcourt General at a total purchase price of
approximately $416.4 million, representing 98% of the aggregate stated value of
the preferred stock, plus accrued and unpaid dividends on the preferred stock
through the date of the closing of the offering. The total purchase price will
be paid with $135.0 million in shares of the Company's Common Stock valued at
the public offering price and the remainder payable in cash. Such cash payment
will be funded with the net proceeds of the public offering, together with
borrowings under the Company's revolving credit agreement. After the
consummation of the above transactions, Harcourt General will continue to be the
majority shareholder of the Company.
In connection with the repurchase of the preferred stock, the Company will
incur a charge to earnings applicable to common shareholders comprised of two
components: (i) an amount representing the difference between the book value of
the preferred stock and the total purchase price, and (ii) an amount related to
the conversion of the 6% Preferred Stock that is exchanged with Harcourt General
for Common Stock, representing the fair value of shares to be issued to Harcourt
General in excess of the number of shares that would have been issued in
accordance with the conversion terms of the 6% Preferred Stock.
F-16
<PAGE> 45
THE NEIMAN MARCUS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<CAPTION>
YEAR ENDED AUGUST 3, 1996
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
(IN MILLIONS EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $489.9 $625.4 $474.1 $485.6 $2,075.0
====== ====== ====== ====== ========
Gross profit................................. $171.8 $186.5 $153.3 $147.1 $ 658.7
====== ====== ====== ====== ========
Net earnings................................. 25.0 22.8 18.8 10.8 77.4
Preferred dividends and accretion............ (7.3) (7.3) (7.3) (7.2) (29.1)
------ ------ ------ ------ --------
Net earnings applicable to common
shareholders............................... $ 17.7 $ 15.5 $ 11.5 $ 3.6 $ 48.3
====== ====== ====== ====== ========
Amounts per share applicable to common
shareholders:
Net earnings............................... $ .47 $ .41 $ .30 $ .09 $ 1.26
====== ====== ====== ====== ========
<CAPTION>
YEAR ENDED JULY 29, 1995
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues..................................... $462.3 $589.5 $415.7 $420.7 $1,888.2
====== ====== ====== ====== ========
Gross profit................................. $165.0 $184.2 $135.3 $127.0 $ 611.5
====== ====== ====== ====== ========
Earnings from continuing operations.......... $ 21.6 $ 25.0 $ 11.1 $ 9.6 $ 67.3
Earnings (loss) from discontinued operations,
net........................................ (1.8) 1.5 (11.4) -- (11.7)
------ ------ ------ ------ --------
Net earnings (loss).......................... 19.8 26.5 (.3) 9.6 55.6
Preferred dividends and accretion............ (7.3) (7.3) (7.3) (7.2) (29.1)
------ ------ ------ ------ --------
Net earnings (loss) applicable to common
shareholders............................... $ 12.5 $ 19.2 $ (7.6) $ 2.4 $ 26.5
====== ====== ====== ====== ========
Amounts per share applicable to common
shareholders:
Continuing operations...................... $ .38 $ .47 $ .10 $ .06 $ 1.01
Discontinued operations, net............... (.05) .04 (.30) -- (.31)
------ ------ ------ ------ --------
Net earnings (loss)........................ $ .33 $ .51 $ (.20) $ .06 $ .70
====== ====== ====== ====== ========
Dividends.................................. $ .05 $ .05 $ -- $ -- $ .10
====== ====== ====== ====== ========
</TABLE>
In the fourth quarter, the effect of adjusting the LIFO reserve for
inventories to actual amounts increased net earnings by $3.9 million in 1996 and
$10.9 million in 1995.
F-17
<PAGE> 46
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
The Neiman Marcus Group, Inc.
Chestnut Hill, Massachusetts
We have audited the consolidated financial statements of The Neiman Marcus
Group, Inc. and subsidiaries as of August 3, 1996 and July 29, 1995, and for
each of the three years in the period ended August 3, 1996, and have issued our
report thereon dated August 29, 1996, (September 10, 1996 as to Note 13); such
financial statements and report are included in your 1996 Annual Report to
Stockholders. Our audits also included the financial statement schedule of The
Neiman Marcus Group, Inc. and subsidiaries, listed in Item 14 of this Annual
Report on Form 10-K. This financial statement schedule is the responsibility of
the Corporation's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 29, 1996
(September 10, 1996 as to Note 13)
F-18
<PAGE> 47
SCHEDULE II
THE NEIMAN MARCUS GROUP, INC.
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED AUGUST 3, 1996, JULY 29, 1995 AND JULY 30, 1994
(IN THOUSANDS)
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
BALANCE AT CHARGES TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(A) PERIOD
- ----------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended August 3, 1996
Allowance for doubtful accounts
(deducted from accounts
receivable)....................... $ 6,100 $20,007 $0 $(20,307) $ 5,800
Year Ended July 29, 1995
Allowance for doubtful accounts
(deducted from accounts
receivable)....................... $13,700 $27,025 $0 $(34,625)(B) $ 6,100
Year Ended July 30, 1994
Allowance for doubtful accounts
(deducted from accounts
receivable)....................... $ 9,500 $24,716 $0 $(20,516) $13,700
<FN>
- ---------------
(A) Write-off of uncollectible accounts, net of recoveries.
(B) Includes $10.3 million in fiscal 1995 related to the securitization of the
Company's credit card receivables.
</TABLE>
F-19
<PAGE> 48
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.
THE NEIMAN MARCUS GROUP, INC.
By: /s/ ROBERT J. TARR, JR.
----------------------------------
Robert J. Tarr, Jr., President,
Chief Executive Officer and Chief
Operating Officer
Dated: September 20, 1996
<TABLE>
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.
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Principal Executive Officer:
/s/ ROBERT J. TARR, JR. President, Chief Executive September 20, 1996
- ---------------------------- Officer, Chief Operating
Robert J. Tarr, Jr. Officer and Director
Principal Financial Officer:
/s/ JOHN R. COOK Senior Vice President and September 20, 1996
- ---------------------------- Chief Financial Officer
John R. Cook
Principal Accounting Officer:
/s/ STEPHEN C. RICHARDS Vice President and Controller September 20, 1996
- ----------------------------
Stephen C. Richards
Directors:
/s/ RICHARD A. SMITH September 20, 1996
- ----------------------------
Richard A. Smith
/s/ MATINA S. HORNER September 20, 1996
- ----------------------------
Matina S. Horner
/s/ WALTER J. SALMON September 20, 1996
- ---------------------------
Walter J. Salmon
/s/ JEAN HEAD SISCO September 20, 1996
- ---------------------------
Jean Head Sisco
</TABLE>
<PAGE> 49
<TABLE>
EXHIBIT INDEX
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
3.1 (a) Restated Certificate of Incorporation of the Company, incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the twenty-six week period ended August 1, 1987.
3.1 (b) Certificate of Designation and Terms of 9 1/4% Cumulative Redeemable
Preferred Stock, incorporated herein by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended August 3, 1991.
3.2 By-Laws of the Company, as amended, incorporated herein by reference
to the Company's Annual Report on Form 10-K for the fiscal year ended
August 1, 1992.
*10.1 Intercompany Services Agreement, dated as of July 24, 1987, between
Harcourt General and the Company, incorporated herein by reference to
the Company's Annual Report on Form 10-K for the twenty-six week
period ended August 1, 1987.
*10.2 1987 Stock Incentive Plan, incorporated herein by reference to the
Company's Annual Report on Form 10-K for the twenty-six week period
ended August 1, 1987.
*10.3 Employment Agreement between the Company and Burton M. Tansky dated
May 1, 1994, incorporated herein by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended July 30, 1994.
*10.4 Employment Agreement between the Company and Burton M. Tansky
effective February 1, 1997.
*10.5 Termination and Change of Control Agreement between the Company and
Gerald A. Sampson dated September 10, 1996.
*10.6 Termination Agreement between Bergdorf Goodman, Inc. and Stephen C.
Elkin, effective September 1993, incorporated herein by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended
July 31, 1993.
*10.7 Termination Agreement between Bergdorf Goodman, Inc. and Dawn Mello,
effective May 1994, incorporated herein by reference to the Company's
Annual Report on Form 10-K for the fiscal year ended July 30, 1994.
*10.8 Change of Control Agreement between the Company and Bernie Feiwus,
effective October 1995, incorporated herein by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended July
29, 1995.
*10.9 Key Executive Stock Purchase Loan Plan, as amended, incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended July 30, 1994.
*10.10 Supplemental Executive Retirement Plan, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended July 30, 1988.
*10.11 Description of the Company's Executive Life Insurance Plan,
incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended August 1, 1992.
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
PAGE NO.
--------
<C> <S> <C>
*10.12 Supplementary Executive Medical Plan, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended July 31, 1993.
*10.13 Key Employee Deferred Compensation Plan, as amended, incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended July 30, 1994.
10.14 Stock Purchase Agreement between the Company and Harcourt General,
dated October 14, 1991 and effective as of August 2, 1991, relating
to the Company's 9 1/4% Preferred Stock, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the fiscal
year ended August 3, 1991.
10.15 Credit Agreement dated as of April 7, 1995 among the Company, the
Banks listed therein and Morgan Guaranty Trust Company of New York,
as Agent.
10.16 Receivables Purchase Agreement, dated as of March 1, 1995, between
the Company and Neiman Marcus Funding Corporation, incorporated
herein by reference to Exhibit 10.1 to Registration Statement on Form
S-3 of Neiman Marcus Group Credit Card Master Trust dated March 3,
1995 (Registration No. 33-88098).
10.17 Pooling and Servicing Agreement, dated as of March 1, 1995, between
Neiman Marcus Funding Corporation, the Company and The Chase
Manhattan Bank, N.A., incorporated herein by reference to Exhibit 4.1
to Registration Statement on Form S-3 of Neiman Marcus Group Credit
Card Master Trust dated March 3, 1995 (Registration No. 33-88098).
10.18 Series 1995-1 Supplement to the Pooling and Servicing Agreement,
dated as of March 1, 1995, among Neiman Marcus Funding Corporation,
the Company and The Chase Manhattan Bank, N.A., incorporated herein
by reference to Exhibit 4.2 to Registration Statement on Form S-3 of
Neiman Marcus Group Credit Card Master Trust dated March 3, 1995
(Registration No. 33-88098).
11.1 Computation of Weighted Average Number of Shares Outstanding Used in
Determining Primary and Fully-Diluted Earnings Per Share.
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
99.1 Dividend Reinvestment and Common Stock Purchase Plan, incorporated
herein by reference to the Company's Registration Statement on Form
S-3 dated September 17, 1990 (Registration No. 33-36419).
<FN>
- ---------------
* Exhibits filed pursuant to Item 14(c) of Form 10-K.
</TABLE>
<PAGE> 1
Exhibit 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into as of the 1st day of
February, 1997 by and between The Neiman Marcus Group, Inc. (the "Company"), a
Delaware corporation having its principal place of business in Chestnut Hill,
Massachusetts, and Burton Tansky (the "Executive").
I. RECITALS
1.01. The Executive is to be employed as Chairman and Chief Executive Officer
of the Neiman Marcus division of The Neiman Marcus Group, Inc. for the
term of this Employment Agreement.
1.02. To ensure the continued services and association of the Executive, and
to retain the Executive's experience, skills, ability and knowledge,
the Company is willing to engage the Executive's services upon the
terms of this Employment Agreement, and the Executive agrees to be
employed by the Company under the terms of this Employment Agreement.
II. AGREEMENT
In consideration of the recitals to this Employment Agreement, the
parties mutually covenant and agree as follows:
<PAGE> 2
2.01. POSITION AND REPORTING RESPONSIBILITIES OF EXECUTIVE
As Chairman and Chief Executive Officer of Neiman Marcus, the
Executive will report directly to the Chief Operating Officer of
the Company on all matters relating to the Executive's performance
and duties, and the performance of Neiman Marcus. The Executive
will devote his full, working time and best efforts to the
performance of his duties.
2.02. TERM OF EMPLOYMENT
Subject to the limitations contained in this Employment Agreement,
the Company will employ the Executive for a term beginning
February 1, 1997 and ending January 31, 2000, and the Executive
agrees to accept such employment.
II. COMPENSATION
3.01. BASE SALARY
For his services hereunder, the Executive will receive base
compensation at the annual rate of $750,000, paid in such
installments as are paid to other, senior executives of Neiman
Marcus. In August 1997, and year to year thereafter for the
duration of this Employment Agreement, the Company will review the
2
<PAGE> 3
Executive's salary. Thereafter, at its yearly meetings (generally
held in October), the Compensation Committee of The Neiman Marcus
Group Board of Directors will consider annual percentage increases
in the Executive's base salary, retroactive to the preceding
August, based upon such salary reviews.
3.02. STOCK OPTIONS
The Executive will be eligible for annual grants of nonqualified
options to purchase shares of the Company's stock pursuant to the
Company's Stock Incentive Plan up to the maximum number in
accordance with the following formula:
.6 x annual base salary = number of nonqualified stock options
market value of shares for which Executive is eligible
on the day of award
The actual number granted will be determined by the Compensation
Committee of the Board of Directors of the Company and will be a
function of the Executive's performance and the Company's
achieving agreed upon performance goals.
3.03. BONUSES
The Executive will be eligible to participate in the Company's
Annual Incentive Plan pursuant to its terms. The Executive's
maximum
3
<PAGE> 4
bonus potential will be .45 x actual base compensation received
during the Company's fiscal year, with the actual bonus amount
based upon the Executive's performance and the Company's achieving
agreed upon performance goals.
3.04. STOCK PURCHASE LOAN PLAN
The Executive will be eligible to secure loans from The Neiman
Marcus Group, Inc. in aggregate amounts up to one (1) times his
then-base salary for the purchase of stock under the provisions of
The Neiman Marcus Group, Inc. Stock Purchase Loan Plan.
3.05. AUTOMOBILE
The Executive is eligible for a $1,000/month car allowance.
However, the Company will include as W-2 income the value of the
Executive's personal use of the vehicle or the amount of the car
allowance allocated for personal use, whichever is applicable.
3.06. OTHER COMPANY BENEFITS
The Executive will be entitled to and will receive other benefits
maintained by the Company for executives of the Company at his
level and with comparable responsibilities, subject to such
eligibility requirements as are applicable generally to such other
executives.
4
<PAGE> 5
The benefits include first class travel, group health insurance,
executive medical, dental and disability benefits, group life
insurance, four weeks annual paid vacation during each 12 month
period of employment, up to $3,000 annually for financial planning
and tax assistance, and the opportunity to participate in any
deferred compensation, profit sharing or retirement income plan
for the Company's executives, including The Neiman Marcus Group,
Inc. Supplemental Executive Retirement Plan ("SERP"). In addition,
the Executive will be reimbursed for out-of-pocket expenses
reasonably incurred in the performance of his duties hereunder,
upon receipt of appropriate accounting in accordance with Company
policies.
3.07. SERVICE ACCRUAL
Provided the Executive remains continuously employed by the
Company until, or after, his 65th birthday, the Executive will
accrue service under The Neiman Marcus Group, Inc. SERP at a rate
equal to the product of 5/3 multiplied by his years of service
(including fractions of years) with the Company. Thus, under such
circumstances, should the Executive retire at age 65, he will be
credited with 20 years' service for the purpose of calculating his
SERP benefit. However, should the Executive fail to remain
continuously employed by the Company until, or after, his 65th
5
<PAGE> 6
birthday, the Executive's accrued service will be calculated in
the normal manner provided in the SERP.
IV. TERMINATION OF EMPLOYMENT
4.01. TERMINATION OF THIS EMPLOYMENT AGREEMENT UPON
DISABILITY OF THE EXECUTIVE
If at the end of any month the Executive then is and has been for
either: (a) eighty percent (80%) or more of the normal working
days during the six (6) consecutive full calendar months then
ending; or (b) fifty percent (50%) or more of the normal working
days during the twelve (12) consecutive full calendar months then
ending, unable to perform his duties under this Employment
Agreement in the normal and regular manner, due to mental or
physical disability, then either the Company or the Executive may
terminate this Agreement and its or his obligations hereunder,
upon 30 days' notice to the other of intent to terminate. Nothing
contained in this paragraph is intended to limit the Executive's
right to any compensation or benefits to which he is otherwise
entitled under the terms of any company policy, benefit plan, or
by operation of law.
6
<PAGE> 7
4.02. TERMINATION OF THIS EMPLOYMENT AGREEMENT UPON DEATH
OF THE EXECUTIVE
If the Executive dies, this Employment Agreement shall be
terminated on the last day of the month of the Executive's death.
However, nothing herein is intended to limit the rights, if any,
of the Executive's heirs, devisees or estate to payments or
benefits in which the Executive has an accrued, vested interest at
the time of his death.
4.03. TERMINATION OF THE EXECUTIVE'S SERVICES FOR CAUSE
The Company may terminate the Executive's services, for cause,
upon written notice specifying the reason for such termination.
All of the Company's obligations under this Employment Agreement
shall cease upon the Executive's termination for cause. For the
purpose of the preceding sentence, "cause" shall mean: a breach of
duty by the Executive in the course of his employment involving
fraud, acts of dishonesty, acts of moral turpitude, repeated
insubordination, failure to devote his full, working time and best
efforts to the performance of his duties, or conviction of a
felony or other criminal offense.
7
<PAGE> 8
4.04. TERMINATION OF EXECUTIVE'S SERVICES UPON CHANGE OF
CONTROL
a. If the Executive's services are terminated without cause within
24 months of a change of control of Neiman Marcus, as a change of
control is defined below, or if within 24 months of a change of
such control, the Executive resigns his employment because he is
not permitted to continue in a position comparable in duties and
responsibilities to that which he held before a change of control,
the Executive will receive from the Company his then-current base
compensation for 18 months.
b. For the purposes of paragraph 4.04.a., change of control shall
mean: (i) the sale of all or substantially all of the assets of
Neiman Marcus to an entity other than the Company or Harcourt
General, Inc. or an entity wholly owned by the Company or Harcourt
General, Inc.; or (ii) the sale of all or substantially all of the
assets of the Company to an entity other than Harcourt General,
Inc. or an entity wholly owned by the Company or Harcourt General,
Inc.; or (iii) any person, entity or group having greater voting
power in the election of Company directors than Harcourt General,
Inc.
