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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
__________________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended August 1, 1998
Commission File Number 1-9659
_______________
THE NEIMAN MARCUS GROUP, INC.
(Exact name of registrant as specified in its charter)
27 Boylston Street, Chestnut Hill, Massachusetts 02467
(Address of principal executive offices) (Zip Code)
Delaware 95-4119509
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Registrant's telephone number and area code: 617-232-0760
_______________
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each Exchange on which Registered
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
_______________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of October 15, 1998 was $407,958,109.
There were 48,944,377 shares of Common Stock outstanding as of October 15,
1998.
_________________________________________________
Documents Incorporated by Reference
Portions of the Company's 1998 Annual Report to Shareholders are
incorporated by reference in Parts I, II and IV of this Report.
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<PAGE>
[PAGE]
THE NEIMAN MARCUS GROUP, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED AUGUST 1, 1998
TABLE OF CONTENTS
Page No.
PART I
Item 1. Business 1
Item 2. Properties 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 5
Item 6. Selected Financial Data 5
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 5
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 5
Item 8. Financial Statements and Supplementary Data 6
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 6
PART III
Item 10. Directors and Executive Officers of the Registrant 6
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners and Management 23
Item 13. Certain Relationships and Related Transactions 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 26
Signatures S-1
<PAGE>
[PAGE]
PART I
Item 1. Business
General
The Neiman Marcus Group, Inc. (together with its operating divisions and
subsidiaries, the "Company") is a Delaware corporation which commenced
operations in August 1987. Harcourt General, Inc. ("Harcourt General"), a
Delaware corporation based in Chestnut Hill, Massachusetts, currently owns
approximately 54% of the outstanding Common Stock of the Company. Four of
Harcourt General's senior officers - its Chairman and Chief Executive Officer,
its two Presidents and Co-Chief Operating Officers, and its Senior Vice
President and Chief Financial Officer - are directors of the Company, and
virtually all of Harcourt General's officers and corporate staff occupy
similar positions with the Company. For more information about the
relationship between the Company and Harcourt General, see Note 1 to the
Summary Compensation Table in Item 11, Item 12, and Notes 3, 7 and 8 to the
Consolidated Financial Statements in Item 14 below. Harcourt General is a
public company subject to the reporting requirements of the Securities
Exchange Act of 1934. For further information about Harcourt General,
reference may be made to the reports filed by Harcourt General from time to
time with the Securities and Exchange Commission.
Business Overview
The Company, operating through Neiman Marcus Stores, Bergdorf Goodman and NM
Direct, is a high-end specialty retailer. The 31 Neiman Marcus stores are in
premier retail locations in major markets nationwide, and the two Bergdorf
Goodman stores, the main store and the Bergdorf Goodman Men store, are located
in Manhattan at 58th Street and Fifth Avenue. Neiman Marcus Stores and
Bergdorf Goodman offer high-end fashion apparel and accessories primarily from
leading designers. NM Direct, the Company's direct marketing operation,
offers a mix of apparel and home furnishings which is complementary to the
Neiman Marcus Stores merchandise. NM Direct also publishes the Horchow
catalogues, the world famous Neiman Marcus Christmas Book, and Chef's Catalog,
a leading direct marketer of gourmet cookware and high-end kitchenware which
was acquired in January 1998.
Description of Operations
Neiman Marcus Stores
Neiman Marcus Stores offer women's and men's apparel, fashion accessories,
shoes, cosmetics, furs, precious and designer jewelry, decorative home
accessories, fine china, crystal and silver, gourmet food products, children's
apparel and gift items. A relatively small portion of Neiman Marcus Stores'
customers accounts for a significant percentage of its retail sales.
The Company currently operates 31 Neiman Marcus stores, located in Arizona
(Scottsdale); California (five stores: Beverly Hills, Newport Beach, Palo
Alto, San Diego and San Francisco);
1<PAGE>
[PAGE]
Colorado (Denver); the District of Columbia; Florida (two stores: Fort
Lauderdale and Bal Harbour); Georgia (Atlanta); Hawaii (Honolulu); Illinois
(three stores: Chicago, Northbrook and Oak Brook); Missouri (St. Louis);
Massachusetts (Boston); Minnesota (Minneapolis); Michigan (Troy); Nevada
(Las Vegas); New Jersey (two stores: Short Hills and Paramus); New York
(Westchester); Pennsylvania (King of Prussia); Texas (six stores: three in
Dallas, one in Fort Worth and two in Houston); and Virginia (McLean). The
average size of these 31 stores is approximately 143,000 gross square feet, and
they range in size from 90,000 gross square feet to 269,000 gross square feet.
The Company opened its Neiman Marcus store in Hawaii in September 1998. The
Company plans to open new Neiman Marcus stores in Palm Beach, Florida in 2000,
Coral Gables, Florida in 2001, Houston, Texas in 2001, Plano, Texas in 2002,
and Tampa, Florida in 2002. The Plano store will replace the existing store
located in the Prestonwood Mall in Dallas, and the Houston store will replace
the existing Houston Town & Country store.
In October 1997, the Company announced plans to test a new retailing format,
called The Galleries of Neiman Marcus, which will offer precious and designer
jewelry, gifts and home accessories. The Company plans to test this format by
opening stores of approximately 10,000 to 15,000 gross square feet each. The
first of these stores is expected to open in Beachwood, Ohio (near Cleveland)
in November 1998, with subsequent openings in Phoenix and Seattle in 1999.
Bergdorf Goodman
The Company operates two Bergdorf Goodman stores in Manhattan at 58th Street
and Fifth Avenue. The main Bergdorf Goodman store consists of 250,000 gross
square feet. The core of Bergdorf Goodman's offerings includes high-end
women's apparel and unique fashion accessories from leading designers.
Bergdorf Goodman also features traditional and contemporary decorative home
accessories, precious and fashion jewelry, gifts, and gourmet foods. Bergdorf
Goodman Men consists of 66,000 gross square feet and is dedicated to fine
men's apparel and accessories. During 1999, the Company expects to add
approximately 15,000 square feet of selling space to the main Bergdorf Goodman
store by adding selling space below the first floor on the plaza level.
NM Direct
NM Direct operates an upscale direct marketing business, which primarily
offers women's apparel under the Neiman Marcus name and, through its Horchow
catalogue, offers quality home furnishings, tabletop, linens and decorative
accessories. NM Direct also offers a broad range of more modestly priced
items through its Trifles and Grand Finale lines and annually publishes the
world famous Neiman Marcus Christmas Book. The Company acquired Chef's
Catalog, a leading direct marketer of gourmet cookware and high-end
kitchenware, in January 1998, and has consolidated those operations into NM
Direct.
2<PAGE>
[PAGE]
Clearance Centers
The Company operates seven clearance centers which average 25,000 gross square
feet each. These stores provide an efficient and controlled outlet for the
sale of marked down merchandise from Neiman Marcus Stores, Bergdorf Goodman
and NM Direct. The Company expects to open two additional clearance centers
during fiscal 1999.
Competition
The specialty retail industry is highly competitive and fragmented. The
Company competes with large specialty retailers, traditional and better
department stores, national apparel chains, designer boutiques, individual
specialty apparel stores and direct marketing firms.
The Company competes for customers principally on the basis of quality,
assortment and presentation of merchandise, customer service, sales and
marketing programs and value. In addition, the Company competes for quality
merchandise and assortment principally based on relationships with designer
resources and purchasing power. The Company's apparel business is especially
dependent upon its relationship with these designer resources. Neiman Marcus
Stores and Bergdorf Goodman compete for customers on the basis of store
ambience. Neiman Marcus Stores competes with other retailers for real estate
opportunities, principally on the basis of its ability to attract customers.
NM Direct competes principally on the basis of quality, assortment and
presentation of merchandise, customer service, price and speed of delivery.
Employees
At August 1, 1998, Neiman Marcus Stores had approximately 11,800 employees,
Bergdorf Goodman had approximately 1,100 employees, and NM Direct had
approximately 1,400 employees. The Company's staffing requirements fluctuate
during the year as a result of the seasonality of the retail apparel industry
and, accordingly, the Company expects to add approximately 1,700 more seasonal
employees in the second quarter of fiscal 1999. None of the employees of
Neiman Marcus Stores or NM Direct are subject to collective bargaining
agreements. Approximately 18% of the Bergdorf Goodman employees are subject
to collective bargaining agreements. The Company believes that its relations
with its employees are generally good.
Capital Expenditures; Seasonality; Liquidity
For information on capital expenditures, seasonality and liquidity, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 below.
Executive Officers of the Registrant
The information set forth under the heading "Executive Officers" in Item 10
below is incorporated herein.
3<PAGE>
[PAGE]
Item 2. Properties
The Company's corporate headquarters are located at Harcourt General's leased
facility in Chestnut Hill, Massachusetts. The operating headquarters for
Neiman Marcus Stores, Bergdorf Goodman and NM Direct are located in Dallas,
New York City and Las Colinas, Texas, respectively. The aggregate gross
square footage used in the Company's operations is approximately as follows:
<TABLE>
<CAPTION>
Owned
Subject to
Owned Ground Lease Leased Total
<S> <C> <C> <C> <C>
Neiman Marcus and Bergdorf
Goodman Stores......................... 348,000 2,112,000 2,297,000 4,757,000
Distribution, Support and
Office Facilities, Clearance
Centers, and Chef's Catalog Stores..... 1,169,000 0 754,000 1,923,000
</TABLE>
Leases for the Company's stores, including renewal options, range from 30 to 99
years. The lease on the Bergdorf Goodman main store expires in 2050, and the
lease on the Bergdorf Goodman Men's store expires in 2010, with two 10-year
renewal options. Leases are generally at fixed rentals, and a majority of
leases provide for additional rentals based on sales in excess of predetermined
levels. The Company owns approximately 34 acres of land in
Longview, Texas, where its National Service Center, the principal distribution
facility for Neiman Marcus Stores, is located in a 464,000 square foot
facility, and also owns approximately 50 acres of land in Las Colinas, Texas,
where its 705,000 square foot NM Direct warehouse and distribution facility is
located. For further information on the Company's properties, see "Operating
Leases" in Note 13 of the Notes to the Consolidated Financial Statements in
Item 14 below. For more information about the Company's plans to open
additional stores, see "Description of Operations" in Item 1 above.
Item 3. Legal Proceedings
The Company presently is engaged in various legal actions which are incidental
to the ordinary conduct of its business. The Company believes that any
liability arising as a result of these actions and proceedings will not have a
material adverse effect on the Company's financial position or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
4<PAGE>
[PAGE]
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information contained under the captions "Stock Information" and "Shares
Outstanding" on page 47 of the 1998 Annual Report is incorporated herein.
Beginning with the third quarter of fiscal 1995, the Company eliminated the
quarterly cash dividend on its Common Stock. The Company currently does not
intend to resume paying cash dividends on its Common Stock.
Item 6. Selected Financial Data
The response to this Item is contained in the 1998 Annual Report under the
caption "Selected Financial Data" on page 45 and is incorporated herein.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The response to this Item is contained in the 1998 Annual Report under the
caption "Management's Discussion and Analysis" on pages 23 through 27 and is
incorporated herein.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The market risk inherent in the Company's financial instruments and position
represents the potential loss arising from adverse changes in interest rates.
The Company does not enter into financial instruments for trading purposes.
At August 1, 1998, the fair value of the Company's fixed-rate debt was
estimated at $251.6 million using quoted market prices and comparable
publicly-traded issues. The carrying value at August 1, 1998 exceeded such
fair value by approximately $1.2 million. Market risk is estimated as the
potential change in fair value resulting from a hypothetical 10% adverse
change in interest rates, and amounted to approximately $16.0 million at
August 1, 1998.
The Company had approximately $35.0 million of variable rate borrowings
outstanding under its revolving credit agreement, which approximated fair
value, at August 1, 1998. A hypothetical 10% adverse change in interest rates
for this variable rate debt would have an approximate $0.2 million negative
effect on the Company's earnings and cash flows.
For additional information about the Company's financial instruments, see
Notes 1, 6 and 14 of the Notes to Consolidated Financial Statements,
beginning, respectively, on pages 32, 35, and 42 of the 1998 Annual Report.
5<PAGE>
[PAGE]
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements and supplementary data referred to in
Item 14 are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
Set forth below are the names, ages at October 15, 1998, and principal
occupations for the last five years of each director of the Company.
Class I Directors - Terms expire at 2001 Annual Meeting of Stockholders
Richard A. Smith - 73; Director since 1987
Chairman of the Company and of Harcourt General; Chief Executive Officer
of the Company and of Harcourt General since January 1997 and prior to
December 1991; Chairman, President (until November 1995) and Chief
Executive Officer of GC Companies, Inc. since December 1993; Director of
Harcourt General and GC Companies, Inc. 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 is the father-in-law of Brian J. Knez, a
director of the Company and President and Co-Chief Operating Officer and
a director of Harcourt General.
Robert A. Smith - 39; Director since 1997
President and Chief Operating Officer of the Company and President and
Co-Chief Operating Officer of Harcourt General since January 1997; Group
Vice President of the Company and of Harcourt General prior thereto;
President and Chief Operating Officer of GC Companies, Inc. since
November 1995; Director of Harcourt General. Mr. Smith is the son of
Richard A. Smith, Chairman and Chief Executive Officer of the Company
and of Harcourt General, and is the brother-in-law of Brian J. Knez, a
director of the Company and President and Co-Chief Operating Officer and
a director of Harcourt General.
6<PAGE>
[PAGE]
Class II Directors - Terms expire at 1999 Annual Meeting of Stockholders
Matina S. Horner, Ph.D. - 59; Director since 1993
Executive Vice President of the Teachers Insurance and Annuity
Association-College Retirement Equities Fund (TIAA-CREF) and President
Emerita of Radcliffe College since 1989; Director of Boston Edison
Company.
Brian J. Knez - 41; Director since 1998
President and Co-Chief Operating Officer of Harcourt General since
January 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 prior thereto; Director of
Harcourt General 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.
Walter J. Salmon - 67; Director since 1987
Stanley Roth Sr. Professor of Retailing (Emeritus since 1997), 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.
Class III Directors - Terms expire at 2000 Annual Meeting of Stockholders
John R. Cook - 57; Director since 1998
Senior Vice President and Chief Financial Officer of the Company and of
Harcourt General.
Jean Head Sisco - 73; 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.
Vincent M. O'Reilly - 61; Director since 1997
Distinguished Senior Lecturer, Carroll School of Management, Boston
College since October 1997; Executive Vice Chairman of Coopers & Lybrand
from October 1994 until October 1997; Chief Operating Officer or Deputy
Chairman of Coopers & Lybrand from 1988 to October 1994; Director of
Eaton Vance Corp. and Teradyne, Inc.
Executive Officers
Set forth below are the names, ages at October 15, 1998, and principal
occupations for the last five years of each executive officer of the Company
who is not also a director of the Company.
7<PAGE>
[PAGE]
All such persons have been elected to serve until the next annual election of
officers and their successors are elected or until their earlier resignation or
removal.
Burton M. Tanksy - 60
Executive Vice President of the Company (since February 1998) and
Chairman and Chief Executive Officer of Neiman Marcus Stores since May
1994; Chairman and Chief Executive Officer of Bergdorf Goodman prior
thereto.
Gerald A. Sampson - 57
President and Chief Operating Officer of Neiman Marcus Stores.
Stephen C. Elkin - 55
Chairman and Chief Executive Officer of Bergdorf Goodman since May 1994;
President and Chief Operating Officer of Bergdorf Goodman prior thereto.
