<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
- --------------------------------------------------------------------------------
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
The Neiman Marcus Group, Inc.
(Name of Registrant as Specified In Its Charter)
Eric P. Geller
The Neiman Marcus Group, Inc.
27 Boylston Street
Chestnut Hill, MA 02167
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[NEIMAN MARCUS LOGO]
The Neiman Marcus Group, Inc.
27 Boylston Street
P.O. Box 9187
Chestnut Hill, MA 02167
(617) 232-0760
December , 1997
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 16, 1998
The Annual Meeting of Stockholders of The Neiman Marcus Group, Inc. will be
held at 10:00 a.m., Eastern Standard Time, on Friday, January 16, 1998, AT THE
COMPANY'S CORPORATE HEADQUARTERS, 27 BOYLSTON STREET (ROUTE 9), CHESTNUT HILL,
MASSACHUSETTS, for the following purposes:
1. To elect two Class I directors, one Class II director and one
Class III director in accordance with the By-Laws of the Company.
2. To consider and act on a proposal to amend Article Fourth of the
Company's Restated Certificate of Incorporation, as amended, to (i)
increase the authorized number of shares of Common Stock from 100,000,000
to 150,000,000, (ii) eliminate the 50,000,000 shares of authorized
Exchangeable Adjustable Voting Common Stock, none of which is currently
outstanding, and (iii) delete all references and provisions relating to
previously issued classes and series of stock not currently outstanding.
3. To consider and act on a proposal to amend certain other
provisions of the Company's Restated Certificate of Incorporation, as
amended, to eliminate all references to previously issued classes and
series of stock not currently outstanding, consistent with actions to be
taken pursuant to the foregoing proposal.
4. To consider and act on a proposal to ratify the appointment by the
Board of Directors of Deloitte & Touche LLP as the Company's independent
auditors for the current fiscal year.
5. To consider and act on a proposal submitted by a stockholder of
the Company concerning compensation disclosure.
<PAGE> 3
6. To transact such other business as may properly come before the
meeting and any adjournments of the meeting.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of Directors
ERIC P. GELLER
Secretary
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED STAMPED ENVELOPE.
2
<PAGE> 4
[NEIMAN MARCUS LOGO]
The Neiman Marcus Group, Inc.
27 Boylston Street
P.O. Box 9187
Chestnut Hill, MA 02167
(617) 232-0760
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
JANUARY 16, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of The Neiman Marcus Group, Inc. (the
"Company") for use at the Annual Meeting of Stockholders to be held at 10:00
a.m. on Friday, January 16, 1998, at THE COMPANY'S CORPORATE HEADQUARTERS, 27
BOYLSTON STREET (ROUTE 9), CHESTNUT HILL, MASSACHUSETTS, and at any adjournments
thereof. All shares will be voted in accordance with the instructions contained
in the proxy, but if the proxies which are signed and returned do not specify a
vote on any proposal, the proxies will be voted FOR the election of the nominees
for director named herein, FOR each of the proposals to amend the Company's
Restated Certificate of Incorporation, FOR the ratification of the appointment
by the Board of Directors of Deloitte & Touche LLP as the Company's independent
auditors for the current fiscal year and AGAINST the proposal submitted by a
stockholder concerning compensation disclosure. Any proxy may be revoked by a
stockholder at any time before it is exercised by providing written notice of
revocation to the Secretary of the Company (at the address set forth above), by
executing a proxy bearing a later date, or by voting in person at the Annual
Meeting. The mailing of this proxy statement and accompanying form of proxy is
expected to commence on or about December 8, 1997.
In addition to solicitations of proxies by mail, the Company's officers,
directors or employees may solicit proxies by telephone or personal
communication. All costs of soliciting proxies, including reimbursement of fees
of certain brokers, fiduciaries and nominees in obtaining voting instructions
from beneficial owners, will be borne by the Company.
Although stock transfer books will remain open, the Board of Directors has
fixed the close of business on December 5, 1997 as the record date for
determining the stockholders having the right to vote at the Annual Meeting. At
the close of business on December 5, 1997 there were shares of Common
Stock outstanding and entitled to vote at the meeting. At the meeting, each
share of Common Stock is entitled to one vote. AS OF THE RECORD DATE, HARCOURT
GENERAL, INC. ("HARCOURT GENERAL") OWNED 26,429,502 SHARES OF COMMON STOCK,
REPRESENTING APPROXIMATELY 53.0% OF THE ISSUED AND OUTSTANDING SHARES OF COMMON
STOCK OF THE COMPANY.
Shares of Common Stock represented in person or by proxy at the Annual
Meeting (including abstentions and broker non-votes) will be tabulated by the
inspectors of election appointed for the
<PAGE> 5
meeting and will be counted in determining that a quorum is present. Votes are
counted using written ballots.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 5, 1997 with
respect to the beneficial ownership of the Common Stock of the Company 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 and nominee for director of the
Company; and (iv) all directors and current executive officers of the Company as
a group. Robert J. Tarr, Jr., who is listed in the table because he is named in
the Summary Compensation Table, resigned as a director and officer of the
Company effective January 15, 1997.
<TABLE>
<CAPTION>
NAME OF NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES OWNED(1) COMMON STOCK
---------------- --------------- ------------
<S> <C> <C>
Harcourt General, Inc.(2).................. 26,429,502 53%
27 Boylston Street
Chestnut Hill, MA 02167
Gabelli Funds, Inc.(3)..................... 4,475,500 9%
One Corporate Center
Rye, NY 10580
Burton M. Tansky(4)........................ 92,100 *
Gerald A. Sampson(5)....................... 48,606 *
Stephen Elkin(6)........................... 82,759
Dawn Mello(7).............................. 13,600 *
Bernie Feiwus(8)........................... 41,045 *
Matina S. Horner........................... -- *
Vincent M. O'Reilly........................ 800 *
Walter J. Salmon........................... 8,942 *
Jean Head Sisco............................ 1,134 *
Richard A. Smith(9)........................ -- *
Robert A. Smith(9)......................... -- *
Brian J. Knez(9)........................... -- *
John R. Cook............................... -- *
Robert J. Tarr, Jr.(10).................... -- *
All current executive officers and
directors as a group (18 persons)(11).... 288,986 *
</TABLE>
- ---------------
* 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) Richard A. Smith, Chairman and Chief Executive Officer of the Company and
of Harcourt General, his sister, Nancy L. Marks, and certain members of
their families (including Robert A. Smith, President and Chief Operating
Officer of the Company and President and Co-Chief Operating Officer of
Harcourt General, and Brian J. Knez, a nominee for director of the Company
and President and Co-Chief Operating Officer of Harcourt General) may be
regarded as controlling persons of Harcourt General, and therefore of the
Company. The shares of Harcourt
2
<PAGE> 6
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
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.
(3) The information reported is based on a Schedule 13G dated August 15, 1997
filed with the Securities and Exchange Commission by the Gabelli Funds,
Inc. and its affiliates (collectively, the "Gabelli Affiliates"). The
Gabelli Affiliates have sole voting power with respect to 4,372,500 shares
and sole dispositive power with respect to all of the shares shown in the
table.
(4) Includes 74,200 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of December 5, 1997. Also includes
13,900 shares of restricted stock over which Mr. Tansky has voting but not
dispositive power.
(5) Includes 14,100 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of December 5, 1997. Also includes 5,800
shares of restricted stock over which Mr. Sampson has voting but not
dispositive power.
(6) Includes 55,750 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of December 5, 1997. Also includes 8,300
shares of restricted stock over which Mr. Elkin has voting but not
dispositive power.
(7) Includes 8,300 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of December 5, 1997. Also includes 3,900
shares of restricted stock over which Ms. Mello has voting but not
dispositive power.
(8) Includes 14,200 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of December 5, 1997. Also includes 6,800
shares of restricted stock over which Mr. Feiwus has voting but not
dispositive power.
(9) The members of the Board of Directors of Harcourt General, including
Richard A. Smith, Brian J. Knez and Robert A. Smith, 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.
(10) Mr. Tarr resigned as a director and officer of the Company effective
January 15, 1997.
(11) Excludes the beneficial ownership of securities of the Company which may be
deemed to be attributed to Richard A. Smith, Brian J. Knez and Robert A.
Smith (see Notes 2 and 9 above). Includes 166,550 shares of Common Stock
which are subject to outstanding options exercisable within 60 days of
December 5, 1997. Also includes 38,700 shares of restricted stock over
which individuals in the group have voting but not dispositive power.
3
<PAGE> 7
1. ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of three
classes. At each Annual Meeting, a class of directors is elected for a full term
of three years.
At the 1998 Annual Meeting, two Class I directors are to be elected for
three-year terms. In addition, one Class II director is to be elected for a
one-year term and one Class III director is to be elected for a two-year term,
such terms to coincide with the terms of the other directors in their respective
classes.
The persons named in the accompanying proxy will vote each proxy for the
election of the nominees listed below, unless directed otherwise. Richard A.
Smith and Robert A. Smith are currently members of the Board of Directors. Brian
J. Knez and John R. Cook are nominees for the first time. The Company has no
reason to believe that the listed nominees will become unavailable for election,
but if for any reason that should be the case, the proxies may be voted for
substitute nominees. A plurality of the votes cast at the Annual Meeting is
required to elect each director. Proxies withholding authority to vote for a
nominee will be treated as votes cast against the election of such nominee.
Broker non-votes will not be treated as votes cast and, therefore, will not be
counted in calculating a plurality. HARCOURT GENERAL WILL BE VOTING ITS COMMON
STOCK, REPRESENTING APPROXIMATELY 53.0% OF THE VOTING POWER OF THE COMPANY, FOR
THE ELECTION OF THE NOMINEES SET FORTH BELOW. If all of the nominees listed
below are elected, the Board of Directors will consist of four independent
directors and four members who are also officers of Harcourt General.
NOMINEES FOR TERMS EXPIRING IN 2001 (CLASS I DIRECTORS)
RICHARD A. SMITH, age 73, Director since 1987
Chairman of the Company and of Harcourt General; Chief Executive Officer of
the Company and of Harcourt General since January 15, 1997 and prior to December
1991; Chairman of the Board, President (until November 1995) and Chief Executive
Officer of GC Companies, Inc. since December 1993; Director of Harcourt General,
GC Companies, Inc. and Steck-Vaughn Publishing Corporation. Mr. Smith is the
father of Robert A. Smith, President and Chief Operating Officer and a director
of the Company and President and Co-Chief Operating Officer and a director of
Harcourt General, and the father-in-law of Brian J. Knez, a nominee for director
of the Company and President and Co-Chief Operating Officer and a director of
Harcourt General.
ROBERT A. SMITH, age 38, Director since 1997
President and Chief Operating Officer of the Company and President and
Co-Chief Operating Officer of Harcourt General since January 15, 1997; Group
Vice President of the Company and Harcourt General prior thereto; President and
Chief Operating Officer of GC Companies, Inc. since November 1995; Director of
Harcourt General and Steck-Vaughn Publishing Corporation. Mr. Smith is the son
of Richard A. Smith, Chairman and Chief Executive Officer of the Company and of
Harcourt General, and the brother-in-law of Brian J. Knez, a nominee for
director of the Company and President and Co-Chief Operating Officer and a
director of Harcourt General.