8
<PAGE> 9
4.05. OTHER TERMINATION OF THE EXECUTIVE'S SERVICES
a. If the Company does not intend to extend the Executive's
employment beyond January 31, 2000, it will so notify him on or
before October 31, 1999. Notwithstanding such notification and in
full satisfaction of the Company's obligations hereunder, the
Company will (i) continue to pay the Executive his then-current,
base compensation until January 31, 2001, reduced,
dollar-for-dollar between August 1, 2000 and January 31, 2001, by
the amount of any income the Executive earns during that period
from employment of any kind (including, but not limited to,
self-employment), and (ii) credit the Executive with service under
The Neiman Marcus Group, Inc. SERP as if he had remained employed
by the Company until age 65.
b. If, during the term of this Employment Agreement, the Company
terminates the Executive's services for any reason[s] other than
those set forth in paragraphs 4.01 and 4.03., above, the Executive
will continue to receive from the Company his then-current base
compensation and existing benefits as such benefits may change
from time to time for employees generally (but will not receive
any performance or incentive bonuses or additional stock options),
until the expiration date of this
9
<PAGE> 10
Employment Agreement or for 18 months (whichever is greater), in
full satisfaction of the Company's obligations hereunder.
4.06. EXTENSION OF THE EXECUTIVE'S EMPLOYMENT
Should the Company wish to continue the Executive's employment
beyond January 31, 2000, the Company agrees to extend the
Executive a good-faith offer of compensation and benefits on or
before the expiration of this Employment Agreement. If, by January
31, 2000, the parties are unable to agree on the terms and
conditions of the Executive's continued employment, the parties
may continue to discuss such terms and conditions in the hope of
reaching agreement, or they may terminate discussions and sever
the employment relationship.
Should either party choose to sever the employment relationship
pursuant to the provisions of this paragraph, the Company, in full
satisfaction of its obligations hereunder, will (a) continue to
pay the Executive his then-current, base compensation until
January 31, 2001, reduced, dollar-for-dollar between the date six
months from the date the employment relationship is severed and
January 31, 2001, by the amount of
10
<PAGE> 11
any income the Executive earns during that period from employment
of any kind (including, but not limited to self-employment), and
(b) credit the Executive with service under The Neiman Marcus
Group, Inc. SERP as if he had remained employed by the Company
until age 65.
V. GENERAL PROVISIONS
5.01. ASSIGNABILITY
The Company will have the right to assign all rights and
obligations arising under this Agreement to one or more of its
subsidiaries or affiliates, whether now existing or hereafter
organized. Despite any such assignment, the Company will remain
bound by any obligations running from the Company to the Executive
under the terms of this Agreement.
5.02. INTEGRATION
This Employment Agreement contains the entire agreement between
the parties and supersedes all prior oral and written agreements,
understandings and commitments between the parties. No amendment
to this Employment Agreement may be made except by a writing
signed by both parties.
11
<PAGE> 12
5.03. SPECIFIC ENFORCEMENT
The Executive is obligated under this Employment Agreement to
render service of a special, unique, unusual, extraordinary, and
intellectual character, thereby giving this Employment Agreement
peculiar value. Thus, the loss of such services could not be
reasonably or adequately compensated in damages in an action at
law. Therefore, in addition to other remedies provided by law, the
Company shall have the right during the term or any renewal term
of this Employment Agreement to obtain injunctive relief against
the performance of services elsewhere by the Executive. The right
to seek injunctive relief will not extend to efforts of the
Executive to secure employment in connection with the provisions
of paragraph 4.04(a) or 4.05.
5.04. CONFIDENTIAL INFORMATION
The Executive acknowledges and stipulates that in the performance
of duties hereunder, the Company will disclose to and entrust the
Executive with confidential and proprietary information which the
Executive may not disclose to any third party or entity either
during or after the Executive's employment by the Company. This
paragraph survives the
12
<PAGE> 13
expiration or termination of this Agreement.
5.05. SEPARABILITY OF PROVISIONS
If one or more of the covenants or agreements provided for in this
Employment Agreement should be contrary to law, any such covenant
or agreement shall be null and void and shall be deemed separable
and divisible from the remaining covenants or agreements.
5.06. CHOICE OF LAW
This Employment Agreement shall be interpreted and enforced in
accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Company has caused this instrument to
13
<PAGE> 14
be executed on its behalf by a duly authorized officer and the Executive has
executed this instrument, all as of the first day and year written above.
THE NEIMAN MARCUS GROUP, INC.
By /s/ Robert J. Tarr, Jr.
--------------------------------------
Robert J. Tarr, Jr.
/s/ Burton Tansky
-----------------------------------------
Burton Tansky
14
<PAGE> 1
Exhibit 10.5
TERMINATION AND CHANGE OF CONTROL AGREEMENT
1. This Termination and Change of Control Agreement ("Agreement") is
entered into as of Sept. 10, 1996 between Gerald A. Sampson ("Mr. Sampson")
and The Neiman Marcus Group, Inc. ("NMG")
2. Mr. Sampson is employed "at-will" as Neiman Marcus Stores' President
and Chief Operating Officer, and Mr. Sampson or NMG may terminate Mr. Sampson's
employment at any time, with or without notice, for any reason. Notwithstanding
this at-will employment, (a) Mr. Sampson agrees to provide NMG with three months
advance notice of his resignation when such resignation does not follow a change
of control of NMG, as a change of control is defined in paragraph 4.c., and (b)
NMG wishes to provide some protection to Mr. Sampson if his employment is
terminated or if he resigns under certain circumstances.
3. a. While Mr. Sampson is employed at-will, if NMG terminates Mr.
Sampson's employment other than "for cause" or other than due to "total
disability" or death, NMG agrees to provide Mr. Sampson with a
termination package consisting of (a) an amount equivalent to his
then-current, annual base salary, less required withholding, which
amount would be paid in a 12 month period in regular, monthly
installments following such termination; and (b) continuation of the
medical and dental insurance coverage in which he participates at the
time of such termination (or as such coverage may be changed from
time-to-time for employees generally) for 12 months or until he starts
full-time employment, whichever is sooner. Mr. Sampson will be
responsible for paying his portion of monthly premiums for the medical
and dental insurance coverage at the same rate paid by active
employees, and Mr. Sampson authorizes NMG to deduct such amounts from
the payments it makes to him.
b. If Mr. Sampson's services are terminated by a successor to NMG
other than "for cause" or other than due to "total disability" or death
within two years of a change of control of NMG, as a change of control
is defined in paragraph 4.c., or if the Executive resigns his
employment within two years of such a change of control because he is
not permitted to continue in a position comparable in duties and
responsibilities to that which he held before such a change of control,
Mr. Sampson shall receive the termination package set forth in
paragraph 3.a.
c. Notwithstanding the payment obligations set forth in paragraphs
3.a. and 3.b., if Mr. Sampson is engaged in employment (including
contract employment or self-employment) of any kind or if Mr. Sampson
receives severance pay of any kind during the period beginning six
months after a covered termination or resignation, NMG's payments to
Mr. Sampson will be
<PAGE> 2
reduced dollar-for-dollar by the amount Mr. Sampson earns through such
employment or receives as severance pay.
4. For the purposes of determining Mr. Sampson's eligibility for the
termination package set forth in this Agreement:
a. "For cause" means that, in NMG's reasonable judgment, Mr. Sampson
(i) failed to devote his full time, loyalty, best efforts, skills,
knowledge and ability to the performance of his duties; (ii) committed
an act of malfeasance; or (iii) engaged in conduct detrimental to the
best interest of NMG.
b. "Total disability" means that, in NMG's reasonable judgment, Mr.
Sampson is unable to perform his duties for (i) 45 consecutive business
days or (ii) a total of 90 business days during any nine month period.
c. "Change of control" means (i) the sale of all or substantially all
of the stock or assets of Neiman Marcus Stores to an entity other than
Harcourt General, Inc. or an entity wholly owned or controlled by
Harcourt General, Inc; (ii) the sale of all or substantially all of the
stock or assets of NMG to an entity other than Harcourt General, Inc.
or an entity wholly owned or controlled by Harcourt General, Inc. or
(iii) any person, entity or group having greater voting power in the
election of NMG's directors than Harcourt General, Inc. or an entity
wholly owned or controlled by Harcourt General, Inc.
5. Payment by NMG of the termination package set forth in paragraph 3
constitutes full satisfaction of NMG's obligations to Mr. Sampson, if any,
(including the right to any severance payments) which arise from or relate in
any way to the termination of Mr. Sampson's employment. However, nothing in this
Agreement is intended to limit any earned, vested benefits (other than any
entitlement to severance pay) that Mr. Sampson may have under the applicable
provisions of any benefit plan in which Mr. Sampson is participating at the time
of his termination of employment or resignation.
6. The unenforceability of any provision of this Agreement shall not
affect the enforceability of any other provision of this Agreement.
7. This Agreement contains the entire agreement between the parties and
supersedes all prior agreements and understandings, oral or written, with
respect to the termination of Mr. Sampson's at-will employment and the subject
matter of the Agreement. This Agreement may not be changed orally. It may be
changed
2
<PAGE> 3
only by written agreement signed by the party against whom any waiver, change
amendment, modification or discharge is sought.
8. The validity, performance and enforceability of this Agreement will be
determined and governed by the laws of the Commonwealth of Massachusetts
without regard to its conflict of laws principles.
The Neiman Marcus Group, Inc.
/s/ Gerald A. Sampson By: /s/ Robert J. Tarr, Jr.
- ------------------------------ ---------------------------------
Gerald A. Sampson
3
<PAGE> 1
Exhibit 10.15
[EXECUTION COPY]
$500,000,000
CREDIT AGREEMENT
dated as of
April 7, 1995
among
The Neiman Marcus Group, Inc.
The Banks Listed Herein
and
Morgan Guaranty Trust Company of New York,
as Agent
<PAGE> 2
TABLE OF CONTENTS(1)
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
<S> <C>
SECTION 1.01 Definitions.............................................. 1
1.02 Accounting Terms and Determinations...................... 15
1.03 Types of Borrowings...................................... 16
ARTICLE II
THE CREDITS
SECTION 2.01 Commitments to Lend...................................... 16
2.02 Notice of Committed Borrowing............................ 16
2.03 Money Market Borrowings.................................. 17
2.04 Notice to Banks; Funding of Loans........................ 21
2.05 Notes.................................................... 22
2.06 Maturity of Loans........................................ 23
2.07 Interest Rates........................................... 23
2.08 Facility Fee............................................. 26
2.09 Optional Termination or
Reduction of Commitments............................... 27
2.10 Scheduled Termination of
Commitments............................................ 27
2.11 Optional Prepayments..................................... 27
2.12 General Provisions as to Payments........................ 27
2.13 Funding Losses........................................... 28
2.14 Computation of Interest and Fees......................... 29
2.15 Regulation D Compensation................................ 29
2.16 Replacement of Banks..................................... 30
ARTICLE III
CONDITIONS
SECTION 3.01 Effectiveness............................................ 30
3.02 Borrowings............................................... 31
</TABLE>
- -------------------
(1) The Table of Contents is not a part of this Agreement.
i
<PAGE> 3
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
<TABLE>
<S> <C>
SECTION 4.01 Corporate Existence and Power............................ 32
4.02 Corporate Authorization.................................. 32
4.03 Binding Effect........................................... 32
4.04 Financial Information.................................... 32
4.05 Litigation............................................... 33
4.06 Governmental and Other Approvals......................... 33
4.07 Full Disclosure.......................................... 33
4.08 Compliance with ERISA.................................... 34
4.09 Taxes.................................................... 34
4.10 Environmental Matters.................................... 34
ARTICLE V
COVENANTS
SECTION 5.01 Furnishing of Financial Data
and Certificates....................................... 35
5.02 Payment of Taxes......................................... 36
5.03 Conduct of Business and
Maintenance of Existence............................... 37
5.04 Maintenance of Property and Leases....................... 37
5.05 Insurance................................................ 37
5.06 Accounts and Reports..................................... 37
5.07 Inspection............................................... 37
5.08 Maintenance of Consolidated Tangible
Net Worth ............................................. 38
5.09 Coverage of Consolidated Fixed
Charges................................................ 38
5.10 Leverage Ratio........................................... 38
5.11 Restrictions on Liens.................................... 38
5.12 Restricted Payments...................................... 40
5.13 Investments.............................................. 40
5.14 Restrictions on Sales, Consolidations
and Mergers............................................ 42
5.15 Transactions with Affiliates............................. 43
5.16 Restriction on Debt of Subsidiaries...................... 43
5.17 Use of Proceeds.......................................... 44
ARTICLE VI
DEFAULTS
SECTION 6.01 Events of Default........................................ 44
6.02 Notice of Default........................................ 47
</TABLE>
ii
<PAGE> 4
ARTICLE VII
THE AGENT
<TABLE>
<S> <C>
SECTION 7.01 Appointment and Authorization............................ 47
7.02 Agent and Affiliates..................................... 48
7.03 Action by the Agent...................................... 48
7.04 Consultation with Experts................................ 48
7.05 Liability of the Agent................................... 48
7.06 Indemnification.......................................... 49
7.07 Credit Decision.......................................... 49
7.08 Successor Agent.......................................... 49
7.09 Agent's Fees............................................. 50
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01 Basis for Determining Interest
Rate Inadequate or Unfair.............................. 50
8.02 Illegality............................................... 51
8.03 Increased Cost and Reduced Return........................ 51
8.04 Taxes.................................................... 53
8.05 Base Rate Loans Substituted for
Affected Fixed Rate Loans.............................. 55
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Notices.................................................. 56
9.02 No Waivers............................................... 56
9.03 Expenses; Indemnification................................ 56
9.04 Sharing of Set-Offs...................................... 57
9.05 Amendments and Waivers................................... 58
9.06 Successors and Assigns................................... 58
9.07 Collateral............................................... 60
9.08 Governing Law; Submission to Juris-
diction................................................ 60
9.09 Counterparts; Integration................................ 60
9.10 WAIVER OF JURY TRIAL..................................... 61
9.11 Maximum Interest Rate.................................... 61
</TABLE>
Pricing Schedule
Exhibit A - Note
Exhibit B - Form of Money Market Quote Request
Exhibit C - Form of Invitation for Money Market Quotes
iii
<PAGE> 5
Exhibit D - Form of Money Market Quote
Exhibit E - Opinion of Counsel for the Borrower
Exhibit F - Opinion of Davis Polk & Wardwell, Special
Counsel for the Agent
Exhibit G - Assignment and Assumption Agreement
iv
<PAGE> 6
CREDIT AGREEMENT
AGREEMENT dated as of April 7, 1995 among THE NEIMAN MARCUS GROUP,
INC., the BANKS listed on the signature pages hereof and MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have
the following meanings:
"Absolute Rate Auction" means a solicitation of Money Market Quotes
setting forth Money Market Absolute Rates pursuant to Section 2.03.
"Adjusted CD Rate" has the meaning set forth in Section 2.07(b).
"Adjusted Consolidated Net Income" means, for any period, Consolidated
Net Income for such period, plus the aggregate of the following items of the
Borrower and its Subsidiaries for such period:
(a) taxes based on or measured by income;
(b) minimum rentals, i.e., rentals paid by the Borrower or any
Subsidiary, other than amounts determined by reference to income
generated from the leased property (including amounts accrued for or
based on taxes, other than income taxes, to the extent that any thereof
are payable in addition to rent), under any lease of real property
excluding in any event (i) leases between the Borrower and a Subsidiary
or between a Subsidiary and another Subsidiary and (ii) Capitalized
Leases; and
(c) interest on any Debt outstanding during such period.
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form
<PAGE> 7
prepared by the Agent and submitted to the Agent (with a copy to the Borrower)
duly completed by such Bank.
"Affiliate" means (i) any Person that directly, or indirectly through
one or more intermediaries, controls the Borrower (a "Controlling Person") or
(ii) any Person (other than the Borrower or a Subsidiary) which is controlled by
or is under common control with a Controlling Person. As used herein, the term
"control" means possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through
the ownership of voting securities, by contract or otherwise. For purposes of
this Agreement no individual shall be deemed to be an Affiliate solely by reason
of the fact that such individual is a director or officer of the Borrower.
"Agent" means Morgan Guaranty Trust Company of New York in its capacity
as agent for the Banks hereunder, and its successors in such capacity.
"Applicable Lending Office" means, with respect to any Bank, (i) in the
case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its
Money Market Loans, its Money Market Lending Office.
"Assessment Rate" has the meaning set forth in Section 2.07(b).
"Assignee" has the meaning set forth in Section 9.06(c).
"Bank" means each bank listed on the signature pages hereof, each
Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective
successors.
"Base Rate" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.
"Base Rate Loan" means a Committed Loan to be made by a Bank as a Base
Rate Loan in accordance with the applicable Notice of Committed Borrowing or
pursuant to Article VIII.
"Benefit Arrangement" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by any member of the ERISA
Group.
2
<PAGE> 8
"Borrower" means The Neiman Marcus Group, Inc., a Delaware corporation,
and its successors.
"Borrower's 1994 10-K" means the Borrower's annual report on Form 10-K
for 1994, as filed with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934.
"Borrowing" has the meaning set forth in Section 1.03.
"Capitalized Lease" means a lease under which, in accordance with
United States generally accepted accounting principles, the liability of the
lessee is required to be capitalized on its balance sheet.
"CD Base Rate" has the meaning set forth in Section 2.07(b).
"CD Loan" means a Committed Loan to be made by a Bank as a CD Loan in
accordance with the applicable Notice of Committed Borrowing.
"CD Margin" has the meaning set forth in Section 2.07(b).
"CD Reference Banks" means Bank of America National Trust and Savings
Association, National Westminster Bank PLC and Morgan Guaranty Trust Company of
New York.
"Commitment" means, with respect to each Bank, the amount set forth
opposite the name of such Bank on the signature pages hereof, as such amount may
be reduced from time to time pursuant to Section 2.09.
"Committed Loan" means a loan made by a Bank pursuant to Section 2.01.
"Consolidated Fixed Charges" means for any period, the sum of the items
included in Adjusted Consolidated Net Income pursuant to paragraphs (b) and (c)
of the definition thereof for such period.
"Consolidated Intangible Assets" means, at any date, the amount of (i)
all write-ups (other than write-ups resulting from foreign currency translations
and write-ups of assets of a going concern business made within twelve months
after the acquisition of such business) subsequent to July 30, 1994 in the book
value of any asset owned by the Borrower or any of its Consolidated Subsidiaries
and (ii) goodwill, patents, trademarks, service marks, trade names,
3
<PAGE> 9
copyrights, organization or developmental expenses and other intangible items
(except for any such intangible items reflected in the consolidated balance
sheet of the Borrower and its Consolidated Subsidiaries at July 30, 1994) of the
Borrower and its Consolidated Subsidiaries at such date.
"Consolidated Net Income" means for any period, the aggregate of the
net income (less losses) of the Borrower and its Subsidiaries for such period
(after eliminating all intercompany items and after provisions for minority
interests, if any), all determined in accordance with United States generally
accepted accounting principles; provided, however, Consolidated Net Income shall
not include (a) extraordinary gains or extraordinary losses, (b) the net income
or losses of any corporation or other enterprise accrued prior to the date it
becomes a Subsidiary, (c) the net income arising from any discontinued
operation(s) of the Borrower or any Subsidiary as so classified in the
Borrower's consolidated financial statements or (d) any amortization or
write-off of goodwill or other intangible assets arising in connection with a
merger, consolidation or acquisition of stock or assets to which the Borrower or
a Subsidiary is a party.