Dawn Mello - 67
President of Bergdorf Goodman since May 1994 and from 1983 to 1989;
Executive Vice President and Creative Director Worldwide of Guccio Gucci
SpA from October 1989 to May 1994.
Bernie Feiwus - 50
President and Chief Executive Officer of NM Direct.
Eric P. Geller - 51
Senior Vice President, General Counsel and Secretary of the Company and
of Harcourt General.
Peter Farwell - 55
Vice President - Corporate Relations of the Company and of Harcourt
General.
Paul F. Gibbons - 47
Vice President and Treasurer of the Company and of Harcourt General.
Gerald T. Hughes - 41
Vice President - Human Resources of the Company and of Harcourt General
since June 1994; Associate General Counsel of the Company and of
Harcourt General with responsibility for labor and employment matters
prior thereto.
Catherine N. Janowski - 37
Vice President and Controller of the Company and of Harcourt General
since November 1997; Director, Corporate Accounting of the Company and
of Harcourt General prior thereto.
Michael F. Panutich - 50
Vice President - General Auditor of the Company and of Harcourt General.
8<PAGE>
[PAGE]
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 1998.
[Remainder of Page Intentionally Left Blank]
9<PAGE>
[PAGE]
Item 11. Executive Compensation
<TABLE>
<CAPTION>
Summary Compensation Table (1)
The following table provides information on the compensation provided by the Company during fiscal 1998,
1997 and 1996 to the Company's Chief Executive Officer and the five most highly paid executive officers of
the Company during fiscal 1998.
Long-Term Compensation
(2)
Annual Compensation Awards
Other Annual Restricted All Other
Name and Fiscal Salary Bonus Compensation Stock Awards Options Compensation
Principal Position Year ($) ($)(3) ($)(4) ($)(5) (#) ($)(6)
<S> <C> <C> <C> <S> <C> <C> <C>
Richard A. Smith (1) 1998 -- -- -- -- -- --
Chairman and Chief
Executive Officer of the 1997 -- -- -- -- -- --
Company
1996 -- -- -- -- -- --
Burton M. Tansky 1998 $ 807,968 $ 470,000 -- $ 260,206 20,200 $ 20,227
Executive Vice President
of the Company and 1997 $ 750,000 $ 292,500 -- -- 10,000 $ 19,357
Chairman and Chief
Executive Officer of 1996 $ 650,000 $ 292,500 -- $ 153,750 -- $ 16,866
Neiman Marcus Stores
Gerald A. Sampson 1998 $ 520,000 $ 220,000 -- $ 125,163 9,600 $ 14,126
President and Chief
Operating Officer of 1997 $ 500,000 $ 174,000 -- -- 6,500 $ 14,070
Neiman Marcus Stores
1996 $ 475,000 $ 190,000 -- -- 12,000 $ 12,854
Stephen C. Elkin 1998 $ 495,000 $ 210,000 -- $ 125,163 9,600 $ 13,883
Chairman and Chief
Executive Officer of 1997 $ 480,000 $ 185,000 -- -- -- $ 10,771
Bergdorf Goodman
1996 $ 480,000 -- -- $ 115,313 -- $ 17,170
Dawn Mello 1998 $ 385,000 $ 140,000 -- $ 59,288 4,700 $ 10,289
President of Bergdorf
Goodman 1997 $ 365,000 $ 110,000 -- -- 4,000 $ 9,210
1996 $ 350,000 $ 67,900 -- $ 53,813 -- $ 8,496
Bernie Feiwus 1998 $ 375,000 $ 35,000 -- $ 125,163 9,600 $ 10,899
President and Chief
Executive Officer of NM 1997 $ 345,000 $ 115,000 -- -- 6,000 $ 10,697
Direct
1996 $ 325,000 $ 135,000 -- $ 76,875 10,000 $ 10,026
</TABLE>
10 <PAGE>
(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 senior officers of Harcourt General who are also
senior officers of the Company, in consideration of a fee based on
Harcourt General's direct and indirect costs of providing the corporate
services. The level of Harcourt General services and fees are subject
to the approval of the Special Review Committee of the Board of
Directors of the Company, which consists entirely of directors who are
independent of Harcourt General. During fiscal 1998, 1997 and 1996, the
Company paid or accrued approximately $5.4 million, $5.7 million and
$6.9 million, respectively, to Harcourt General for all of its services
under the Intercompany Services Agreement. With the exception of Mr.
Smith, Chief Executive Officer of both the Company and of Harcourt
General, the senior officers of Harcourt General (all of whom, including
Mr. Smith, derive all of their compensation directly from Harcourt
General) are not included in this table. Of the amounts payable under
the Intercompany Services Agreement for fiscal 1998 and 1997,
approximately $448,000 and $365,000, respectively, were attributable to
Mr. Smith'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.
(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 for its executive
officers that includes long-term incentive payouts.
(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
since no amounts in any of the fiscal years reported for any of the
named executive officers exceed the lesser of $50,000, or 10% of the
annual salary and bonus for the named executive officer.
(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. For restricted Common Stock granted in fiscal 1998,
the restrictions lapse upon the achievement of specified performance
targets or, if the specified targets are not reached within five years
of the date of grant, then on the eighth anniversary of the date of
grant. The specified performance targets have not yet been attained.
For restricted Common Stock granted in all prior fiscal years, 20%
of an award of restricted Common Stock are freed from the
restrictions each year, commencing one year after the date of grant,
provided that the recipient continues to be employed by the Company on
the anniversary date of the grant. Holders of restricted stock are
entitled to vote their restricted shares. In the event of termination
of employment for any reason, other than death or permanent disability,
restricted shares are forfeited by the holders and revert to the
Company. At the end of fiscal 1998, the named executive officers'
restricted stock holdings and market values (based on the New York Stock
Exchange closing price of $33.00 for the Company's Common Stock at
fiscal year end) were as follows: Mr. Tansky - 13,900 shares ($458,700);
Mr. Sampson - 5,800 shares ($191,400); Mr. Elkin - 8,300 shares
($273,900); Ms. Mello - 3,900 shares ($128,700) and Mr. Feiwus - 6,800
shares ($224,400). The closing price of the Company's Common Stock on
the New York Stock Exchange on October 15, 1998 was $18.25.
(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
1998, such amounts for each of the named executive officers were,
respectively, as follows: Mr. Tansky - $16,507 and $3,720; Mr. Sampson
- $10,406 and $3,720; Mr. Elkin - $10,200 and $3,683; Ms. Mello - $7,425
and $2,864; and Mr. Feiwus - $7,350 and $3,549.
11 <PAGE>
[PAGE]
Option Grants in Last Fiscal Year (1)
The following table provides information regarding options granted under the
Company's 1997 Incentive Plan during the fiscal year ended August 1, 1998 to
the executive officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
Potential
% of Realizable Value
Number of Total at Assumed
Securities Options Annual Rates of
Underlying Granted to Exercise Stock Price
Options Employees or Base Appreciation
Granted in Fiscal Price Expiration for Option Term (2)
Name (#) Year ($/Sh) Date 5% ($) 10%($)
- -------- ---------- --------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
R. Smith (3) -- -- -- -- -- --
B. Tansky 20,200 6.20% $32.9375 9/10/07 $418,427 $1,060,377
G. Sampson 9,600 2.95% $32.9375 9/10/07 $198,856 $503,941
S. Elkin 9,600 2.95% $32.9375 9/10/07 $198,856 $503,941
D. Mello 4,700 1.44% $32.9375 9/10/07 $ 97,357 $246,721
B. Feiwus 9,600 2.95% $32.9375 9/10/07 $198,856 $503,941
</TABLE>
(1) No stock appreciation rights were granted to any named executive officer
during fiscal 1998. 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.
All options were granted at fair market value measured by the closing
price of the Common Stock on the New York Stock Exchange on the date of
grant.
(2) These potential realizable values are based on assumed rates of
appreciation required by applicable regulations of the Securities and
Exchange Commission. The closing price of the Company's Common Stock on
the New York Stock Exchange on October 15, 1998 was $18.25.
(3) None of the executive officers of Harcourt General who are also officers
of the Company, including Mr. Smith, participate in the Company's 1997
Incentive Plan.
[Remainder of Page Intentionally Left Blank]
12 <PAGE>
[PAGE]
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Values
The following table provides information regarding the number and value of
stock options held at August 1, 1998 by the executive officers named in the
Summary Compensation Table.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of
Unexercised Unexercised
Options/SARs at In-the-Money
August 1, 1998(#) Options/SARs at
Exercisable/ August 1, 1998($)
Name Shares Acquired Value Unexercisable Exercisable/
- ---- on Exercise (#) Realized ($) -------------------- Unexercisable (1)
--------------- ------------ ---------------------
<S> <C> <C> <C> <C>
R. Smith (2) -- -- -- --
B. Tansky -- -- 74,200/42,500 $1,381,325 / $267,063
G. Sampson -- -- 14,100/24,000 $ 232,600 / $164,500
S. Elkin (3) 11,850 $230,412 50,500/19,600 $ 952,000 / $186,600
D. Mello -- -- 8,300/13,900 $ 139,688 / $112,044
B. Feiwus -- -- 14,200/25,900 $ 242,500 / $208,600
</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 ($33.00) 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 October
15, 1998 was $18.25.
(2) None of the executive officers of Harcourt General who are also officers
of the Company, including Mr. Smith, participate in the Company's 1997
Incentive Plan.
(3) The Company paid Mr. Elkin $230,412 with respect to the surrender of
vested options to purchase 11,850 shares of Common Stock at a weighted
average exercise price of $17.25. That amount was calculated based on
the difference between the closing price of the Common Stock on the New
York Stock Exchange on the respective dates Mr. Elkin surrendered the
options, and the various option exercise prices.
[Remainder of Page Intentionally Left Blank]
13 <PAGE>
[PAGE]
Directors Compensation
Directors who are not employees of the Company or Harcourt General ("Non-
Employee Directors") each receive (i) an annual cash retainer, subject to
deferral as described below, of $20,000, (ii) a fee of $2,000 per Board of
Directors meeting attended, (iii) a fee of $750 (the Chairperson receives
$1,500) for each committee meeting attended, and (iv) reimbursement for travel
and incidental expenses (an aggregate of $4,440 in fiscal 1998) incurred in
attending meetings and carrying out their duties as directors. If a Non-
Employee 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.
In June 1998, the Board of Directors increased the annual retainer payable to
its Non-Employee Directors by authorizing grants of stock-based units in an
aggregate amount equal to the value of the annual cash retainer. Grants are
made quarterly, with the number of stock-based units in each grant calculated
on the basis of the trailing five day average of the closing price of the
Company's Common Stock at the end of each fiscal quarter. The value of each
Non-Employee Director's stock-based units will be payable only in cash when
the Non-Employee Director ceases to serve as a member of the Board of
Directors of the Company. These stock-based units are accounting entries only,
and do not carry voting or dispositive rights.
The Company offers Non-Employee Directors the right to elect to receive the
cash portion of their fees on a deferred basis (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 primary new issues of three-month negotiable certificates of
deposit as quoted on the last business day of the fiscal quarter, or (ii) in
the form of stock-based units, calculated on the basis of the trailing five
day average of the closing price of the Company's Common Stock at the end of
each fiscal quarter. For fiscal 1998, Dr. Horner elected to receive all of
her fees on a deferred basis using the stock based method and Mrs. Sisco
elected to receive 50% of her fees on a deferred basis using the
stock based method.
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 ($160,000 as of
14 <PAGE>
[PAGE]
August 1, 1998) are eligible to participate. At normal retirement age (age 65),
a participant with 25 or more years of service is entitled to payments under the
SERP sufficient to bring his or her combined annual benefit from the
Retirement Plan and SERP, computed as a straight life annuity, up to 50% of
the participant's highest consecutive 60 month average of annual pensionable
earnings, less 60% of his or her estimated annual primary Social Security
benefit. If the participant has fewer than 25 years of service, the combined
benefit is proportionately reduced. Benefits under the SERP become fully
vested after five years of service with the Company.
The following table, which includes benefits under the Retirement Plan and the
SERP, 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 1998 who elects to receive his or
her benefit in the form of a straight life annuity. 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.
<TABLE>
<CAPTION>
Estimated Annual Retirement Benefits
Under Retirement Plan and SERP
Average Total Years of Service
Pensionable
Earnings 5 10 15 20 25
-------- ------- ------- ------- --------- --------
<C> <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 1, 1998 and years of service creditable at age 65.
<TABLE>
<CAPTION>
Pensionable Earnings
for Year Ended Years of Service(2)
Name August 1, 1998(1) at August 1,1998 at Age 65
- ---- ----------------- ---------------- ---------
<S> <C> <C> <C>
R. Smith (3) -- -- --
B. Tansky $808,000 --(4) 20 (4)
G. Sampson 520,000 --(5) 20 (5)
S. Elkin 495,000 20 29
D. Mello 385,000 17 15
B. Feiwus 375,000 18 33
__________
</TABLE>
15 <PAGE>
[PAGE]
(1) 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 in Item 11 above. With respect to both the
Retirement Plan and the SERP, deferred base salary and/or deferred bonus
amounts are included in benefit calculations.
(2) 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. However,
credited service under the SERP may not exceed 25 years.
(3) Mr. Smith does not participate in the Company's 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 60 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 57 years old.
Employment and Severance Agreements
Burton Tansky
Pursuant to an agreement between Mr. Tansky and the Company, effective
February 1997, Mr. Tansky was employed as Chairman and Chief Executive Officer
of Neiman Marcus Stores through January 31, 2000. Mr. Tansky also was named
Executive Vice President of the Company in February 1998. 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.
16 <PAGE>
[PAGE]
Gerald A. Sampson
Pursuant to an agreement between Mr. Sampson and the Company effective
September 1998, which replaced a similar agreement dated 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 equivalent to one and one-half times his then-current base
compensation, payable in 18 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.
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.
17 <PAGE>
[PAGE]
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.
--------------------
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange
Act of 1934, each as amended, that might incorporate future filings, including
this Form 10-K, in whole or in part, the following Compensation Committee
Report on Executive Compensation and Stock Performance Graph shall not be
deemed to be incorporated by reference into any such filings, nor shall such
sections of this Report be deemed to be incorporated into any future filings
made by the Company under the Securities Act of 1933 or the Securities
Exchange Act of 1934.
Compensation Committee Report on Executive Compensation
Introduction
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 (i) reward competitively its executive officers, (ii) attract and retain
individuals important to the success of the Company, (iii) provide incentives
that will motivate those executives, and (iv) reward the Company's executives
for achieving the business objectives of the Company and its operating
divisions over both the short and long terms.
18 <PAGE>
[PAGE]
The Committee makes annual and long term incentives a significant component of
the Company's executive officers' total compensation. The Committee also
increases the variable risk and reward of such incentive compensation in
proportion to an executive's level of responsibility in the Company.
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 and/or outside compensation consultants,
for each component of compensation of the Company's executive officers. The
Committee reviews those recommendations and then approves them or makes such
modifications as it deems appropriate.
The principal components of the Company's compensation program are (i) base
salary, (ii) annual incentive bonus, and (iii) stock incentives.
Base Salary.
For fiscal 1998, 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 made to a broad range of domestic
publicly held "upscale" specialty retailing 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 group in the Stock
Performance Graph. For fiscal 1998, the Committee generally set its
salary and total cash compensation benchmarks (assuming that maximum
bonuses would be achieved) for executive officers at the middle range of
the comparison group of companies.