4
<PAGE> 8
NOMINEE FOR TERM EXPIRING IN 1999 (CLASS II DIRECTOR)
BRIAN J. KNEZ, age 40, Nominee for Director
President and Co-Chief Operating Officer of Harcourt General since January
15, 1997; President and Chief Executive Officer of Harcourt Brace & Company
since May 1995; President of the Scientific, Technical, Medical and Professional
Group of Harcourt Brace from 1993 to May 1995; Group Vice President of the
Scientific, Technical and Medical Group of Harcourt Brace from 1991 to 1993;
Director of Harcourt General, Steck-Vaughn Publishing Corporation and Open
Market, Inc. Mr. Knez is the son-in-law of Richard A. Smith, Chairman and Chief
Executive Officer of the Company and of Harcourt General, and the brother-in-law
of Robert A. Smith, President and Chief Operating Officer and a director of the
Company and President and Co-Chief Operating Officer and a director of Harcourt
General.
NOMINEE FOR TERM EXPIRING IN 2000 (CLASS III DIRECTOR)
JOHN R. COOK, age 56, Nominee for Director
Senior Vice President and Chief Financial Officer of the Company and of
Harcourt General. Director of Steck-Vaughn Publishing Corporation.
DIRECTORS WHOSE TERMS EXPIRE IN 1999 (CLASS II DIRECTORS)
MATINA S. HORNER, Ph.D., age 58, 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; Director of Boston Edison Company.
WALTER J. SALMON, age 67, Director since 1987
Stanley Roth Sr. Professor of Retailing, Emeritus, Graduate School of
Business Administration, Harvard University; Director of Hannaford Bros. Co.,
The Quaker Oats Company, Circuit City Stores, Inc., Luby's Cafeterias, Inc.,
Harrah's Entertainment, Inc., Cole National Corporation and PetsMart, Inc.
DIRECTORS WHOSE TERMS EXPIRE IN 2000 (CLASS III DIRECTORS)
JEAN HEAD SISCO, age 72, Director since 1987
Partner in Sisco Associates, international management consultants; Director
of Textron, Inc., Newmont Mining Corporation and its principal subsidiary,
Newmont Gold Company, Washington Mutual Investors Fund, Chiquita Brands
International, Inc., The American Funds Tax-Exempt Series I and K-Tron
International, Inc.
5
<PAGE> 9
VINCENT M. O'REILLY, age 60, Director since January, 1997
Distinguished Senior Lecturer, Carroll School of Management, Boston College
since October 1, 1997; Executive Vice Chairman of Coopers & Lybrand from October
1994 until October 1997; Chief Operating Officer or Deputy Chairman of Coopers &
Lybrand from 1988 until October 1994.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended August 2, 1997, the Board of Directors held
five meetings and acted by unanimous written consent on one other occasion.
During fiscal 1997, each director of the Company attended at least 75% of the
aggregate number of Board meetings and meetings held by committees of which he
or she is a member. The Board of Directors has designated five principal
standing committees. Set forth below are descriptions of the functions of such
committees and the names of their current members.
Audit Committee. The members of the Audit Committee, which met three times
during fiscal 1997, are Mrs. Sisco (Chairman), Dr. Horner, Mr. O'Reilly and Mr.
Salmon. The functions of the Audit Committee include the review of the scope of
the services of the Company's independent auditors and the responsibilities of
the Company's internal audit department and a continuing review of the Company's
internal procedures and controls. The Audit Committee annually reviews the
Company's audited financial statements, considers the qualifications and fees of
the independent auditors of the Company and makes recommendations to the Board
of Directors as to the selection of the auditors and the scope of their audit
services.
Special Review Committee. The members of the Special Review Committee are
Mr. Salmon (Chairman), Dr. Horner, Mr. O'Reilly and Mrs. Sisco. The Special
Review Committee met three times during fiscal 1997, including two meetings in
September 1996 to consider and negotiate a proposal made by Harcourt General to
repurchase all of the issued and outstanding shares of Preferred Stock of the
Company, which was completed in November 1996. A continuing function of the
Special Review Committee is to give consideration to those matters requiring the
approval of an "Independent Committee" under the terms of the Intercompany
Services Agreement between the Company and Harcourt General, including the
consideration of the fees charged to the Company by Harcourt General pursuant to
the Intercompany Services Agreement. For information regarding the Intercompany
Services Agreement, see Note 1 to the Summary Compensation Table.
Compensation Committee. The members of the Compensation Committee, which
met once during fiscal 1997, are Mr. Salmon (Chairman), Dr. Horner, Mr. O'Reilly
and Mrs. Sisco. The functions of the Compensation Committee are to review or
determine salaries, benefits and other compensation for officers and key
employees of the Company and its subsidiaries and to administer the Company's
stock incentive plans.
Nominating Committee. All of the directors of the Company serve on the
Nominating Committee, which held one meeting and acted by unanimous written
consent on one other occasion during fiscal 1997. Mrs. Sisco is the Chairman of
the Nominating Committee. The functions of the Nominating Committee are to
nominate directors, make recommendations concerning the structure and membership
of the various committees of the Board of Directors, consider questions of
management, organization and succession and to act on such other matters as from
time to time may be requested by the Board of Directors. In carrying out its
responsibilities to nominate directors, the Nominating Committee will consider
candidates recommended by the Board of Directors and by stockholders of the
Company. All suggestions for candidates by stockholders must be made in writing
and received by the Company, c/o Secretary, P.O. Box 9187, Chestnut Hill,
Massachusetts 02167 no later than
6
<PAGE> 10
October 19, 1998 (see "Deadline for Submission of 1999 Stockholder Proposals and
Nominations"). Such writing must set forth (i) the name and address of the
stockholder who intends to make the nomination and of each person to be
nominated, (ii) a representation that the stockholder is a holder of record of
the Company's stock entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person named, (iii) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person pursuant to which the nomination is to be made
by the stockholder, (iv) the consent of each proposed nominee to serve as a
director of the Company if so elected and (v) such other information regarding
each proposed nominee as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission.
Executive Committee. The members of the Executive Committee, which did not
act during fiscal 1997, are Richard A. Smith (Chairman), Walter J. Salmon and
Robert A. Smith. The By-Laws confer upon the Executive Committee the authority
to manage the affairs of the Company in the intervals between meetings of the
Board of Directors, except that the Committee may not effect certain fundamental
corporate actions such as (a) declaring a dividend, (b) amending the Restated
Certificate of Incorporation or the By-Laws, (c) adopting an agreement of merger
or consolidation or (d) imposing a lien on substantially all the assets of the
Company. In practice, the Executive Committee meets infrequently and does not
act except on matters which must be dealt with prior to the next scheduled Board
of Directors meeting and which are not sufficiently important to require action
by the full Board of Directors.
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 $2,000 per Board of Directors
meeting attended, plus travel and incidental expenses (an aggregate of $5,413 in
fiscal 1997) incurred in attending meetings and carrying out their duties as
directors. They also receive a fee of $750 (the Chairman receives $1,500) 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.
The Company offers non-employee directors the alternative of receiving
directors' fees on a deferred basis. Those directors may elect to defer receipt
of all or a specified portion of their fees (i) in the form of cash with
interest at a rate equal to the average of the top rates paid by major New York
banks on three month negotiable certificates of deposit, or (ii) in the form of
stock based units, the value of each unit initially being equal to the fair
market value of one share of Common Stock of the Company on the date the fees
would otherwise be payable. To date, Dr. Horner has elected to receive all of
her fees on a deferred basis using the stock based method and Mrs. Sisco has
elected to receive fifty percent of her fees on a deferred basis using the stock
based method.
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 1997.
7
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE(1)
The following table provides information on the compensation provided by
the Company during fiscal 1997, 1996 and 1995 to the Company's Chief Executive
Officers and the five most highly paid executive officers of the Company during
fiscal 1997.
<TABLE>
<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>
Richard A. Smith(1) 1997 -- -- -- -- -- --
Chairman and Chief 1996 -- -- -- -- -- --
Executive Officer 1995 -- -- -- -- -- --
commencing
January 15, 1997
B. Tansky 1997 $750,000 $292,500 -- -- 10,000 $19,357
Chairman and Chief 1996 $650,000 $292,500 -- $153,750 -- $16,866
Executive Officer of 1995 $600,000 $230,640 $160,339 -- 25,000 $14,560
Neiman Marcus
Stores
G. Sampson 1997 $500,000 $174,000 -- -- 6,500 $14,070
President and Chief 1996 $475,000 $190,000 -- -- 12,000 $12,854
Operating Officer of 1995 $450,000 $150,480 -- $ 71,875 -- $12,687
Neiman Marcus Stores
S. Elkin 1997 $480,000 $185,000 -- -- -- $10,771
Chairman and Chief 1996 $480,000 -- -- $115,313 -- $17,170
Executive Officer of 1995 $450,000 $ 22,500 -- -- 20,000 $15,812
Bergdorf Goodman
D. Mello(7) 1997 $365,000 $110,000 -- -- 4,000 $ 9,210
President of 1996 $350,000 $ 67,900 -- $ 53,813 -- $ 8,496
Bergdorf Goodman 1995 $325,000 $ 50,000 -- -- 15,000 $ 2,418
B. Feiwus 1997 $345,000 $115,000 -- -- 6,000 $10,697
President and Chief 1996 $325,000 $135,000 -- $ 76,875 10,000 $10,026
Executive Officer of 1995 $300,000 -- -- -- 10,000 $ 7,314
NM Direct
R. J. Tarr, Jr.(1) 1997 -- -- -- -- -- --
President and Chief 1996 -- -- -- -- -- --
Executive Officer 1995 -- -- -- -- -- --
through January 15, 1997
</TABLE>
- ---------------
(1) Under the terms of an Intercompany Services Agreement, Harcourt General
provides certain management, accounting, financial, legal, tax, human
resources and other corporate services to the Company, including the
services of certain officers of Harcourt General who are also 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
8
<PAGE> 12
Special Review Committee of the Board of Directors of the Company, which
consists solely of directors who are independent of Harcourt General. During
fiscal 1997, 1996 and 1995, the Company paid or accrued approximately $5.7
million, $6.9 million and $6.5 million, respectively, to Harcourt General
for all of its services under the Intercompany Services Agreement. Mr. Smith
succeeded Mr. Tarr as Chief Executive Officer of the Company upon Mr. Tarr's
resignation effective January 15, 1997. Since both served as Chief Executive
Officer of the Company during fiscal 1997, they are required to be named in
this table. The other senior officers of Harcourt General, who derive all of
their compensation directly from Harcourt General, are not included in this
table. Of the amount payable under the Intercompany Services Agreement for
fiscal 1997, approximately $365,000 was attributable to Mr. Smith's services
and approximately $1.0 million was attributable to Mr. Tarr's services. Of
the amounts payable under the Intercompany Service Agreement for fiscal 1996
and 1995, $2.3 million and $2.4 million, respectively, were attributable to
Mr. Tarr's services. These amounts include costs related to base
compensation, bonuses, benefits and amounts necessary to fund retirement
benefits, all of which are direct obligations of Harcourt General. Under the
terms of an agreement between Mr. Tarr and Harcourt General dated December
17, 1996, Mr. Tarr is entitled to receive certain compensation, retirement
and other payments directly from Harcourt General. None of these amounts
will be payable by the Company.
(2) Other than restricted stock, stock options and stock appreciation rights
which may be granted under the Company's 1997 Incentive Plan, 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.
(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
move from New York to Dallas to assume the position of Chairman and Chief
Executive Officer of Neiman Marcus Stores, the same position he had
previously held with Bergdorf Goodman.