"Consolidated Net Tangible Assets" means, at any date, the consolidated
assets of the Borrower and its Consolidated Subsidiaries less the sum of (i) the
consolidated current liabilities of the Borrower and its Consolidated
Subsidiaries, (ii) all other liabilities, other than liabilities for Debt
representing obligations for borrowed money of the Borrower and its Consolidated
Subsidiaries and liabilities for deferred taxes of the Borrower and its
Consolidated Subsidiaries, which would be required to be shown as liabilities on
a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries,
and (iii) Consolidated Intangible Assets, all determined as of such date.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower in
the Borrower's consolidated financial statements if such statements were
prepared as of such date.
"Consolidated Tangible Net Worth" means at any date the consolidated
stockholders' equity of the Borrower and its Consolidated Subsidiaries (plus, to
the extent not otherwise reflected therein, redeemable preferred stock of the
Borrower) less Consolidated Intangible Assets, all determined as of such date.
4
<PAGE> 10
"Debt" means as applied to the Borrower and its Subsidiaries, without
duplication, (a) all obligations for borrowed money or other extensions of
credit whether secured or unsecured, absolute or contingent, other than trade
accounts payable, expense accruals, or similar liabilities arising in the
ordinary course of business, (b) all obligations evidenced by bonds, notes,
debentures, or other similar instruments, (c) all obligations secured by any
Lien on property owned or acquired by the Borrower or any of its Subsidiaries
whether or not the obligations secured thereby shall have been assumed, (d) that
portion of all obligations arising under Capitalized Leases that is required to
be capitalized on the consolidated balance sheet of the Borrower and its
Subsidiaries and (e) all obligations of the type described in clauses (a)
through (d) above Guaranteed by the Borrower or any of its Subsidiaries;
provided that, a transfer of receivables, with or without recourse, which is
accounted for as a sale under United States generally accepted accounting
principles shall not give rise to Debt of the transferor for purposes of this
Agreement.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Deloitte & Touche" means Deloitte & Touche LLP, independent certified
accountants for the Borrower.
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City or Boston, Massachusetts
are authorized by law to close.
"Domestic Lending Office" means, as to each Bank, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter
5
<PAGE> 11
designate as its Domestic Lending Office by notice to the Borrower and the
Agent; provided that any Bank may so designate separate Domestic Lending Offices
for its Base Rate Loans, on the one hand, and its CD Loans, on the other hand,
in which case all references herein to the Domestic Lending Office of such Bank
shall be deemed to refer to either or both of such offices, as the context may
require.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
"Domestic Reserve Percentage" has the meaning set forth in Section
2.07(b).
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 3.01.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Internal
Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office, branch
or affiliate located at its address set forth in its Administrative
Questionnaire (or identified
6
<PAGE> 12
in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such
other office, branch or affiliate of such Bank as it may hereafter designate as
its Euro-Dollar Lending Office by notice to the Borrower and the Agent.
"Euro-Dollar Loan" means a Committed Loan to be made by a Bank as a
Euro-Dollar Loan in accordance with the applicable Notice of Committed
Borrowing.
"Euro-Dollar Margin" has the meaning set forth in Section 2.07(c).
"Euro-Dollar Reference Banks" means the principal London offices of
Bank of America National Trust and Savings Association, National Westminster
Bank PLC, and Morgan Guaranty Trust Company of New York.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents).
"Event of Default" has the meaning set forth in Section 6.01.
"Existing Agreement" means the Credit Agreement dated as of March 31,
1988, as amended by Amendment No. 1 thereto dated as of October 25, 1988, as
amended by Amendment No. 2 thereto dated as of April 17, 1989 and as amended by
Amendment No. 3 thereto dated as of March 31, 1991 among the Borrower, the banks
listed on the signature pages thereof and Morgan Guaranty Trust Company of New
York, as Agent.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
Business
7
<PAGE> 13
Day, the Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Domestic Business Day as so published on the next
succeeding Domestic Business Day, and (ii) if no such rate is so published on
such next succeeding Domestic Business Day, the Federal Funds Rate for such day
shall be the average rate quoted to Morgan Guaranty Trust Company of New York on
such day on such transactions as determined by the Agent.
"Fixed Charge Coverage Ratio" means the ratio of (i) Adjusted
Consolidated Net Income for each period of four consecutive fiscal quarters,
commencing with the four quarters ending April 29, 1995, to (ii) Consolidated
Fixed Charges for each such period.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market
Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate
pursuant to Section 8.01(a)) or any combination of the foregoing.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person; provided that the term Guarantee shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"HGI" means Harcourt General, Inc., a Delaware corporation.
"Indemnitee" has the meaning set forth in Section 9.03(b).
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending one,
two, three or six months thereafter, as the Borrower may elect in the applicable
Notice of Borrowing; provided that:
(a) any Interest Period which would otherwise end on a day which is not
a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month
8
<PAGE> 14
(or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall,
subject to clause (c) below, end on the last Euro-Dollar Business Day
of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(2) with respect to each CD Borrowing, the period commencing on the date
of such Borrowing and ending 30, 60, 90 or 180 days thereafter, as the Borrower
may elect in the applicable Notice of Borrowing; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(3) with respect to each Base Rate Borrowing, the period commencing on
the date of such Borrowing and ending 30 days thereafter; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(4) with respect to each Money Market LIBOR Borrowing, the period
commencing on the date of such Borrowing and ending such whole number of months
thereafter as the Borrower may elect in accordance with Section 2.03; provided
that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Euro-Dollar Business Day;
9
<PAGE> 15
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(5) with respect to each Money Market Absolute Rate Borrowing, the period
commencing on the date of such Borrowing and ending such number of days
thereafter (but not less than 5 days) as the Borrower may elect in accordance
with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, or any successor statute.
"Investment" means all loans, advances, extensions of credit,
guarantees, purchases of stock (other than stock of the Borrower) or other
securities, contributions to capital or otherwise, whether existing on the date
of this Agreement or hereafter made.
"Leverage Ratio" means, at any date, the percentage equivalent
of a fraction the numerator of which is Total Adjusted Debt at such date and the
denominator of which is Total Capitalization at such date.
"LIBOR Auction" means a solicitation of Money Market Quotes
setting forth Money Market Margins based on the London Interbank Offered Rate
pursuant to Section 2.03.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall
be deemed to own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or
10
<PAGE> 16
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"Loan" means a Domestic Loan or a Euro-Dollar Loan or a Money
Market Loan and "Loans" means Domestic Loans or Euro-Dollar Loans or Money
Market Loans or any combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth in
Section 2.07(c).
"Material Debt" means Debt (other than the Loans) of the
Borrower and/or one or more of its Consolidated Subsidiaries, in an aggregate
principal amount exceeding $10,000,000.
"Material Financial Obligations" means a principal amount of
Debt and/or payment or collateralization obligations in respect of Derivatives
Obligations of the Borrower and/or one or more of its Subsidiaries, exceeding in
the aggregate $10,000,000.
"Material Plan" means at any time a Plan or Plans having
aggregate Unfunded Liabilities in excess of $10,000,000.
"Money Market Absolute Rate" has the meaning set forth in
Section 2.03(d).
"Money Market Absolute Rate Loan" means a loan to be made by a
Bank pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank, its
Domestic Lending Office or such other office, branch or affiliate of such Bank
as it may hereafter designate as its Money Market Lending Office by notice to
the Borrower and the Agent; provided that any Bank may from time to time by
notice to the Borrower and the Agent designate separate Money Market Lending
Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market
Absolute Rate Loans, on the other hand, in which case all references herein to
the Money Market Lending Office of such Bank shall be deemed to refer to either
or both of such offices, as the context may require.
"Money Market LIBOR Loan" means a loan to be made by a Bank
pursuant to a LIBOR Auction (including such a loan bearing interest at the Base
Rate pursuant to Section 8.01(a)).
11
<PAGE> 17
"Money Market Loan" means a Money Market LIBOR Loan or a Money
Market Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section
2.03(d).
"Money Market Quote" means an offer by a Bank to make a Money
Market Loan in accordance with Section 2.03.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any
member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the ERISA
Group during such five year period.
"Notes" means promissory notes of the Borrower, substantially
in the form of Exhibit A hereto, evidencing the obligation of the Borrower to
repay the Loans, and "Note" means any one of such promissory notes issued
hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing
(as defined in Section 2.02) or a Notice of Money Market Borrowing (as defined
in Section 2.03(f)).
"Parent" means, with respect to any Bank, any Person
controlling such Bank.
"Participant" has the meaning set forth in Section 9.06(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Internal
Revenue Code and either (i) is maintained, or contributed to, by any member of
the ERISA Group for employees of any member
12
<PAGE> 18
of the ERISA Group or (ii) has at any time within the preceding five years been
maintained, or contributed to, by any Person which was at such time a member of
the ERISA Group for employees of any Person which was at such time a member of
the ERISA Group.
"Pricing Schedule" means the Schedule attached hereto
identified as such.
"Prime Rate" means the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York in New York City from time to time as
its Prime Rate.
"Reference Banks" means the CD Reference Banks or the
Euro-Dollar Reference Banks, as the context may require, and "Reference Bank"
means any one of such Reference Banks.
"Refunding Borrowing" means a Committed Borrowing which, after
application of the proceeds thereof, results in no net increase in the
outstanding principal amount of Committed Loans made by any Bank.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Rental Expense" means, for any period, the amount of the item
included in Adjusted Consolidated Net Income pursuant to paragraph (b) of the
definition thereof for such period.
"Required Banks" means at any time Banks having at least 66
2/3% of the aggregate amount of the Commitments at such time or, if the
Commitments shall have been terminated in their entirety, holding Notes
evidencing at least 66 2/3% of the aggregate unpaid principal amount of the
Loans.
"Restricted Payment" means (a) the declaration or payment of
any dividend (in cash or property) on or in respect of any shares of any class
of capital stock of the Borrower, except dividends payable in capital stock of
the Borrower, (b) the purchase or other retirement of any shares, and of any
option or warrant or other right to purchase any shares, of any class of capital
stock of the Borrower, directly, or indirectly through a Subsidiary, or
otherwise, except for (i) the purchase by the Borrower subsequent to January 28,
1995 of stock options held by employees in an amount not to exceed $2,000,000 in
the aggregate and (ii) scheduled sinking fund payments on the 6% Cumulative
Convertible Preferred Stock of the Borrower and (c) the prepayment, redemption,
retirement or purchase of
13
<PAGE> 19
Subordinated Debt of the Borrower other than (i) at its scheduled maturity or
(ii) in exchange for equity securities (including options or warrants to
purchase equity securities) of the Borrower or other Subordinated Debt of the
Borrower.
"Revolving Credit Period" means the period from and including
the Effective Date to but not including the Termination Date.
"S&P" means Standard & Poor's Ratings Group.
"Significant Subsidiary" means at any time (i) Bergdorf
Goodman, Inc. and Contempo Casuals and their respective successors, and (ii) any
other Subsidiary whose consolidated assets are equal to at least 7% of the
consolidated assets of the Borrower and its Consolidated
Subsidiaries at such time.
"Smith Family Group" means the group of persons party to the
Smith-Lurie/Marks Stockholders Agreement dated as of December 29, 1986, as
amended (whether or not such agreement is terminated) and the progeny of each
such person.
"Subordinated Debt" means any unsecured Debt of the Borrower
which is by its terms subordinated in right of payment to the Notes.
"Subsidiary" means any corporation or other entity (i) of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the Borrower (or, if
such term is used with reference to any other Person, by such Person) or (ii) a
majority of the equity interest in which shall at the time be owned directly or
indirectly by the Borrower and which is a Consolidated Subsidiary as of such
time.
"Termination Date" means April 7, 2000, or, if such day is not
a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day unless
such Euro-Dollar Business Day falls in another calendar month, in which case the
Termination Date shall be the next preceding Euro-Dollar
Business Day.
"Total Adjusted Debt" means, at any date, an amount equal to
(i) the consolidated Debt of the Borrower and its Subsidiaries (excluding any
such Debt (other than short-term indebtedness for borrowed money or the current
14
<PAGE> 20
portion of long-term Debt) which is a current liability of the Borrower or a
Subsidiary) at such date plus (ii) an amount equal to 800% of the Rental Expense
for the period of four consecutive fiscal quarters most recently ended on or
prior to such date.
"Total Capitalization" means, at any date, the sum of Total
Adjusted Debt plus Consolidated Tangible Net Worth plus Consolidated Intangible
Assets, each determined as of
such date.
"Unfunded Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the value of all benefit liabilities
under such Plan, determined on a plan termination basis using the assumptions
prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the
fair market value of all Plan assets allocable to such liabilities under Title
IV of ERISA (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA Group
to the PBGC or any other Person under Title IV of ERISA.
"United States" means the United States of America, including
the States and the District of Columbia, but excluding its territories and
possessions.
"Wholly-Owned Subsidiary" means any Subsidiary all of the
shares of capital stock or other ownership interests of which (except directors'
qualifying shares) are at the time directly or indirectly owned by the Borrower.
SECTION 1.02. Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with United States generally accepted accounting principles as in
effect from time to time, applied on a basis consistent (except for changes
concurred with by the Borrower's independent public accountants) with the most
recent audited consolidated financial statements of the Borrower and its
Consolidated Subsidiaries delivered to the Banks; provided that, if the Borrower
notifies the Agent that the Borrower wishes to amend any covenant in Article V
to eliminate the effect of any change in United States generally accepted
accounting principles on the operation of such covenant (or if the Agent
notifies the Borrower that the Required Banks wish to amend Article V for such
purpose), then the Borrower's
15
<PAGE> 21
compliance with such covenant shall be determined on the basis of United States
generally accepted accounting principles in effect immediately before the
relevant change in United States generally accepted accounting principles became
effective, until either such notice is withdrawn or such covenant is amended in
a manner satisfactory to the Borrower and the Required Banks.
SECTION 1.03. Types of Borrowings. The term "Borrowing"
denotes the aggregation of Loans of one or more Banks to be made to the Borrower
pursuant to Article II on a single date and for a single Interest Period.
Borrowings are classified for purposes of this Agreement either by reference to
the pricing of Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing"
is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions
of Article II under which participation therein is determined (i.e., a
"Committed Borrowing" is a Borrowing under Section 2.01 in which all Banks
participate in proportion to their Commitments, while a "Money Market Borrowing"
is a Borrowing under Section 2.03 in which the Bank participants are determined
on the basis of their bids in accordance therewith).
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend. During the Revolving Credit
Period each Bank severally agrees, on the terms and conditions set forth in this
Agreement, to make loans to the Borrower pursuant to this Section from time to
time in amounts such that the aggregate principal amount of Committed Loans by
such Bank at any one time outstanding shall not exceed the amount of its
Commitment. Each Borrowing under this Section shall be in an aggregate principal
amount of $10,000,000 or any larger multiple of $1,000,000 (except that any such
Borrowing may be in the aggregate amount available in accordance with Section
3.02(b)) and shall be made from the several Banks ratably in proportion to their
respective Commitments. Within the foregoing limits, the Borrower may borrow
under this Section , repay, or to the extent permitted by Section 2.11, prepay
Loans and reborrow at any time during the Revolving Credit Period under this
Section .
SECTION 2.02. Notice of Committed Borrowings. The Borrower
shall give the Agent notice (a "Notice of Committed Borrowing") not later than
11:00 A.M. (New York
16
<PAGE> 22
City time) on (x) the date of each Base Rate Borrowing, (y) the second Domestic
Business Day before each CD Borrowing and (z) the third Euro-Dollar Business Day
before each Euro-Dollar Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Domestic Borrowing or a Euro-Dollar
Business Day in the case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to be CD
Loans, Base Rate Loans or Euro-Dollar Loans, and
(d) in the case of a Fixed Rate Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period.
SECTION 2.03. Money Market Borrowings.
(a) The Money Market Option. In addition to Committed
Borrowings pursuant to Section 2.01, the Borrower may, as set forth in this
Section , request the Banks during the Revolving Credit Period to make offers to
make Money Market Loans to the Borrower. The Banks may, but shall have no
obligation to, make such offers and the Borrower may, but shall have no
obligation to, accept any such offers in the manner set forth in this Section .
(b) Money Market Quote Request. When the Borrower wishes to
request offers to make Money Market Loans under this Section , it shall transmit
to the Agent by telex or facsimile transmission a Money Market Quote Request
substantially in the form of Exhibit B hereto so as to be received no later than
11:00 A.M. (New York City time) on (x) the fourth Euro-Dollar Business Day prior
to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y)
the Domestic Business Day next preceding the date of Borrowing proposed therein,
in the case of an Absolute Rate Auction (or, in either case, such other time or
date as the Borrower and the Agent shall have mutually agreed and shall have
notified to the Banks not later than the date of the Money Market Quote Request
for the first LIBOR Auction or Absolute Rate Auction for which such change is to
be effective) specifying:
(i) the proposed date of Borrowing, which shall be a
Euro-Dollar Business Day in the case of
17
<PAGE> 23
a LIBOR Auction or a Domestic Business Day in the case of an Absolute
Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$10,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period, and
(iv) whether the Money Market Quotes requested are to set
forth a Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or such other
number of days as the Borrower and the Agent may agree) of any other Money
Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon receipt
of a Money Market Quote Request, the Agent shall send to the Banks by telex or
facsimile transmission an Invitation for Money Market Quotes substantially in
the form of Exhibit C hereto, which shall constitute an invitation by the
Borrower to each Bank to submit Money Market Quotes offering to make the Money
Market Loans to which such Money Market Quote Request relates in accordance with
this Section .
(d) Submission and Contents of Money Market Quotes. (i) Each
Bank may submit a Money Market Quote containing an offer or offers to make Money
Market Loans in response to any Invitation for Money Market Quotes. Each Money
Market Quote must comply with the requirements of this subsection (d) and must
be submitted to the Agent by telex or facsimile transmission at its offices
referred to in Section 9.01 not later than (x) 4:00 P.M. (New York City time) on
the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in
the case of a LIBOR Auction or (y) 9:15 A.M. (New York City time) on the
proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the Agent shall have
mutually agreed and shall have notified to the Banks not later than the date of
the Money Market Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective); provided that Money Market
Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of
a Bank may be
18
<PAGE> 24
submitted, and may only be submitted, if the Agent or such affiliate notifies
the Borrower of the terms of the offer or offers contained therein not later
than (x) 3:00 P.M. (New York City time), in the case of a LIBOR Auction or (y)
9:00 A.M. (New York City time), in the case of an Absolute Rate Auction. Subject
to Articles III and VI, any Money Market Quote so made shall be irrevocable
except with the written consent of the Agent given on the instructions of the
Borrower.