The Committee reviewed in detail the base salary levels for each of the
named executive officers of the Company. While the Committee used the
benchmarks described above 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 Bonus.
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. For
fiscal 1998 the named executive officers' cash bonus opportunity for
performance at the level of meeting the fiscal 1998 budget ranged from 7
1/2% to 11 3/4% of base salary, and increased to a range of 30% to 47%
of base salary for performance above the fiscal 1998 budget. For
superior performance in excess of the fiscal 1998 budget, cash bonus
19 <PAGE>
[PAGE]
opportunities ranged from 60% to 94% of base salary. The determination
of annual bonuses for the named executive officers for fiscal 1998 was
based principally on (i) the achievement of performance objectives by
the operating division for which the executive was responsible, (ii) the
individual executive's own performance, and (iii) the Company's overall
performance. 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 for Neiman Marcus Stores and
Bergdorf Goodman, and growth in the number of customer accounts for NM
Direct. The individual performance goals for each of the Company's
named executive officers included the achievement of certain specified
tasks.
Although the bonuses actually awarded to the named executive officers
for fiscal 1998 were determined by an assessment of all of these
factors, as well as certain subjective factors, had the Company and/or
the relevant division fallen sufficiently short of its performance
target, there was a presumption that bonuses would not be paid absent
special circumstances. Moreover, even if the Company and/or the
relevant divisions achieved their respective performance targets, the
Committee had the discretion to reduce or eliminate an individual's
bonus had an individual fallen short of his or her performance goals.
In September 1998 the Compensation Committee established the Company's
and each division's performance goals for fiscal 1999 and determined the
executive officers who should participate in the annual incentive plan
for that year and their respective bonus award opportunities. For
fiscal 1999 the named executive officers' cash bonus opportunity for
performance at the level of meeting the fiscal 1999 budget will range
from 7 1/2% to 12 1/2% of base salary, and will increase to a range of 30%
to 50% of base salary for performance above the fiscal 1999 budget which
would represent a significant improvement over the Company's fiscal 1998
results. For superior performance in excess of the fiscal 1999 budget,
cash bonus opportunities will range from 60% to 100% of base salary. If
performance is below the fiscal 1999 budget, the Committee may reduce
cash bonus awards or not grant them at all.
Stock Incentives.
In 1997 the Committee restructured the Company's long term stock
incentive program to provide for increased capital accumulation
opportunities for executive officers. The Committee's purpose in
awarding equity based incentives is to achieve as much as possible an
identity of interest between the Company's executives and the long term
interest of the stockholders. For fiscal 1998, the principal factors
considered in determining which executives (including the named
executive officers) were awarded equity based compensation, and in
determining the types and amounts of such awards, included salary
levels, equity awards granted to executives at competing retail
companies, and the performance, experience, and level of responsibility
of each executive.
The Company granted two kinds of equity based incentives in fiscal 1998
(i) non-qualified stock options, and (ii) performance accelerated
20 <PAGE>
[PAGE]
restricted stock. Non-qualified stock options vest over a five year
period and terminate 10 years from the date of grant. The restrictions
on performance accelerated restricted stock lapse upon the earlier of
(i) the achievement of specified business objectives (including without
limitation improvements in operating earnings and return on net assets)
within five years of the date of grant, or (ii) the eighth anniversary
of the date of grant.
Compensation of the Chief Executive Officer
During fiscal 1998, Mr. Smith also served as the Chief Executive Officer of
Harcourt General, which owns a majority of the outstanding Common Stock of the
Company. Mr. Smith received all of his 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. Smith as Chief Executive Officer.
During fiscal 1998, the Company paid or accrued approximately $5.4 million to
Harcourt General for all of its services under the Intercompany Services
Agreement, of which approximately $448,000 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. 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 Company expects that the executive officers of
the Company will agree to defer income in fiscal 1998 and future years if and
to the extent that their compensation is not deductible by the Company under
the Code. 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
21 <PAGE>
[PAGE]
Stock Performance Graph
The following graph compares the total cumulative return over five years on
the Company's Common Stock to the total cumulative return over the same period
of the common stocks of companies in (i) the Standard & Poor's 500 Index, and
(ii) a peer group index consisting of Tiffany & Co., Nordstrom, Inc., and Saks
Holdings, Inc. ("SHI"). The graph assumes that the value of the investment in
the Company's Common Stock and each index was $100 at July 31, 1993, and that
all dividends were reinvested. SHI, which began trading on the NYSE on May
22, 1996 and accordingly is included in the peer group index commencing as of
the end of the Company's 1996 fiscal year, ceased trading on September 17,
1998 upon the completion of the merger of SHI and Proffitt's, Inc. (now known
as Saks Incorporated). For comparative purposes, the value of an investment
in SHI as of May 22, 1996 is set at an amount equal to the average of the
cumulative total returns of the other members of the peer group index as of
that same date ($165.46). The common stocks of the companies in the peer
group index have been weighted annually at the beginning of each fiscal year
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.
<TABLE>
<CAPTION>
July 31, 1993 July 30, 1994 July 29, 1995 August 3, 1996 August 2, 1997 August 1, 1998
------------- ------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
The Neiman Marcus Group, Inc. $100.00 $106.51 $108.16 $189.06 $196.54 $232.15
S&P 500 Index $100.00 $104.73 $107.39 $129.28 $194.31 $233.36
Peer Index $100.00 $154.07 $146.83 $165.46 $199.35 $226.81
--------------------
</TABLE>
22 <PAGE>
[PAGE]
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, as of October 15, 1998, with
respect to the beneficial ownership of the Common Stock by (i) each person
known to the Company to own beneficially more than 5% of the outstanding
shares of Common Stock; (ii) each executive officer named in the Summary
Compensation Table; (iii) each director of the Company; and (iv) all directors
and current executive officers of the Company as a group.
<TABLE>
<CAPTION>
Number Percent
of Shares of Common
Name of Beneficial Owner Owned (1) Stock
------------------------ --------- ---------
<S> <C> <C>
Harcourt General, Inc. (2) 26,429,502 54.0%
27 Boylston Street
Chestnut Hill, MA 02467
Gabelli Funds, Inc. (3) 4,475,500 9.1%
One Corporate Center
Rye, NY 10580
PRIMECAP Management Company (4) 4,069,100 8.3%
225 South Lake Avenue
Pasadena, CA 91101
Neuberger & Berman, LLC (5) 3,050,850 6.2%
605 Third Avenue
New York, NY 10158
Burton M. Tansky (6) 134,940 *
Gerald A. Sampson (7) 65,038 *
Stephen Elkin (8) 82,697 *
Dawn Mello (9) 19,963 *
Bernie Feiwus (10) 32,155 *
Matina S. Horner (11) 1,591 *
Vincent M. O'Reilly (11) 946 *
Walter J. Salmon (11) 10,088 *
Jean Head Sisco (11) 2,095 *
Richard A. Smith (2) (12) -- *
Robert A. Smith (2) (12) -- *
Brian J. Knez (2) (12) -- *
John R. Cook -- *
All current executive officers and directors as a
group (19 persons)(13) 357,046 *
__________
* Less than 1%.
</TABLE>
(1) Unless otherwise indicated in the following footnotes, each stockholder
referred to above has sole voting and dispositive 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 and a director of the Company and President and Co-
Chief Operating Officer of Harcourt General, and Brian J. Knez, a
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 General
Class B Stock and Harcourt General Common Stock
23 <PAGE>
[PAGE]
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 13D dated August 18,
1997 filed with the Securities and Exchange Commission (the
"Commission") by the Gabelli Funds, Inc. and its affiliates
(collectively, the "Gabelli Affiliates"). The Gabelli Affiliates have
sole voting power with respect to 4,372,500 shares and sole dispositive
power with respect to all of the shares reported in the table.
(4) The information reported is as of August 31, 1998 and was provided to the
Company by PRIMECAP Management Company ("PMC"). Of the shares attributed
to PMC, PMC has sole voting and sole dispositive power over 939,100
shares. PMC has shared dispositive power over 3,130,000 shares attributed
to Vanguard/PRIMECAP Fund, Inc.
(5) The information reported is based on a Schedule 13G dated February 10,
1998 filed with the Commission by Neuberger & Berman, LLC. Neuberger &
Berman, LLC has sole voting power with respect to 880,450 shares
reported in the table, and does not have sole dispositive power over any
of the shares reported in the table.
(6) Includes 89,540 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of October 15, 1998. Also includes
21,900 shares of restricted stock over which Mr. Tansky has voting but
not dispositive power.
(7) Includes 21,720 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of October 15, 1998. Also includes
9,600 shares of restricted stock over which Mr. Sampson has voting but
not dispositive power.
(8) Includes 56,420 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of October 15, 1998. Also includes
11,600 shares of restricted stock over which Mr. Elkin has voting but
not dispositive power. Also includes 7,533 shares of Common Stock
allocated to Mr. Elkin under the Company's Employee Savings Plan ("ESP")
as to which Mr. Elkin shares voting power with the trustee of the ESP.
(9) Includes 5,540 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of October 15, 1998. Also includes
5,200 shares of restricted stock over which Ms. Mello has voting but not
dispositive power.
(10) Includes 22,820 shares of Common Stock which are subject to outstanding
options exercisable within 60 days of October 15, 1998. Also includes
7,800 shares of restricted stock over which Mr. Feiwus has voting but
not dispositive power. Also includes 535 shares of Common Stock
allocated to Mr. Feiwus under the ESP as to which Mr. Feiwus shares
voting power with the trustee of the ESP.
24 <PAGE>
[PAGE]
(11) Dr. Horner, Mr. O'Reilly, Professor Salmon and Mrs. Sisco hold,
respectively, 1,591, 146, 146, and 961 Common Stock based units which
are included in the table. These directors do not have voting or
dispositive power with respect to these Common Stock based units. For
additional information concerning these Common Stock based units, see
"Directors' Compensation."
(12) The members of the Board of Directors of Harcourt General, including
Richard A. Smith, Robert A. Smith, and Brian J. Knez, 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.
(13) Excludes the beneficial ownership of securities of the Company which may
be deemed to be attributed to Richard A. Smith, Robert A. Smith, and
Brian J. Knez (see Notes 2 and 12 above). Includes (i) 196,040 shares
of Common Stock which are subject to outstanding options exercisable
within 60 days of October 15, 1998, (ii) 56,100 shares of restricted
stock over which individuals in the group have voting but not
dispositive power, (iii) 8,068 shares of Common Stock allocated to
individuals in the group under the ESP as to which such individuals
share voting power with the trustee of the ESP, and (iv) the 2,844
Common Stock based units referred to in Note 11 above.
[Remainder of Page Intentionally Left Blank]
25 <PAGE>
[PAGE]
Item 13. Certain Relationships and Related Transactions
Transactions with Principal Stockholder - Intercompany Services Agreement
See Note 1 to the Summary Compensation Table in Item 11 above.
Transactions with Officers
During fiscal 1998 and through October 15, 1998, Messrs. Tansky, 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 $367,595, $536,589, $160,306, and $193,315. At August 1,
1998, the outstanding amounts of such loans were as follows: Mr. Tansky - $0;
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 five percent, payable quarterly. Pursuant to
the terms of 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 1998 or subsequent thereto.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
14(a)(1) Consolidated Financial Statements
The documents listed below are incorporated herein by reference to the 1998
Annual Report, and are incorporated herein by reference into Item 8 hereof:
Consolidated Balance Sheets -August 1, 1998 and August 2, 1997.
Consolidated Statements of Earnings for the fiscal years ended August 1,
1998, August 2, 1997, and August 3, 1996.
Consolidated Statements of Cash Flows for the fiscal years ended August
1, 1998, August 2, 1997, and August 3, 1996.
Consolidated Statements of Common Shareholders' Equity for the fiscal
years ended August 1, 1998, August 2, 1997, and August 3, 1996.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
26 <PAGE>
[PAGE]
14(a)(2) Consolidated Financial Statement Schedules
The document and schedule listed below are filed as part of this Form 10-K:
Document/Schedule Page in
----------------- Form 10-K
---------
Independent Auditors' Report F-1
on Consolidated Financial Statement Schedule
Schedule II - Valuation and Qualifying F-2
Accounts and Reserves
All other schedules for which provision is made in the applicable regulations
of the Securities and Exchange Commission have been omitted because the
information is disclosed in the Consolidated Financial Statements or because
such schedules are not required or are not applicable.
14(a)(3) Exhibits
The exhibits filed as part of this Annual Report are listed in the Exhibit
Index immediately preceding the exhibits. The Company has identified with an
asterisk in the Exhibit Index each management contract and compensation plan
filed as an exhibit to this Form 10-K in response to Item 14(c) of Form 10-K.
14(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
August 1, 1998.
27 <PAGE>
[PAGE]
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Shareholders of
The Neiman Marcus Group, Inc.
Chestnut Hill, MA
We have audited the consolidated financial statements of The Neiman Marcus
Group, Inc. and subsidiaries as of August 1, 1998 and August 2, 1997, and for
each of the three fiscal years in the period ended August 1, 1998, and have
issued our report thereon dated August 27, 1998; such financial statements and
report are included in your 1998 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the financial
statement schedule of The Neiman Marcus Group, Inc. and subsidiaries, listed
in Item 14. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 27, 1998
F-1<PAGE>
[PAGE]
<TABLE>
<CAPTION>
THE NEIMAN MARCUS GROUP, INC. SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
THREE YEARS ENDED AUGUST 1, 1998
(In thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
___________________
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts - Deductions - End
Description of Period Expenses (A) of Period
________________________________________________________________________________________________
YEAR ENDED AUGUST 1, 1998
<S> <C> <C> <S> <C> <C>
Allowance for doubtful accounts $1,700 2,771 - 2,671 $1,800
(deducted from accounts receivable)
YEAR ENDED AUGUST 2, 1997
Allowance for doubtful accounts $1,300 2,815 - 2,415 $1,700
(deducted from accounts receivable)
YEAR ENDED AUGUST 3, 1996
Allowance for doubtful accounts
(deducted from accounts receivable) $1,512 2,385 - 2,597 $1,300
(A) Write-off of uncollectible accounts net of recoveries.
</TABLE>
F-2<PAGE>
[PAGE]
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE NEIMAN MARCUS GROUP, INC.
By: /s/ Richard A. Smith
Richard A. Smith
Chairman and Chief Executive Officer
Dated: October 28, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the following capacities and on the dates indicated.
Signature Title Date
Principal Executive Officer:
/s/ Richard A. Smith Chairman and Chief October 28, 1998
Richard A. Smith Executive Officer
Principal Financial Officer:
/s/ John R. Cook Senior Vice President and October 28, 1998
John R. Cook Chief Financial Officer
Principal Accounting Officer:
/s/ Catherine N. Janowski Vice President and October 28, 1998
Catherine N. Janowski Controller
S-1 <PAGE>
[PAGE]
Directors:
/s/ Richard A. Smith October 28, 1998
Richard A. Smith
/s/ Matina S. Horner October 28, 1998
Matina S. Horner
/s/ Vincent M. O'Reilly October 23, 1998
Vincent M. O'Reilly
/s/ Walter J. Salmon October 28, 1998
Walter J. Salmon
/s/ Jean Head Sisco October 28, 1998
Jean Head Sisco
/s/ Robert A. Smith October 28, 1998
Robert A. Smith
/s/ Brian J. Knez October 28, 1998
Brian J. Knez
/s/ John R. Cook October 28, 1998
John R. Cook
S-2<PAGE>
[PAGE]
EXHIBIT INDEX
3.1 (a) Restated Certificate of Incorporation of the Company, incorporated
herein by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended January 31, 1998.