(5) Calculated by multiplying the closing price of the Company's Common Stock on
the New York Stock Exchange on the date of grant by the number of shares
awarded. With respect to awards of restricted stock made through fiscal
1997, twenty percent of each award 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 and receive dividends, if any. 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 1997, the named executive officers' restricted
stock holdings and market values (based on the New York Stock Exchange
closing price of $27.9375 for the Company's Common Stock at fiscal year end)
were as follows: Mr. Tansky -- 8,000 shares ($223,500); Mr. Sampson -- 3,000
shares ($83,813); Mr. Elkin -- 6,000 shares ($167,625); Ms. Mello -- 2,800
shares ($78,225) and Mr. Feiwus -- 4,000 shares ($111,750). The restricted
shares held by Mr. Tansky were granted in fiscal 1996, the restricted shares
held by Mr. Sampson were granted in fiscal 1995, the restricted shares held
by Ms. Mello were granted in fiscal 1996, and the restricted shares held by
Messrs. Elkin and Feiwus were granted in fiscal 1996 and fiscal 1992.
9
<PAGE> 13
(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 and (b) group life insurance premiums. For fiscal 1997,
such amounts for each of the named executive officers were, respectively, as
follows: Mr. Tansky -- $15,637 and $3,720; Mr. Sampson -- $10,350 and
$3,720; Mr. Elkin -- $7,200 and $3,571; Ms. Mello -- $6,494 and $2,716; and
Mr. Feiwus -- $7,200 and $3,497.
(7) Ms. Mello rejoined the Company in May 1994. As a condition of employment,
Ms. Mello was guaranteed a minimum bonus of $50,000 for fiscal 1995.
OPTION GRANTS IN LAST FISCAL YEAR (1)
The following table provides information regarding options granted under
the Company's 1987 Stock Incentive Plan during the fiscal year ended August 2,
1997 to the executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
----------------------------------------------- REALIZABLE
% OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS EMPLOYEES OR BASE OPTION TERM(2)
GRANTED IN FISCAL PRICE EXPIRATION -------------------
NAME (#)(3) YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
R. Smith(4)....................... -- -- -- -- -- --
B. Tansky......................... 10,000 7.63% $33.375 9/11/06 $208,894 $531,912
G. Sampson........................ 6,500 4.96% $33.375 9/11/06 $136,431 $345,743
S. Elkin.......................... -- -- -- -- -- --
D. Mello.......................... 4,000 3.05% $33.375 9/11/06 $ 83,957 $212,765
B. Feiwus......................... 6,000 4.58% $33.375 9/11/06 $125,936 $319,147
R. Tarr, Jr.(4)................... -- -- -- -- -- --
</TABLE>
- ---------------
(1) No stock appreciation rights were granted to any named executive officer
during fiscal 1997.
(2) These potential realizable values are based on assumed rates of appreciation
required by applicable regulations of the Securities and Exchange
Commission.
(3) All option grants are non-qualified stock options having a term of 10 years
and one day. They become exercisable at the rate of 20% on each of the first
five anniversary dates of the grant.
(4) None of the executive officers of Harcourt General who are also officers of
the Company participated in the Company's 1987 Stock Incentive Plan, nor
will these executive officers participate in the Company's 1997 Incentive
Plan.
10
<PAGE> 14
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information regarding the number and value of
stock options held at August 2, 1997 by the executive officers named in the
Summary Compensation Table.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT
OPTIONS/SARS AT AUGUST 2,
AUGUST 2, 1997(#) 1997($)(1)
--------------------- -----------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- --------------------------- ----------------- -------------- --------------------- -----------------
<S> <C> <C> <C> <C>
R. Smith(2)................ -- -- -- --
B. Tansky.................. -- -- 60,900/35,600 $858,344/$350,875
G. Sampson................. -- -- 8,400/20,100 $110,775/$174,350
S. Elkin................... -- -- 54,350/18,000 $709,972/$248,375
D. Mello................... -- -- 4,500/13,000 $ 61,031/$122,063
B. Feiwus.................. -- -- 6,500/24,000 $ 88,344/$238,125
R. Tarr, Jr.(2)............ -- -- -- --
</TABLE>
- ---------------
(1) 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 Company's Common Stock on the New York Stock Exchange at fiscal year
end ($27.9375) and the option exercise price for those shares. These values
have not been realized. The closing price of the Company's Common Stock on
the New York Stock Exchange on December 5, 1997 was $ .
(2) None of the executive officers of Harcourt General who are also officers of
the Company participated in the Company's 1987 Stock Incentive Plan, nor
will these executive officers participate in the Company's 1997 Incentive
Plan.
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 minimum established by the Company ($100,000 as of August 2, 1997) 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
11
<PAGE> 15
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. 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 1997 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.
The amounts actually payable will be lower than the amounts shown below, since
such amounts will be reduced by 60% of the participant's estimated primary
Social Security benefit.
ESTIMATED ANNUAL RETIREMENT BENEFITS
UNDER RETIREMENT PLAN AND SERP
<TABLE>
<CAPTION>
AVERAGE TOTAL YEARS OF SERVICE
PENSIONABLE ------------------------------------------------------------
EARNINGS 5 10 15 20 25
----------- ------- -------- -------- -------- --------
<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
900,000 90,000 180,000 270,000 360,000 450,000
</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 2, 1997 and years of service creditable at age 65.
<TABLE>
<CAPTION>
PENSIONABLE EARNINGS YEARS OF SERVICE(1)
FOR YEAR ENDED -------------------------------
NAME AUGUST 2. 1997(2) AT AUGUST 2, 1997 AT AGE 65
---- -------------------- ----------------- ---------
<S> <C> <C> <C>
R. Smith(3)............................ -- -- --
B. Tansky.............................. $750,000 --(4) 20(4)
G. Sampson............................. 500,000 --(5) 20(5)
S. Elkin............................... 480,000 19 29
D. Mello............................... 365,000 16 15
B. Feiwus.............................. 345,000 17 33
R. Tarr, Jr.(3)........................ -- -- --
</TABLE>
- ---------------
(1) The years of credited service set forth in the table reflect years of
credited service under the Retirement Plan, which is a "career average plan"
with no limitation on years of credited service. Credited service under the
SERP may not exceed 25 years.
(2) In computing the combined benefit under the Retirement Plan and SERP,
"pensionable earnings" means, with respect to the Retirement Plan, base
salary and any bonus and, with respect to the SERP, base salary only. The
amounts shown above include base salary only. For the amount of bonus
included in pensionable earnings under the Retirement Plan see the Summary
Compensation Table above. With respect to both the Retirement Plan and the
SERP, deferred base salary and/or deferred bonus amounts are included in
benefit calculations.
12
<PAGE> 16
(3) Mr. Smith does not participate in the Retirement Plan or SERP. Mr. Tarr, who
resigned as Chief Executive Officer of the Company, effective January 15,
1997, did not participate in the Retirement Plan or SERP.
(4) 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;
otherwise, Mr. Tansky's accrued service under the SERP will be calculated in
the normal manner. Mr. Tansky is 59 years old.
(5) 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 56 years old.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Burton Tansky. The Company and Mr. Tansky have entered into an employment
agreement, effective 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 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 three
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.
13
<PAGE> 17
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.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Except as described below, none of the Company's directors, executive
officers, nominees for director or security holders known to the Company to own
of record or beneficially more than five percent of the Common Stock, nor any
member of the immediate family of such persons, engaged in any transactions with
the Company involving amounts in excess of $60,000 since the beginning of the
Company's last fiscal year.
During fiscal 1997 and through December 5, 1997, Messrs. Sampson, Elkin and
Feiwus had outstanding loans under the Company's Key Executive Stock Purchase
Loan Plan (the "Loan Plan") in the respective maximum aggregate principal
amounts of $457,894, $116,487 and $193,315. As of December 5, 1997 the
outstanding amount of such loans were as follows: Mr. Sampson -- $457,894; Mr.
Elkin -- $116,487 and Mr. Feiwus -- $0. In accordance with the provisions of the
Loan Plan, these loans were used to acquire shares of Common Stock either in the
open market or pursuant to stock option exercises and to discharge certain tax
liabilities incurred in connection with the release of restrictions on previous
grants of restricted Common Stock. The loans are secured by a pledge of the
purchased shares and bear interest at an annual rate of 5%, payable quarterly.
Pursuant to the terms of
14
<PAGE> 18
the Loan Plan, each executive officer's loan will become due and payable seven
months after his 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 1997 or subsequent thereto.
------------------------
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
PROXY STATEMENT, 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, Vincent M. O'Reilly 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 individuals important to the success of the Company and to provide
incentives that will motivate those executives and reward them for achieving the
business objectives 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.
In September 1997, the Committee considered and adopted modifications to
certain elements of the Company's compensation policies. These changes will take
effect in fiscal 1998 and are discussed below under the heading "Changes in
Compensation Policies."
The principal components of the Company's compensation program are:
Base Salary
For fiscal 1997, base salary was 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 was used to establish benchmark amounts
for both base salary and total cash compensation for each executive
position. Comparisons were
15
<PAGE> 19
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. For fiscal 1997, the Committee
generally set its salary and total cash compensation benchmarks (assuming
that maximum bonuses would be achieved) for executive officers above the
50th percentile of the comparison group of companies.
Because the Company competes for executive talent with a broad range
of companies, the Committee did not limit its comparison information for
compensation purposes to the companies included in the peer groups in the
Stock Performance Graph.
The Committee reviewed in detail the base salary levels for each of
the named executive officers of the Company. While the Committee used the
above described 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, 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 annual incentive 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.
The determination of annual bonuses for fiscal 1997 was based
principally on the achievement of performance objectives by the operating
division for which the executive was responsible and the individual
executive's own performance. For each of the named executive officers, a
component of their bonus eligibility also depended on the Company's overall
performance.
In September 1997, the Compensation Committee established the
Company's and each division's performance goals for fiscal 1998 and
determined the executive officers who should participate in the annual
incentive plan for that year and their respective bonus award
opportunities.
For fiscal 1997, the plan provided for maximum bonuses ranging from
35% to 45% of base salary. 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. In addition, each of the Company's named executive officers were
required to meet individual performance goals, which typically include
achievement of specific tasks, in addition to the performance targets in
order to receive his or her full bonus.
The bonuses actually awarded to the named executive officers for
fiscal 1997 were determined by an assessment of all of these factors, as
well as certain subjective factors.
Under the annual incentive program in effect for fiscal 1997, even if
the financial performance targets were exceeded, bonus awards would not
have increased over the maximum bonus values established by the Committee.
Since the highest divisional performance targets were not met, the bonus
awards granted by the Committee for fiscal 1997 were below the maximum
bonus values. If the Company and/or the relevant division fell sufficiently
short of its performance target, there was 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 were considered in the decision
to award a bonus. If corporate and/or division performance targets were
met, but an individual fell short of his or her
16
<PAGE> 20
performance goals, the individual's bonus could have been reduced or
eliminated in the discretion of the Committee.
Stock Incentives
The Committee's purpose in awarding equity based incentives in fiscal
1997 in the form of stock options which vest over a five year period and
terminate ten years from the date of grant and 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 1997 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.
Changes in Compensation Policies
At its meeting in September 1997, the Committee made several changes in
elements of the Company's compensation policies that will be applied in fiscal
1998 and in the future to achieve the objectives described above under the
"Compensation Policies" heading. First, the Committee determined that it would
use for compensation benchmarking purposes a broad range of domestic publicly
held "upscale" specialty retailing companies. This group of companies is not
limited to those in the Stock Performance Graph peer groups. Second, the
Committee determined that for the base salary component of compensation it would
target the middle range of salaries for comparable positions in the comparison
group of companies. Most important, the Committee determined to make annual and
long term incentives a greater portion of total compensation and to increase the
variable risk and reward of such incentive compensation in proportion to an
executive's level of responsibility in the Company. For example, for fiscal 1998
the named executive officers' cash bonus opportunity for performance at the
level of meeting the fiscal 1998 budget will range from 7.5% to 11% of base
salary and will increase to a range of 30% to 45% of base salary for performance
above the fiscal 1998 budget, which would represent a significant improvement
over the Company's fiscal 1997 results. For superior performance in excess of
the fiscal 1998 budget, cash bonus opportunities will increase to a range of 60%
to 90% of base salary. If performance is below the fiscal 1998 budget, the
Committee may reduce cash bonus awards or not grant them at all. Similarly, long
term stock incentives will be structured to provide more significant capital
accumulation opportunities than in the past, and the vesting of restricted stock
awards will take place upon the achievement of specified business objectives
which include improvements in operating earnings and return on net assets and
may also include other factors as determined by the Committee from time to time.