(ii) Each Money Market Quote shall be in substantially the form of
Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for which
each such offer is being made, which principal amount (w) may be
greater than or less than the Commitment of the quoting Bank, (x) must
be $10,000,000 or a larger multiple of $1,000,000, (y) may not exceed
the principal amount of Money Market Loans for which offers were
requested and (z) may be subject to an aggregate limitation as to the
principal amount of Money Market Loans for which offers being made by
such quoting Bank may be accepted,
(C) in the case of a LIBOR Auction, the margin above or below
the applicable London Interbank Offered Rate (the "Money Market
Margin") offered for each such Money Market Loan, expressed as a
percentage (specified to the nearest 1/10,000th of 1%) to be added to
or subtracted from such base rate,
(D) in the case of an Absolute Rate Auction, the rate of
interest per annum (specified to the nearest 1/10,000th of 1%) (the
"Money Market Absolute Rate") offered for each such Money Market Loan,
and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
19
<PAGE> 25
(A) is not substantially in conformity with Exhibit D hereto
or does not specify all of the information required by subsection
(d)(ii);
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set
forth in the applicable Invitation for Money Market Quotes; or
(D) arrives after the time set forth in subsection (d)(i).
(e) Notice to Borrower. The Agent shall promptly notify the
Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is
in accordance with subsection (d) and (y) of any Money Market Quote that amends,
modifies or is otherwise inconsistent with a previous Money Market Quote
submitted by such Bank with respect to the same Money Market Quote Request. Any
such subsequent Money Market Quote shall be disregarded by the Agent unless such
subsequent Money Market Quote is submitted solely to correct a manifest error in
such former Money Market Quote. The Agent's notice to the Borrower shall specify
(A) the aggregate principal amount of Money Market Loans for which offers have
been received for each Interest Period specified in the related Money Market
Quote Request, (B) the respective principal amounts and Money Market Margins or
Money Market Absolute Rates, as the case may be, so offered and (C) if
applicable, limitations on the aggregate principal amount of Money Market Loans
for which offers in any single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:00
A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the
proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed
date of Borrowing, in the case of an Absolute Rate Auction (or, in either case,
such other time or date as the Borrower and the Agent shall have mutually agreed
and shall have notified to the Banks not later than the date of the Money Market
Quote Request for the first LIBOR Auction or Absolute Rate Auction for which
such change is to be effective), the Borrower shall notify the Agent of its
acceptance or non-acceptance of the offers so notified to it pursuant to
subsection (e). In the case of acceptance, such notice (a "Notice of Money
Market Borrowing") shall specify the aggregate principal amount of offers for
each Interest Period that are accepted. The Borrower may accept any Money Market
Quote in whole or in part; provided that:
20
<PAGE> 26
(i) the aggregate principal amount of each Money Market
Borrowing may not exceed the applicable amount set forth in the related
Money Market Quote Request,
(ii) the principal amount of each Money Market Borrowing
must be $10,000,000 or a larger multiple of $1,000,000,
(iii) acceptance of offers may only be made on the basis of
ascending Money Market Margins or Money Market Absolute Rates, as the
case may be, and
(iv) the Borrower may not accept any offer that is described
in subsection (d)(iii) or that otherwise fails to comply with the
requirements of this Agreement.
(g) Allocation by Agent. If offers are made by two or more
Banks with the same Money Market Margins or Money Market Absolute Rates, as the
case may be, for a greater aggregate principal amount than the amount in respect
of which such offers are accepted for the related Interest Period, the principal
amount of Money Market Loans in respect of which such offers are accepted shall
be allocated by the Agent among such Banks as nearly as possible (in multiples
of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate
principal amounts of such offers. Determinations by the Agent of the amounts of
Money Market Loans shall be conclusive in the absence of manifest error.
SECTION 2.04. Notice to Banks; Funding of Loans.
(a) Upon receipt of a Notice of Borrowing, the Agent shall
promptly notify each Bank of the contents thereof and of such Bank's share (if
any) of such Borrowing and such Notice of Borrowing shall not thereafter be
revocable by the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date
of each Borrowing, each Bank participating therein shall (except as provided in
subsection (c) of this Section ) make available its share of such Borrowing, in
Federal or other funds immediately available in New York City to the Agent at
its address referred to in Section 9.01. Unless the Agent determines that any
applicable condition specified in Article III has not been satisfied, the Agent
will make the funds so received from the Banks available to the Borrower at the
Agent's aforesaid address.
21
<PAGE> 27
(c) If any Bank makes a new Loan hereunder on a day on which
the Borrower is to repay all or any part of an outstanding Loan from such Bank,
such Bank shall apply the proceeds of its new Loan to make such repayment and
only an amount equal to the difference (if any) between the amount being
borrowed and the amount being repaid shall be made available by such Bank to the
Agent as provided in subsection (b), or remitted by the Borrower to the Agent as
provided in Section 2.12, as the case may be.
(d) Unless the Agent shall have received notice from a Bank
prior to the date of any Borrowing that such Bank will not make available to the
Agent such Bank's share of such Borrowing, the Agent may assume that such Bank
has made such share available to the Agent on the date of such Borrowing in
accordance with subsections (b) and (c) of this Section 2.04 and the Agent may,
in reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so made
such share available to the Agent, such Bank and, if such Bank shall have failed
to do so within four Domestic Business Days of demand by the Agent therefor (a
copy of which shall be simultaneously given to the Borrower), the Borrower
agrees to repay to the Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the Agent, at
the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding
amount, such amount so repaid shall constitute such Bank's Loan included in such
Borrowing for purposes of this Agreement.
SECTION 2.05. Notes. (a) The Loans of each Bank shall be
evidenced by a single Note payable to the order of such Bank for the account of
its Applicable Lending Office in an amount equal to the aggregate unpaid
principal amount of such Bank's Loans.
(b) Each Bank may, by notice to the Borrower and the Agent,
request that its Loans of a particular type be evidenced by a separate Note in
an amount equal to the aggregate unpaid principal amount of such Loans. Each
such Note shall be in substantially the form of Exhibit A hereto with
appropriate modifications to reflect the fact that it evidences solely Loans of
the relevant type. Each reference in this Agreement to the "Note" of such Bank
shall be deemed to refer to and include any or all of such Notes, as the context
may require.
(c) Upon receipt of each Bank's Note pursuant to Section
3.01(b), the Agent shall forward such Note to such
22
<PAGE> 28
Bank. Each Bank shall record the date, amount, type and maturity of each Loan
made by it and the date and amount of each payment of principal made by the
Borrower with respect thereto, and may, if such Bank so elects in connection
with any transfer or enforcement of its Note, endorse on the schedule forming a
part thereof appropriate notations to evidence the foregoing information with
respect to each such Loan then outstanding; provided that the failure of any
Bank to make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Notes. Each Bank is hereby
irrevocably authorized by the Borrower so to endorse its Note and to attach to
and make a part of its Note a continuation of any such schedule as and when
required.
SECTION 2.06. Maturity of Loans. Each Loan included in any
Borrowing shall mature, and the principal amount thereof shall be due and
payable, on the last day of the Interest Period applicable to such Borrowing.
SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall
bear interest on the outstanding principal amount thereof, for each day from the
date such Loan is made until it becomes due, at a rate per annum equal to the
Base Rate for such day. Such interest shall be payable for each Interest Period
on the last day thereof. Any overdue principal of or interest on any Base Rate
Loan shall bear interest, payable on demand, for each day until paid at a rate
per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate
Loans for such day.
(b) Each CD Loan shall bear interest on the outstanding
principal amount thereof, for each day during the Interest Period applicable
thereto, at a rate per annum equal to the sum of the CD Margin for such day plus
the applicable Adjusted CD Rate for such Interest Period; provided that if any
CD Loan shall, as a result of clause (2)(b) of the definition of Interest
Period, have an Interest Period of less than 30 days, such CD Loan shall bear
interest during such Interest Period at the rate applicable to Base Rate Loans
during such period. Such interest shall be payable for each Interest Period on
the last day thereof and, if such Interest Period is longer than 90 days, at
intervals of 90 days after the first day thereof. Any overdue principal of or
interest on any CD Loan shall bear interest, payable on demand, for each day
until paid at a rate per annum equal to the sum of 2% plus the higher of (i) the
sum of the CD Margin for such day plus the Adjusted CD Rate applicable to such
Loan and (ii) the rate applicable to Base Rate Loans for such day.
23
<PAGE> 29
"CD Margin" means a rate per annum determined in accordance
with the Pricing Schedule.
The "Adjusted CD Rate" applicable to any Interest Period means
a rate per annum determined pursuant to the following formula:
[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
-------------
* The amount in brackets being rounded upward, if necessary, to the
next higher 1/100 of 1%
The "CD Base Rate" applicable to any Interest Period is the
rate of interest determined by the Agent to be the average (rounded upward, if
necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid
at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the
first day of such Interest Period by two or more New York certificate of deposit
dealers of recognized standing for the purchase at face value from each CD
Reference Bank of its certificates of deposit in an amount comparable to the
principal amount of the CD Loan of such CD Reference Bank to which such Interest
Period applies and having a maturity comparable to such Interest Period.
"Domestic Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including without
limitation any basic, supplemental or emergency reserves) for a member bank of
the Federal Reserve System in New York City with deposits exceeding five billion
dollars in respect of new non-personal time deposits in dollars in New York City
having a maturity comparable to the related Interest Period and in an amount of
$100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as
of the effective date of any change in the Domestic Reserve Percentage.
24
<PAGE> 30
"Assessment Rate" means for any day the annual assessment rate
in effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. Section 327.4(a) (or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for such Corporation's (or such
successor's) insuring time deposits at offices of such institution in the United
States. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the
outstanding principal amount thereof, for each day during the Interest Period
applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar
Margin for such day plus the applicable London Interbank Offered Rate for such
Interest Period. Such interest shall be payable for each Interest Period on the
last day thereof and, if such Interest Period is longer than three months, at
intervals of three months after the first day thereof.
"Euro-Dollar Margin" means a rate per annum determined in
accordance with the Pricing Schedule.
The "London Interbank Offered Rate" applicable to any Interest
Period means the average (rounded upward, if necessary, to the next higher 1/16
of 1%) of the respective rates per annum at which deposits in dollars are
offered to each of the Euro-Dollar Reference Banks in the London inter bank
market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days
before the first day of such Interest Period in an amount approximately equal to
the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank
to which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
(d) Any overdue principal of or interest on any Euro-Dollar
Loan shall bear interest, payable on demand, for each day from and including the
date payment thereof was due to but excluding the date of actual payment, at a
rate per annum equal to the sum of 2% plus the higher of (i) the sum of the
Euro-Dollar Margin for such day plus the London Interbank Offered Rate
applicable to such Loan and (ii) the rate applicable to Base Rate Loans for such
day.
(e) Subject to Section 8.01(a), each Money Market LIBOR Loan
shall bear interest on the outstanding principal amount thereof, for the
Interest Period applicable thereto, at a rate per annum equal to the sum of the
London Interbank
25
<PAGE> 31
Offered Rate for such Interest Period (determined in accordance with Section
2.07(c) as if the related Money Market LIBOR Borrowing were a Committed
Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the
Bank making such Loan in accordance with Section 2.03. Each Money Market
Absolute Rate Loan shall bear interest on the outstanding principal amount
thereof, for the Interest Period applicable thereto, at a rate per annum equal
to the Money Market Absolute Rate quoted by the Bank making such Loan in
accordance with Section 2.03. Such interest shall be payable for each Interest
Period on the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof. Any overdue
principal of or interest on any Money Market Loan shall bear interest, payable
on demand, for each day until paid at a rate per annum equal to the sum of 2%
plus the Base Rate for such day.
(f) The Agent shall determine each interest rate applicable to
the Loans hereunder. The Agent shall give prompt notice to the Borrower and the
participating Banks of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of manifest error.
(g) Each Reference Bank agrees to use its best efforts to
furnish quotations to the Agent as contemplated by this Section . If any
Reference Bank does not furnish a timely quotation, the Agent shall determine
the relevant interest rate on the basis of the quotation or quotations furnished
by the remaining Reference Bank or Banks or, if none of such quotations is
available on a timely basis, the provisions of Section 8.01 shall apply.
SECTION 2.08. Facility Fee. The Borrower shall pay to the
Agent for the account of the Banks ratably in proportion to their respective
Commitments a facility fee at a rate per annum equal to the Facility Fee Rate
(determined daily in accordance with the Pricing Schedule). Such facility fee
shall accrue (i) from and including the Effective Date to but excluding the
Termination Date (or earlier date of termination of the Commitments in their
entirety), on the daily aggregate amount of the Commitments (whether used or
unused) and (ii) from and including the Termination Date (or earlier date of
termination of the Commitments in their entirety) to but excluding the date the
Loans shall be repaid in their entirety, on the daily average aggregate
outstanding principal amount of the Loans. Accrued fees under this Section shall
be payable quarterly in arrears on each March 1, June 1, September 1 and
December 1 prior to the Termination Date and upon the date of
26
<PAGE> 32
termination of the Commitments in their entirety (and, if later, the date the
Loans shall be repaid in their entirety).
SECTION 2.09. Optional Termination or Reduction of
Commitments. During the Revolving Credit Period, the Borrower may, upon at least
three Domestic Business Days' notice to the Agent, (i) terminate the Commitments
at any time, if no Loans are outstanding at such time or (ii) ratably reduce
from time to time by an aggregate amount of $10,000,000 or any larger multiple
thereof, the aggregate amount of the Commitments in excess of the aggregate
outstanding principal amount of the Loans.
SECTION 2.10. Scheduled Termination of Commitments. The
Commitments shall terminate on the Termination Date, and any Loans then
outstanding (together with accrued interest thereon) shall be due and payable on
such date.
SECTION 2.11. Optional Prepayments. (a) The Borrower may (i)
upon at least one Domestic Business Day's notice to the Agent, prepay any
Domestic Borrowing (or any Money Market Borrowing bearing interest at the Base
Rate pursuant to Section 8.01(a)) or (ii) subject to Section 2.13, upon at least
three Euro-Dollar Business Days' notice to the Agent, prepay any Euro-Dollar
Borrowing, in whole at any time, or from time to time in part in amounts
aggregating $10,000,000 or any larger multiple of $1,000,000, by paying the
principal amount to be prepaid together with accrued interest thereon to the
date of prepayment. Each such optional prepayment shall be applied to prepay
ratably the Loans of the several Banks included in such Borrowing.
(b) Except as provided in clause (i) of Section 2.11(a), the
Borrower may not prepay all or any portion of the principal amount of any Money
Market Loan prior to the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to this
Section , the Agent shall promptly notify each Bank of the contents thereof and
of such Bank's ratable share (if any) of such prepayment and such notice shall
not thereafter be revocable by the Borrower.
SECTION 2.12. General Provisions as to Payments. (a) The
Borrower shall make each payment of principal of, and interest on, the Loans and
of fees hereunder, not later than 12:00 Noon (New York City time) on the date
when due, in Federal or other funds immediately available in New York
27
<PAGE> 33
City, to the Agent at its address referred to in Section 9.01. The Agent will
promptly distribute to each Bank its ratable share of each such payment received
by the Agent for the account of the Banks. Whenever any payment of principal of,
or interest on, the Domestic Loans or of fees shall be due on a day which is not
a Domestic Business Day, the date for payment thereof shall be extended to the
next succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, the Euro-Dollar Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall be extended to the
next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day
falls in another calendar month, in which case the date for payment thereof
shall be the next preceding Euro-Dollar Business Day. Whenever any payment of
principal of, or interest on, the Money Market Loans shall be due on a day which
is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day. If the date for any
payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(b) Unless the Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Banks hereunder
that the Borrower will not make such payment in full, the Agent may assume that
the Borrower has made such payment in full to the Agent on such date and the
Agent may, in reliance upon such assumption, cause to be distributed to each
Bank on such due date an amount equal to the amount then due such Bank. If and
to the extent that the Borrower shall not have so made such payment, each Bank
shall repay to the Agent forthwith on demand such amount distributed to such
Bank together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.13. Funding Losses. If the Borrower makes any
payment of principal with respect to any Fixed Rate Loan (pursuant to Article II
or VI or otherwise, but not including Article VIII) on any day other than the
last day of the Interest Period applicable thereto, or if the Borrower fails to
borrow or prepay any Fixed Rate Loans after notice has been given to any Bank in
accordance with Section 2.04(a) or 2.11(c), the Borrower shall reimburse each
Bank within 15 days after demand for any resulting loss or expense incurred by
it (or by an existing or prospective Participant in the related Loan), including
(without limitation) any loss incurred in obtaining, liquidating or employing
deposits from third parties, but excluding loss of margin for the period after
any such payment or failure to
28
<PAGE> 34
borrow or prepay, provided that such Bank shall have delivered to the Borrower a
certificate as to the amount of such loss or expense, which certificate shall be
conclusive in the absence of clearly demonstrable error. Each such certificate
shall be accompanied by such information as the Borrower may reasonably request
as to the computation set forth therein.
SECTION 2.14. Computation of Interest and Fees. Interest based
on the Prime Rate hereunder shall be computed on the basis of a year of 365 days
(or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.15. Regulation D Compensation. For so long as any
Bank maintains reserves against "Eurocurrency liabilities" (or any other
category of liabilities which includes deposits by reference to which the
interest rate on Euro-Dollar Loans is determined or any category of extensions
of credit or other assets which includes loans by a non-United States office of
such Bank to United States residents), and as a result the cost to such Bank (or
its Euro-Dollar Lending Office) of making or maintaining its Euro-Dollar Loans
is increased, then such Bank may require the Borrower to pay, contemporaneously
with each payment of interest on the Euro-Dollar Loans, additional interest on
the related Euro-Dollar Loan of such Bank at a rate per annum up to but not
exceeding the excess of (i) (A) the applicable London Interbank Offered Rate
divided by (B) one minus the Euro-Dollar Reserve Percentage over (ii) the rate
specified in clause (i)(A). Any Bank wishing to require payment of such
additional interest (x) shall so notify the Borrower and the Agent, in which
case such additional interest on the Euro-Dollar Loans of such Bank shall be
payable to such Bank at the place indicated in such notice with respect to each
Interest Period commencing at least three Euro-Dollar Business Days after the
giving of such notice and (y) shall furnish to the Borrower at least three
Euro-Dollar Business Days prior to each date on which interest is payable on the
Euro-Dollar Loans an officer's certificate setting forth the amount to which
such Bank is then entitled under this Section (which shall be consistent with
such Bank's good faith estimate of the level at which the related reserves are
maintained by it). Each such certificate shall be accompanied by such
information as the Borrower may reasonably request as to the computation set
forth therein.