3.2 By-Laws of the Company, as amended, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended August 1, 1992.
4.1 Indenture, dated as of May 27, 1988, between the Company and The
Bank of New York, as trustee (the "Indenture").
4.2 Form of 6.65% Senior Note Due 2008, dated May 27, 1998, issued by
the Company pursuant to the Indenture.
4.3 Form of 7.125% Senior Note Due 2008, dated May 27, 1998, issued
by the Company pursuant to the Indenture.
*10.1 Intercompany Services Agreement, dated as of July 24, 1987,
between Harcourt General and the Company, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the
twenty-six week period ended August 1, 1987.
*10.2 1987 Stock Incentive Plan, incorporated herein by reference to
the Company's Annual Report on Form 10-K for the twenty-six week
period ended August 1, 1987.
*10.3 The Neiman Marcus Group, Inc. 1997 Incentive Plan, incorporated
herein by reference to Exhibit A to the Company's Definitive
Schedule 14A dated December 10, 1996 and filed with the Securities
and Exchange Commission.
*10.4 Employment Agreement between the Company and Burton M. Tansky
effective February 1, 1997, incorporated herein by reference to
the Company's Annual Report on From 10-K for the fiscal year
ended August 3, 1996.
E-1 <PAGE>
[PAGE]
*10.5 Termination and Change of Control Agreement between the Company
and Gerald A. Sampson dated September 17, 1998.
*10.6 Termination Agreement between Bergdorf Goodman, Inc. and Stephen
C. Elkin, effective September 1993, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended July 31, 1993.
*10.7 Termination Agreement between Bergdorf Goodman, Inc. and Dawn
Mello, effective May 1994, incorporated herein by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended
July 30, 1994.
*10.8 Change of Control Agreement between the Company and Bernie
Feiwus, effective October 1995, incorporated herein by reference
to the Company's Annual Report on Form 10-K for the fiscal year
ended July 29, 1995.
*10.9 Key Executive Stock Purchase Loan Plan, as amended, incorporated.
herein by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended August 2, 1997.
*10.10 Supplemental Executive Retirement Plan, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended July 30, 1988.
*10.11 Description of the Company's Executive Life Insurance Plan,
incorporated herein by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended August 1, 1992.
*10.12 Supplementary Executive Medical Plan, incorporated herein by
reference to the Company's Annual Report on Form 10-K for the
fiscal year ended July 31, 1993.
*10.13 Key Employee Deferred Compensation Plan, as amended, incorporated
herein by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended July 30, 1994.
E-2 <PAGE>
[PAGE]
*10.14 Deferred Compensation Plan For Non-Employee Directors, as
amended.
10.15 Credit Agreement dated as of October 29, 1997 among the Company,
the Banks parties thereto, Bank of America National Trust and
Savings Association, as Syndication Agent, The Chase Manhattan
Bank, as Documentation Agent, and Morgan Guaranty Trust Company
of New York, as Administrative Agent, incorporated herein by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended November 1, 1997.
10.16 Receivables Purchase Agreement, dated as of March 1, 1995,
between the Company and Neiman Marcus Funding Corporation,
incorporated herein by reference to Exhibit 10.1 to Registration
Statement on Form S-3 of Neiman Marcus Group Credit Card Master
Trust dated March 3,1995 (Registration No. 33-88098).
10.17 Pooling and Servicing Agreement, dated as of March 1, 1995,
between Neiman Marcus Funding Corporation, the Company and The
Chase Manhattan Bank, N.A., incorporated herein by reference to
Exhibit 4.1 to Registration Statement on Form S-3 of Neiman Marcus
Group Credit Card Master Trust dated March 3, 1995 (Registration
No. 33-88098).
10.18 Series 1995-1 Supplement to the Pooling and Servicing Agreement,
dated as of March 1, 1995, among Neiman Marcus Funding
Corporation, the Company and The Chase Manhattan Bank, N.A.,
incorporated herein by reference to Exhibit 4.2 to Registration
Statement on Form S-3 of Neiman Marcus Group Credit Card Master
Trust dated March 3, 1995 (Registration No. 33-88098).
10.19 Exchange and Repurchase Agreement between The Neiman Marcus
Group, Inc. and Harcourt General, Inc., incorporated herein by
Reference to Exhibit 10.1 to Registration Statement on Form S-3 of
The Neiman Marcus Group, Inc. dated October 10, 1996 (Registration
No. 333-11721).
13.1 The following sections of the 1998 Annual Report to Shareholders
("1998 Annual Report") which are expressly incorporated by
reference into this Annual Report on Form 10-K:
E-3 <PAGE>
[PAGE]
Management's Discussion and Analysis of Financial Condition
and Results of Operations at pages 23 through 27 of the 1998
Annual Report.
Consolidated Financial Statements and the Notes thereto at
pages 28 through 43 of the 1998 Annual Report.
Independent Auditors' Report at page 44 of the 1998 Annual
Report.
The information appearing under the caption "Selected
Financial Data" on page 45 of the 1998 Annual Report.
The information appearing under the captions "Stock
Information" and "Shares Outstanding" on page 47 of the 1998
Annual Report.
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule.
99.1 Dividend Reinvestment and Common Stock Purchase Plan,
incorporated herein by reference to the Company's
Registration Statement on Form S-3 dated September 17, 1990
(Registration No. 33-36419). __________
* Exhibits filed pursuant to Item 14(c) of Form 10-K.
<PAGE>
The Neiman Marcus Group, Inc.
and
The Bank of New York
Trustee
INDENTURE
Dated as of May 27, 1998
Providing for issuance of Securities in Series
<PAGE>
TABLE OF CONTENTS
Page
Recitals of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Agreements of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1. Definitions and Other Provisions of General Application . . . 1
Section 101. Definitions . . . . . . . . . . . . . . . . . . . . 1
Section 102. Compliance Certificates and Opinions . . . . . . . 9
Section 103. Form of Documents Delivered to Trustee . . . . . . 9
Section 104. Acts of Securityholders . . . . . . . . . . . . . . 10
Section 105. Notices, etc., to Trustee and Company . . . . . . . 11
Section 106. Notices to Securityholders; Waiver . . . . . . . . 11
Section 107. Conflict with Trust Indenture Act . . . . . . . . . 12
Section 108. Effect of Headings and Table of Contents . . . . . 12
Section 109. Successors and Assigns . . . . . . . . . . . . . . 12
Section 110. Separability Clause . . . . . . . . . . . . . . . . 12
Section 111. Benefits of Indenture . . . . . . . . . . . . . . . 12
Section 112. Governing Law . . . . . . . . . . . . . . . . . . . 12
Section 113. Counterparts . . . . . . . . . . . . . . . . . . . 13
ARTICLE 2. Security Forms . . . . . . . . . . . . . . . . . . . . . . . 13
Section 201. Forms Generally . . . . . . . . . . . . . . . . . . 13
Section 202. Forms of Securities . . . . . . . . . . . . . . . . 13
Section 203. Form of Trustee's Certificate of Authentication . . 13
Section 204. Securities Issuable in the Form of a Global Security 14
ARTICLE 3. The Securities . . . . . . . . . . . . . . . . . . . . . . . 16
Section 301. General Title; General Limitations; Issuable in
Series; Terms of
Particular Series . . . . . . . . . . . . . . . . . . . . 16
Section 302. Denominations . . . . . . . . . . . . . . . . . . . 18
Section 303. Execution, Authentication and Delivery and Dating . 18
Section 304. Temporary Securities . . . . . . . . . . . . . . . 20
Section 305. Registration, Transfer and Exchange . . . . . . . . 20
Section 306. Mutilated, Destroyed, Lost and Stolen Securities . 21
Section 307. Payment of Interest; Interest Rights Preserved . . 22
Section 308. Persons Deemed Owners . . . . . . . . . . . . . . . 23
Section 309. Cancellation . . . . . . . . . . . . . . . . . . . 23
Section 310. Computation of Interest . . . . . . . . . . . . . . 23
Section 311. Medium-Term . . . . . . . . . . . . . . . . . . . . 24
Section 312. CUSIP Numbers . . . . . . . . . . . . . . . . . . . 24
ARTICLE 4. Satisfaction and Discharge . . . . . . . . . . . . . . . . . 24
Section 401. Satisfaction and Discharge of Indenture . . . . . . 24
Section 402. Application of Trust Money . . . . . . . . . . . . 26
Section 403. Defeasance Upon Deposit of Funds or Government
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 5. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 27
i<PAGE>
Section 501. Events of Default . . . . . . . . . . . . . . . . . 27
Section 502. Acceleration of Maturity; Rescission and Annulment 29
Section 503. Collection of Indebtedness and Suits for Enforcement
by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 504. Trustee May File Proofs of Claim . . . . . . . . . 31
Section 505. Trustee May Enforce Claims Without Possession of
Securities . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 506. Application of Money Collected . . . . . . . . . . 32
Section 507. Limitation on Suits . . . . . . . . . . . . . . . . 32
Section 508. Unconditional Right of Securityholders To Receive
Principal,
Premium and Interest . . . . . . . . . . . . . . . . . . 33
Section 509. Restoration of Rights and Remedies . . . . . . . . 33
Section 510. Rights and Remedies Cumulative . . . . . . . . . . 33
Section 511. Delay or Omission Not Waiver . . . . . . . . . . . 34
Section 512. Control by Securityholders . . . . . . . . . . . . 34
Section 513. Waiver of Past Defaults . . . . . . . . . . . . . . 34
Section 514. Undertaking for Costs . . . . . . . . . . . . . . . 35
ARTICLE 6. The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 601. Certain Duties and Responsibilities . . . . . . . . 35
Section 602. Notice of Defaults . . . . . . . . . . . . . . . . 36
Section 603. Certain Rights of Trustee . . . . . . . . . . . . . 37
Section 604. Not Responsible for Recitals or Issuance of
Securities . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 605. May Hold Securities . . . . . . . . . . . . . . . . 38
Section 606. Money Held in Trust . . . . . . . . . . . . . . . . 38
Section 607. Compensation and Reimbursement . . . . . . . . . . 38
Section 608. Disqualification; Conflicting Interests . . . . . . 39
Section 609. Corporate Trustee Required; Eligibility . . . . . . 39
Section 610. Resignation of Successor . . . . . . . . . . . . . 40
Section 611. Acceptance of Appointment by Successor . . . . . . 42
Section 612. Merger, Conversion, Consolidation or Succession to
Business . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 613. Preferential Collection of Claims Against Company . 43
Section 614. Appointment of Authentication Agent . . . . . . . . 46
ARTICLE 7. Securityholders' Lists and Reports by Trustee and Company . . 48
Section 701. Company To Furnish Trustee Names and Addresses of
Securityholders . . . . . . . . . . . . . . . . . . . . . 48
Section 702. Preservation of Information; Communications to
Securityholders . . . . . . . . . . . . . . . . . . . . . . . 48
Section 703. Reports by Trustee . . . . . . . . . . . . . . . . 50
Section 704. Reports by Company . . . . . . . . . . . . . . . . 51
ARTICLE 8. Consolidation, Merger, Conveyance or Transfer . . . . . . . . 52
Section 801. When Company May Merge or Transfer Assets . . . . . 52
ARTICLE 9. Supplemental Indentures . . . . . . . . . . . . . . . . . . . 53
Section 901. Supplemental Indentures Without Consent of
Securityholders . . . . . . . . . . . . . . . . . . . . . . . 53
ii<PAGE>
Section 902. Supplemental Indentures with Consent of
Securityholders . . . . . . . . . . . . . . . . . . . . . . . 54
Section 903. Execution of Supplemental Indentures. . . . . . . . 55
Section 904. Effect of Supplemental Indentures. . . . . . . . . 55
Section 905. Conformity with Trust Indenture Act . . . . . . . . 55
Section 906. Reference in Securities to Supplemental Indentures. 55
ARTICLE 10. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 1001. Payment of Principal, Premium and Interest . . . . 56
Section 1002. Maintenance of Office or Agency . . . . . . . . . . 56
Section 1003. Money for Security Payments To Be Held in Trust . . 56
Section 1004. Statement as to Compliance . . . . . . . . . . . . 57
Section 1005. Legal Existence . . . . . . . . . . . . . . . . . . 58
Section 1006. Limitation on Liens . . . . . . . . . . . . . . . . 58
Section 1007. Limitation on Sale and Leasebacks . . . . . . . . . 60
Section 1008. Waiver of Certain Covenants . . . . . . . . . . . . 61
Section 1009. Calculation of Original Issue Discount. . . . . . . 61
ARTICLE 11. Redemption of Securities . . . . . . . . . . . . . . . . . . 61
Section 1101. Applicability of Article . . . . . . . . . . . . . 61
Section 1102. Election To Redeem; Notice to Trustee . . . . . . . 61
Section 1103. Selection by Trustee of Securities To Be Redeemed . 62
Section 1104. Notice of Redemption . . . . . . . . . . . . . . . 62
Section 1105. Deposit of Redemption Price . . . . . . . . . . . . 63
Section 1106. Securities Payable on Redemption Date . . . . . . . 63
Section 1107. Securities Redeemed in Part . . . . . . . . . . . . 64
Section 1108. Provisions with Respect to any Sinking Funds . . . 64
iii<PAGE>
Table Showing Reflection in Indenture of Certain Provisions of Trust
Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990.
Reflected In
Indenture
TIA Section
Section 310(a)(1) . . . . . . . . . . . . . . . . . . 609
(a)(2) . . . . . . . . . . . . . . . . . . 609
(a)(3) . . . . . . . . . . . . . . . . . . Not Applicable
(a)(4) . . . . . . . . . . . . . . . . . . Not Applicable
(a)(5) . . . . . . . . . . . . . . . . . . 609
(b) . . . . . . . . . . . . . . . . . . . . 608; 610
(c) . . . . . . . . . . . . . . . . . . . . Not Applicable
Section 311(a) . . . . . . . . . . . . . . . . . . . 613
(b) . . . . . . . . . . . . . . . . . . . . 613
(b)(2) . . . . . . . . . . . . . . . . . . 703
Section 312(a) . . . . . . . . . . . . . . . . . . . 701; 702
(b) . . . . . . . . . . . . . . . . . . . . 702
(c) . . . . . . . . . . . . . . . . . . . . 702
Section 313(a) . . . . . . . . . . . . . . . . . . . 703
(b) . . . . . . . . . . . . . . . . . . . . 703
(c) . . . . . . . . . . . . . . . . . . . . 703
(d) . . . . . . . . . . . . . . . . . . . . 703
Section 314(a)(1) . . . . . . . . . . . . . . . . . . 704
(a)(2) . . . . . . . . . . . . . . . . . . 704
(a)(3) . . . . . . . . . . . . . . . . . . 704
(a)(4) . . . . . . . . . . . . . . . . . . 1004
(b) . . . . . . . . . . . . . . . . . . . . Not Applicable
(c)(1) . . . . . . . . . . . . . . . . . . 102
(c)(2) . . . . . . . . . . . . . . . . . . 102
(c)(3) . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . . . 102
Section 315(a) . . . . . . . . . . . . . . . . . . . 601
(b) . . . . . . . . . . . . . . . . . . . . 602; 703
(c) . . . . . . . . . . . . . . . . . . . . 601
(d) . . . . . . . . . . . . . . . . . . . . 601
(d)(1) . . . . . . . . . . . . . . . . . . 601
(d)(2) . . . . . . . . . . . . . . . . . . 601
(d)(3) . . . . . . . . . . . . . . . . . . 601
(e) . . . . . . . . . . . . . . . . . . . . 514
Section 316(a) . . . . . . . . . . . . . . . . . . . 101
(a)(1)(A) . . . . . . . . . . . . . . . . . 502; 512
(a)(1)(B) . . . . . . . . . . . . . . . . . 513
iv<PAGE>
(a)(2) . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . 508
(c) . . . . . . . . . . . . . . . . . . . . 104
Section 317(a)(1) . . . . . . . . . . . . . . . . . . 503
(a)(2) . . . . . . . . . . . . . . . . . . 504
(b) . . . . . . . . . . . . . . . . . . . . 1003
Section 318(a) . . . . . . . . . . . . . . . . . . . 107
v<PAGE>
THIS INDENTURE between THE NEIMAN MARCUS GROUP,
INC., a Delaware corporation (hereinafter called the
"Company"), having its principal office at 27 Boylston
Street, Box 1000, Chestnut Hill, MA 02167, and THE
BANK OF NEW YORK, a New York banking corporation, as
trustee (hereinafter called the "Trustee"), is made
and entered into as of the 27th day of May, 1998.