In any event, restricted stock awards will vest eight years after the grant
date.
Compensation of the Chief Executive Officer
Mr. Smith succeeded Mr. Tarr as Chief Executive Officer of the Company upon
Mr. Tarr's resignation effective January 15, 1997. While serving as Chief
Executive Officer of the Company, each of them also served as the Chief
Executive Officer of Harcourt General, which owns a majority of the outstanding
Common Stock of the Company. Both Mr. Smith and Mr. Tarr received all of their
cash and non-cash compensation from Harcourt General and not 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 the services of Mr. Tarr and then
Mr. Smith as Chief Executive Officer. During fiscal 1997, the Company
17
<PAGE> 21
paid or accrued approximately $5.7 million to Harcourt General for all of its
services under the Intercompany Services Agreement, of which approximately $1.0
million was attributable to Mr. Tarr's services and approximately $365,000 was
attributable to Mr. Smith'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, Mr. Smith 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. During fiscal 1997, the Committee, the Board of
Directors and the stockholders of the Company approved The Neiman Marcus Group
1997 Incentive Plan. This Plan allows the Committee to continue to award stock
incentives and cash bonuses based on objective criteria. It is expected that 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 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
Vincent M. O'Reilly
Jean Head Sisco
18
<PAGE> 22
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 2, 1997 of (i) the Standard & Poor's 500 Index, and
(ii) a peer group index used by the Company in the last fiscal year (Old Peer
Index) consisting of Tiffany & Co. and Nordstrom, Inc., and (iii) a new peer
index (New Peer Index) which includes Saks Holdings, Inc. along with Tiffany and
Nordstrom. The graph assumes a $100 investment in the Company's Common Stock and
in each index company other than Saks Holdings at August 3, 1991, and that all
dividends were reinvested. Saks Holdings began trading on the New York Stock
Exchange in May 1996 and, accordingly, is included in the New Peer Index
commencing as of the end of the Company's 1996 fiscal year. For comparative
purposes, the value of an investment in Saks as of that date is set at an amount
equal to the average of the cumulative total returns of the other members of the
New Peer Index as of that same date ($165.17). The common stocks of the
companies in each 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
Comparison of Five-Year Cumulative Total Return
The Neiman Marcus Group, Inc., S&P 500 Index, Old Peer Index, and New Peer Index
<TABLE>
<CAPTION>
The Neiman
Measurement Period Marcus Group,
(Fiscal Year Covered) Inc. S&P 500 Index Old Peer Index New Peer Index
<S> <C> <C> <C> <C>
August 1, 1992 100 100 100 100
July 31, 1993 108.81 108.51 98.64 98.64
July 30, 1994 115.90 113.65 151.29 151.29
July 29, 1995 117.69 142.50 143.55 143.55
August 3, 1996 205.72 171.54 165.17 165.17
August 2, 1997 213.86 257.84 239.24 202.92
</TABLE>
19
<PAGE> 23
2. APPROVAL OF CHANGES IN AUTHORIZED STOCK AND
CERTAIN CONFORMING AMENDMENTS
Article Fourth of the Company's Restated Certificate of Incorporation, as
amended, currently provides that the total number of shares of stock which the
Company is authorized to issue is 200,000,000, consisting of 100,000,000 shares
of Common Stock, par value $.01 per share (the "Common Stock"), 50,000,000
shares of Exchangeable Adjustable Voting Common Stock, par value $.01 per share
(the "Adjustable Voting Common Stock"), and 50,000,000 shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). The Preferred Stock may
be issued in one or more series with provisions to be determined by the Board of
Directors.
Shares of the Adjustable Voting Common Stock, together with shares of 6%
Cumulative Exchangeable Convertible Adjustable Voting Preferred Stock (the
"Exchangeable Convertible Preferred Stock"), were issued to Harcourt General
(formerly General Cinema Corporation) in 1987 in connection with the
restructuring of Carter Hawley Hale Stores, Inc., in part to limit Harcourt
General to 44% of the voting power of the Company through January 31, 1993.
Since that time, all such shares have been exchanged and converted to Common
Stock or have been repurchased by the Company. On December 5, 1997
shares of Common Stock were issued and outstanding (of which Harcourt General
currently owns approximately 53 percent), and shares of Common Stock
were reserved for issuance in connection with the exercise of employee stock
options. No shares of stock other than the Common Stock are currently
outstanding.
The Board of Directors has adopted a resolution recommending the approval
of a proposed amendment to Article Fourth of the Company's Restated Certificate
of Incorporation, as amended, (a) increasing the number of shares of Common
Stock which the Company is authorized to issue from 100,000,000 to 150,000,000,
(b) eliminating the 50,000,000 shares of Adjustable Voting Common Stock
currently authorized, and (c) deleting all references and provisions relating to
previously issued classes and series of stock not currently outstanding. The
number of authorized shares of Preferred Stock remains unchanged.
The Board of Directors believes it is desirable to have the additional
50,000,000 shares of Common Stock available for possible issuance in connection
with stock distributions, acquisitions, financing requirements and other general
corporate purposes. The Company has no plans, arrangements or understandings
which would require the issuance of any of the additional authorized shares.
No stockholder has any preemptive right and, if the proposed amendment is
approved by the stockholders, shares of Common Stock may be issued on such terms
and conditions as the Board of Directors may determine without first offering
such shares to stockholders unless required pursuant to the rules of the New
York Stock Exchange or by applicable law.
Since the reasons for the issuance of the Adjustable Voting Common Stock
(as well as the Exchangeable Convertible Preferred Stock and the other series of
Preferred Stock authorized at the time of the Company's formation in 1987) no
longer exist, the Board of Directors believes it is appropriate to eliminate the
50,000,000 shares of Adjustable Voting Common Stock authorized by the Restated
Certificate of Incorporation.
Article Fourth of the Restated Certificate of Incorporation also sets forth
terms of the Adjustable Voting Common Stock and refers to various series of
Preferred Stock authorized in 1987 but no longer outstanding. Consistent with
the proposal to eliminate the shares of Adjustable Voting Common Stock currently
authorized and the fact that the series of Preferred Stock referred to therein
no longer exist, the Board of Directors believes it is desirable to delete such
obsolete terms and references.
20
<PAGE> 24
If the amendment proposed above is adopted, the total number of shares of
stock which the Company will be authorized to issue will be 200,000,000,
consisting of 150,000,000 shares of Common Stock, par value $.01 per share, and
50,000,000 shares of Preferred Stock, par value $.01 per share.
A copy of Article Fourth, showing the proposed changes, is attached hereto
as EXHIBIT A.
Approval of the above proposal requires the favorable vote of the holders
of shares representing at least a majority of the issued and outstanding Common
Stock. Abstentions will be treated as votes cast. Broker non-votes will be
treated as present but not voting. On this proposal, abstentions and broker
non-votes will have the same effect as votes cast against the proposal. HARCOURT
GENERAL WILL BE VOTING ITS COMMON STOCK, REPRESENTING APPROXIMATELY 53.0% OF THE
VOTING POWER OF THE COMPANY, FOR THE PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL
TO AMEND ARTICLE FOURTH OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION.
3. APPROVAL OF OTHER AMENDMENTS TO RESTATED
CERTIFICATE OF INCORPORATION
In addition to the changes set forth in the foregoing proposal, the Board
of Directors has adopted a resolution recommending that amendments to the
Restated Certificate of Incorporation be approved for purposes of consistency.
It is recommended that the reference to "Adjustable Voting Common Stock" be
deleted from Article Eighth, and that the enumeration of specific classes and
series of stock be deleted from the definition of "Voting Stock" in Article
Eleventh.
If these changes (as well as the changes in the previous proposal) are
approved, all references to classes or series of stock no longer outstanding
will have been eliminated from the Restated Certificate of Incorporation.
A copy of Articles Eighth and Eleventh of the Restated Certificate of
Incorporation, showing the proposed changes, is attached hereto as EXHIBIT B.
Pursuant to Article Eleventh of the Restated Certificate of Incorporation,
approval of the above proposal requires the favorable vote of the holders of
shares representing at least 66 2/3 percent of the issued and outstanding Common
Stock. Abstentions will be treated as votes cast. Broker non-votes will be
treated as present but not voting. On this proposal, abstentions and broker
non-votes will have the same effect as votes cast against the proposal. HARCOURT
GENERAL WILL BE VOTING ITS COMMON STOCK, REPRESENTING APPROXIMATELY 53.0% OF THE
VOTING POWER OF THE COMPANY, FOR THE PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL
TO AMEND ARTICLE EIGHTH AND ARTICLE ELEVENTH OF THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION.
------------------------
If Proposals 2 and 3 are approved by the stockholders, the Company will
file a Restated Certificate of Incorporation with the Secretary of State of the
State of Delaware in the form attached hereto as Exhibit C.
4. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Although Delaware law does not require that the selection by the Board of
Directors of the Company's auditors be approved each year by the stockholders,
the Board of Directors believes it is appropriate to submit its selection to the
stockholders for their approval and to abide by the result of
21
<PAGE> 25
the stockholders' vote. The Board of Directors recommends that the stockholders
ratify the appointment of Deloitte & Touche LLP as independent auditors to audit
the financial statements of the Company for the fiscal year ending August 1,
1998.
Representatives of Deloitte & Touche LLP will be present at the Annual
Meeting, will have an opportunity to make a statement if they wish, and will be
available to respond to appropriate questions from stockholders. The Company
paid, or accrued, approximately $1,050,000 on account of professional services
rendered by Deloitte & Touche LLP for the fiscal year ended August 2, 1997.
Deloitte & Touche LLP also serves as the independent auditors for Harcourt
General.
Approval of the proposal to ratify the selection of Deloitte & Touche LLP
as the Company's independent auditors for the current fiscal year requires a
favorable vote of a majority of the votes cast at the Annual Meeting.
Abstentions will be treated as votes cast. Broker non-votes will be treated as
present but not voting. On this proposal, abstentions will have the same effect
as votes against the proposal and broker non-votes will have no effect. HARCOURT
GENERAL WILL BE VOTING ITS COMMON STOCK, REPRESENTING APPROXIMATELY 53.0% OF THE
VOTING POWER OF THE COMPANY, FOR THE SELECTION OF DELOITTE & TOUCHE LLP.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL
TO RATIFY THE SELECTION OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING AUGUST 1, 1998.
5. STOCKHOLDER PROPOSAL
Evelyn Y. Davis, Watergate Office Building, 2600 Virginia Avenue, NW, Suite
215, Washington, D.C. 20037, the record owner of 150 shares of the Company's
Common Stock, has submitted for consideration at the Annual Meeting the proposal
set forth below. Following the proposal is the stockholder's statement in
support thereof, in the form received by the Company, and the statement of the
Company's Board of Directors in opposition thereto.
"RESOLVED: That the shareholders recommend that the Board take the
necessary step that The Neiman Marcus Group specifically identify by name and
corporate title in all future proxy statements those executive officers, not
otherwise so identifed, who are contractually entitled to receive in excess of
$250,000 annually as a base salary, together with whatever other additional
compensation bonuses and other cash payments were due them."