29
<PAGE> 35
SECTION 2.16. Replacement of Banks. The Borrower shall have
the right, from time to time, with the assistance of the Agent, to substitute a
bank or banks (which may be one or more of the Banks) for any Bank whose
participation hereunder the Borrower shall have determined (in its discretion)
to terminate.
ARTICLE III
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall become
effective on the date that each of the following conditions shall have been
satisfied (or waived in accordance with Section 9.05):
(a) receipt by the Agent of counterparts hereof signed by each
of the parties hereto (or, in the case of any party as to which an
executed counterpart shall not have been received, receipt by the Agent
in form satisfactory to it of telegraphic, telex or other written
confirmation from such party of execution of a counterpart hereof by
such party);
(b) receipt by the Agent for the account of each Bank of a
duly executed Note dated on or before the Effective Date complying with
the provisions of Section 2.05;
(c) receipt by the Agent of an opinion of the General Counsel
of the Borrower, given upon the express instruction of the Borrower,
substantially in the form of Exhibit E hereto and covering such
additional matters relating to the transactions contemplated hereby as
the Required Banks may reasonably request;
(d) receipt by the Agent of an opinion of Davis Polk &
Wardwell, special counsel for the Agent, substantially in the form of
Exhibit F hereto and covering such additional matters relating to the
transactions contemplated hereby as the Required Banks may reasonably
request;
(e) receipt by the Agent of all documents it may reasonably
request relating to the existence of the Borrower, the corporate
authority for and the validity of this Agreement and the Notes, and
30
<PAGE> 36
any other matters relevant hereto, all in form and substance
satisfactory to the Agent; and
(f) receipt by the Agent of evidence satisfactory to it of the
payment of all principal of and interest on any loans outstanding
under, and of all other amounts payable under, the Existing Credit
Agreement;
provided that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later than
April 21, 1995. The Agent shall promptly notify the Borrower and the Banks of
the Effective Date, and such notice shall be conclusive and binding on all
parties hereto. The Banks that are parties to the Existing Credit Agreement,
comprising the "Required Banks" as defined therein, and the Borrower agree that
the commitments under the Existing Credit Agreement shall terminate in their
entirety simultaneously with and subject to the effectiveness of this Agreement
and that the Borrower shall be obligated to pay the accrued facility fees
thereunder to but excluding the date of such effectiveness.
SECTION 3.02. Borrowings. The obligation of any Bank to make
a Loan on the occasion of any Borrowing is subject to the satisfaction of the
following conditions:
(a) receipt by the Agent of a Notice of Borrowing as required
by Section 2.02 or 2.03, as the case may be;
(b) the fact that, immediately after such Borrowing, the
aggregate outstanding principal amount of the Loans will not exceed the
aggregate amount of the Commitments;
(c) the fact that, immediately after such Borrowing, no
Default shall have occurred and be continuing; and
(d) the fact that the representations and warranties of the
Borrower contained in this Agreement (other than, in the case of a
Refunding Borrowing, the representations and warranties set forth in
Sections 4.04(c) and 4.05, which need not be true if the matter which
would make them untrue has theretofore been disclosed in writing by the
Borrower to the Banks) shall be true in all material respects on and as
of the date of such Borrowing.
31
<PAGE> 37
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
(b), (c) and (d) of this Section .
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. Corporate Existence and Power. The Borrower
and each Significant Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
has all power and authority to carry on its business as now being conducted and
to own its properties, and is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which the failure to qualify would
materially and adversely affect the conduct of its business or the
enforceability of its contractual rights.
SECTION 4.02. Corporate Authorization. The execution, delivery
and performance by the Borrower of this Agreement and the Notes are within the
Borrower's corporate power, have been duly authorized by all necessary corporate
action and will not contravene, or constitute a default under, any provision of
applicable law or regulation or of the Restated Certificate of Incorporation or
By-Laws of the Borrower, or of any judgment, order, decree, agreement or
instrument binding on the Borrower or result in the creation of any Lien upon
any of its property or assets.
SECTION 4.03. Binding Effect. This Agreement constitutes, and
the Notes when duly executed on behalf of the Borrower and delivered in
accordance with this Agreement will constitute, the valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms.
SECTION 4.04. Financial Information.
(a) The consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of July 30, 1994 and the related consolidated
statements of operations and cash flows for the fiscal year then ended, reported
on by Deloitte & Touche and set forth in the Borrower's 1994 Annual Report to
Shareholders and incorporated by reference in the Borrower's 1994 Form 10-K, a
copy of which has been
32
<PAGE> 38
delivered to each of the Banks, fairly present, in conformity with generally
accepted accounting principles, the consolidated financial position of the
Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such fiscal year.
(b) The unaudited consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries as of January 28, 1995 and the related
unaudited consolidated statements of operations and cash flows for the three
months then ended, set forth in the Borrower's quarterly report to shareholders,
a copy of which has been delivered to each of the Banks, fairly present, in
conformity with generally accepted accounting principles applied on a basis
consistent with the financial statements referred to in subsection (a) of this
Section , the consolidated financial position of the Borrower and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such three-month period (subject to normal
year-end adjustments).
(c) Since January 28, 1995, there has been no material adverse
change in the business, financial position or results of operations of the
Borrower and its Consolidated Subsidiaries, considered as a whole.
SECTION 4.05. Litigation. There are no actions, suits or
proceedings pending against or, to the knowledge of the Borrower, threatened
against or affecting, the Borrower or any Significant Subsidiary in any court or
before or by any governmental department, agency or instrumentality, in which
there is a reasonable possibility of an adverse decision which would materially
and adversely affect the financial condition or business of the Borrower and its
Subsidiaries, taken as a whole.
SECTION 4.06. Governmental and Other Approvals. No approval,
consent or authorization of or filing or registration with any governmental
authority or body is necessary for the execution, delivery or performance by the
Borrower of this Agreement or the Notes or for the performance by the Borrower
of any of the terms or conditions hereof or thereof.
SECTION 4.07. Full Disclosure. All financial statements and
other documents furnished by the Borrower to the Banks in connection with this
Agreement do not and will not contain any untrue statement of material fact or
omit to state a material fact necessary in order to make the statements
contained therein not misleading. The Borrower
33
<PAGE> 39
has disclosed to the Banks in writing any and all facts which materially and
adversely affect the business, operations or condition, financial or otherwise,
of the Borrower and its Subsidiaries or the Borrower's ability to perform its
obligations under this Agreement.
SECTION 4.08. Compliance with ERISA. Each member of the ERISA
Group has fulfilled its obligations under the minimum funding standards of ERISA
and the Internal Revenue Code with respect to each Plan and is in compliance in
all material respects with the presently applicable provisions of ERISA and the
Internal Revenue Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Internal Revenue Code in respect of any Plan, (ii) failed to make any
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Internal Revenue Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
SECTION 4.09. Taxes. United States Federal income tax returns
of the Borrower and its Subsidiaries have been examined and closed through the
fiscal year ended August 4, 1990. The Borrower and its Subsidiaries have filed
all United States Federal income tax returns, and the Borrower and its
Significant Subsidiaries have filed all other material tax returns, which are
required to be filed by them and have paid all taxes due pursuant to such
returns or pursuant to any assessment received by the Borrower or any
Significant Subsidiary except where the payment of any such taxes is being
contested in good faith by appropriate proceedings. The charges, accruals and
reserves on the books of the Borrower and its Consolidated Subsidiaries in
respect of taxes or other governmental charges are, in the opinion of the
Borrower, adequate.
SECTION 4.10. Environmental Matters. The Borrower has
reasonably concluded that the costs of compliance with Environmental Laws are
unlikely to have a material adverse effect on the business, financial condition,
results of operations or prospects of the Borrower and its Consolidated
Subsidiaries, considered as a whole.
34
<PAGE> 40
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Bank has any
Commitment hereunder or any amount payable under any Note remains unpaid:
SECTION 5.01. Furnishing of Financial Data and Certificates.
The Borrower will deliver to each of the Banks:
(a) As soon as practicable, and in any event within 75 days
after the close of each of the first three quarters of each fiscal year of the
Borrower, (i) the condensed consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as at the end of such quarter, (ii) the condensed
consolidated statement of operations of the Borrower and its Consolidated
Subsidiaries for such quarter and for the portion of such fiscal year to and
including such quarter and (iii) the condensed consolidated statements of cash
flows of the Borrower and its Consolidated Subsidiaries for the portion of such
fiscal year to and including such quarter, each of the foregoing to set forth in
comparative form the corresponding figures of the previous year and to be in
reasonable detail and certified by the principal accounting officer of the
Borrower, subject to year-end audit adjustments; delivery by the Borrower of its
Quarterly Reports on Form 10-Q shall be deemed compliance with this provision;
(b) As soon as practicable, and in any event within 120 days
after the close of each fiscal year of the Borrower, (i) the consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as at the end of
such fiscal year, (ii) the consolidated statement of operations of the Borrower
and its Consolidated Subsidiaries for such fiscal year and (iii) the
consolidated statements of cash flows of the Borrower and its Consolidated
Subsidiaries for such fiscal year, each of the foregoing to set forth in
comparative form the corresponding figures of the previous year and to be in
reasonable detail and audited and certified by Deloitte & Touche or other
certified public accountants of nationally recognized standing reasonably
satisfactory to the Banks; delivery by the Borrower of its Annual Reports on
Form 10-K (together with its annual report to shareholders, if incorporated by
reference therein) shall be deemed compliance with this provision;
35
<PAGE> 41
(c) Promptly after sending or filing, copies of all financial
statements, reports, notices and proxy statements as it shall send to its
shareholders, and of all periodic reports filed by the Borrower with any
securities exchange or with the Securities and Exchange Commission or any
governmental authority succeeding to any of its functions; and
(d) Such other information (which is readily obtainable by the
Borrower without incurring any undue expense) regarding the financial condition
of the Borrower as any Bank may reasonably request.
Together with each delivery of financial statements required
by clauses (a) and (b) above, the Borrower will deliver to the Banks a
certificate of its principal accounting officer stating that to the best of his
knowledge there exists no Default or, if any Default exists, specifying the
nature thereof, the period of existence thereof and what action the Borrower
proposes to take with respect thereto. The certificate delivered in conjunction
with each delivery of annual and quarterly financial statements shall in
addition demonstrate in reasonable detail compliance during the preceding fiscal
period with Sections 5.08, 5.09, 5.10, 5.11(j), 5.12 and 5.13(s).
Each certificate of independent certified public accountants
delivered with the financial statements required by clause (b) above shall be
accompanied by a written statement of such accountants that, in conducting the
examination necessary to the giving of such certificate, they have obtained no
knowledge of the existence during the fiscal period under examination of any
condition, event or act which constitutes a Default (insofar as such a
condition, event or act relates to accounting matters), or if in the opinion of
such accountants there shall exist any Default, such statement shall specify the
nature thereof.
SECTION 5.02. Payment of Taxes. The Borrower will, and will
cause each Subsidiary to, promptly pay and discharge, or cause to be paid and
discharged, when due and payable, all lawful taxes, assessments and governmental
charges or levies imposed upon the income, profits, property or business of the
Borrower or any Subsidiary, provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith and if the Borrower or a Subsidiary shall have set aside
on its books adequate reserves with respect thereto in accordance with generally
accepted accounting principles.
36
<PAGE> 42
SECTION 5.03. Conduct of Business and Maintenance of
Existence. The Borrower will preserve and maintain its corporate existence and
will, and will cause each Subsidiary to, conduct its affairs and carry on its
business and operations in such manner as to comply with any and all applicable
laws (including, without limitation, Environmental Laws and ERISA and the rules
and regulations thereunder) except where the necessity of compliance therewith
is being contested in good faith.
SECTION 5.04. Maintenance of Property and Leases. The Borrower
will, and will cause each Subsidiary to, keep its properties, whether owned or
leased, in satisfactory repair, working order and condition.
SECTION 5.05. Insurance. The Borrower will, and will cause
each Subsidiary to, maintain with financially sound and reputable insurers
insurance against liability to persons and damage to property to the extent and
in the manner customary for companies of like size in similar businesses, it
being understood that the Borrower may self-insure against exposures which, in
the judgment of its management, are reasonable in relation to its financial
position. The Borrower will deliver to the Banks from time to time upon request
of any Bank through the Agent full information as to the insurance so carried.
SECTION 5.06. Accounts and Reports. The Borrower will, and
will cause each Subsidiary to, keep true records and books of account in which
full, true and correct entries will be made of all dealings or transactions in
relation to its businesses and affairs, in accordance with generally accepted
accounting principles consistently applied.
SECTION 5.07. Inspection. Each Bank or its designee shall have
the right, at its expense, on reasonable notice (given to a senior financial
officer of the Borrower) and at reasonable times to visit and inspect the
properties of the Borrower and its Subsidiaries and to discuss the financial
affairs of the Borrower and its Subsidiaries with the Borrower's senior officers
and will be furnished from the books of the Borrower and its Subsidiaries such
financial information as it may reasonably request and upon such reasonable
conditions relating to confidentiality of the material and information so
supplied as the Borrower might impose. Each Bank shall respect the confidential
nature of the material and information so supplied and shall take reasonable
measures to preserve such confidentiality. It is understood that a Bank may be
required to disclose such confidential material and information or portions
thereof (1) at the request of a bank regulatory agency or in
37
<PAGE> 43
connection with an examination of the Bank by bank examiners, (2) pursuant to
subpoena or other court process, (3) at the express direction of any other
authorized government agency, (4) to its independent auditors or (5) otherwise
as required by law.
SECTION 5.08. Maintenance of Net Worth. Consolidated Tangible
Net Worth will at all times be equal to or greater than the Compliance Level.
For this purpose, the "Compliance Level" is an amount initially equal to
$375,000,000; the Compliance Level shall be increased effective at the end of
each fiscal year of the Borrower commencing after July 30, 1994 by an amount
equal to 50% of the difference between Consolidated Net Income and dividends on
preferred stock for such year, but as to any particular year only if such
difference is a positive amount. The Compliance Level shall at no time decrease.
SECTION 5.09. Coverage of Consolidated Fixed Charges. The
Fixed Charge Coverage Ratio will not at the end of any fiscal quarter be less
than 1.20 to 1.
SECTION 5.10. Leverage Ratio. The Leverage Ratio will at no
time exceed 75%.
SECTION 5.11. Restrictions on Liens. The Borrower will not,
nor will it permit any Subsidiary to, create, incur, assume or suffer to exist
any Lien upon any of its property or assets now owned or hereafter acquired,
except:
(a) Liens existing on the date hereof securing Debt
outstanding on the date hereof;
(b) Liens incidental to the conduct of its business or the
ownership of its properties and assets which were not incurred in
connection with the borrowing of money or the obtaining of advances or
credit or the incurrence of Derivatives Obligations and which do not
materially detract from the value of its property or assets or
materially impair the use thereof in the operation of its business;
(c) any Lien on any asset securing Debt incurred or assumed
for the purpose of financing all or any part of the cost of acquiring
such asset, provided that such Lien attaches to such asset concurrently
with or within 90 days after the acquisition thereof and the Debt
secured by such Lien does not exceed the cost of such asset (such cost
to be determined at the lower of cost
38
<PAGE> 44
or fair market value at the time the Lien is placed on such asset);
(d) Liens incurred in connection with the making of the type
of Investment described in Section 5.13(r) and Liens incurred in
connection with the acquisition of, or improvements to, real estate;
provided, however, that no such Lien shall extend to or cover any
property other than the property so acquired or improved;
(e) any Lien existing on any assets of any corporation or
other entity at the time it becomes a Subsidiary and not created in
contemplation of such corporation becoming a Subsidiary, or existing on
any assets acquired by the Borrower or any Subsidiary through purchase,
merger, consolidation, or otherwise and not created in contemplation of
such purchase, merger, consolidation or other transaction;
(f) any Lien resulting from any order of attachment, distraint
or other legal process arising out of judicial proceedings so long as
the execution or other enforcement thereof is effectively stayed;
(g) Liens on shares of capital stock or property of a
Subsidiary securing obligations owing by such Subsidiary to the
Borrower or to another Subsidiary;
(h) Liens arising out of the refinancing, extension, renewal
or refunding of any Debt secured by any Lien permitted by this Section
5.11, provided that such Debt is not increased and is not secured by
any additional assets;
(i) Liens to banks or other institutions arising in connection
with the issuance of letters of credit or bankers' acceptances in
connection with the shipment or storage of goods in the ordinary course
of business;
(j) Liens not otherwise permitted by any of the foregoing
clauses of this Section 5.11 securing Debt in an aggregate principal
amount at any time outstanding not to exceed 10% of Consolidated Net
Tangible Assets; and
(k) Liens on cash and cash equivalents securing Derivatives
Obligations, provided that the aggregate amount of cash and cash
equivalents subject to such Liens may at no time exceed $25,000,000.
39
<PAGE> 45
SECTION 5.12. Restricted Payments. The Borrower will not make
any Restricted Payment unless, after giving effect to such action, the sum of
(a) $50,000,000, (b) 75% of Consolidated Net Income for the period from July 31,
1994 to the end of the quarter prior to such Restricted Payment, and (c) the
cash proceeds from the sale of equity securities of the Borrower (including
options and warrants to purchase such equity securities) subsequent to July 30,
1994 exceeds the sum of all Restricted Payments subsequent to July 30, 1994.