Recitals of the Company
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of its unsecured and unsubordinated
debentures, notes, bonds or other evidences of indebtedness, to be issued in
one or more fully registered series.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
Agreements of the Parties
To set forth or to provide for the establishment of the terms and
conditions upon which the Securities are and are to be authenticated, issued
and delivered, and in consideration of the premises and the purchase of
Securities by the Holders thereof, it is mutually covenanted and agreed as
follows, for the equal and proportionate benefit of all Holders of the
Securities or of a series thereof, as the case may be:
ARTICLE 1. Definitions and Other Provisions of General Application
Section 1.11. Definitions. For all purposes of this Indenture and
of any indenture supplemental hereto, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act or by Commission rule under the Trust Indenture Act,
either directly or by reference therein, have the meanings assigned to
them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
respect to any computation required or permitted hereunder shall mean
such accounting principles as are generally accepted in the United
States of America at the date of such computation; and
(d) all references in this instrument to designated "Articles",
"Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of this instrument as originally
<PAGE>
executed. The words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that
Article.
"Act", when used with respect to any Securityholder, has the meaning
specified in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized by the Trustee to
authenticate Securities under Section 614.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board or any officers of the Company
acting pursuant to authority granted by the board of directors of the Company
or any committee of such board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of
such certification, and delivered to the Trustee.
"Business Day" means, with respect to any series of Securities, each day
which is neither a Saturday, Sunday or other day on which banking institutions
in the pertinent Place or Places of Payment are authorized or required by law
or executive order to be closed.
"Capital Stock" means, with respect to any corporation, any and all
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests (however designated) in stock issued by that
corporation.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, or, if
at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor.
2<PAGE>
"Company Request", "Company Order" and "Company Consent" mean a written
request, order or consent, respectively, signed in the name of the Company by
its Chairman of the Board, a Vice Chairman, its President or a Vice President,
and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary, and delivered to the Trustee.
"Consolidated Net Assets" means the total amount of all assets appearing
on the consolidated balance sheet of the Company and its Restricted
Subsidiaries (at their net book values, after deducting related depreciation,
amortization and all other valuation reserves which have been set aside in
connection with the business conducted and which are reflected on the
aforementioned consolidated balance sheet), less total current liabilities
other than long-term liabilities due within one year.
"Corporate Trust Office" means the office of the Trustee in New York,
New York at which at any particular time its corporate trust business shall be
principally administered, which office at the date hereof is located at 101
Barclay Street, Floor 21 West, New York, New York 10286.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" means, unless otherwise specified by the Company pursuant
to either Section 204 or 301, with respect to securities of any series
issuable or issued as a Global Security, The Depository Trust Company, New
York, New York, or any successor thereto registered as a clearing agency under
the Securities Exchange Act of 1934, as amended, or other applicable statute
or regulation.
"Event of Default" has the meaning specified in Article Five.
"Funded Debt" means indebtedness of the Company or a Restricted
Subsidiary that matures by its terms one year or more after its creation or
that is extendable or renewable at the option of the obligor to a date one
year or more after the date of the incurrence or assumption of such
indebtedness, and indebtedness classified as long-term debt under generally
accepted accounting principles, in each case ranking in right of payment at
least pari passu with the Securities.
"Global Security", when used with respect to any series of Securities
issued hereunder, means a Security which is executed by the Company and
authenticated and delivered by the Trustee to the Depositary or pursuant to
the Depositary's instruction, all in accordance with this Indenture and an
indenture supplemental hereto, if any, or Board Resolution and pursuant to a
Company Request, which shall be registered in the name of the Depositary or
its nominee and which shall represent, and shall be denominated in an amount
equal to the aggregate principal amount of, all of the Outstanding Securities
of such series or any portion thereof, in either case having the same terms,
including, without limitation, the same original issue date, date or dates on
which principal is due, and interest rate or method of determining interest.
"Holder", when used with respect to any Security, means a
Securityholder.
3<PAGE>
"Indenture" or "this Indenture" means this instrument as originally
executed or as it may from time to time be supplemented or amended by one or
more indentures supplemental hereto entered into pursuant to the applicable
provisions hereof and shall include the terms of particular series of
Securities established as contemplated by Section 301.
"Independent", when used with respect to any specified Person, means
such a Person who (1) is in fact independent, (2) does not have any direct
financial interest or any material indirect financial interest in the Company
or in any other obligor upon the Securities or in any Affiliate of the Company
or of such other obligor, and (3) is not connected with the Company or such
other obligor or any Affiliate of the Company or of such other obligor, as an
officer, employee, promoter, underwriter, trustee, partner, director or person
performing similar functions. Whenever it is herein provided that any
Independent Person's opinion or certificate shall be furnished to the Trustee,
such Person shall be appointed by a Company Order and approved by the Trustee
in the exercise of reasonable care, and such opinion or certificate shall
state that the signer has read this definition and that the signer is
independent within the meaning hereof.
"Interest", when used with respect to an Original Issue Discount
Security which by its terms bears interest only after Maturity, means interest
payable after Maturity.
"Interest Payment Date", when used with respect to any series of
Securities, means the Stated Maturity of any installment of interest on those
Securities.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or security
interest.
"Maturity", when used with respect to any Securities, means the date on
which the principal of any such Security becomes due and payable as therein or
herein provided, whether on a Repayment Date, at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, a Vice Chairman, the President or a Vice President, and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
the Company, and delivered to the Trustee. Wherever this Indenture requires
that an Officers' Certificate be signed also by an accountant or other expert,
such accountant or other expert (except as otherwise expressly provided in
this Indenture) may be in the employ of the Company, and shall be acceptable
to the Trustee, which acceptance shall not be unreasonably withheld.
"Opinion of Counsel" means a written opinion of counsel, who may (except
as otherwise expressly provided in this Indenture) be an employee of or of
counsel to the Company (who shall be at least at the level of senior
attorney). Such counsel shall be acceptable to the Trustee, whose acceptance
shall not be unreasonably withheld.
4<PAGE>
"Original Issue Discount Security" means (i) any Security which provides
for an amount less than the principal amount thereof to be due and payable
upon a declaration of acceleration of the Maturity thereof, and (ii) any other
Security deemed an Original Issue Discount Security for United States Federal
income tax purposes.
"Outstanding", when used with respect to Securities or Securities of any
series, means, as of the date of determination, all such Securities
theretofore authenticated and delivered under this Indenture, except:
(i) such Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(ii) such Securities for whose payment or redemption money
in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or
set aside and segregated in trust by the Company (if the Company
shall act as its own paying agent) for the Holders of such
Securities; provided that, if such Securities are to be redeemed,
notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has
been made; and
(iii) such Securities in exchange for or in lieu of which
other Securities have been authenticated and delivered pursuant to
this Indenture, or which shall have been paid pursuant to the
terms of Section 306 (except with respect to any such Security as
to which proof satisfactory to the Trustee is presented that such
Security is held by a person in whose hands such Security is a
legal, valid and binding obligation of the Company).
In determining whether the Holders of the requisite principal amount of
such Securities outstanding have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, (i) the principal amount of
any Original Issue Discount Security that shall be deemed to be Outstanding
shall be the amount of the principal thereof that would be due and payable as
of the date of the taking of such action upon a declaration of acceleration of
the Maturity thereof and (ii) Securities owned by the Company or any other
obligor upon the Securities or any Affiliate of the Company or of such other
obligor shall be disregarded and deemed not to be Outstanding. In determining
whether the Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Securities
which a Responsible Officer assigned to the corporate trust department of the
Trustee actually knows to be owned by the Company or any other obligor upon
the Securities or any Affiliate of the Company or such other obligor shall be
so disregarded. Securities so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right to act as owner with respect to such
Securities and that the pledgee is not the Company or any other obligor upon
the Securities or any Affiliate of the Company or such other obligor.
5<PAGE>
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company. The Company initially authorizes the Trustee to act as Paying
Agent for the Securities on its behalf. The Company may at any time and from
time to time authorize one or more Persons, including the Company, to act as
Paying Agent in addition to or in place of the Trustee with respect to any
series of Securities issued under this Indenture.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment" means with respect to any series of Securities issued
hereunder the city or political subdivision so designated with respect to the
series of Securities in question in accordance with the provisions of Section
301.
"Predecessor Securities" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by
such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in lieu of a lost,
destroyed or stolen Security shall be deemed to evidence the same debt as the
lost, destroyed or stolen Security.
"Preferred Stock" means, as to any Person, capital stock of such Person
that has a preference as to dividends or upon liquidation over the common
stock of such Person.
"Principal Property" of a Person means all land, buildings, machinery
and equipment, and leasehold interests and improvements in respect of the
foregoing, that are located in the United States of America and that would be
reflected on a consolidated balance sheet of such Person provided that the
term "Principal Property" shall not include any land, building, machinery,
equipment, leasehold interest or improvements which the Board of Directors of
the Company by resolution determines not to be of material importance to the
total business conducted by the Company and its Subsidiaries as an entirety.
Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price specified in the Security at which it is to be
redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Security on any
Interest Payment Date means the date specified in such Security as the Regular
Record Date.
"Repayment Date", when used with respect to any Security to be repaid,
means the date fixed for such repayment pursuant to such Security.
6<PAGE>
"Repayment Price", when used with respect to any Security to be repaid,
means the price at which it is to be repaid pursuant to such Security.
"Responsible Officer", when used with respect to the Trustee, means any
vice president, any assistant secretary, any assistant treasurer, any senior
trust officer or trust officer or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Subsidiary" means any Subsidiary of the Company (other than
a Subsidiary that is principally engaged in the business of owning or
investing in real estate (a 'Real Estate Subsidiary'), finance, credit,
leasing, financial services or other similar operations, or any combination
thereof), which itself, or with one or more other Restricted Subsidiaries,
owns or leases a Principal Property; PROVIDED, HOWEVER, that in the event that
any Restricted Subsidiary, in a single transaction or through a series of
related transactions, shall (i) be consolidated with or merge with or into a
Real Estate Subsidiary or any of its subsidiaries or (ii) transfer (by lease,
assignment, sale or otherwise) all or substantially all of its properties and
assets to a Real Estate Subsidiary, then the term 'Restricted Subsidiary'
shall include such Real Estate Subsidiary.
"Sale and Leaseback Transaction" means any arrangement with any Person
pursuant to which the Company or any Restricted Subsidiary leases any
Principal Property that has been or is to be sold or transferred by the
Company or the Restricted Subsidiary to such Person, other than (1) temporary
leases for a term, including renewals at the option of the lessee, of not more
than three years, (2) leases between the Company and a Restricted Subsidiary
or between Restricted Subsidiaries and (3) arrangements pursuant to any
provision of law with an effect similar to the former Section 168(f)(8) of the
Internal Revenue Code of 1954.
"Security" or "Securities" means any note or notes, bond or bonds,
debenture or debentures, or any other evidences of indebtedness, as the case
may be, of any series authenticated and delivered from time to time under this
Indenture.
"Security Register" shall have the meaning specified in Section 305.
"Security Registrar" means the Person who keeps the Security Register
specified in Section 305. The Company initially appoints the Trustee to act
as Security Registrar for the Securities on its behalf. The Company may at
any time and from time to time authorize any Person, including the Company, to
act as Security Registrar in place of the Trustee with respect to any series
of Securities issued under this Indenture.
"Securityholder" means a Person in whose name a Security is registered
in the Security Register.
7<PAGE>
"Special Record Date" for the payment of any Defaulted Interest (as
defined in Section 307) means a date fixed by the Trustee pursuant to Section
307.
"Stated Maturity" when used with respect to any Security or any
installment of principal thereof or interest thereon means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable.
"Subsidiary" of any corporation means a corporation, a majority of whose
Capital Stock with voting power (other than Capital Stock having such power
only by reason of the happening of a contingency) to elect a majority of the
directors of such corporation is, at the date of determination, directly or
indirectly owned by such corporation, by one or more Subsidiaries of such
corporation or by such corporation and one or more Subsidiaries of such
corporation.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990, and as in force at the date
as of which this instrument was executed except as provided in Section 905.
"Trustee" means the Person named as the Trustee in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "Trustee" shall
mean and include each Person who is then a Trustee hereunder. If at any time
there is more than one such Person, "Trustee" as used with respect to the
Securities of any series shall mean the Trustee with respect to Securities of
that series.
"U.S. Government Obligations" shall have the meaning specified in
Section 403.
"Value" means, with respect to a Sale and Leaseback Transaction, as of
any particular time, an amount equal to the greater of (i) the net proceeds of
the sale or transfer of the property leased pursuant to such Sale and
Leaseback Transaction or (ii) the fair value, as determined by the Company, of
such property at the time of entering into such Sale and Leaseback
Transaction, in either case divided by the number of full years of the term of
the lease and then multiplied by the number of full years of such term
remaining at the time of determination, without regard to any renewal or
extension options contained in the lease.
"Vice President" when used with respect to the Company or the Trustee
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president", including, without
limitation, an assistant vice president.
Section 1.12. Compliance Certificates and Opinions. Upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any (including
any covenants compliance with which constitutes a condition precedent),
8<PAGE>
provided for in this Indenture relating to the proposed action have been
complied with and an opinion of Counsel stating that in the opinion of such
Counsel all such conditions precedent, if any (including any covenants
compliance with which constitutes a condition precedent), have been complied
with, except that in the case of any such application or request as to which
the furnishing of such documents is specifically required by any provision of
this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than annual statements of
compliance provided pursuant to Section 1004) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 1.13. Form of Documents Delivered to Trustee. In any case
where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may
certify or give an opinion with respect to some matters and one or more other
such Persons may certify or give an opinion as to the other matters, and any
such Person may certify or give an opinion as to such matters in one or
several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate or Opinion of Counsel
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company
stating that the information with respect to such factual matters is in the
possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or repre-
sentations with respect to such matters are erroneous.