"REASONS: In support of such proposed Resolution it is clear that the
shareholders have a right to comprehensively evaluate the management in the
manner in which the Corporation is being operated and its resources utilized."
"At present only a few of the most senior executive officers are so
identified, and not the many other senior executive officers who should
contribute to the ultimate success of the Corporation."
"Through such additional identification the shareholders will then be
provided an opportunity to better evaluate the soundness and efficacy of the
overall management."
"Last year it was announced at the Annual Meeting that the owners of
888,023 shares, representing approximately 2.85% of shares voting, voted FOR
this proposal."
"If you AGREE, please mark your proxy FOR this proposal."
22
<PAGE> 26
Statement of the Board of Directors in Opposition
The Company provides extensive disclosure on compensation of its executive
officers in accordance with the rules and regulations of the Securities and
Exchange Commission (the "Commission") that apply to all public companies. The
proposal attempts to impose disclosure obligations beyond what is required by
the Commission and beyond what is reported by most public companies. The
Commission's compensation disclosure rules were significantly revised in 1992
after comprehensive review and comment from numerous reporting companies,
investors and other interested persons. The Company makes the full disclosure
required by these rules. The Board of Directors believes that the existing
disclosure provides stockholders with a clear overview of the compensation
structure for executive officers and provides an adequate basis for stockholders
to evaluate the Company's use of resources for compensation.
Approval of the stockholder proposal requires a favorable vote of a
majority of the votes cast at the Annual Meeting. Abstentions will be treated as
votes cast. Broker non-votes will be treated as present but not voting. On this
proposal, abstentions will have the same effect as votes against the proposal
and broker non-votes will have no effect. HARCOURT GENERAL WILL BE VOTING ITS
COMMON STOCK, REPRESENTING APPROXIMATELY 53.0% OF THE VOTING POWER OF THE
COMPANY, AGAINST THIS STOCKHOLDER PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE AGAINST THIS
STOCKHOLDER PROPOSAL.
6. OTHER MATTERS
The Board of Directors knows of no other matters which are likely to be
brought before the meeting. If any other matters should be properly brought
before the meeting, it is the intention of the persons named in the enclosed
proxy to vote, or otherwise act, in accordance with their judgment on such
matters.
DEADLINE FOR SUBMISSION OF
1999 STOCKHOLDER PROPOSALS AND NOMINATIONS
In order for stockholder proposals to be considered by the Company for
inclusion in the proxy material for the Annual Meeting of Stockholders to be
held in 1999, they must be received by the Company at its principal executive
offices by August 11, 1998. Any nominations for the Board of Directors must be
received no later than October 19, 1998. See "Meetings and Committees of the
Board of Directors -- Nominating Committee."
By Order of the Board of Directors
ERIC P. GELLER
Secretary
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, ALL STOCKHOLDERS ARE URGED TO
PROMPTLY COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
ENVELOPE. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
23
<PAGE> 27
EXHIBIT A
PROPOSED CHANGES TO ARTICLE FOURTH OF THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION
The following shows the proposed changes to Article Fourth. The bracketed
language is to be deleted, and the underscored language is to be added.
"Fourth: The total number of shares of stock which the Corporation shall
have authority to issue is 200,000,000 shares, consisting of [100,000,000]
150,000,000 shares of Common Stock, par value $.01 per share (the "Common
- -----------
Stock"), [50,000,000 SHARES OF EXCHANGEABLE ADJUSTABLE VOTING COMMON STOCK, PAR
VALUE $.01 PER SHARE (THE "ADJUSTABLE VOTING COMMON STOCK"),] and 50,000,000
shares of Preferred Stock, par value $.01 per share (the "Preferred Stock").
[PROVIDED, HOWEVER, THAT THE CORPORATION SHALL HAVE THE AUTHORITY TO ISSUE
SHARES OF ADJUSTABLE VOTING COMMON STOCK ONLY (X) PURSUANT TO THE AGREEMENT OF
TRANSFER AND PLAN OF RESTRUCTURING BY AND AMONG CARTER HAWLEY HALE STORES, INC.,
GENERAL CINEMA CORPORATION, A DELAWARE CORPORATION ("GENERAL CINEMA"), AND THE
CORPORATION DATED AS OF JULY 24, 1987 (THE "RESTRUCTURING PLAN"), (Y) IN
CONNECTION WITH THE CONVERSION OF EXCHANGEABLE CONVERTIBLE PREFERRED STOCK (AS
DEFINED BELOW) OR ALTERNATE ADJUSTABLE VOTING PREFERRED STOCK AND ONLY FOR THE
NUMBER OF SHARES OF ADJUSTABLE VOTING COMMON STOCK ISSUABLE UPON SUCH CONVERSION
OR (Z) IN CONNECTION WITH A DIVIDEND OR DISTRIBUTION ON THE ADJUSTABLE VOTING
COMMON STOCK PAYABLE IN ADJUSTABLE VOTING COMMON STOCK IN ACCORDANCE WITH
PARAGRAPH A(1) OF THIS ARTICLE FOURTH.
THE POWERS, PREFERENCES, AND THE RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF, OF
EACH CLASS OF STOCK, AND THE EXPRESS GRANT OF AUTHORITY TO THE BOARD OF
DIRECTORS TO FIX BY RESOLUTION THE DESIGNATION AND THE POWERS, PREFERENCES AND
RIGHTS OF EACH SHARE OF PREFERRED STOCK AND THE QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS THEREOF WHICH ARE NOT FIXED BY THIS CERTIFICATE OF INCORPORATION
ARE AS FOLLOWS:
A. COMMON STOCK AND ADJUSTABLE VOTING COMMON STOCK
(1) DIVIDEND RATE. THE HOLDERS OF COMMON STOCK AND ADJUSTABLE VOTING
COMMON STOCK WILL BE ENTITLED TO RECEIVE DIVIDENDS WHEN, AS AND IF DECLARED BY
THE BOARD OF DIRECTORS OUT OF ASSETS LEGALLY AVAILABLE THEREFOR, PROVIDED THAT
IF ANY SHARES OF ANY SERIES OF PREFERRED STOCK WHICH HAS A PREFERENCE WITH
RESPECT TO THE PAYMENT OF DIVIDENDS (INCLUDING THE 6% CUMULATIVE EXCHANGEABLE
CONVERTIBLE ADJUSTABLE VOTING PREFERRED STOCK (THE "EXCHANGEABLE CONVERTIBLE
PREFERRED STOCK"), THE ALTERNATE ADJUSTABLE VOTING PREFERRED STOCK (AS DEFINED
IN PARAGRAPH G(1) OF THE CERTIFICATE OF DESIGNATION AND TERMS OF THE
EXCHANGEABLE CONVERTIBLE PREFERRED STOCK) AND THE ALTERNATE PREFERRED STOCK (AS
DEFINED IN PARAGRAPH G(1) OF THE CERTIFICATE OF DESIGNATION AND TERMS OF THE
EXCHANGEABLE CONVERTIBLE PREFERRED STOCK) ARE AT THE TIME OUTSTANDING, NO
DIVIDENDS OR DISTRIBUTIONS (OTHER THAN DIVIDENDS OR DISTRIBUTIONS PAYABLE IN
COMMON STOCK OR ADJUSTABLE VOTING COMMON STOCK) MAY BE PAID WITH RESPECT TO
COMMON STOCK OR ADJUSTABLE VOTING COMMON STOCK, AND NO COMMON STOCK OR
ADJUSTABLE VOTING COMMON STOCK SHALL BE PURCHASED BY THE CORPORATION, UNLESS AT
THE TIME OF DECLARATION AND PAYMENT OR PURCHASE, AS THE CASE MAY BE, FULL
CUMULATIVE DIVIDENDS HAVE BEEN PAID, AND NO ARREARAGES IN ANY MANDATORY SINKING
FUND EXIST, ON SUCH OUTSTANDING SHARES OF PREFERRED STOCK. IF A DIVIDEND OR
DISTRIBUTION IS DECLARED ON COMMON STOCK OR ADJUSTABLE VOTING COMMON STOCK, AN
EQUAL AND RATABLE DIVIDEND SHALL BE DECLARED ON THE OTHER CLASS OF COMMON STOCK,
PROVIDED THAT DIVIDENDS OR DISTRIBUTIONS ON THE COMMON STOCK PAYABLE IN STOCK
SHALL BE PAID IN COMMON STOCK AND DIVIDENDS OR DISTRIBUTIONS PAYABLE ON THE
ADJUSTABLE VOTING COMMON STOCK SHALL BE PAID IN ADJUSTABLE VOTING COMMON STOCK.
THE RECORD DATE FOR DETERMINING THE HOLDERS OF COMMON
A-1
<PAGE> 28
STOCK ENTITLED TO RECEIVE DIVIDENDS, IF ANY, ON THE COMMON STOCK SHALL BE THE
SAME DATE AS THE RECORD DATE FOR DETERMINING THE HOLDERS OF ADJUSTABLE VOTING
COMMON STOCK ENTITLED TO RECEIVE DIVIDENDS, IF ANY, ON THE ADJUSTABLE VOTING
COMMON STOCK.
(2) VOTING RIGHTS. THE HOLDERS OF THE ISSUED AND OUTSTANDING SHARES OF
COMMON STOCK SHALL BE ENTITLED TO ONE VOTE FOR EACH SHARE OF COMMON STOCK HELD
AND THE HOLDERS OF THE ISSUED AND OUTSTANDING SHARES OF ADJUSTABLE VOTING COMMON
STOCK SHALL BE ENTITLED AT ANY SPECIFIED TIME TO A NUMBER OF VOTES FOR EACH
SHARE OF ADJUSTABLE VOTING COMMON STOCK HELD EQUAL TO THE LESSER OF (i) ONE AND
(ii) THE PRODUCT OF 44/56 MULTIPLIED BY A FRACTION, THE NUMERATOR OF WHICH IS
EQUAL TO THE SUM OF (w) THE NUMBER OF SHARES OF COMMON STOCK THEN OUTSTANDING
AND (x) THE AGGREGATE NUMBER OF VOTES WHICH THE HOLDERS OF ALL CLASSES AND
SERIES OF CAPITAL STOCK OF THE CORPORATION THEN OUTSTANDING ARE ENTITLED, OTHER
THAN THE COMMON STOCK, ADJUSTABLE VOTING COMMON STOCK AND EXCHANGEABLE
CONVERTIBLE PREFERRED STOCK, AND THE DENOMINATOR OF WHICH IS EQUAL TO THE SUM OF
(y) THE NUMBER OF SHARES OF ADJUSTABLE VOTING COMMON STOCK THEN OUTSTANDING AND
(z) THE PRODUCT OF THE EQUITY NUMBER (AS DEFINED BELOW) MULTIPLIED BY THE NUMBER
OF SHARES OF EXCHANGEABLE CONVERTIBLE PREFERRED STOCK THEN OUTSTANDING. THE
COMMON STOCK AND THE ADJUSTABLE VOTING COMMON STOCK SHALL HAVE THE RIGHT TO VOTE
TOGETHER AS A SINGLE CLASS ON ALL MATTERS AND FOR ALL PURPOSES; PROVIDED,
HOWEVER, THAT THE CORPORATION, WITHOUT FIRST OBTAINING THE CONSENT OF THE
HOLDERS OF AT LEAST A MAJORITY OF THE ADJUSTABLE VOTING COMMON STOCK THEN
OUTSTANDING, VOTING TOGETHER AS A SEPARATE CLASS, EITHER EXPRESSED IN WRITING OR
BY AFFIRMATIVE VOTE AT A MEETING CALLED FOR THAT PURPOSE, SHALL NOT ADVERSELY
AFFECT THE RIGHTS OF THE ADJUSTABLE VOTING COMMON STOCK AS SET FORTH HEREIN, BY
AMENDMENT TO THIS CERTIFICATE OF INCORPORATION OR OTHERWISE. FOR PURPOSES OF
THIS PARAGRAPH A(2) OF THIS ARTICLE FOURTH (OTHER THAN THE DEFINITION OF EQUITY
NUMBER BELOW), EACH REFERENCE TO EXCHANGEABLE CONVERTIBLE PREFERRED STOCK SHALL
ALSO BE DEEMED TO REFER TO THE ALTERNATIVE ADJUSTABLE VOTING PREFERRED STOCK
THEN OUTSTANDING, EXCEPT THAT, FOR ALL PURPOSES OF THIS PARAGRAPH A(2) OF THIS
ARTICLE FOURTH (OTHER THAN THE DEFINITION OF EQUITY NUMBER BELOW), EACH SHARE OF
ALTERNATE ADJUSTABLE VOTING PREFERRED STOCK SHALL BE DEEMED TO REPRESENT A
FRACTION OF A SHARE OF ALTERNATE ADJUSTABLE VOTING PREFERRED STOCK EQUAL TO THE
RECIPROCAL RATIO (AS DEFINED IN PARAGRAPH G(1) OF THE CERTIFICATE OF DESIGNATION
AND TERMS OF THE EXCHANGEABLE CONVERTIBLE PREFERRED STOCK).