SECTION 5.13. Investments. Neither the Borrower nor any
Subsidiary will make, purchase, own or have outstanding any Investments or
Guarantee any Debt or other obligations, stock or dividends of any other Person,
except:
(a) Loans and advances by the Borrower to any Subsidiary or
loans and advances between Subsidiaries or by any Subsidiary to the
Borrower;
(b) Investments existing as of January 28, 1995;
(c) Investments in direct obligations of or obligations
guaranteed by the United States of America or any agency or
instrumentality thereof;
(d) Investments in municipal obligations, municipal auction
preferred stock and asset backed securities, provided, however, that
any such instrument shall be rated, at the time of investment, a
minimum rating of AAA by S&P and/or Aaa by Moody's, or the equivalent
short-term municipal ratings of SP1+ by S&P or MIG-1 by Moody's;
(e) Investments in certificates of deposit; time deposits;
money market funds; and bankers' acceptances issued by any United
States commercial bank (or branch thereof) or issued by any foreign
bank (or branch thereof) or a bank holding company having at the time
of investment capital and surplus of at least $100,000,000, provided,
however, that any such banking instruments shall be rated, at the time
of investment, a Thomson BankWatch rating of B/C or better;
(f) Investments in commercial paper issued by any corporation
and rated at the time of investment a minimum rating of A1 or better by
S&P or P1 or better by Moody's and, in either case, maturing within 270
days after the date of the acquisition thereof;
40
<PAGE> 46
(g) Investments in auction rate preferred stock and fixed rate
or adjustable rate bonds or notes, provided, however, that any such
instrument shall be rated, at the time of investment, a minimum rating
of A- by S&P and/or A3 by Moody's;
(h) Repurchase agreements provided that such investments (i)
are made through primary U.S. Government dealers who, at the time of
investment, have a minimum commercial paper rating of A1 by S&P or P1
by Moody's, (ii) are collateralized on a daily basis at a minimum level
of 102% by direct obligations of the United States of America or any
agency or instrumentality thereof and (iii) mature within one year from
the time of investment;
(i) Subject to the provisions of Section 5.12, purchases,
redemptions, or other retirements of any of the Borrower's securities
through the issuance of stock or the sale of treasury stock in exchange
for such securities, or with the proceeds of any issuance of stock or
sale of treasury stock within 180 days after the receipt of such
proceeds;
(j) Loans to key executive personnel for the purpose of
purchasing common stock of the Borrower under the terms of the
Borrower's Key Executive Stock Purchase Plan, provided that the
aggregate amount of such loans at any time outstanding shall not exceed
$5,000,000;
(k) Advances to employees of the Borrower or its Subsidiaries
for moving and travel expenses, drawing accounts and similar
expenditures in the ordinary course of their employment;
(l) The extension of credit, reflected, in accordance with
generally accepted accounting principles, as accounts receivable
(including notes, drafts, credit card transactions, trade acceptances
and letters of credit) arising from transactions in the ordinary course
of business in connection with the sale of goods or the performance of
services;
(m) Advances, deposits, down payments and prepayments made in
the ordinary course of business;
(n) Purchases or acquisitions of stock or other securities of
any corporation or enterprise which is, or will thereupon become, a
Subsidiary;
41
<PAGE> 47
(o) Purchases or acquisitions of stock or other securities of
any corporation if, after giving effect to previous purchases of stock
or securities of such corporation, if any, the Borrower will account
for such purchases of stock or other securities under the equity method
of accounting or whose financial statements are consolidated with those
of the Borrower;
(p) Endorsements of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;
(q) Investments in a Subsidiary or any other corporation which
would be a Subsidiary assuming conversion by the Borrower or a
Subsidiary of preferred stock or debt securities of said corporation
and Guarantees of any Debt or other obligation of the Borrower or any
Subsidiary;
(r) Guarantees of bonds, notes or other similar obligations of
a state, city, town or other governmental agency or entity which
obligations are issued in order to finance property used or to be used
by the Borrower or any Subsidiary, provided that the obligations so
Guaranteed shall be treated as Debt; and
(s) Additional Investments, not otherwise permitted by
paragraphs (a) through (r) above, if, after giving effect to any such
additional Investment subsequent to January 28, 1995, the aggregate
cost of all such additional Investments made by the Borrower and its
Subsidiaries (less the amount of cash actually received by the Borrower
and its Subsidiaries in respect of repayments, sales or other
liquidations of such Investments) will not exceed 10% of Consolidated
Net Tangible Assets.
For the purposes of this Section 5.13, in determining the
amount of an Investment made through the transfer of real property, such
property shall be valued at the book or fair value thereof at the time of
transfer, whichever is greater.
SECTION 5.14. Restrictions on Sales, Consolidations and
Mergers. Neither the Borrower nor any Subsidiary will sell, lease or in any way
dispose of all, or substantially all, of the property or assets of the Borrower
and its Subsidiaries, taken as a whole, nor will the Borrower consolidate or
merge with or into any other Person, provided that this Section 5.14 shall not
prevent any merger involving the Borrower in which the Borrower or HGI is the
42
<PAGE> 48
surviving corporation if, at the time of, and after giving effect to any such
merger, (i) no Default shall have occurred and be continuing and (ii) in the
case that the Borrower is not the survivor and the survivor is HGI, HGI must
expressly assume the Borrower's obligations under this Agreement in an
instrument in form and substance approved by the Agent, HGI must execute and
deliver new notes of HGI substantially in the form of Exhibit A hereto and HGI
must deliver an opinion of its general counsel substantially in the form of
Exhibit E hereto with respect to HGI.
SECTION 5.15. Transactions with Affiliates. The Borrower will
not, and will not permit any Subsidiary to, directly or indirectly, pay any
funds to or for the account of, make any Investment in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, to, or participate in,
or effect any transaction in connection with any joint enterprise or other joint
arrangement with, any Affiliate; provided, however, that the foregoing
provisions of this Section shall not prohibit (a) the Borrower from declaring or
paying any lawful dividend, (b) the Borrower or any Subsidiary from engaging in
any commercial transaction with an Affiliate so long as such transaction is on
terms and conditions at least as favorable to the Borrower or such Subsidiary as
the terms and conditions which would apply in a similar transaction with a
Person not an Affiliate, (c) the Borrower from making payments pursuant to the
Intercompany Services Agreement between the Borrower and HGI dated as of July
24, 1987, a copy of which has previously been furnished to the Banks or (d) the
Borrower from redeeming shares of its 6% Cumulative Convertible Preferred Stock
or its 9-1/4% Cumulative Redeemable Preferred Stock in accordance with the terms
of the Certificate of Designation for each of such Preferred Stock included in
the Borrower's Restated Certificate of Incorporation; provided, further that a
transaction permitted by this Section may nonetheless give rise to an Event of
Default under another Section of this Agreement.
SECTION 5.16. Restriction on Debt of Subsidiaries. The
Borrower will not permit any of its Subsidiaries to incur or at any time be
liable with respect to any Debt except (a) Debt owing to the Borrower or any
Wholly-Owned Subsidiary, (b) Debt which is secured by a Lien permitted by
Sections 5.11 (a) through 5.11 (i), inclusive, (c) Debt of any corporation at
the time such corporation becomes a Subsidiary and not created in contemplation
of such event, (d) Debt of Subsidiaries not otherwise permitted by any of the
foregoing clauses in an aggregate principal amount at any time outstanding not
to exceed $10,000,000 and
43
<PAGE> 49
(e) Debt of Subsidiaries outstanding on the date of this Agreement.
SECTION 5.17. Use of Proceeds. The proceeds of the Loans made
under this Agreement will be used by the Borrower for general corporate
purposes. None of such proceeds will be used, directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of buying or carrying any
"margin stock" within the meaning of Regulation U.
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the
following events ("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of
any Loan, or shall fail to pay within three days of the due date
thereof any interest or fees payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.08 to 5.17, inclusive;
(c) the Borrower shall fail to observe or perform any covenant
or agreement contained in this Agreement (other than those covered by
clause (a) or (b) above) for 30 days after notice thereof has been
given to the Borrower by the Agent at the request of any Bank;
(d) any material representation, warranty, certification or
statement made by the Borrower in this Agreement or in any certificate,
financial statement or other document delivered pursuant to this
Agreement shall prove to have been incorrect in any material respect
when made (or deemed made), and if the same shall be susceptible of
cure, such incorrectness shall not have been cured to the reasonable
satisfaction of the Required Banks within 30 days after notice thereof
has been given to the Borrower by the Agent at the request of any Bank;
44
<PAGE> 50
(e) the Borrower or any Subsidiary shall fail to make payment
of any Material Financial Obligation when due or within any applicable
grace period;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt or enables (or, with
the giving of notice or lapse of time or both, would enable) the holder
of such Debt or any Person acting on such holder's behalf to accelerate
the maturity thereof;
(g) the Borrower or any Significant Subsidiary or any one or
more Consolidated Subsidiaries having combined assets exceeding 5% of
the consolidated assets of the Borrower and its Consolidated
Subsidiaries shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief
or to the appointment of or taking possession by any such official in
an involuntary case or other proceeding commenced against it, or shall
make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any
corporate action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Significant Subsidiary or any one or more
Consolidated Subsidiaries having combined assets exceeding 5% of the
consolidated assets of the Borrower and its Consolidated Subsidiaries
seeking liquidation, reorganization or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60
days; or an order for relief shall be entered against the Borrower or
any
45
<PAGE> 51
Significant Subsidiary or any one or more Consolidated Subsidiaries
having combined assets exceeding 5% of the consolidated assets of the
Borrower and its Consolidated Subsidiaries under the federal bankruptcy
laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due
an amount or amounts (other than amounts being contested in good faith
through appropriate proceedings) aggregating in excess of $5,000,000
which it shall have become liable to pay under Title IV of ERISA; or
notice of intent to terminate a Material Plan in a distress termination
under Section 4041(c) of ERISA shall be filed under Title IV of ERISA
by any member of the ERISA Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate, to impose liability (other than
for premiums under Section 4007 of ERISA) in respect of, or to cause a
trustee to be appointed to administer any Material Plan; or a condition
shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated; or there
shall occur a complete or partial withdrawal from, or a default, within
the meaning of Section 4219(c)(5) of ERISA, with respect to, one or
more Multiemployer Plans which could cause one or more members of the
ERISA Group to incur a current payment obligation in excess of
$10,000,000;
(j) a judgment or order for the payment of money in excess of
$10,000,000 shall be rendered against the Borrower or any Significant
Subsidiary or any one or more Consolidated Subsidiaries having combined
assets exceeding 5% of the consolidated assets of the Borrower and its
Consolidated Subsidiaries and such judgment or order shall continue
unsatisfied and unstayed for a period of 30 days; or
(k) (i) HGI shall cease to hold 40% of the issued and
outstanding common stock of the Borrower (assuming for this purpose
conversion of all outstanding securities convertible into common stock
of the Borrower but not the exercise of any outstanding warrants,
options or other rights to purchase common stock of the Borrower), (ii)
any person or group of persons (within the meaning of
46
<PAGE> 52
Section 13 or 14 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), for purposes of this Section 6.01(k), a "Control
Group") other than a Control Group including HGI shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange
Act) of more voting stock or total equity capital of the Borrower than
that beneficially owned by HGI or (iii) any Control Group other than a
Control Group including the Smith Family Group shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange
Act) of more voting stock or total equity capital of HGI than that
beneficially owned by the Smith Family Group, if such person or group
of persons is also the beneficial owner (within the meaning of Rule
13d-3 of the Exchange Act) of at least 15% of either the voting stock
or total equity capital of HGI;
then, and in every such event, the Agent shall (i) if requested by the Required
Banks, by notice to the Borrower terminate the Commitments and they shall
thereupon terminate, and (ii) if requested by Banks holding Notes evidencing
more than 66 2/3% in aggregate principal amount of the Loans, by notice to the
Borrower declare the Notes (together with accrued interest thereon) to be, and
the Notes shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; provided that in the case of any of the Events of
Default specified in clause (g) or (h) above with respect to the Borrower,
without any notice to the Borrower or any other act by the Agent or the Banks,
the Commitments shall thereupon terminate and the Notes (together with accrued
interest thereon) shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower.
SECTION 6.02. Notice of Default. The Agent shall give notice
to the Borrower under Section 6.01(c) or (d) promptly upon being requested to do
so by any Bank and shall thereupon notify all the Banks thereof.
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment and Authorization. Each Bank
irrevocably appoints and authorizes the Agent to
47
<PAGE> 53
take such action as agent on its behalf and to exercise such powers under this
Agreement and the Notes as are delegated to the Agent by the terms hereof or
thereof, together with all such powers as are reasonably incidental thereto.
SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust
Company of New York and its respective successors shall have the same rights and
powers under this Agreement as any other Bank, subject to the provisions of
Section 2.03(d), and may exercise or refrain from exercising the same as though
it were not the Agent, and Morgan Guaranty Trust Company of New York and its
respective successors and affiliates may accept deposits from, lend money to,
and generally engage in any kind of business with the Borrower or any Subsidiary
or Affiliate of the Borrower as if it were not the Agent hereunder.
SECTION 7.03. Action by the Agent. The obligations of the
Agent hereunder are only those expressly set forth herein. Without limiting the
generality of the foregoing, the Agent shall not be required to take any action
with respect to any Default, except as expressly provided in Article VI.
SECTION 7.04. Consultation with Experts. The Agent may consult
with legal counsel (who may be counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.05. Liability of the Agent. Neither the Agent nor
any of its respective affiliates nor any of its directors, officers, agents or
employees shall be liable for any action taken or not taken by it in connection
herewith (i) with the consent or at the request of the Required Banks or (ii) in
the absence of its own gross negligence or willful misconduct. Neither the Agent
nor any of its respective affiliates nor any of its directors, officers, agents
or employees shall be responsible for or have any duty to ascertain, inquire
into or verify (i) any statement, warranty or representation made in connection
with this Agreement or any borrowing hereunder; (ii) the performance or
observance of any of the covenants or agreements of the Borrower; (iii) the
satisfaction of any condition specified in Article III, except receipt of items
required to be delivered to the Agent; or (iv) the validity, effectiveness
(other than its own due execution and delivery) or genuineness of this
Agreement, the Notes or any other instrument or writing furnished in connection
48
<PAGE> 54
herewith. The Agent shall not incur any liability by acting in reliance upon any
notice, consent, certificate, statement, or other writing (which may be a bank
wire, telex, facsimile transmission or similar writing) believed by it to be
genuine or to be signed by the proper party or parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in
accordance with its Commitment, indemnify the Agent, its affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from such indemnitees' gross negligence or willful misconduct) that such
indemnitees may suffer or incur in connection with this Agreement or any action
taken or omitted by such indemnitees hereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges that it
has, independently and without reliance upon the Agent or any other Bank, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.08. Successor Agent. The Agent may resign at any
time by giving notice thereof to the Banks and the Borrower. Upon any such
resignation, the Borrower shall have the right to appoint a successor Agent,
which shall be reasonably satisfactory to the Required Banks. If no successor
Agent shall have been so appointed by the Borrower, and shall have accepted such
appointment, within 30 days after the retiring Agent gives notice of
resignation, then the retiring Agent may, on behalf of the Banks, appoint a
successor Agent, which shall be a commercial bank organized or licensed under
the laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least $250,000,000. Upon the acceptance of
its appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article shall inure to its benefit as to
49
<PAGE> 55
any actions taken or omitted to be taken by it while it was Agent.
SECTION 7.09. Agent's Fees. The Borrower shall pay to the
Agent for its own account fees in the amounts and at the times previously agreed
upon between the Borrower and the Agent.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate
or Unfair. If on or prior to the first day of any Interest Period for any Fixed
Rate Borrowing:
(a) the Agent is advised by the Reference Banks that deposits
in dollars (in the applicable amounts) are not being offered to the
Reference Banks in the relevant market for such Interest Period, or
(b) in the case of a Committed Borrowing, the Required Banks
advise the Agent that the Adjusted CD Rate or the Adjusted London
Interbank Offered Rate, as the case may be, as determined by the Agent
will not adequately and fairly reflect the cost to such Banks of
funding their CD Loans or Euro-Dollar Loans, as the case may be, for
such Interest Period,
the Agent shall forthwith give notice thereof to the Borrower and the Banks,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, the obligations of the Banks to make CD
Loans or Euro-Dollar Loans, as the case may be, shall be suspended. Unless the
Borrower notifies the Agent at least one Domestic Business Day before the date
of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been
given that it elects not to borrow on such date, (i) if such Fixed Rate
Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a
Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market
LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall
bear interest for each day from and including the first day to but excluding the
last day of the Interest Period applicable thereto at the Base Rate for such
day.
50
<PAGE> 56
SECTION 8.02. Illegality. If, on or after the date of this
Agreement, the adoption of any applicable law, rule or regulation, or any change
in any applicable law, rule or regulation, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its Euro-Dollar Lending Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for any
Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its
Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall
forthwith give notice thereof to the other Banks and the Borrower, whereupon
until such Bank notifies the Borrower and the Agent that the circumstances
giving rise to such suspension no longer exist, the obligation of such Bank to
make Euro-Dollar Loans shall be suspended. Before giving any notice to the Agent
pursuant to this Section , such Bank shall designate a different Euro-Dollar
Lending Office if such designation will avoid the need for giving such notice
and will not, in the judgment of such Bank, be otherwise disadvantageous to such
Bank or contrary to its policies. Outstanding Euro-Dollar Loans shall be
maintained to maturity unless such Bank shall determine that it may not lawfully
continue to maintain and fund any of its outstanding Euro-Dollar Loans to
maturity and shall so specify in such notice, in which event the Borrower shall
immediately prepay in full the then outstanding principal amount of each such
Euro-Dollar Loan, together with accrued interest thereon. Concurrently with
prepaying each such Euro-Dollar Loan, the Borrower shall borrow a Base Rate Loan
in an equal principal amount from such Bank (on which interest and principal
shall be payable contemporaneously with the related Euro-Dollar Loans of the
other Banks), and such Bank shall make such a Base Rate Loan.
SECTION 8.03. Increased Cost and Reduced Return. (a) If on or
after (x) the date hereof, in the case of any Committed Loan or any obligation
to make Committed Loans or (y) the date of the related Money Market Quote, in
the case of any Money Market Loan, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall
51
<PAGE> 57
impose, modify or deem applicable any reserve (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding (i) with respect to any CD Loan any such requirement
included in an applicable Domestic Reserve Percentage and (ii) with respect to
any Euro-Dollar Loan any such requirement for which such Bank is entitled to
compensation under Section 2.15 for the relevant Interest Period), special
deposit, insurance assessment (excluding, with respect to any CD Loan, any such
requirement reflected in an applicable Assessment Rate) or similar requirement
against assets of, deposits with or for the account of, or credit extended by,
any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or on the United States market for certificates of
deposit or the London interbank market any other condition affecting its Fixed
Rate Loans, its Note or its obligation to make Fixed Rate Loans, and the result
of any of the foregoing is to increase the cost to such Bank (or its Applicable
Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the
amount of any sum received or receivable by such Bank (or its Applicable Lending
Office) under this Agreement or under its Note with respect thereto, by an
amount deemed by such Bank to be material, then, within 15 days after demand by
such Bank, the Borrower shall pay to such Bank such additional amount or amounts
as will compensate such Bank for such increased cost or reduction.
(b) If any Bank shall have determined that, after the date
hereof, the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of such Bank (or its Parent) as a consequence of such Bank's
Commitment hereunder (to the extent undrawn) to a level below that which such
Bank (or its Parent) could have achieved but for such adoption, change, request
or directive (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by such Bank to be material, then from time to
time, within 15 days after demand by such Bank, the Borrower shall pay to such
Bank such additional amount or amounts as will compensate such Bank (or its
Parent) for such reduction.
52
<PAGE> 58
(c) Each Bank will promptly notify the Borrower of any event
of which it has knowledge, occurring after the date hereof, which will entitle
such Bank to compensation pursuant to this Section , and each Bank will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank or contrary to
its policies. A certificate of any Bank claiming compensation under this
Section and setting forth the additional amount or amounts to be paid to it
hereunder shall be conclusive in the absence of clearly demonstrable error. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods. Each such certificate shall be accompanied by such
information as the Borrower may reasonably request as to the computation set
forth therein. No payment made to any Bank under this Section shall duplicate
any other payments made to such Bank under any other provision of this
Agreement.