9<PAGE>
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.14. Acts of Securityholders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given
or taken by Securityholders or Securityholders of any series may be
embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Securityholders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee, and, where it is hereby
expressly required, to the Company. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Securityholders signing such instrument
or instruments. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose of
this Indenture and (subject to Section 601) conclusive in favor of the
Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness to
such execution or by the certificate of any notary public or other
officer authorized by law to take acknowledgments of deeds, certifying
that the individual signing such instrument or writing acknowledged to
him the execution thereof. Where such execution is by an officer of a
corporation or a member of a partnership, on behalf of such corporation
or partnership, such certificate or affidavit shall also constitute
sufficient proof of his authority. The fact and date of the execution
of any such instrument or writing, or the authority of the person
executing the same, may also be proved in any other manner which the
Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Security
Register.
(d) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other
action, the Company may, at its option, by Board Resolution, fix in
advance a record date for the determination of Holders entitled to give
such request, demand, authorization, direction, notice, consent, waiver
or other action, but the Company shall have no obligation to do so.
Such record date shall be not more than 30 days prior to the date of its
determination. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other action may be
given before or after the record date, but only the Holders of record at
the close of business on the record date shall be deemed to be Holders
for the purposes of determining whether Holders of the requisite
proportion of Securities Outstanding have authorized or agreed or
10<PAGE>
consented to such request, demand, authorization, direction, notice,
consent, waiver or other action, and for that purpose the Securities
Outstanding shall be computed as of the record date; provided that no
such authorization, agreement or consent by the Holders on the record
date shall be deemed effective unless it shall become effective pursuant
to the provisions of this Indenture not later than six months after the
record date, and that no such authorization, agreement or consent may be
amended, withdrawn or revoked once given by a Holder, unless the Company
shall provide for such amendment, withdrawal or revocation in
conjunction with such solicitation of authorizations, agreements or
consents or unless and to the extent required by applicable law.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Security shall bind
the Holder of every Security issued upon the transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done or
suffered to be done by the Trustee or the Company in reliance thereon
whether or not notation of such action is made upon such Security.
Section 1.15. Notices, etc., to Trustee and Company. Any request,
demand, authorization, direction, notice, consent, waiver or Act of
Securityholders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Securityholder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Trustee Administration, or
(2) the Company by the Trustee or by any Securityholder shall be
sufficient for every purpose hereunder (except as provided in Section
501(4) or, in the case of a request for repayment, as specified in the
Security carrying the right to repayment) if in writing and mailed,
first-class postage prepaid, to the Company addressed to it at the
address of its principal office specified in the first paragraph of this
instrument, Attention: General Counsel, or at any other address
previously furnished in writing to the Trustee by the Company.
Section 1.16. Notices to Securityholders; Waiver. Where this
Indenture or any Security provides for notice to Securityholders of any event,
such notice shall be sufficiently given (unless otherwise herein or in such
Security expressly provided) if in writing and mailed, first-class postage
prepaid, to each Securityholder affected by such event, at his address as it
appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Securityholders is given by mail, neither the failure
to mail such notice, nor any defect in any notice so mailed, to any particular
Securityholder shall affect the sufficiency of such notice with respect to
other Securityholders. Where this Indenture or any Security provides for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice by
11<PAGE>
Securityholders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon
such waiver.
In case, by reason of the suspension of regular mail service as a result
of a strike, work stoppage or otherwise, it shall be impractical to mail
notice of any event to any Securityholder when such notice is required to be
given pursuant to any provision of this Indenture, then any method of
notification as shall be satisfactory to the Trustee and the Company shall be
deemed to be a sufficient giving of such notice.
Section 1.17. Conflict with Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with the duties imposed by any of
Sections 310 to 317, inclusive, of the Trust Indenture Act through operation
of Section 318(c) thereof, such imposed duties shall control.
Section 1.18. Effect of Headings and Table of Contents. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
Section 1.19. Successors and Assigns. All covenants and agreements
in this Indenture by the Company shall bind its successors and assigns,
whether so expressed or not.
Section 1.110. Separability Clause. In case any provision in this
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
Section 1.111. Benefits of Indenture. Nothing in this Indenture or
in any Securities, express or implied, shall give to any Person, other than
the parties hereto and their successors hereunder, any Authenticating Agent or
Paying Agent, the Security Registrar and the Holders of Securities (or such of
them as may be affected thereby), any benefit or any legal or equitable right,
remedy or claim under this Indenture.
Section 1.112. Governing Law. This Indenture and the Securities
shall be construed in accordance with and governed by the laws of the State of
New York, without regard to conflicts of laws principles thereof.
Section 1.113. Counterparts. This instrument may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
ARTICLE 2. Security Forms.
Section 2.11. Forms Generally. The Securities shall have such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon,
as may be required to comply with the rules of any securities exchange, or as
12<PAGE>
may, consistently herewith, be determined by the officer executing such
Securities, as evidenced by such officer's execution of the Securities. Any
portion of the text of any Security may be set forth on the reverse thereof,
with an appropriate reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may
be produced in any other manner, all as determined by the officer executing
such Securities, as evidenced by such officer's execution of such Securities,
subject, with respect to the Securities of any series, to the rules of any
securities exchange on which such Securities are listed.
Section 2.12. Forms of Securities. Each Security shall be in one of
the forms approved from time to time by or pursuant to a Board Resolution, or
established in one or more indentures supplemental hereto. Prior to the
delivery of a Security to the Trustee for authentication in any form approved
by or pursuant to a Board Resolution, the Company shall deliver to the Trustee
the Board Resolution by or pursuant to which such form of Security has been
approved, which Board Resolution shall have attached thereto a true and
correct copy of the form of Security which has been approved thereby or, if a
Board Resolution authorizes a specific officer or officers to approve a form
of Security, a certificate of such officer or officers approving the form of
Security attached thereto. Any form of Security approved by or pursuant to a
Board Resolution must be acceptable as to form to the Trustee, such acceptance
to be evidenced by the Trustee's authentication of Securities in that form.
13<PAGE>
Section 2.13. Form of Trustee's Certificate of Authentication. The
form of Trustee's Certificate of Authentication for any Security issued
pursuant to this Indenture shall be substantially as follows:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
THE BANK OF NEW YORK,
as Trustee,
By: ___________________________
Authorized Signatory
Section 2.14. Securities Issuable in the Form of a Global Security.
(a) If the Company shall establish pursuant to Sections 202 and
301 that the Securities of a particular series are to be issued in whole
or in part in the form of one or more Global Securities, then the
Company shall execute and the Trustee or its agent shall, in accordance
with Section 303 and the Company Order delivered to the Trustee or its
agent thereunder, authenticate and make available for delivery, such
Global Security or Securities, which (i) shall represent, and shall be
denominated in an amount equal to the aggregate principal amount of, the
Outstanding Securities of such series to be represented by such Global
Security or Securities, or such portion thereof as the Company shall
specify in a Company Order, (ii) shall be registered in the name of the
Depositary for such Global Security or Securities or its nominee, (iii)
shall be delivered by the Trustee or its agent to the Depositary or
pursuant to the Depositary's instruction and (iv) shall bear a legend
substantially to the following effect: "Unless this certificate is
presented by an authorized representative of the Depositary to Issuer or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of the nominee of the
Depositary or in such other name as is requested by an authorized
representative of the Depositary (and any payment is made to the nominee
of the Depositary or to such other entity as is requested by an
authorized representative of the Depositary), ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
inasmuch as the registered owner hereof, the nominee of the Depositary,
has an interest herein."
(b) Notwithstanding any other provision of this Section 204 or
of Section 305, and subject to the provisions of paragraph (c) below,
unless the terms of a Global Security expressly permit such Global
Security to be exchanged in whole or in part for individual Securities,
a Global Security may be transferred, in whole but not in part and in
the manner provided in Section 305, only to a nominee of the Depositary
for such Global Security, or to the Depositary, or a successor
Depositary for such Global Security selected or approved by the Company,
or to a nominee of such successor Depositary.
14<PAGE>
(c)
(i) If at any time the Depositary for a Global Security
notifies the Company that it is unwilling or unable to continue as
Depositary for such Global Security or if at any time the
Depositary for the Securities for such series shall no longer be
eligible or in good standing under the Securities Exchange Act of
1934, as amended, or other applicable statute or regulation, the
Company shall appoint a successor Depositary with respect to such
Global Security. If a successor Depositary for such Global
Security is not appointed by the Company within 90 days after the
Company receives such notice or becomes aware of such
ineligibility, the Company will execute, and the Trustee or its
agent, upon receipt of a Company Request for the authentication
and delivery of individual Securities of such series in exchange
for such Global Security, will authenticate and make available for
delivery individual Securities of such series of like tenor and
terms in an aggregate principal amount equal to the principal
amount of the Global Security in exchange for such Global
Security.
(ii) The Company may at any time and in its sole discretion
determine that the Securities of any series or portion thereof
issued or issuable in the form of one or more Global Securities
shall no longer be represented by such Global Security or
Securities. In such event the Company will execute, and the
Trustee, upon receipt of a Company Request for the authentication
and delivery of individual Securities of such series in exchange
in whole or in part for such Global Security, will authenticate
and make available for delivery individual Securities of such
series of like tenor and terms in definitive form in an aggregate
principal amount equal to the principal amount of such Global
Security or Securities representing such series or portion thereof
in exchange for such Global Security or Securities.
(iii) If specified by the Company pursuant to Sections 202
and 301 with respect to Securities issued or issuable in the form
of a Global Security, the Depositary for such Global Security may
surrender such Global Security in exchange in whole or in part for
individual Securities of such series of like tenor and terms in
definitive form on such terms as are acceptable to the Company and
such Depositary. Thereupon the Company shall execute, and the
Trustee or its agent shall authenticate and make available for
delivery, without service charge, (1) to each Person specified by
such Depositary a new Security or Securities of the same series of
like tenor and terms and of any authorized denomination as
requested by such Person in aggregate principal amount equal to
and in exchange for such Person's beneficial interest as specified
by such Depositary in the Global Security; and (2) to such
Depositary a new Global Security of like tenor and terms and in an
authorized denomination equal to the difference, if any, between
the principal amount of the surrendered Global Security and the
15<PAGE>
aggregate principal amount of Securities delivered to Holders
thereof.
(iv) In any exchange provided for in any of the preceding
three paragraphs, the Company will execute and the Trustee or its
agent will authenticate and make available for delivery individual
Securities in definitive registered form in authorized
denominations. Upon the exchange of the entire principal amount
of a Global Security for individual Securities, such Global
Security shall be canceled by the Trustee or its agent. Except as
provided in the preceding paragraph, Securities issued in exchange
for a Global Security pursuant to this Section shall be registered
in such names and in such authorized denominations as the
Depositary for such Global Security, pursuant to instructions from
its direct or indirect participants or otherwise, shall instruct
the Trustee or the Security Registrar. The Trustee shall deliver
at its Corporate Trust Office such Securities to the Persons in
whose names such Securities are so registered.
ARTICLE 3. The Securities.
Section 3.11. General Title; General Limitations; Issuable in
Series; Terms of Particular Series. The aggregate principal amount of
Securities which may be authenticated and delivered and Outstanding under this
Indenture is not limited.
The Securities may be issued in one or more series up to an aggregate
principal amount of Securities as from time to time may be authorized by the
Board of Directors. All Securities of each series under this Indenture shall
in all respects be equally and ratably entitled to the benefits hereof with
respect to such series without preference, priority or distinction on account
of the actual time of the authentication and delivery or Stated Maturity of
the Securities of such series.
Each series of Securities shall be created either by or pursuant to a
Board Resolution or by an indenture supplemental hereto. The Securities of
each such series may bear such date or dates, be payable at such place or
places, have such Stated Maturity or Maturities, be issuable at such premium
over or discount from their face value, bear interest at such rate or rates,
from such date or dates, payable in such installments and on such dates and at
such place or places to the Holders of Securities registered as such on such
Regular Record Dates, or may bear no interest, and may be redeemable or
repayable at such Redemption Price or Prices or Repayment Price or Prices, as
the case may be, whether at the option of the Holder or otherwise, and upon
such terms, all as shall be provided for in or pursuant to the Board
Resolution or in the supplemental indenture creating that series. There may
also be established in or pursuant to a Board Resolution or in a supplemental
indenture prior to the issuance of Securities of each such series, provision
for:
(1) the exchange or conversion of the Securities of that series,
at the option of the Holders thereof, for or into new Securities of a
16<PAGE>
different series or other securities except shares of capital stock of
the Company or any subsidiary of the Company or securities directly or
indirectly convertible into or exchangeable for any such shares;
(2) a sinking or purchase fund or other analogous obligation;
(3) a limitation on the aggregate principal amount of the
Securities of that series;
(4) the exchange or conversion of Securities of that series, at
the option of the Holders thereof, for or into other Securities of a
different series or other securities;
(5) the appointment by the Trustee of an Authenticating Agent in
one or more places other than the location of the office of the Trustee
with power to act on behalf of the Trustee and subject to its direction
in the authentication and delivery of the Securities of any one or more
series in connection with such transactions as shall be specified in the
provisions of this Indenture or in or pursuant to the Board Resolution
or the supplemental indenture creating such series;
(6) the portion of the principal amount of Securities of the
series, if other than the principal amount thereof, which shall be
payable upon declaration of acceleration of the Maturity thereof
pursuant to Section 502 or provable in bankruptcy pursuant to Section
504;
(7) any Event of Default with respect to the Securities of such
series, if not set forth herein, and any additions, deletions or other
changes to the Events of Default set forth herein that shall be
applicable to the Securities of such series;
(8) any covenant solely for the benefit of the Securities of
such series and any additions, deletions or other changes to the
provisions of Sections 1006 and 1007 that shall be applicable to the
Securities of that series;
(9) the inapplicability of Section 403 of this Indenture to the
Securities of such series and any covenant with respect to Section
403(b) established in or pursuant to a Board Resolution or in a
supplemental indenture as described above that has not already been
established herein;
(10) if the Securities of the series shall be issued in whole or
in part in the form of a Global Security or Securities, the terms and
conditions, if any, upon which such Global Security or Securities may be
exchanged in whole or in part for other individual Securities; and the
Depositary for such Global Security or Securities; and
(11) any other terms of the series,
17<PAGE>
all upon such terms as may be determined in or pursuant to a Board Resolution
or in a supplemental indenture with respect to such series. All Securities of
the same series shall be substantially identical in tenor and effect except as
to denomination and except if issued pursuant to Section 311.
The form of the Securities of each series shall be established pursuant
to the provisions of this Indenture in or pursuant to the Board Resolution or
in the supplemental indenture creating such series. The Securities of each
series shall be distinguished from the Securities of each other series in such
manner, reasonably satisfactory to the Trustee, as the Board of Directors may
determine.
Unless otherwise provided with respect to Securities of a particular
series, the Securities of any series may only be issuable in registered form,
without coupons.
Any terms or provisions in respect of the Securities of any series
issued under this Indenture may be determined pursuant to this Section by
providing for the method by which such terms or provisions shall be deter-
mined.
Section 3.12. Denominations. The Securities of each series shall be
issuable in such denominations as shall be provided in the provisions of this
Indenture or in or pursuant to the Board Resolution or the supplemental
indenture creating such series. In the absence of any such provisions with
respect to the Securities of any series, the Securities of that series shall
be issuable only in fully registered form in denominations of $1,000 and any
integral multiple thereof.
Section 3.13. Execution, Authentication and Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman of
the Board, its Vice Chairman, its President or one of its Vice Presidents.
The signature of any of these officers on the Securities may be manual or
facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication; and the Trustee shall, upon Company Order,
authenticate and make available for delivery such Securities as in this
Indenture provided and not otherwise.