"Equity Number" IS THE QUOTIENT OBTAINED BY DIVIDING THE STATED VALUE
PER SHARE OF EXCHANGEABLE CONVERTIBLE PREFERRED STOCK BY THE TRADING PRICE (AS
DEFINED IN THE RESTRUCTURING PLAN) OF ONE SHARE OF COMMON STOCK DURING THE
ADJUSTMENT PERIOD (AS DEFINED IN THE RESTRUCTURING PLAN).
(3) LIQUIDATION RIGHTS. IN THE EVENT OF LIQUIDATION, DISSOLUTION OR
WINDING UP OF THE AFFAIRS OF THE CORPORATION, WHETHER VOLUNTARY OR INVOLUNTARY,
SUBJECT TO THE PRIOR RIGHTS OF HOLDERS OF PREFERRED STOCK TO SHARE RATABLY IN
THE CORPORATION'S ASSETS, THE COMMON STOCK AND THE ADJUSTABLE VOTING COMMON
STOCK AND ANY SHARES OF PREFERRED STOCK WHICH ARE NOT ENTITLED TO ANY PREFERENCE
IN LIQUIDATION SHALL SHARE EQUALLY AND RATABLY IN THE CORPORATION'S ASSETS
AVAILABLE FOR DISTRIBUTION AFTER GIVING EFFECT TO ANY LIQUIDATION PREFERENCE OF
ANY SHARES OF PREFERRED STOCK, INCLUDING THE CONVERTIBLE PREFERRED STOCK, THE
EXCHANGEABLE CONVERTIBLE PREFERRED STOCK, THE ALTERNATE ADJUSTABLE VOTING
PREFERRED STOCK AND THE ALTERNATE PREFERRED STOCK.
(4) RECLASSIFICATION, SUBDIVISION OR COMBINATION. IN CASE THE
CORPORATION SHALL AT ANY TIME RECLASSIFY, SUBDIVIDE (BY ANY STOCK SPLIT OR
OTHERWISE) OR COMBINE (BY REVERSE STOCK SPLIT OR OTHERWISE) ITS OUTSTANDING
COMMON STOCK OR ADJUSTABLE VOTING COMMON STOCK, THE CORPORATION SHALL SIMILARLY
RECLASSIFY, SUBDIVIDE OR COMBINE, AS THE CASE MAY BE, THE OTHER CLASS.
A-2
<PAGE> 29
(5) EXCHANGE. (a) THE HOLDER OF ANY ADJUSTABLE VOTING COMMON STOCK MAY
EXCHANGE PURSUANT TO THIS PARAGRAPH (A)(5) OF THIS ARTICLE FOURTH, ALL OR ANY
PART (IN WHOLE NUMBER OF SHARES ONLY) OF THE ADJUSTABLE VOTING COMMON STOCK HELD
BY SUCH HOLDER INTO AN EQUAL NUMBER OF FULLY PAID AND NONASSESSABLE SHARES OF
COMMON STOCK.
(b) EACH EXCHANGE OF ADJUSTABLE VOTING COMMON STOCK SHALL BE EFFECTED
BY THE SURRENDER OF THE CERTIFICATE OR CERTIFICATES REPRESENTING THE SHARES OF
ADJUSTABLE VOTING COMMON STOCK TO BE EXCHANGED AT THE PRINCIPAL OFFICE OF THE
CORPORATION (OR SUCH OTHER OFFICE OR AGENCY OF THE CORPORATION AS THE
CORPORATION MAY DESIGNATE BY NOTICE IN WRITING TO THE HOLDER OR HOLDERS OF THE
ADJUSTABLE VOTING COMMON STOCK) AT ANY TIME DURING ITS USUAL BUSINESS HOURS,
TOGETHER WITH WRITTEN NOTICE BY THE HOLDER OF SUCH ADJUSTABLE VOTING COMMON
STOCK STATING THAT SUCH HOLDER DESIRES TO EXCHANGE THE SHARES OF ADJUSTABLE
VOTING COMMON STOCK, OR A STATED NUMBER OF SUCH SHARES, REPRESENTED BY SUCH
CERTIFICATE OR CERTIFICATES, WHICH NOTICE SHALL ALSO SPECIFY THE NAME OR NAMES
(WITH ADDRESSES) AND DENOMINATIONS IN WHICH THE CERTIFICATE OR CERTIFICATES FOR
THE COMMON STOCK, SHALL BE ISSUED AND SHALL INCLUDE INSTRUCTIONS FOR DELIVERY
THEREOF. SUCH EXCHANGE SHALL BE DEEMED TO HAVE BEEN EFFECTED AS OF THE CLOSE OF
BUSINESS ON THE DATE ON WHICH SUCH CERTIFICATE OR CERTIFICATES SHALL HAVE BEEN
SURRENDERED AND SUCH NOTICE SHALL HAVE BEEN RECEIVED AND AT SUCH TIME (THE
"EXCHANGE TIME") THE RIGHTS OF THE HOLDER OF ADJUSTABLE VOTING COMMON STOCK (OR
SPECIFIED PORTION THEREOF) AS SUCH HOLDER SHALL CEASE (EXCEPT THE RIGHT TO
RECEIVE UNPAID DIVIDENDS AS PROVIDED IN PARAGRAPH 5(d)) AND THE PERSON OR
PERSONS IN WHOSE NAME OR NAMES ANY CERTIFICATE OR CERTIFICATES FOR SHARES OF
COMMON STOCK ARE TO BE ISSUED UPON SUCH EXCHANGE SHALL BE DEEMED TO HAVE BECOME
THE HOLDER OR HOLDERS OF RECORD OF THE SHARES OF COMMON STOCK REPRESENTED
THEREBY.
(c) AS SOON AS POSSIBLE AFTER THE EXCHANGE TIME (AND IN NO EVENT MORE
THAN 14 DAYS AFTER THE EXCHANGE TIME WITH RESPECT TO THE CERTIFICATE(S)
SPECIFIED IN (i) AND (ii) BELOW, OR MORE THAN SEVEN DAYS AFTER THE EXCHANGE TIME
WITH RESPECT TO THE PAYMENT SPECIFIED IN (ii) BELOW), THE CORPORATION SHALL
DELIVER TO THE EXCHANGING HOLDER, OR, WITH RESPECT TO THE CERTIFICATE(S)
SPECIFIED IN (i) BELOW, AS SPECIFIED BY SUCH EXCHANGING HOLDER.
(i) A CERTIFICATE OR CERTIFICATES REPRESENTING THE NUMBER OF SHARES OF
COMMON STOCK ISSUABLE BY REASON OF SUCH EXCHANGE REGISTERED IN SUCH
NAME OR NAMES AND SUCH DENOMINATION OR DENOMINATIONS AS THE
EXCHANGING HOLDER SHALL HAVE SPECIFIED;
(ii) PAYMENT IN AN AMOUNT EQUAL TO THE SUM OF ALL DIVIDENDS PAYABLE
PURSUANT TO THE PROVISIONS OF PARAGRAPH 5(d);
(iii) A CERTIFICATE REPRESENTING ANY SHARES OF ADJUSTABLE VOTING COMMON
STOCK WHICH SHALL HAVE BEEN REPRESENTED BY THE CERTIFICATE OR
CERTIFICATES WHICH SHALL HAVE BEEN DELIVERED TO THE CORPORATION IN
CONNECTION WITH SUCH EXCHANGE BUT WHICH SHALL NOT HAVE BEEN
EXCHANGED.
(d) IN THE CASE OF THE EXCHANGE OF ANY SHARE OF ADJUSTABLE VOTING
COMMON STOCK, THE DIVIDEND, IF ANY, PAYABLE ON THE DATE FIXED FOR PAYMENT OF
SUCH DIVIDEND SHALL BE PAID ON SUCH DATE NOTWITHSTANDING SUCH EXCHANGE, AND SUCH
DIVIDEND SHALL BE PAID TO THE PERSON WHO IS THE HOLDER OF SUCH SHARES OF
ADJUSTABLE VOTING COMMON STOCK OR COMMON STOCK ISSUABLE UPON SUCH EXCHANGE, AS
THE CASE MAY BE, AT THE CLOSE OF BUSINESS ON THE RECORD DATE FOR DETERMINING THE
HOLDERS OF ADJUSTABLE VOTING COMMON STOCK ENTITLED TO RECEIVE SUCH DIVIDEND.
(e) THE CORPORATION COVENANTS AND AGREES THAT:
(i) THE CORPORATION WILL AT ALL TIMES RESERVE AND KEEP AVAILABLE
OUT OF ITS AUTHORIZED BUT UNISSUED SHARES OF COMMON STOCK OR ITS
TREASURY SHARES, OR OTHERWISE, SOLELY FOR THE PURPOSE
A-3
<PAGE> 30
OF ISSUE UPON THE EXCHANGE OF THE ADJUSTABLE VOTING COMMON STOCK AS
PROVIDED IN THIS PARAGRAPH 5, SUCH NUMBER OF SHARES OF COMMON STOCK AS
SHALL THEN BE ISSUABLE UPON THE EXCHANGE OF ALL OUTSTANDING SHARES OF
ADJUSTABLE VOTING COMMON STOCK. THE CORPORATION COVENANTS THAT ALL
SHARES OF COMMON STOCK WHICH SHALL BE SO ISSUABLE SHALL, WHEN ISSUED, BE
DULY AND VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE AND FREE FROM ALL
TAXES, LIENS AND CHARGES. THE CORPORATION WILL TAKE ALL SUCH ACTION AS
MAY BE NECESSARY TO ASSURE THAT ALL SUCH SHARES OF COMMON STOCK MAY BE
SO ISSUED WITHOUT VIOLATION OF ANY APPLICABLE LAW OR REGULATION OR ANY
REQUIREMENTS OF ANY DOMESTIC STOCK EXCHANGE UPON WHICH SHARES OF COMMON
STOCK OR OTHER SHARES OF THE SAME CLASS MAY BE LISTED OR, IF NOT SO
LISTED, THE RULES OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS,
INC. IF QUOTED IN THE NATIONAL ASSOCIATION OF SECURITIES DEALERS
AUTOMATED QUOTATION/NATIONAL MARKET SYSTEM (THE "NASDAQ SYSTEM").