SECTION 8.04. Taxes. (a) Any and all payments by the Borrower
to or for the account of any Bank or the Agent hereunder or under any Note shall
be made free and clear of and without deduction for any and all present or
future taxes, duties, levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto, excluding, in the case of each Bank and
the Agent, taxes imposed on its income, and franchise taxes imposed on it, by
the jurisdiction under the laws of which such Bank or the Agent (as the case may
be) is organized or any political subdivision of such jurisdiction or any
jurisdiction of which such jurisdiction is a political subdivision and, in the
case of each Bank, taxes imposed on its income, and franchise or similar taxes
imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or
any political subdivision of such jurisdiction or any jurisdiction of which such
jurisdiction is a political subdivision (all such non-excluded taxes, duties,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under any
Note to any Bank or the Agent, (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 8.04) such Bank or the
Agent (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make such
deductions, (iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
53
<PAGE> 59
law and (iv) the Borrower shall furnish to the Agent, at its address referred to
in Section 9.01, the original or a certified copy of a receipt evidencing
payment thereof.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes and any other excise or property taxes, or
charges or similar levies which arise from any payment made hereunder or under
any Note or from the execution or delivery of, or otherwise with respect to,
this Agreement or any Note (hereinafter referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Bank and the Agent
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable
under this Section 8.04) paid by such Bank or the Agent (as the case may be) and
any liability (including penalties, interest and expenses) arising therefrom or
with respect thereto, except where such liability arises from such Bank's gross
negligence or willful misconduct. This indemnification shall be made within 15
days from the date such Bank or the Agent (as the case may be) makes demand
therefor.
(d) Each Bank organized under the laws of a jurisdiction
outside the United States, on or prior to the date of its execution and delivery
of this Agreement in the case of each Bank listed on the signature pages hereof
and on or prior to the date on which it becomes a Bank in the case of each other
Bank, and from time to time thereafter if requested in writing by the Borrower
(but only so long as such Bank remains lawfully able to do so), shall provide
the Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or
any successor form prescribed by the Internal Revenue Service, certifying that
such Bank is entitled to benefits under an income tax treaty to which the United
States is a party which reduces the rate of withholding tax on payments of
interest or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States. If the form provided by a Bank at the time such Bank first becomes a
party to this Agreement indicates a United States interest withholding tax rate
in excess of zero, withholding tax at such rate shall be considered excluded
from "Taxes" as defined in Section 8.04(a).
(e) For any period with respect to which a Bank has failed to
provide the Borrower with the appropriate form pursuant to Section 8.04(d)
(unless such failure is due to a
54
<PAGE> 60
change in treaty, law or regulation occurring subsequent to the date on which a
form originally was required to be provided), such Bank shall not be entitled to
indemnification under Section 8.04(a) with respect to Taxes imposed by the
United States; provided, however, that should a Bank, which is otherwise exempt
from or subject to a reduced rate of withholding tax, become subject to Taxes
because of its failure to deliver a form required hereunder, the Borrower shall
take such steps as such Bank shall reasonably request to assist such Bank to
recover such Taxes.
(f) If the Borrower is required to pay additional amounts to
or for the account of any Bank pursuant to this Section 8.04, then such Bank
will change the jurisdiction of its Applicable Lending Office so as to eliminate
or reduce any such additional payment which may thereafter accrue if such
change, in the judgment of such Bank, is not otherwise disadvantageous to such
Bank or contrary to its policies.
(g) In the event any Bank obtains the benefit of any tax
credit or allowance which may be available to it on account of any Taxes for
which it has been indemnified by the Borrower under this Section 8.04, it will
pay to the Borrower an amount equal to the net benefit so received by such Bank,
as determined in good faith by it. Should it later develop because of loss
carrybacks, tax credit carrybacks or otherwise that such Bank in fact did not
receive the net benefit so paid over to the Borrower, the Borrower will promptly
reimburse such Bank the amount by which the payment theretofore made to the
Borrower exceeds the net benefits actually so received by such Bank, as
determined in good faith by it.
SECTION 8.05. Base Rate Loans Substituted for Affected Fixed
Rate Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans has been
suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation
under Section 8.03 or 8.04 with respect to its CD Loans or Euro-Dollar Loans and
the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to
such Bank through the Agent, have elected that the provisions of this Section
shall apply to such Bank, then, unless and until such Bank notifies the Borrower
that the circumstances giving rise to such suspension or demand for compensation
no longer exist:
(a) all Loans which would otherwise be made by such Bank as CD
Loans or Euro-Dollar Loans, as the case may be, shall be made instead
as Base Rate Loans (on which interest and principal shall
55
<PAGE> 61
be payable contemporaneously with the related Fixed Rate Loans of the
other Banks), and
(b) after each of its CD Loans or Euro-Dollar Loans, as the
case may be, has been repaid, all payments of principal which would
otherwise be applied to repay such Fixed Rate Loans shall be applied to
repay its Base Rate Loans instead.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (x) in the case of the Borrower or the Agent, at its address or telex
number set forth on the signature pages hereof, (y) in the case of any Bank, at
its address or telex number set forth in its Administrative Questionnaire or (z)
in the case of any party, such other address or telex number as such party may
hereafter specify for the purpose by notice to the Agent and the Borrower. Each
such notice, request or other communication shall be effective (i) if given by
telex, when such telex is transmitted to the telex number specified in this
Section and the appropriate answerback is received, (ii) if given by mail or by
any other means (including, without limitation, facsimile transmission), when
received at the address specified in this Section .
SECTION 9.02. No Waivers. No failure or delay by the Agent or
any Bank in exercising any right, power or privilege hereunder or under any Note
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. Expenses; Indemnification. (a) The Borrower
shall pay (i) all reasonable out-of-pocket expenses of the Agent, including
reasonable fees and disbursements of special counsel for the Agent, in
connection with the preparation and administration of this Agreement, any waiver
or consent hereunder or any amendment hereof or any Default or alleged Default
hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket
56
<PAGE> 62
expenses incurred by the Agent and each Bank, including reasonable fees and
disbursements of counsel (including the allocated cost of in-house counsel), in
connection with such Event of Default and collection, bankruptcy, insolvency and
other enforcement proceedings resulting therefrom.
(b) The Borrower agrees to indemnify the Agent and each Bank,
their respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) brought or threatened
relating to or arising out of this Agreement or any actual or proposed use of
proceeds of Loans hereunder; provided that no Indemnitee shall have the right to
be indemnified hereunder for such Indemnitee's own gross negligence or willful
misconduct as determined by a court of competent jurisdiction; and provided
further that the Banks and the Agent shall use reasonable efforts to avoid
inappropriate duplication of expense in connection with any matter for which
they are indemnified by the Borrower under this subsection (b).
SECTION 9.04. Sharing of Set-Offs. Each Bank agrees that if it
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest due
with respect to any Note held by it which is greater than the proportion
received by any other Bank in respect of the aggregate amount of principal and
interest due with respect to any Note held by such other Bank, the Bank
receiving such proportionately greater payment shall purchase such
participations in the Notes held by the other Banks, and such other adjustments
shall be made, as may be required so that all such payments of principal and
interest with respect to the Notes held by the Banks shall be shared by the
Banks pro rata; provided that nothing in this Section shall impair the right of
any Bank to exercise any right of set-off or counterclaim it may have and to
apply the amount subject to such exercise to the payment of indebtedness of the
Borrower other than its indebtedness under the Notes. The Borrower agrees, to
the fullest extent it may effectively do so under applicable law, that any
holder of a participation in a Note acquired pursuant to the foregoing
arrangements may exercise rights of set-off or counterclaim and other rights
with respect to such participation as fully
57
<PAGE> 63
as if such holder of a participation were a direct creditor of the Borrower in
the amount of such participation.
SECTION 9.05. Amendments and Waivers. Any provision of this
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Borrower and the Required Banks
(and, if the rights or duties of the Agent are affected thereby, by the Agent);
provided that no such amendment or waiver shall, unless signed by all the Banks,
(i) increase or decrease the Commitment of any Bank (except for a ratable
decrease in the Commitments of all Banks) or subject any Bank to any additional
obligation, (ii) reduce the principal of or rate of interest on any Loan or any
fees hereunder, (iii) postpone the date fixed for any payment of principal of or
interest on any Loan or any fees hereunder or for or termination of any
Commitment or (iv) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes, or the number of Banks, which shall be
required for the Banks or any of them to take any action under this Section or
any other provision of this Agreement.
SECTION 9.06. Successors and Assigns. (a) The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that the Borrower may
not assign or otherwise transfer any of its rights under this Agreement without
the prior written consent of all Banks, it being agreed that no merger permitted
by Section 5.14 shall be deemed to be an assignment or transfer for purposes of
this Section 9.06.
(b) Any Bank may at any time grant to one or more banks or
other institutions (each a "Participant") participating interests in its
Commitment or any or all of its Loans. In the event of any such grant by a Bank
of a participating interest to a Participant, whether or not upon notice to the
Borrower and the Agent, such Bank shall remain responsible for the performance
of its obligations hereunder, and the Borrower and the Agent shall continue to
deal solely and directly with such Bank in connection with such Bank's rights
and obligations under this Agreement. Any agreement pursuant to which any Bank
may grant such a participating interest shall provide that such Bank shall
retain the sole right and responsibility to enforce the obligations of the
Borrower hereunder including, without limitation, the right to approve any
amendment, modification or waiver of any provision of this Agreement; provided
that such participation agreement may provide that such Bank will not agree to
any modification, amendment or waiver of this Agreement described in clause (i),
(ii) or (iii) of Section
58
<PAGE> 64
9.05 without the consent of the Participant. The Borrower agrees that each
Participant shall, to the extent provided in its participation agreement, be
entitled to the benefits of Section 2.15 and Article VIII with respect to its
participating interest. An assignment or other transfer which is not permitted
by subsection (c) or (d) below shall be given effect for purposes of this
Agreement only to the extent of a participating interest granted in accordance
with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or
other institutions (each an "Assignee") all, or a proportionate part of all, of
its rights and obligations under this Agreement and the Notes, and such Assignee
shall assume such rights and obligations, pursuant to an Assignment and
Assumption Agreement in substantially the form of Exhibit G hereto executed by
such Assignee and such transferor Bank, with (and subject to) notice to the
Agent and the consent of the Borrower (such consent not to be unreasonably
delayed or withheld); provided that (i) if an Assignee is an affiliate of such
transferor Bank, such notice shall be given to the Agent and the Borrower but no
such consent shall be required, (ii) such assignment may, but need not, include
rights of the transferor Bank in respect of outstanding Money Market Loans,
(iii) unless the assignment covers all rights and obligations of such assignor
Bank, the assignment shall cover the equivalent of a Commitment of not less than
$10,000,000 and (iv) the remaining Commitment (if any) of the assignor Bank
after any such assignment is at least $5,000,000. Upon execution and delivery of
such instrument and payment by such Assignee to such transferor Bank of an
amount equal to the purchase price agreed between such transferor Bank and such
Assignee, such Assignee shall be a Bank party to this Agreement and shall have
all the rights and obligations of a Bank with a Commitment as set forth in such
instrument of assumption, and the transferor Bank shall be released from its
obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. Upon the consummation of any assignment
pursuant to this subsection (c), the transferor Bank, the Agent and the Borrower
shall make appropriate arrangements so that, if required, a new Note is issued
to the Assignee. In connection with any such assignment, the transferor Bank
shall pay to the Agent an administrative fee for processing such assignment in
the amount of $2,500. If the Assignee is not incorporated under the laws of the
United States of America or a state thereof, it shall, prior to the first date
on which interest or fees are payable hereunder for its account, deliver to the
Borrower and the Agent certification
59
<PAGE> 65
as to exemption from deduction or withholding of any United States federal
income taxes in accordance with Section 8.04.
(d) Any Bank may at any time assign all or any portion of its
rights under this Agreement and its Note to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's
rights shall be entitled to receive any greater payment under Section 8.03 or
Section 8.04 than such Bank would have been entitled to receive with respect to
the rights transferred, unless such transfer is made with the Borrower's prior
written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04
requiring such Bank to designate a different Applicable Lending Office under
certain circumstances or at a time when the circumstances giving rise to such
greater payment did not exist.
SECTION 9.07. Collateral. Each of the Banks represents to the
Agent and each of the other Banks that it in good faith is not relying upon any
"margin stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
SECTION 9.08. Governing Law; Submission to Jurisdiction. This
Agreement and each Note shall be governed by and construed in accordance with
the laws of the State of New York. The Borrower hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of any New York State court sitting in New York City
for purposes of all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. The Borrower irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum.
SECTION 9.09. Counterparts; Integration. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof.
60
<PAGE> 66
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.11. Maximum Interest Rate. (a) Nothing contained in
this Agreement or the Notes shall require any Borrower to pay interest at a rate
exceeding the maximum rate permitted by applicable law.
(b) If the amount of interest payable for the account of any
Bank on any interest payment date in respect of the immediately preceding
interest computation period would otherwise exceed the maximum amount permitted
by applicable law to be charged by such Bank, the amount of interest payable for
its account on such interest payment date shall be automatically reduced to such
maximum permissible amount.
(c) If the amount of interest payable for the account of any
Bank in respect of any interest computation period is reduced pursuant to clause
(b) of this Section and the amount of interest payable for its account in
respect of any subsequent interest computation period would otherwise be less
than the maximum amount permitted by applicable law to be charged by such Bank,
then the amount of interest payable for its account in respect of such
subsequent interest computation period shall be automatically increased to such
maximum permissible amount; provided that at no time shall the aggregate amount
by which interest paid for the account of any Bank has been increased pursuant
to this clause (c) exceed the aggregate amount by which interest paid for its
account has theretofore been reduced pursuant to clause (b) of this Section .
61
<PAGE> 67
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
THE NEIMAN MARCUS GROUP, INC.
By ______________________________
Title: Vice President and Treasurer
27 Boylston Street
Chestnut Hill, MA 02167
Attention:
Telephone No.: 617-232-0760
Telecopier number: 617-278-5397
<PAGE> 68
COMMITMENTS
$60,000,000 MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By /s/ Michael Y. Leder
-----------------------------
Michael Y. Leder
Title: Vice President
$40,000,000 THE LONG TERM CREDIT BANK OF JAPAN,
LTD.
By /s/
-----------------------------
Title:
$35,000,000 BANK OF AMERICA ILLINOIS
By /s/
-----------------------------
Title: Vice President
$35,000,000 THE FIRST NATIONAL BANK OF BOSTON
By /s/
-----------------------------
Title:
$35,000,000 THE BANK OF TOKYO TRUST COMPANY
By /s/
-----------------------------
Title: Vice President
<PAGE> 69
$35,000,000 CHEMICAL BANK
By /s/ Beth F. Herman
-----------------------------
Beth F. Herman
Title: Vice President
$35,000,000 CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Robert Ivosevich
-----------------------------
Robert Ivosevich
Title: Senior Vice President
$35,000,000 CREDIT SUISSE
By /s/ Nikolai A. Nachamkin
-----------------------------
Nikolai A. Nachamkin
Title: Associate
By /s/ Michael C. Mast
-----------------------------
Michael C. Mast
Title: Member of Senior
Management
$35,000,000 NATIONSBANK, N.A. (CAROLINAS)
By /s/
-----------------------------
Title: Vice President
$35,000,000 NATIONAL WESTMINSTER BANK PLC
By /s/
-----------------------------
Title: Vice President
<PAGE> 70
$35,000,000 THE SANWA BANK LIMITED
By /s/
-----------------------------
Title: Senior Vice President
$35,000,000 SWISS BANK CORPORATION
By /s/ Donald H. Lucardi
-----------------------------
Donald H. Lucardi
Title: Director Merchant Banking
By /s/ Jane A. Majeski
-----------------------------
Jane A. Majeski
Title: Director Merchant Banking
$25,000,000 THE BANK OF NOVA SCOTIA
By /s/
-----------------------------
Title:
$25,000,000 WELLS FARGO BANK, N.A.
By /s/
-----------------------------
Title: Assistant Vice President
- -----------------
TOTAL COMMITMENTS
$500,000,000
=================
<PAGE> 71
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Agent
By /s/ Michael Y.Leder
-----------------------------
Michael Y. Leder
Title: Vice President
60 Wall Street
New York, New York 10260-0060
Attention: Syndication
Telex No.: 177615
Fax No.: 212-648-5016
<PAGE> 72
PRICING SCHEDULE
The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate"
for any day are the respective percentages set forth below in the applicable row
under the column corresponding to the Status that exists on such day:
<TABLE>
<CAPTION>
===========================================================================================================
Level Level Level Level Level
Status I II III IV V
===========================================================================================================
<S> <C> <C> <C> <C> <C>
Euro-Dollar
Margin 0.275 0.275 0.40 0.50 0.50
- -----------------------------------------------------------------------------------------------------------
CD Margin 0.40 0.40 0.525 0.625 0.625
- -----------------------------------------------------------------------------------------------------------
Facility Fee
Rate 0.125 0.175 0.20 0.25 0.375
===========================================================================================================
</TABLE>
For purposes of this Schedule, the following terms have the
following meanings:
"Level I Status" exists at any date if, at such date, the
Applicable Fixed Charge Coverage Ratio is equal to or greater than 2.10.
"Level II Status" exists at any date if, at such date, (i) the
Applicable Fixed Charge Coverage Ratio is equal to or greater than 1.50 and (ii)
Level I Status does not exist.
"Level III Status" exists at any date if, at such date, (i)
the Applicable Fixed Charge Coverage Ratio is equal to or greater than 1.40 and
(ii) neither Level I Status nor Level II Status exists.
"Level IV Status" exists at any date if, at such date, (i) the
Applicable Fixed Charge Coverage Ratio is equal to or greater than 1.30 and (ii)
none of Level I Status, Level II Status and Level III Status exists.
"Level V Status" exists at any date if, at such date, no other
Status exists.
"Applicable Fixed Charge Coverage Ratio" means, for each day
during any Quarter, the Fixed Charge Coverage Ratio as at the last day of the
immediately preceding Quarter.
<PAGE> 73
"Quarter" means each fiscal quarter of the Borrower.
"Status" refers to the determination of which of Level I
Status, Level II Status, Level III Status, Level IV Status or Level V Status
exists at any date.
The Applicable Fixed Charge Coverage Ratio for each Quarter shall be determined
initially on the basis of an estimate which shall be furnished by the Borrower
to the Agent not later than the earlier of the (i) 60th day of such Quarter and
(ii) the tenth day prior to the first day (if any) during such Quarter on which
interest is payable in respect of Euro-Dollar Loans or CD Loans. If when finally
determined the actual Applicable Fixed Charge Coverage Ratio differs from the
estimate, appropriate retroactive adjustments shall be made as determined by the
Agent.