Prior to any such authentication and delivery, the Trustee shall be
entitled to receive, in addition to any Officers' Certificate and Opinion of
Counsel required to be furnished to the Trustee pursuant to Section 102, and
the Board Resolution and any certificate relating to the issuance of the
18<PAGE>
series of Securities required to be furnished pursuant to Section 202, an
Opinion of Counsel stating that:
(1) all instruments furnished to the Trustee conform to the
requirements of the Indenture and constitute sufficient authority
hereunder for the Trustee to authenticate and deliver such Securities;
(2) the form and terms of such Securities have been established
in conformity with the provisions of this Indenture;
(3) such Securities, when completed by appropriate insertions
and executed by the Company and delivered to the Trustee for
authentication in accordance with this Indenture, authenticated and
delivered by the Trustee in accordance with this Indenture and issued by
the Company in the manner and subject to any conditions specified in
such Opinion of Counsel, will constitute legal, valid and binding
obligations of the Company enforceable in accordance with their terms
(subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other laws and legal
principles affecting creditors' rights generally from time to time in
effect and to general equitable principles, whether applied in an action
at law or in equity); and
(4) the Indenture is qualified under the Trust Indenture Act;
and, if the authentication and delivery relates to a new series of
Securities created by an indenture supplemental hereto, also stating
that the Company has corporate power to execute and deliver any such
supplemental indenture and has taken all necessary corporate action for
those purposes and any such supplemental indenture has been executed and
delivered and constitutes the legal, valid and binding obligation of the
Company enforceable in accordance with its terms (subject, as to
enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium or other laws and legal principles affecting
creditors' rights generally from time to time in effect and to general
equitable principles, whether applied in an action at law or in equity)
and, if the authentication and delivery relates to Securities of a
series issued pursuant to Section 311, paragraphs (2) and (3) of the
foregoing opinion shall read as follows:
"(2) the form of such Securities and the procedures for
determining the terms of such Securities as set forth in the procedures
relating thereto referred to in Section 311 have been established in
conformity with the provisions of this Indenture; and
(3) such Securities, when completed by appropriate insertions
and executed by the Company and delivered to the Trustee for
authentication in accordance with this Indenture, authenticated and
delivered by the Trustee in accordance with this Indenture and issued,
delivered and paid for in accordance with the applicable selling agency
or distribution agreement, will have been duly issued under the
Indenture and will constitute the legal, valid and binding obligations
19<PAGE>
of the Company enforceable in accordance with their terms (subject, as
to enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium or other laws and legal principles affecting
creditors' rights generally from time to time in effect and to general
equitable principles, whether applied in an action at law or in
equity)."
The Trustee shall not be required to authenticate such Securities if the
issue thereof will adversely affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture.
Unless otherwise provided in the form of Security for any series, all
Securities shall be dated the date of their authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered hereunder.
Section 3.14. Temporary Securities. Pending the preparation of
definitive Securities of any series, the Company may execute, and, upon
receipt of the documents required by Section 303, together with a Company
Order, the Trustee shall authenticate and make available for delivery,
temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Securities may determine, as
evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of such series to be prepared without unreasonable
delay. After the preparation of definitive Securities, the temporary
Securities of such series shall be exchangeable for definitive Securities of
such series upon surrender of the temporary Securities of such series at the
office or agency of the Company in a Place of Payment, without charge to the
Holder; and upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and
make available for delivery in exchange therefor a like principal amount of
definitive Securities of such series of authorized denominations and of like
tenor and terms. Until so exchanged the temporary Securities of such series
shall in all respects be entitled to the same benefits under this Indenture as
definitive Securities of such series.
Section 3.15. Registration, Transfer and Exchange. The Company
shall keep or cause to be kept a register or registers (herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the
registration of Securities, or of Securities of a particular series, and for
transfers of Securities or of Securities of such series. Any such register
20<PAGE>
shall be in written form or in any other form capable of being converted into
written form within a reasonable time. At all reasonable times the
information contained in such register or registers shall be available for
inspection by the Trustee at the office or agency to be maintained by the
Company as provided in Section 1002. There shall be only one Security
Register per series of Securities.
Subject to Section 204, upon surrender for transfer of any Security of
any series at the office or agency of the Company in a Place of Payment, the
Company shall execute, and the Trustee shall authenticate and make available
for delivery, in the name of the designated transferee or transferees, one or
more new Securities of such series of any authorized denominations, of a like
aggregate principal amount and Stated Maturity and of like tenor and terms.
Subject to Section 204, at the option of the Holder, Securities of any
series may be exchanged for other Securities of such series of any authorized
denominations, of a like aggregate principal amount and Stated Maturity and of
like tenor and terms, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange,
the Company shall execute, and the Trustee shall authenticate and make
available for delivery, the Securities which the Securityholder making the
exchange is entitled to receive.
All Securities issued upon any transfer or exchange of Securities shall
be the valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Securities
surrendered upon such transfer or exchange.
Every Security presented or surrendered for transfer or exchange shall
(if so required by the Company or the Trustee) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed, by the Holder thereof or his
attorney duly authorized in writing.
Unless otherwise provided in the Security to be transferred or
exchanged, no service charge shall be made on any Securityholder for any
transfer or exchange of Securities, but the Company may (unless otherwise
provided in such Security) require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Securities, other than exchanges pursuant to Section
304 or 906 not involving any transfer.
The Company shall not be required (i) to issue, transfer or exchange any
Security of any series during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Securities of
such series selected for redemption under Section 1103 and ending at the close
of business on the date of such mailing, or (ii) to transfer or exchange any
Security so selected for redemption in whole or in part.
None of the Company, the Trustee, any agent of the Trustee, any Paying
Agent or the Security Registrar will have any responsibility or liability for
any aspect of the records relating to or payments made on account of benefi-
21<PAGE>
cial ownership interests of a Global Security or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
Section 3.16. Mutilated, Destroyed, Lost and Stolen Securities. If
(i) any mutilated Security is surrendered to the Trustee, or the Company and
the Trustee receive evidence to their satisfaction of the destruction, loss or
theft of any Security, and (ii) there is delivered to the Company and the
Trustee such security or indemnity as may be required by them to save each of
them harmless, then, in the absence of notice to the Company or the Trustee
that such Security has been acquired by a bona fide purchaser, the Company
shall execute and upon its request the Trustee shall authenticate and make
available for delivery, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Security, a new Security of like tenor, series,
stated maturity and principal amount, bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately
with any and all other Securities of the same series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen securities.
Section 3.17. Payment of Interest; Interest Rights Preserved.
Unless otherwise provided with respect to such Security pursuant to Section
301, interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the registered
Holder on the relevant Regular Record Date by virtue of his having been such
Holder; and, except as hereinafter provided, such Defaulted Interest may be
paid by the Company, at its election in each case, as provided in Clause (1)
or Clause (2) below:
22<PAGE>
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names any such Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each such Security and the date of the proposed
payment, and at the same time the Company shall deposit with the Trustee
an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfac-
tory to the Trustee for such deposit prior to the date of the proposed
payment, such money when deposited to be held in trust for the benefit
of the Persons entitled to such Defaulted Interest as in this Clause
provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 nor
less than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor to be mailed, first class postage
prepaid, to the Holder of each such Security at his address as it
appears in the Security Register, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been mailed as
aforesaid, such Defaulted Interest shall be paid to the Persons in whose
names such Securities (or their respective Predecessor Securities) are
registered on such Special Record Date and shall no longer be payable
pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which such Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this
Clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu
of any other Security shall carry the rights to interest accrued and unpaid,
and to accrue, which were carried by such other Security.
Section 3.18. Persons Deemed Owners. The Company, the Trustee and
any agent of the Company or the Trustee may treat the Person in whose name any
Security is registered as the owner of such Security for the purpose of
receiving payment of principal of (and premium, if any), and (subject to
Section 307) interest on, such Security and for all other purposes whatsoever,
whether or not such Security be overdue, and neither the Company, the Trustee
nor any agent of the Company or the Trustee shall be affected by notice to the
contrary.
23<PAGE>
Section 3.19. Cancellation. All Securities surrendered for payment,
redemption, transfer, or exchange or credit against a sinking fund shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and, if not already canceled, shall be promptly canceled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly canceled by the Trustee. No Security shall be authenticated in lieu
of or in exchange for any Securities canceled as provided in this Section,
except as expressly permitted by this Indenture. The Trustee shall deliver
all canceled Securities to the Company.
Section 3.110. Computation of Interest. Unless otherwise provided as
contemplated in Section 301, interest on the Securities shall be calculated on
the basis of a 360-day year of twelve 30-day months.
Section 3.111. Medium-Term. Notwithstanding any contrary provision
herein, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary for the Company to deliver to the Trustee an
Officers' Certificate, Board Resolution, supplemental indenture, Opinion of
Counsel or Company Order otherwise required pursuant to Sections 102, 202, 301
and 303 at or prior to the time of authentication of each Security of such
series if such documents are delivered to the Trustee or its agent at or prior
to the authentication upon original issuance of the first Security of such
series to be issued; provided that any subsequent request by the Company to
the Trustee to authenticate Securities of such series upon original issuance
shall constitute a representation and warranty by the Company that as of the
date of such request, the statements made in the Officers' Certificate or
other certificates delivered pursuant to Sections 102 and 202 shall be true
and correct as if made on such date.
A Company Order, Officers' Certificate or Board Resolution or
supplemental indenture delivered by the Company to the Trustee in the
circumstances set forth in the preceding paragraph may provide that Securities
which are the subject thereof will be authenticated and delivered by the
Trustee or its agent on original issue from time to time in the aggregate
principal amount established for such series pursuant to such procedures
acceptable to the Trustee as may be specified from time to time by Company
Order upon the telephonic, electronic or written order of persons designated
in such Company Order, Officers' Certificate, supplemental indenture or Board
Resolution (any such telephonic or electronic instructions to be promptly
confirmed in writing by such persons) and that such persons are authorized to
determine, consistent with such Company Order, Officers' Certificate,
supplemental indenture or Board Resolution, such terms and conditions of said
Securities as are specified in such Company Order, Officers' Certificate,
supplemental indenture or Board Resolution.
Section 3.112. CUSIP Numbers. The Company in issuing the Securities
may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee
shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders; provided that any such notice may state that no representation is
made as to the correctness of such numbers either as printed on the Securities
24<PAGE>
or as contained in any notice of a redemption and that reliance may be placed
only on the other identification numbers printed on the Securities, and any
such redemption shall not be affected by any defect in or omission of such
numbers. The Company will promptly notify the Trustee of any change in the
"CUSIP" numbers.
ARTICLE 4. Satisfaction and Discharge.
Section 4.11. Satisfaction and Discharge of Indenture. This
Indenture shall cease to be of further effect with respect to any series of
Securities (except as to any surviving rights of conversion or transfer or
exchange of Securities of such series expressly provided for herein or in the
form of Security for such series), and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture as to such series when
(1) either
(A) all Securities of that series theretofore
authenticated and delivered (other than (i) Securities of such series
which have been destroyed, lost or stolen and which have been replaced
or paid as provided in Section 306, and (ii) Securities of such series
for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust, as provided in Section 1003) have
been delivered to the Trustee canceled or for cancellation; or
(B) all such Securities of that series not theretofore
canceled or delivered to the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the name,
and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust
funds in trust for the purpose an amount, which shall be
immediately due and payable, sufficient to pay and discharge the
entire indebtedness on such Securities not therefore canceled or
delivered to the Trustee for cancellation, for principal (and
premium, if any) and interest to the date of such deposit (in the
case of Securities which have become due and payable), or to the
Stated Maturity or Redemption Date, as the case may be;
25<PAGE>
(2) the Company has paid or caused to be paid all other
sums payable hereunder by the Company with respect to the
Securities of such series; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all
conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture with respect to the
Securities of such series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture with respect
to any series of Securities, the obligations of the Company to the Trustee
with respect to that series under Section 607 shall survive and the obliga-
tions of the Trustee under Sections 402 and 1003 shall survive.
Section 4.12. Application of Trust Money. All money and U.S.
Government Obligations (as defined below) deposited with the Trustee pursuant
to Section 401 or Section 403 shall be held in trust and the deposited money
and the money from the U.S. Government Obligations shall be applied by it, in
accordance with the provisions of the series of Securities in respect of which
it was deposited and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as its own Paying
Agent) as the Trustee may determine, to the Persons entitled thereto, of the
principal (and premium, if any) and interest for whose payment such money or
U.S. Government Obligations has been deposited with the Trustee; but such
money and U.S. Government Obligations need not be segregated from other funds
except to the extent required by law. Any money received from principal or
interest payments on any U.S. Government Obligations in excess of the amount
needed or to be needed to pay the Securities with respect to which such U.S.
Government Obligations were deposited as provided in Section 4.01 or 4.03
shall be paid over to the Company upon receipt of a Company Request together
with the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee to the effect that such money is in excess of the amount needed or to
be needed to pay such Securities.
Section 4.13. Defeasance Upon Deposit of Funds or Government
Obligations. Unless pursuant to Section 301 provision is made that this
Section shall not be applicable to the Securities of any series, at the
Company's option, either (a) the Company shall be deemed to have been
Discharged (as defined below) from its obligations with respect to any series
of Securities after the applicable conditions set forth below have been
satisfied or (b) the Company shall cease to be under any obligation to comply
with any term, provision or condition set forth in, at the election of the
Company, any or all of Sections 1006, 1007 and subsection (5) of Section 501
(and any other Sections applicable to such Securities that are determined
pursuant to Section 301 to be subject to this provision) with respect to any
series of Securities at any time after the applicable conditions set forth
below have been satisfied:
(1) the Company shall have deposited or caused to be deposited
irrevocably with the Trustee as trust funds in trust, specifically
26<PAGE>
pledged as security for, and dedicated solely to, the benefit of the
Holders of the Securities of such series (i) money in an amount, or (ii)
the equivalent in direct obligations of, or obligations the principal of
and interest on which are fully guaranteed by, the United States of
America ("U.S. Government Obligations") which through the payment of
interest and principal in respect thereof in accordance with their terms
will provide, not later than one day before the due date of any payment,
money in an amount, or (iii) a combination of (i) and (ii), sufficient,
in the opinion (with respect to (ii) and (iii)) of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge
each installment of principal (including mandatory sinking fund
payments) and any premium of, interest on and any repurchase obligations
with respect to the outstanding Securities of such series on the dates
such installments of interest or principal or repurchase obligations are
due;
(2) no Event of Default or event (including such deposit) which
with notice or lapse of time would become an Event of Default with
respect to the Securities of such series shall have occurred and be
continuing on the date of such deposit; and
(3) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that Holders of the Securities of such series
will not recognize income, gain or loss for Federal income tax purposes
as a result of the Company's exercise of its option under this Section
403 and will be subject to Federal income tax on the same amount and in
the same manner and at the same times as would have been the case if
such option had not been exercised, and, in the case of Securities being
Discharged, such opinion shall be based upon at least one of the
following authorities (issued, enacted or promulgated after the date of
this Indenture), substantially on point and to the foregoing effect: (i)
a public ruling of the Internal Revenue service, (ii) a private ruling
of the Internal Revenue Service issued to the Company with respect to
the securities, (iii) a provision of the Internal Revenue Code, or (iv)
a final regulation promulgated by the Department of the Treasury.