(ii) THE CORPORATION WILL NOT TAKE ANY ACTION WHICH RESULTS IN OR
WOULD REQUIRE ANY ADJUSTMENT OF THE NUMBER OF SHARES OF COMMON STOCK
ACQUIRABLE UPON EXCHANGE OF A SHARE OF ADJUSTABLE VOTING COMMON STOCK IF
THE TOTAL NUMBER OF SHARES OF COMMON STOCK ISSUABLE AFTER SUCH ACTION
UPON EXCHANGE OF THE ADJUSTABLE VOTING COMMON STOCK THEN OUTSTANDING,
TOGETHER WITH THE TOTAL NUMBER OF SHARES OF COMMON STOCK THEN
OUTSTANDING, WOULD EXCEED THE TOTAL NUMBER OF SHARES OF COMMON STOCK
THEN AUTHORIZED UNDER THIS CERTIFICATE OF INCORPORATION WHICH ARE NOT
RESERVED OR REQUIRED TO BE RESERVED FOR ANY PURPOSE OTHER THAN THE
PURPOSE OF ISSUE UPON EXCHANGE OF SUCH ADJUSTABLE VOTING COMMON STOCK
AND WHICH ARE NOT SUBJECT TO ANY CONSENT, APPROVAL OR OTHER ACTION BY OR
ANY NOTICE TO OR FILING WITH ANY COURT OR ADMINISTRATOR OR GOVERNMENTAL
BODY IN CONNECTION WITH ISSUE UPON EXCHANGE OF SUCH ADJUSTABLE VOTING
COMMON STOCK.
(iii) IF ANY SHARES OF COMMON STOCK REQUIRED TO BE RESERVED FOR
PURPOSES OF EXCHANGES OF THE ADJUSTABLE VOTING COMMON STOCK UNDER THIS
SUBDIVISION REQUIRE, BEFORE SUCH SHARES MAY BE ISSUED UPON EXCHANGE,
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY UNDER ANY
FEDERAL OR STATE LAW (OTHER THAN ANY REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS THEN IN EFFECT, OR ANY SIMILAR FEDERAL STATUTE THEN IN
FORCE, OR ANY STATE SECURITIES LAW, REQUIRED BY REASON OF ANY TRANSFER
INVOLVED IN SUCH EXCHANGE), OR LISTING ON ANY DOMESTIC SECURITIES
EXCHANGE, OR, QUOTATION ON THE NASDAQ SYSTEM, THE CORPORATION WILL, AT
ITS EXPENSE AND AS EXPEDITIOUSLY AS POSSIBLE, USE ITS BEST EFFORTS TO
CAUSE SUCH SHARES TO BE DULY REGISTERED OR APPROVED OR APPROVED FOR
LISTING OR LISTED ON SUCH DOMESTIC SECURITIES EXCHANGE OR ELIGIBLE FOR
QUOTATION ON THE NASDAQ SYSTEM, AS THE CASE MAY BE.
(iv) THE ISSUANCE OF CERTIFICATES FOR SHARES OF COMMON STOCK UPON
EXCHANGE OF SHARES OF ADJUSTABLE VOTING COMMON STOCK SHALL BE MADE
WITHOUT CHARGE TO THE HOLDERS OF SUCH SHARES FOR ANY ISSUANCE TAX IN
RESPECT THEREOF, OR OTHER COST INCURRED BY THE CORPORATION IN CONNECTION
WITH SUCH EXCHANGE AND THE RELATED ISSUANCE OF SHARES OF COMMON STOCK,
PROVIDED THAT THE CORPORATION SHALL NOT BE REQUIRED TO PAY ANY TAX WHICH
MAY BE PAYABLE IN RESPECT OF ANY TRANSFER INVOLVED IN THE ISSUANCE AND
DELIVERY OF ANY CERTIFICATE IN A NAME OTHER THAN THAT OF THE HOLDER OF
THE ADJUSTABLE VOTING COMMON STOCK.
(v) THE CORPORATION WILL NOT CLOSE ITS BOOKS AGAINST THE TRANSFER
OF ANY SHARES OF ADJUSTABLE VOTING COMMON STOCK OR OF ANY SHARE OF
COMMON STOCK ISSUED OR ISSUABLE UPON THE EXCHANGE OF SHARES OF
ADJUSTABLE VOTING COMMON STOCK IN ANY MANNER WHICH INTERFERES WITH THE
TIMELY EXCHANGE OF SHARES OF ADJUSTABLE VOTING COMMON STOCK.
A-4
<PAGE> 31
6. NO CUMULATIVE VOTING, CONVERSION, REDEMPTION OR PREEMPTIVE
RIGHTS. THE HOLDERS OF COMMON STOCK AND ADJUSTABLE VOTING COMMON STOCK SHALL
NOT HAVE ANY CUMULATIVE VOTING, CONVERSION, REDEMPTION OR PREEMPTIVE RIGHTS.
7. OTHER TERMS. THE POWERS, PREFERENCES, AND THE RELATIVE,
PARTICIPATING, OPTIONAL AND OTHER RIGHTS, AND THE QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF, OF THE COMMON STOCK WHICH ARE NOT FIXED BY THIS
CERTIFICATE OF INCORPORATION SHALL BE IDENTICAL TO SUCH POWERS, PREFERENCES AND
SUCH RELATIVE, PARTICIPATING, OPTIONAL AND OTHER RIGHTS, AND SUCH
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF, OF THE ADJUSTABLE VOTING
COMMON STOCK WHICH ARE NOT FIXED BY THIS CERTIFICATE OF INCORPORATION.
B. PREFERRED STOCK]
The Board of Directors is hereby authorized from time to time to provide by
resolution for the issuance of shares of Preferred Stock in one or more series
not exceeding the aggregate number of shares of Preferred Stock authorized by
this Certificate of Incorporation, as amended from time to time; and to
determine with respect to each such series the voting powers, if any (which
voting powers if granted may be full or limited), designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions relating thereto; including without
limiting the generality of the foregoing, the voting rights relating to shares
of Preferred Stock of any series (which may be one or more votes per share or a
fraction of a vote per share, which may vary over time and which may be
applicable generally or only upon the happening and continuance of stated events
or conditions), the rate of dividend to which holders of Preferred Stock of any
series may be entitled (which may be cumulative or noncumulative), the rights of
holders of Preferred Stock of any series in the event of liquidation,
dissolution or winding up of the affairs of the Corporation, the rights, if any,
of holders of Preferred Stock of any series to convert or exchange such shares
of Preferred Stock of such series for shares of any other class or series of
capital stock or for any other securities, property or assets of the Corporation
or any subsidiary (including the determination of the price or prices or the
rate or rates applicable to such rights to convert or exchange and the
adjustment thereof, the time or times during which the right to convert or
exchange shall be applicable and the time or times during which a particular
price or rate shall be applicable), whether or not the shares of that series
shall be redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable, and
the amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates, and whether any shares
of that series shall be redeemed pursuant to a retirement or sinking fund or
otherwise and the terms and conditions of such obligation.
Before the Corporation shall issue any shares of Preferred Stock of any
series, a certificate setting forth a copy of the resolution or resolutions of
the Board of Directors, fixing the voting powers, designations, preferences, the
relative, participating, optional or other rights, if any, and the
qualifications, limitations and restrictions, if any, relating to the shares of
Preferred Stock of such series, and the number of shares of Preferred Stock of
such series authorized by the Board of Directors to be issued shall be made
under seal of the Corporation and signed by and shall be filed and a copy
thereof recorded in the manner prescribed by the GCL. The Board of Directors is
further authorized to increase or decrease (but not below the number of such
shares of such series then outstanding) the number of shares of any series
subsequent to the issuance of shares of that series."
A-5
<PAGE> 32
EXHIBIT B
PROPOSED CHANGES TO ARTICLES EIGHTH AND ELEVENTH OF
THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
The following shows the proposed changes to Articles Eighth and Eleventh of
the Restated Certificate of Incorporation. The bracketed language is to be
deleted.
Article Eighth:
"Notwithstanding the GCL*, any action required to be taken or which may
be taken by the holders of the Common Stock [OR ADJUSTABLE VOTING COMMON STOCK]
must be effected at a duly called annual or special meeting of such holders and
may not be taken by any consent in writing by such holders."
- ---------------
* i.e. the General Corporation Law of the State of Delaware.
Article Eleventh:
"SUBJECT TO ARTICLE FIFTH** and notwithstanding anything else contained
in this Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least 66 2/3 percent of the combined voting power of all of
the Voting Stock, voting together as a single class, shall be required to alter,
amend, rescind or repeal (A) Article Seventh, Article Eighth, Article Ninth or
this Article Eleventh or to adopt any provision inconsistent therewith or (B)
Section 3 of Article II, Sections 1, 2 and 10 of Article III, Article VIII or
Article IX of the By-Laws of the Corporation or to adopt any provision
inconsistent therewith.
"VOTING STOCK" shall mean the securities of the Corporation which are
entitled to vote generally for the election of directors of the Corporation[,
INCLUDING THE COMMON STOCK, ADJUSTABLE VOTING COMMON STOCK, THE CONVERTIBLE
PREFERRED STOCK, THE EXCHANGEABLE CONVERTIBLE PREFERRED STOCK, THE ALTERNATE
ADJUSTABLE VOTING PREFERRED STOCK AND THE ALTERNATE PREFERRED STOCK]."
- ---------------
** Article Fifth provides: "The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to or repeal the By-Laws of
the Corporation."
B-1
<PAGE> 33
EXHIBIT C
PROPOSED RESTATED CERTIFICATE OF INCORPORATION
The language of the Company's Restated Certificate of Incorporation, after
giving effect to the amendments contemplated in proposals 2 and 3, is as
follows:
RESTATED CERTIFICATE OF INCORPORATION
of
THE NEIMAN-MARCUS GROUP, INC.
(originally incorporated as Specialty Store Company, on June 2, 1987)
THE NEIMAN-MARCUS GROUP, INC., a Delaware corporation organized on June 2,
1987 under the name Specialty Store Company (the "Corporation") does hereby
certify, pursuant to Section 245 of the General Corporation Law of the State of
Delaware the Corporation's Certificate of Incorporation is hereby amended and
restated to read in its entirety as follows:
FIRST: The name of the Corporation is The Neiman-Marcus Group, Inc.
(hereinafter the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at that address is The Corporation
Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware (the "GCL").
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 200,000,000 shares, consisting of 150,000,000 shares
of Common Stock, par value $.01 per share (the "Common Stock"), and 50,000,000
shares of Preferred Stock, par value $.01 per share (the "Preferred Stock").
The Board of Directors is hereby authorized from time to time to provide by
resolution for the issuance of shares of Preferred Stock in one or more series
not exceeding the aggregate number of shares of Preferred Stock authorized by
this Certificate of Incorporation, as amended from time to time; and to
determine with respect to each such series the voting powers, if any (which
voting powers if granted may be full or limited), designations, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions relating thereto; including without
limiting the generality of the foregoing, the voting rights relating to shares
of Preferred Stock of any series (which may be one or more votes per share or a
fraction of a vote per share, which may vary over time and which may be
applicable generally or only upon the happening and continuance of stated events
or conditions), the rate of dividend to which holders of Preferred Stock of any
series may be entitled (which may be cumulative or noncumulative), the rights of
holders of Preferred Stock of any series in the event of liquidation,
dissolution or winding up of the affairs of the Corporation, the rights, if any,
of holders of Preferred Stock of any series to convert or exchange such shares
of Preferred Stock of such series for shares of any other class or series of
capital stock or for any other securities, property or assets of the Corporation
or any subsidiary (including the determination of the price or prices or the
rate or rates applicable to such rights to convert or exchange and the
adjustment
C-1
<PAGE> 34
thereof, the time or times during which the right to convert or exchange shall
be applicable and the time or times during which a particular price or rate
shall be applicable), whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable, and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates, and whether any shares of that
series shall be redeemed pursuant to a retirement or sinking fund or otherwise
and the terms and conditions of such obligation.