2
<PAGE> 74
EXHIBIT A
NOTE
New York, New York
____________, 1995
For value received, The Neiman Marcus Group, Inc. a Delaware
corporation (the "Borrower"), promises to pay to the order of
(the "Bank"), for the account of its Applicable Lending Office, the unpaid
principal amount of each Loan made by the Bank to the Borrower pursuant to the
Credit Agreement referred to below on the last day of the Interest Period
relating to such Loan. The Borrower promises to pay interest on the unpaid
principal amount of each such Loan on the dates and at the rate or rates
provided for in the Credit Agreement. All such payments of principal and
interest shall be made in lawful money of the United States in Federal or other
immediately available funds at the office of Morgan Guaranty Trust Company of
New York, 60 Wall Street, New York, New York.
All Loans made by the Bank, the respective types and
maturities thereof and all repayments of the principal thereof shall be recorded
by the Bank and, if the Bank so elects in connection with any transfer or
enforcement hereof, appropriate notations to evidence the foregoing information
with respect to each such Loan then outstanding may be endorsed by the Bank on
the schedule attached hereto, or on a continuation of such schedule attached to
and made a part hereof; provided that the failure of the Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Credit Agreement.
This note is one of the Notes referred to in the Credit
Agreement dated as of April 7, 1995 among the Borrower, the banks listed on the
signature pages thereof, and Morgan Guaranty Trust Company of New York, as Agent
(as the same may be amended from time to time, the "Credit Agreement"). Terms
defined in the Credit Agreement are used
<PAGE> 75
herein with the same meanings. Reference is made to the Credit Agreement for
provisions for the prepayment hereof and the acceleration of the maturity
hereof. This Note shall be governed by and construed in accordance with the laws
of the State of New York.
THE NEIMAN MARCUS GROUP, INC.
By _________________________
Title:
2
<PAGE> 76
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Amount of
Amount of Type of Principal Maturity Notation
Date Loan Loan Repaid Date Made By
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
</TABLE>
3
<PAGE> 77
EXHIBIT B
Form of Money Market Quote Request
______________, 19__
To: Morgan Guaranty Trust Company of New York (the "Agent")
From: The Neiman Marcus Group, Inc.
Re: Credit Agreement (the "Credit Agreement") dated as of April 7,
1995 among the Borrower, the Banks listed on the signature
pages thereof and Morgan Guaranty Trust Company of New York,
as Agent.
We hereby give notice pursuant to Section 2.03 of the Credit
Agreement that we request Money Market Quotes for the following proposed Money
Market Borrowing(s):
Date of Borrowing: _______________
Principal Amount* Interest Period**
- ----------------- -----------------
$
Such Money Market Quotes should offer a Money Market [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]
_______________________-
*Amount must be $10,000,000 or a larger multiple of $1,000,000.
**Not less than one month (LIBOR Auction) or not less than 5 days
(Absolute Rate Auction), subject to the provisions of the definition of Interest
Period.
<PAGE> 78
Terms used herein have the meanings assigned to them in the
Credit Agreement.
THE NEIMAN MARCUS GROUP, INC.
By ______________________
Title:
2
<PAGE> 79
EXHIBIT C
Form of Invitation for Money Market Quotes
To: [Name of Bank]
Re: Invitation for Money Market Quotes
to The Neiman Marcus Group, Inc. (the "Borrower")
Pursuant to Section 2.03 of the Credit Agreement dated as of
April 7, 1995 among the Borrower, the Banks parties thereto and Morgan Guaranty
Trust Company of New York, as Agent, we are pleased on behalf of the Borrower to
invite you to submit Money Market Quotes to the Borrower for the following
proposed Money Market Borrowing(s):
Date of Borrowing: ________________
Principal Amount Interest Period
- ---------------- ---------------
$
Such Money Market Quotes should offer a Money Market [Margin]
[Absolute Rate]. [The applicable base rate is the London Interbank Offered
Rate.]
Please respond to this invitation by no later than [4:00 P.M.]
[9:15 A.M.] (New York City time) on [date].
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By________________________
Authorized Officer
<PAGE> 80
EXHIBIT D
Form of Money Market Quote
To: Morgan Guaranty Trust Company of New York
(the "Agent")
Attention:
Re: Money Market Quote to
The Neiman Marcus Group, Inc. (the "Borrower")
In response to your invitation on behalf of the Borrower dated
____________, 19__, we hereby make the following Money Market Quote on the
following terms:
1. Quoting Bank:_____________________
2. Person to contact at Quoting Bank:
__________________________________
3. Date of Borrowing:______________*
4. We hereby offer to make Money Market Loan(s) in the
following principal amounts, for the following Interest Periods and at the
following rates:
___________________
*As specified in the related Invitation.
<PAGE> 81
Principal Interest Money Market
Amount** Period*** [Margin****] [Absolute Rate*****]
- --------- --------- ------------ --------------------
$
$
[Provided, that the aggregate principal amount of Money Market Loans
for which the above offers may be accepted shall not exceed
$________________.]**
We understand and agree that the offer(s) set forth above,
subject to the satisfaction of the applicable conditions set forth in the Credit
Agreement dated as of April 7, 1995 among the Borrower, the Banks listed on the
signature pages thereof and Morgan Guaranty Trust Company of New York, as Agent,
as irrevocably obligates us to make the Money Market Loan(s) for which any
offer(s) are accepted, in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated:__________________ By:_____________________
Authorized Officer
_________________
**Principal amount bid for each Interest Period may not exceed
principal amount requested. Specify aggregate limitation if the sum of the
individual offers exceeds the amount the Bank is willing to lend. Bids must be
made for $10,000,000 or a larger multiple of $1,000,000.
***Not less than one month or not less than 5 days, as specified in the
related Invitation. No more than five bids are permitted for each Interest
Period.
****Margin over or under the London Interbank Offered Rate determined
for the applicable Interest Period. Specify percentage (to the nearest 1/10,000
of 1%) and specify whether "PLUS" or "MINUS".
*****Specify rate of interest per annum (to the nearest 1/10,000th of
1%).
2
<PAGE> 82
EXHIBIT E
OPINION OF
COUNSEL FOR THE BORROWER
[Effective Date]
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260-0060
Dear Sirs:
In my capacity as Senior Vice President and General Counsel of
The Neiman Marcus Group, Inc. (the "Borrower"), I, together with
___________________________, have acted as counsel to the Borrower in connection
with the preparation, execution and delivery of the Credit Agreement dated as of
April 7, 1995 among the Borrower, the Banks listed on the signature pages
thereof and Morgan Guaranty Trust Company of New York, as Agent (the
"Agreement"). Capitalized terms used in this opinion which are not defined
herein shall have the same meaning as in the Agreement.
I have examined the originals, or copies certified to my
satisfaction, of the Agreement, the Notes, the charter documents and the By-Laws
of the Borrower and the Significant Subsidiaries, records of the Borrower's
corporate proceedings, all Debt instruments and other material agreements and
instruments to which the Borrower or a Significant Subsidiary is a party and of
which I have knowledge, certificates of public officials and such other
documents,agreements, certificates and records as I have deemed necessary to
examine as a basis for the opinions hereinafter expressed.
I am an attorney admitted to practice in the Commonwealth of
Massachusetts. I am not, and do not purport to be, an expert in or qualified to
express opinions concerning the laws of any jurisdiction other than
Massachusetts, the United States of America and the corporate laws of the State
of Delaware to the extent necessary to express the opinions hereinafter set
forth.
<PAGE> 83
For the purposes of this opinion, I have assumed without investigation that the
laws of the State of New York are the same as those of the Commonwealth of
Massachusetts.
Based upon the foregoing, and having regard for such legal
considerations as I have deemed relevant, I am of the opinion that:
1. The Borrower and each Significant Subsidiary (i) is a
corporation duly organized, validly existing and in good standing under the laws
of its respective state of incorporation, (ii) has all requisite corporate power
and all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted and as presently contemplated
and (iii) is in good standing as a foreign corporation and is duly qualified to
conduct business in each jurisdiction in which its property or business as
presently conducted or contemplated makes such qualification necessary, except
in those jurisdictions in which the failure to be so qualified would not have a
material adverse effect upon the business or financial condition of the Borrower
or such Significant Subsidiary and would not (after qualification) preclude the
Borrower or such Significant Subsidiary from enforcing claims against any party
in the courts of such jurisdictions.
2. The execution, delivery and performance by the Borrower of
the Agreement and the Notes are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official, and
the Agreement and the Notes do not contravene, or constitute a default under,
any provision of applicable law or of the Restated Certificate of Incorporation
or ByLaws of the Borrower or of any agreement, judgment, injunction, order,
decree or other instrument binding upon the Borrower or any Subsidiary.
3. The Agreement and the Notes have been duly and validly
executed and delivered by authorized officers of the Borrower, and the Agreement
and the Notes constitute legal, valid, binding and enforceable obligations of
the Borrower, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
generally the enforcement of creditors' rights and except to the extent that the
availability of the remedy of specific enforcement or injunctive relief is
subject to the discretion of the court before which any proceeding therefor may
be brought.
2
<PAGE> 84
4. Various suits and claims arising in the ordinary course of
business, some of which involve substantial amounts, are pending against the
Borrower and its Subsidiaries. While the ultimate effect of such litigation
cannot be ascertained at this time, in my opinion, there are no actions, suits,
proceedings or investigations pending, or to my knowledge threatened, against
the Borrower or any Subsidiary in which there is a reasonable possibility of an
adverse decision which would materially adversely affect the business, assets or
financial condition of the Borrower and its Subsidiaries, taken as a whole.
Very truly yours,
3
<PAGE> 85
EXHIBIT F
OPINION OF
DAVIS POLK & WARDWELL, SPECIAL COUNSEL
FOR THE AGENT
[Effective Date]
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260-0060
Dear Sirs:
We have participated in the preparation of the Credit
Agreement (the "Credit Agreement") dated as of April 7, 1995 among The Neiman
Marcus Group, Inc., a Delaware corporation (the "Borrower"), the banks listed on
the signature pages thereof (the "Banks") and Morgan Guaranty Trust Company of
New York, as Agent, and have acted as special counsel for the Agent for the
purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit
Agreement. Terms defined in the Credit Agreement are used herein as therein
defined.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by the Borrower of
the Credit Agreement and the Notes are within the Borrower's corporate powers
and have been duly authorized by all necessary corporate action.
<PAGE> 86
2. The Credit Agreement constitutes a valid and binding
agreement of the Borrower and each Note constitutes a valid and binding
obligation of the Borrower, in each case enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and by general principles of equity.
We are members of the Bar of the State of New York and the
foregoing opinion is limited to the laws of the State of New York, the federal
laws of the United States of America and the General Corporation Law of the
State of Delaware. In giving the foregoing opinion, we express no opinion as to
the effect (if any) of any law of any jurisdiction (except the State of New
York) in which any Bank is located which limits the rate of interest that such
Bank may charge or collect.
This opinion is rendered solely to you in connection with the
above matter. This opinion may not be relied upon by you for any other purpose
or relied upon by any other person without our prior written consent.
Very truly yours,
2
<PAGE> 87
EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of __________, 19__ among [ASSIGNOR] (the
"Assignor"), [ASSIGNEE] (the "Assignee") and The Neiman Marcus Group, Inc. (the
"Borrower").
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the
"Agreement") relates to the Credit Agreement dated as of April 7, 1995 among the
Borrower, the Assignor and the other Banks party thereto, as Banks, and Morgan
Guaranty Trust Company of New York, as Agent (the "Credit Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor
has a Commitment to make Loans to the Borrower in an aggregate principal amount
at any time outstanding not to exceed $_________;
WHEREAS, Committed Loans made to the Borrower by the Assignor
under the Credit Agreement in the aggregate principal amount of $_______ are
outstanding at the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all
of the rights of the Assignor under the Credit Agreement in respect of a portion
of its Commitment thereunder in an amount equal to $___________ (the "Assigned
Amount"), together with a corresponding portion of its outstanding Committed
Loans, and the Assignee proposes to accept assignment of such rights and assume
the corresponding obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise
defined herein shall have the respective meanings set forth in the Credit
Agreement.
<PAGE> 88
SECTION 2. Assignment. The Assignor hereby assigns and sells
to the Assignee all of the rights of the Assignor under the Credit Agreement to
the extent of the Assigned Amount, and the Assignee hereby accepts such
assignment from the Assignor and assumes all of the obligations of the Assignor
under the Credit Agreement to the extent of the Assigned Amount, including the
purchase from the Assignor of the corresponding portion of the principal amount
of the Committed Loans made by the Assignor outstanding at the date hereof. Upon
the execution and delivery hereof by the Assignor, the Assignee [and the
Borrower] and the payment of the amounts specified in Section 3 required to be
paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed
to the rights and be obligated to perform the obligations of a Bank under the
Credit Agreement with a Commitment in an amount equal to the Assigned Amount,
and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced
by a like amount and the Assignor released from its obligations under the Credit
Agreement to the extent such obligations have been assumed by the Assignee. The
assignment provided for herein shall be without recourse to the Assignor.
SECTION 3. Payments. As consideration for the assignment and
sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on
the date hereof in Federal funds the amount heretofore mutually agreed between
them.* It is understood that facility fees in respect of the Assigned Amount
accrued to the date hereof are for the account of the Assignor and such fees
accruing from and including the date hereof are for the account of the Assignee.
Each of the Assignor and the Assignee hereby agrees that if it receives any
amount under the Credit Agreement which is for the account of the other party
hereto, it shall receive the same for the account of such other party to the
extent of such other party's interest therein and shall promptly pay the same to
such other party.
[SECTION 4. Consent of the Borrower. This Agreement is
conditioned upon the consent of the Borrower pursuant to Section 9.06(c) of the
Credit Agreement. The execution of this Agreement by the Borrower and the Agent
is
____________________
*Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any portion of
any upfront fee to be paid by the Assignor to the Assignee. It may be preferable
in an appropriate case to specify these amounts generically or by formula rather
than as a fixed sum.
2
<PAGE> 89
evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to
execute and deliver a Note payable to the order of the Assignee to evidence the
assignment and assumption provided for herein.]
SECTION 5. Non-Reliance on Assignor. The Assignor makes no
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of the
Borrower, or the validity and enforceability of the obligations of the Borrower
in respect of the Credit Agreement or any Note. The Assignee acknowledges that
it has, independently and without reliance on the Assignor, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and will continue to be
responsible for making its own independent appraisal of the business, affairs
and financial condition of the Borrower.
SECTION 6. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
3
<PAGE> 90
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date first
above written.
[ASSIGNOR]
By________________________
Title:
[ASSIGNEE]
By________________________
Title:
The Neiman Marcus Group, Inc.
By________________________
Title:
4
<PAGE> 1
Exhibit 11.1
THE NEIMAN MARCUS GROUP, INC.
AUGUST 3, 1996
COMPUTATION OF WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING USED IN DETERMINING
PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
(in thousands)
<TABLE>
<CAPTION>
PRIMARY August 3, 1996 July 29, 1995 July 30, 1994
- --------------------------------------- -------------- ------------- -------------
<S> <C> <C> <C>
1. Weighted average number of
common shares outstanding 38,000 37,958 37,946
2. Assumed exercise of certain
stock options based on average
market value 218 25 0 (B)
-------------- ------------- -------------
3. Weighted average number of
shares used in primary
per share computations 38,218 37,983 37,946
============== ============= =============
FULLY DILUTED (A)
- ---------------------------------------
1. Weighted average number of
common shares outstanding 38,000 37,958 37,946
2. Assumed exercise of certain
stock options based on higher of
average or closing market value 238 34 0 (B)
-------------- ------------- -------------
3. Weighted average number of
shares used in fully diluted
per share computations 38,238 37,992 37,946
============== ============= =============
</TABLE>
(A) The calculation is submitted in accordance with Securities Exchange Act of
1934 Release No. 9083 although not required by footnote 2 to paragraph 14
of APB Opinion No. 15 because it results in dilution of less than 3%.
(B) Inclusion of assumed exercises of stock options would be anti-dilutive.
<PAGE> 1
Exhibit 21.1
THE NEIMAN MARCUS GROUP, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION
OF
SUBSIDIARY INCORPORATION STOCKHOLDER
- ---------- ------------- -----------
<S> <C> <C>
Bergdorf Goodman, Inc. New York Neiman Marcus Holdings, Inc.
Bergdorf Graphics, Inc. New York Bergdorf Goodman, Inc.
Broadcasters, Inc. Texas Neiman Marcus Holdings, Inc.
C.C. Group Limited Hong Kong The Neiman Marcus Group, Inc. (50%)
Ermine Trading Corporation (50%)
Ermine Trading Corporation California The Neiman Marcus Group, Inc.
Neiman Marcus Funding
Corporation Delaware The Neiman Marcus Group, Inc.
Neiman Marcus Holdings, Inc. California The Neiman Marcus Group, Inc.
Neiman Marcus Holiday
Express, Inc. Delaware The Neiman Marcus Group, Inc.
NM Direct de Mexico, S.A.
de C.V. Mexico The Neiman Marcus Group, Inc. (99%)
Neiman Marcus Holdings, Inc. (1%)
Pastille By Mail, Inc. Delaware The Neiman Marcus Group, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference in the prospectuses
constituting part of the Registration Statements on Forms S-3 (No. 333-11721 and
No. 33-36419) and Form S-8 (No. 33-35299) of The Neiman Marcus Group, Inc. of
our report dated August 29, 1996, (September 10, 1996 as to Note 13), appearing
in the Annual Report to Shareholders on Form 10-K of The Neiman Marcus Group,
Inc. for the fiscal year ended August 3, 1996. We also consent to the
incorporation by reference into the foregoing prospectuses of our Independent
Auditors' Report which appears on page F-18 of the Form 10-K for the fiscal year
ended August 3, 1996.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
September 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS A SUMMARY OF FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-03-1996
<PERIOD-END> AUG-03-1996
<CASH> 12,659
<SECURITIES> 0
<RECEIVABLES> 171,242
<ALLOWANCES> 5,800
<INVENTORY> 443,948
<CURRENT-ASSETS> 689,083
<PP&E> 704,824
<DEPRECIATION> 247,199
<TOTAL-ASSETS> 1,252,350
<CURRENT-LIABILITIES> 374,048
<BONDS> 292,000
407,426
0
<COMMON> 380
<OTHER-SE> 75,227
<TOTAL-LIABILITY-AND-EQUITY> 1,252,350
<SALES> 2,075,003
<TOTAL-REVENUES> 2,075,003
<CGS> 1,416,296
<TOTAL-COSTS> 1,915,548
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 20,007
<INTEREST-EXPENSE> 28,228
<INCOME-PRETAX> 131,227
<INCOME-TAX> 53,803
<INCOME-CONTINUING> 77,424
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,424
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.26
</TABLE>