Before the Corporation shall issue any shares of Preferred Stock of any
series, a certificate setting forth a copy of the resolution or resolutions of
the Board of Directors, fixing the voting powers, designations, preferences, the
relative, participating, optional or other rights, if any, and the
qualifications, limitations and restrictions, if any, relating to the shares of
Preferred Stock of such series, and the number of shares of Preferred Stock of
such series authorized by the Board of Directors to be issued shall be made
under seal of the Corporation and signed by and shall be filed and a copy
thereof recorded in the manner prescribed by the GCL. The Board of Directors is
further authorized to increase or decrease (but not below the number of such
shares of such series then outstanding) the number of shares of any series
subsequent to the issuance of shares of that series.
FIFTH: The directors shall have concurrent power with the stockholders to
make, alter, amend, change, add to or repeal the By-Laws of the Corporation.
SIXTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of the GCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of the GCL, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
SEVENTH: Except as otherwise fixed pursuant to the provisions of Article
Fourth of this Certificate of Incorporation relating to the rights of the
holders of any one or more classes or series of Preferred Stock issued by the
Corporation to call an annual or special meeting of stockholders, special
meetings of the stockholders of the Corporation may not be called by the
stockholders of the Corporation.
EIGHTH: Notwithstanding the GCL, any action required to be taken or which
may be taken by the holders of the Common Stock must be effected at a duly
called annual or special meeting of such holders and may not be taken by any
consent in writing by such holders.
NINTH: The directors shall be divided into three classes, designated Class
I, Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting the entire
Board of Directors. Initially, Class I directors shall be elected for a one-year
term, Class II Directors for a two-year term and Class III directors for a three
year-term. At the annual
C-2
<PAGE> 35
meeting of stockholders beginning in 1988, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term. If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class, but
in no case will a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the annual meeting for
the year in which his term expires and until his successor shall be elected and
shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board of Directors
that results from an increase in the number of directors may be filled by a
majority of the Board of Directors then in office, provided that a quorum is
present, and any other vacancy occurring in the Board of Directors may be filled
by a majority of the directors then in office, even if less than a quorum, or by
a sole remaining director. Any director elected to fill a vacancy not resulting
from an increase in the number of directors shall have the same remaining term
as that of his predecessor.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article Fourth of this Certificate of Incorporation, the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article
Ninth unless expressly provided by such terms.
TENTH: No director shall be personally liable to the Corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a director
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the GCL or (iv) for any transaction from which the
director derived an improper personal benefit. Any repeal or modification of
this Article Tenth by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification with respect to acts or omissions for or
with respect to any acts or omissions of such director occurring prior to such
repeal or modification.
ELEVENTH: Subject to Article Fifth and notwithstanding anything else
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 66 2/3 percent of the combined voting power of
all of the Voting Stock, voting together as a single class, shall be required to
alter, amend, rescind or repeal (A) Article Seventh, Article Eighth, Article
Ninth or this Article Eleventh or to adopt any provision inconsistent therewith
or (B) Section 3 of Article II, Sections 1, 2 and 10 of Article III, Article
VIII or Article IX of the By-Laws of the Corporation or to adopt any provision
inconsistent therewith.
"VOTING STOCK" shall mean the securities of the Corporation which are
entitled to vote generally for the election of directors of the Corporation.
C-3
<PAGE> 36
IN WITNESS WHEREOF, this Restated Certificate of Incorporation, having been
approved by the Board of Directors of the Corporation in accordance with the
provisions of Section 245 of the Delaware General Corporation Law, only restates
and integrates and does not further amend the provisions of the Corporation's
Certificate of Incorporation as heretofore amended or supplemented with no
discrepancy between those provisions and this Restated Certificate of
Incorporation and has been duly executed in its corporate name this day of
, 1998.
THE NEIMAN-MARCUS GROUP, INC.
By: __________________________
Richard A. Smith
Chairman of the Board and
Chief Executive Officer
ATTEST:
By: _________________________
Eric P. Geller
Secretary
- ---------------
Note: Certificates of Designation previously filed with the Secretary of State
of the State of Delaware with respect to series of Preferred Stock no
longer outstanding have been deleted by action of the Board of Directors.
C-4
<PAGE> 37
PROXY
COMMON STOCK COMMON STOCK
THE NEIMAN MARCUS GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS, JANUARY 16, 1998
Richard A. Smith, Robert A. Smith and Eric P. Geller, and each of them (a
majority of those present and acting to have all the powers hereunder), with
several powers of substitution, are hereby authorized to represent and vote all
shares of Common Stock of the undersigned at the Annual Meeting of Stockholders
of The Neiman Marcus Group, Inc. to be held at the Company's corporate
headquarters, 27 Boylston Street (Route 9), Chestnut Hill, Massachusetts on
Friday, January 16, 1998, at 10:00 a.m. and at any adjournments thereof. The
undersigned hereby revokes any Proxy previously given and acknowledges receipt
of the Notice of Annual Meeting and Proxy Statement, dated December , 1997,
and a copy of the Annual Report for the year ended August 2, 1997.
The shares represented by this proxy will be voted as directed by the
undersigned. The Board of Directors of The Neiman Marcus Group, Inc. recommends
a vote FOR the nominees set forth below, FOR Proposals 2, 3, and 4 and AGAINST
Proposal 5. If this proxy is signed and returned and does not specify a vote on
any proposal, the proxy will be so voted.
ELECTION OF CLASS I DIRECTORS
NOMINEES: RICHARD A. SMITH, ROBERT A. SMITH
ELECTION OF CLASS II DIRECTOR
NOMINEE: BRIAN J. KNEZ
ELECTION OF CLASS III DIRECTOR
NOMINEE: JOHN R. COOK
(SEE REVERSE SIDE TO CAST VOTE) SEE REVERSE
CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE SIDE
<PAGE> 38
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
- --------------------------------------------------------------------------------
1. Election of Directors (See reverse).
FOR WITHHELD
[ ] [ ]
[ ]
--------------------------------------
For all nominees except as noted above
2. Approval of amendments to Article Fourth of the Company's Restated
Certificate of Incorporation to increase the Company's authorized Common Stock,
eliminate the authorized Exchangeable Adjustable Voting Common Stock, and
delete all references and provisions relating to previously issued classes
and series of stock not currently outstanding.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of amendments to the provisions of Article Eighth and Article
Eleventh of the Company's Restated Certificate of Incorporation to eliminate
references to classes and series of stock no longer outstanding.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Approval of the appointment of Deloitte & Touche LLP as independent auditors
of the Company for the current fiscal year.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 5.
- --------------------------------------------------------------------------------
5. Approval of stockholder proposal concerning compensation disclosure.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
- --------------------------------------------------------------------------------
[ ] MARK HERE IF YOU PLAN TO ATTEND THE MEETING
[ ] MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
For joint accounts, each owner should sign. Executors, Administrators,
Trustees, etc., should give full title.
Signature: Date: Signature: Date:
------------- --------- ------------- --------
<PAGE> 39
DETACH HERE
CONFIDENTIAL VOTING INSTRUCTIONS
TO: WACHOVIA BANK, N.A.
AS TRUSTEE UNDER
THE NEIMAN MARCUS GROUP, INC.
EMPLOYEE SAVINGS PLAN
WITH RESPECT TO THE ANNUAL MEETING OF STOCKHOLDERS OF
THE NEIMAN MARCUS GROUP, INC. -- JANUARY 16, 1998
I hereby instruct the Trustee to vote (in person or by proxy) all shares of
Common Stock of The Neiman Marcus Group, Inc. which are credited to my account
under the above-referenced Plan at the Annual Meeting of Stockholders of The
Neiman Marcus Group, Inc. to be held at the Company's corporate headquarters, 27
Boylston Street (Route 9), Chestnut Hill, Massachusetts on Friday, January 16,
1998 at 10:00 a.m. and at any adjournments thereof. The undersigned hereby
revokes any instruction previously given and acknowledges receipt of the Notice
of Annual Meeting and Proxy Statement dated December , 1997, and a copy of the
Annual Report for the year ended August 2, 1997.
The shares represented by this instruction card will be voted by the
trustee as directed by the undersigned. The Board of Directors of The Neiman
Marcus Group, Inc. Recommends a vote FOR the nominees set forth below, FOR
proposals 2, 3 and 4 and AGAINST proposal 5. If this instruction card is signed
and returned and does not specify a vote on any proposal, the instruction card
will be so voted.
ELECTION OF CLASS I DIRECTORS
Nominees: Richard A. Smith, Robert A. Smith
ELECTION OF CLASS II DIRECTOR
Nominee: Brian J. Knez
ELECTION OF CLASS III DIRECTOR
Nominee: John R. Cook
(SEE REVERSE SIDE TO CAST VOTE)
CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE
-----------
SEE REVERSE
SIDE
-----------
<PAGE> 40
DETACH HERE NE2 2
[ ] PLEASE MARK VOTES AS IN THIS EXAMPLE.
THIS INSTRUCTION CARD IS SOLICITED BY THE PLAN TRUSTEE.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
- --------------------------------------------------------------------------------
1. Election of Directors (See reverse).
FOR WITHHELD
[ ] [ ]
[ ]
--------------------------------------
For all nominees except as noted above
2. Approval of amendments to Article Fourth of the Company's Restated
Certificate of Incorporation to increase the Company's authorized Common Stock,
eliminate the authorized Exchangeable Adjustable Voting Common Stock, and
delete all references and provisions relating to previously issued classes
and series of stock not currently outstanding.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of amendments to the provisions of Article Eighth and Article
Eleventh of the Company's Restated Certificate of Incorporation to eliminate
references to classes and series of stock no longer outstanding.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Approval of the appointment of Deloitte & Touche LLP as independent auditors
of the Company for the current fiscal year.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSAL 5.
- --------------------------------------------------------------------------------
5. Approval of stockholder proposal concerning compensation disclosure.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
- --------------------------------------------------------------------------------
[ ] MARK HERE IF YOU PLAN TO ATTEND THE MEETING
[ ] MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
Please sign at left.
Signature: Date:
------------- ---------
<PAGE> 41
[Wachovia Logo]
- -------------------------------------------------------------------------------
Wachovia Corporate Services, Inc.
Trust Services Division
301 North Main Street
Winston-Salem, North Carolina 27150-3099
To: Participants in The Neiman Marcus Group, Inc.
Employee Savings Plan
From: Wachovia Bank, N.A.
Trustee of the Employee Savings Plan
Date: December , 1997
As a participant in The Neiman Marcus Group, Inc. Employee Savings Plan,
which owns shares of The Neiman Marcus Group, Inc., you are entitled to
instruct the Trustee on how to vote the shares of The Neiman Marcus Group, Inc.
Common Stock in your account on matters scheduled to come before the Annual
Meeting of Stockholders of The Neiman Marcus Group, Inc. to be held on Friday,
January 16, 1998.
A proxy statement, voting instruction card and return envelope are
enclosed. Please complete, date and sign the voting instruction card and mail
it in the return envelope by January 15, 1998 to exercise your right to direct
the trustee with respect to shares of The Neiman Marcus Group, Inc. allocated
to your account.
If you own shares of The Neiman Marcus Group, Inc. outside of the Employee
Savings Plan, you will receive similar materials for those shares in a separate
mailing. Please return both cards in their separate return envelopes if you
wish to fully participate in the matters being submitted to the stockholders of
The Neiman Marcus Group, Inc.
Enclosures