"Discharged" means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by, and obligations under, the
Securities of such series and to have satisfied all the obligations under this
Indenture relating to the Securities of such series (and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the
same), except (A) the rights of Holders of Securities to receive, from the
trust fund described in clause (1) above, payment of the principal and any
premium of and any interest on such Securities when such payments are due; (B)
the Company's obligations with respect to such Securities under Sections 305,
306, 402, 1002 and 1003; and (C) the rights, powers, trusts, duties and
immunities of the Trustee hereunder.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to this Article or the principal and interest received in
27<PAGE>
respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of Outstanding Securities.
ARTICLE 5. Remedies.
Section 5.11. Events of Default. "Event of Default", wherever used
herein, means with respect to any series of Securities any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body), unless such event is
either inapplicable to a particular series or it is specifically deleted or
modified in or pursuant to the supplemental indenture or Board Resolution
creating such series of Securities or in the form of Security for such series:
(1) default in the payment of any interest upon any Security of
that series when it becomes due and payable, and continuance of such
default for a period of 30 days; or
(2) default in the payment of the principal of (or premium, if
any, on) any Security of that series at its Maturity; or
(3) default in the payment of any sinking or purchase fund or
analogous obligation when the same becomes due by the terms of the
Securities of such series; or
(4) default in the performance, or breach, of any covenant,
warranty or agreement of the Company in this Indenture in respect of the
Securities of such series (other than a covenant, warranty or agreement
in respect of the Securities of such series a default in the performance
of which or the breach of which is elsewhere in this Section
specifically dealt with), all of such covenants, warranties and
agreements in the Indenture which are not expressly stated to be for the
benefit of a particular series of Securities being deemed in respect of
the Securities of all series for this purpose, and continuance of such
default or breach for a period of 90 days after receipt by the Company
from the Trustee or by the Company and the Trustee from the Holders of
at least 25% in principal amount of the Outstanding Securities of such
series, a written notice, by registered or certified mail, specifying
such default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" hereunder; or
(5) a default under any bond, debenture, note or other evidence
of indebtedness for money borrowed by the Company or any Restricted
Subsidiary (other than the Securities), or under any mortgage, indenture
or instrument under which there may be secured or evidenced any
indebtedness for money borrowed by the Company or any Restricted
Subsidiary (other than the Securities), whether such indebtedness now
exists or shall hereafter be created, which default shall have resulted
in indebtedness in excess of $15,000,000 becoming due and payable prior
to the date on which it would otherwise have become due and payable,
without such indebtedness having been discharged or such acceleration
28<PAGE>
having been rescinded, annulled or stayed within 30 days after the date
on which written notice thereof is given to the Company by the Trustee
or to the Company and the Trustee by Holders of at least 25% in
principal amount of the Securities then outstanding hereunder; or
(6) the entry of an order for relief against the Company under
the Federal Bankruptcy Act by a court having jurisdiction in the
premises or a decree or order by a court having jurisdiction in the
premises adjudging the Company a bankrupt or insolvent under any other
applicable Federal or State law, or the entry of a decree or order
approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company
under the Federal Bankruptcy Code or any other applicable Federal or
State law, or appointing a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or of any
substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of 90 consecutive days; or
(7) the consent by the Company to the institution of bankruptcy
or insolvency proceedings against it, or the filing by it of a petition
or answer or consent seeking reorganization or relief under the Federal
Bankruptcy Code or any other applicable Federal or State law, or the
consent by it to the filing of any such petition or to the appointment
of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of its
property, or the making by it of a general assignment for the benefit of
creditors or the admission by it in writing of its inability to pay its
debts generally as they become due; or
(8) any other Event of Default provided in or pursuant to the
supplemental indenture or Board Resolution under which such series of
Securities is issued or in the form of Security for such series.
Section 5.12. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default described in paragraph (1), (2), (3), (4) or (8) (if
the Event of Default under paragraph (4) or (8) is with respect to less than
all series of Securities then outstanding) of Section 501 occurs and is
continuing with respect to any series, then and in each and every such case,
unless the principal of all the Securities of such series shall have already
become due and payable, either the Trustee or the Holders of not less than 25%
in aggregate principal amount of the Securities of such series then
Outstanding hereunder (each such series acting as a separate class), by notice
in writing to the Company (and to the Trustee if given by Holders), may
declare the principal amount (or, if the Securities of such series are
Original Issue Discount Securities, such portion of the principal amount as
may be specified in the terms of that series) of all the Securities of such
series and all accrued interest thereon to be due and payable immediately, and
upon any such declaration the same shall become and shall be immediately due
and payable, anything in this Indenture or in the Securities of such series
contained to the contrary notwithstanding. If an Event of Default described
in paragraph (4) or (8) (if the Event of Default under paragraph (4) or (8) is
29<PAGE>
with respect to all series of Securities then Outstanding), (5), (6) or (7) of
Section 501 occurs and is continuing, then and in each and every such case,
unless the principal of all the Securities shall have already become due and
payable, either the Trustee or the Holders of not less than 25% in aggregate
principal amount of all the Securities then Outstanding hereunder (treated as
one class), by notice in writing to the Company (and to the Trustee if given
by Holders), may declare the principal amount (or, if any Securities are
Original Issue Discount Securities, such portion of the principal amount as
may be specified in the terms thereof) of all the Securities then Outstanding
and all accrued interest thereon to be due and payable immediately, and upon
any such declaration the same shall become and shall be immediately due and
payable, anything in this Indenture or in the Securities contained to the
contrary notwithstanding.
At any time after such a declaration of acceleration has been made with
respect to the Securities of any or all series, as the case may be, and before
a judgment or decree for payment of the money due has been obtained by the
Trustee as hereinafter in this Article provided, the Holders of a majority in
principal amount of the Outstanding Securities of such series, by written
notice to the Company and the Trustee, shall rescind and annul such
declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue installments of interest on the Securities
of such series,
(B) the principal of (and premium, if any, on) any
Securities of such series which have become due otherwise than by
such declaration of acceleration, and interest thereon at the rate
or rates prescribed therefor by the terms of the Securities of
such series, to the extent that payment of such interest is
lawful,
(C) interest upon overdue installments of interest at the
rate or rates prescribed therefor by the terms of the Securities
of such series to the extent that payment of such interest is
lawful, and
(D) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel and all other amounts due
the Trustee under Section 607;
and
(2) all Events of Default with respect to such series of
Securities, other than the nonpayment of the principal of the Securities
of such series which have become due solely by such acceleration, have
been cured or waived as provided in Section 513.
30<PAGE>
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 5.13. Collection of Indebtedness and Suits for Enforcement
by Trustee. The Company covenants that if
(1) default is made in the payment of any installment of
interest on any Security of any series when such interest becomes due
and payable, or
(2) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof, or
(3) default is made in the payment of any sinking or purchase
fund or analogous obligation when the same becomes due by the terms of
the Securities of any series,
and any such default continues for any period of grace provided with
respect to the Securities of such series, the Company will, upon demand
of the Trustee, pay to it, for the benefit of the Holder of any such
Security (or the Holders of any such series in the case of Clause (3)
above), the whole amount then due and payable on any such Security (or
on the Securities of any such series in the case of Clause (3) above)
for principal (and premium, if any) and interest, with interest, to the
extent that payment of such interest shall be legally enforceable, upon
the overdue principal (and premium, if any) and upon overdue install-
ments of interest, at such rate or rates as may be prescribed therefor
by the terms of any such Security (or of Securities of any such series
in the case of Clause (3) above); and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and
all other amounts due the Trustee under Section 607.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the
same against the Company or any other obligor upon the Securities of such
series and collect the money adjudged or decreed to be payable in the manner
provided by law out of the property of the Company or any other obligor upon
such Securities, wherever situated.
If an Event of Default with respect to any series of Securities occurs
and is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities of such series
by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
31<PAGE>
Section 5.14. Trustee May File Proofs of Claim. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Company or any other obligor upon the Securities or
the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Securities shall then be
due and payable as therein expressed or by declaration or otherwise and irre-
spective of whether the Trustee shall have made any demand on the Company for
the payment of overdue principal or interest) shall be entitled and empowered,
by intervention in such proceedings or otherwise,
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Securities and to file such other papers or
documents as may be necessary and advisable in order to have the
claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and all other amounts due the Trustee under
Section 607) and of the Securityholders allowed in such judicial
proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the
same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other
similar official) in any such judicial proceeding is hereby authorized by each
Securityholder to make such payment to the Trustee and in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Securityholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
Section 5.15. Trustee May Enforce Claims Without Possession of
Securities. All rights of action and claims under this Indenture or the
Securities of any series may be prosecuted and enforced by the Trustee without
the possession of any of the Securities of such series or the production
thereof in any proceeding relating thereto, and any such proceeding instituted
by the Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment shall after provision for the payment of
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agent and counsel and any other amounts due the Trustee under
Section 607, be for the ratable benefit of the Holders of the Securities of
the series in respect of which such judgment has been recovered.
32<PAGE>
Section 5.16. Application of Money Collected. Any money collected
by the Trustee with respect to a series of Securities pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(or premium, if any) or interest, upon presentation of the Securities of such
series and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607.
SECOND: To the payment of the amounts then due and unpaid upon the
Securities of that series for principal (and premium, if any) and interest, in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Securities for principal (and premium, if any) and
interest, respectively.
THIRD: If any, to the Company.
Section 5.17. Limitation on Suits. No Holder of any Security of any
series shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to Securities of
such series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of such series shall have made written request to
the Trustee to institute proceedings in respect of such Event of Default
in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the outstanding Securities of such
series;
it being understood and intended that no one or more Holders of Securities of
such series shall have any right in any manner whatever by virtue of, or by
availing of, any provision of this Indenture to affect, disturb or prejudice
the rights of any other Holders of Securities of such series, or to obtain or
to seek to obtain priority or preference over any other such Holders or to
33<PAGE>
enforce any right under this Indenture, except in the manner herein provided
and for the equal and proportionate benefit of all the Holders of all
Securities of such series.
Section 5.18. Unconditional Right of Securityholders To Receive
Principal, Premium and Interest. Notwithstanding any other provisions in this
Indenture, the Holder of any Security shall have the right, which is absolute
and unconditional, to receive payment of the principal of (and premium, if
any) and (subject to Section 307) interest on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption or
repayment, on the Redemption Date or Repayment Date, as the case may be) and
to institute suit for the enforcement of any such payment, and such right
shall not be impaired without the consent of such Holder.
Section 5.19. Restoration of Rights and Remedies. If the Trustee or
any Securityholder has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, then and in every such case the Company, the Trustee
and the Securityholders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and the
Securityholders shall continue as though no such proceeding had been
instituted.
Section 5.110. Rights and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Trustee or to the Securityholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise (except as provided in the last sentence of
Section 306). The assertion or employment of any right or remedy hereunder,
or otherwise, shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy.
Section 5.111. Delay or Omission Not Waiver. No delay or omission of
the Trustee or of any Holder of any Security to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to
the Securityholders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Securityholders, as the case may
be.
Section 5.112. Control by Securityholders. The Holders of a majority
in principal amount of the Outstanding Securities of any series shall have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee with respect to the Securities of such series, provided that
(1) the Trustee shall have the right to decline to follow any
such direction if the Trustee, being advised by counsel, determines that
the action so directed may not lawfully be taken or would conflict with
34<PAGE>
this Indenture or if the Trustee in good faith shall, by a Responsible
Officer, determine that the proceedings so directed would involve it in
personal liability or be unjustly prejudicial to the Holders not taking
part in such direction, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 5.113. Waiver of Past Defaults. The Holders of not less than
a majority in principal amount of the Outstanding Securities of any series may
on behalf of the Holders of all the Securities of such series waive any past
default hereunder with respect to such series and its consequences, except a
default not theretofore cured
(1) in the payment of the principal of (or premium, if any) or
interest on any Security of such series, or in the payment of any
sinking or purchase fund or analogous obligation with respect to the
Securities of such series, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security of such series.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent
or other default or impair any right consequent thereon.
Section 5.114. Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Security by his acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any
suit for the enforcement of any right or remedy under this Indenture, or in
any suit against the Trustee for any action taken or omitted by it as Trustee,
the filing by any party litigant in such suit of an undertaking to pay the
costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees and expenses, against
any party litigant in such suit, having due regard to the merits and good
faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, or to any suit instituted by any Securityholder for the enforcement
of the payment of the principal of (or premium, if any) or interest on any
Security on or after the respective Stated Maturities expressed in such
Security (or, in the case of redemption or repayment, on or after the
Redemption Date or Repayment Date, as the case may be).
ARTICLE 6. The Trustee.
Section 6.11. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default with
respect to any series of Securities,
35<PAGE>
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture with
respect to the Securities of such series, and no implied covenants
or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee
may, with respect to Securities of such series conclusively rely,
as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of
this Indenture, but in the case of any such certificates or
opinions which by any provision hereof are specifically required
to be furnished to the Trustee, the Trustee shall be under a duty
to examine the same to determine whether or not they conform to
the requirements of this Indenture (but need not confirm or
investigate the accuracy of mathematical calculations or other
facts stated therein).
(b) In case an Event of Default with respect to any series of
Securities has occurred and is continuing, the Trustee shall exercise
with respect to the Securities of such series such of the rights and
powers vested in it by this Indenture, and use the same degree of care
and skill in their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs.
(c) No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that
(1) this Subsection shall not be construed to limit the effect
of Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the
Outstanding Securities of any series relating to the time, method and
place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture with respect to the Securities of such series; and
(4) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder, or in the exercise of
any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it.
36<PAGE>
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to
the provisions of this Section.
Section 6.12. Notice of Defaults. Within 90 days after the
occurrence of any default hereunder with respect to Securities of any series,
the Trustee shall transmit by mail to all Securityholders of such series, as
their names and addresses appear in the Security Register, notice of such
default hereunder actually known to the Trustee, unless such default shall
have been cured or waived; provided, however, that, except in the case of a
default in the payment of the principal of (or premium, if any) or interest on
any Security of such series or in the payment of any sinking or purchase fund
installment or analogous obligation with respect to Securities of such series,
the Trustee shall be protected in withholding such notice if and so long as
the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determine
that the withholding of such notice is in the interests of the Securityholders
of such series; and provided, further, that in the case of any default of the
character specified in Section 501(4) with respect to Securities of such
series no such notice to Securityholders of such series shall be given until
at least 90 days after the occurrence thereof. For the purpose of this
Section, the term "default", with respect to Securities of any series, means
any event which is, or after notice or lapse of time or both would become, an
Event of Default with respect to Securities of such series.
Section 6.13. Certain Rights of Trustee. Except as otherwise
provided in Section 601:
(a) the Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its selection and
the advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
37<PAGE>
(e) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Securityholders pursuant to this Indenture,
unless such Securityholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which
might be incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document, but the Trustee, in its discretion, may make
such further inquiry or investigation into such facts or matters as it
may see fit, and, if the Trustee shall determine to make such further
inquiry or investigation, it shall be entitled to examine the books,
records and premises of the Company, personally or by agent or attorney
(which shall be at the sole cost of the Company in the event that such
inquiry or investigation was undertaken by the Trustee in the exercise
of its reasonable discretion on behalf of the Holders) and shall incur
no liability or additional liability of any kind by reason of such
inquiry or investigation;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible for
any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(h) the Trustee shall not be liable for any action taken,
suffered, or omitted to be taken by it in good faith and reasonably
believed by it to be authorized or within the discretion or rights or
powers conferred upon it by this Indenture; and
(i) the Trustee shall not be deemed to have notice of any
default or Event of Default unless a Responsible Officer of the Trustee
has actual knowledge thereof or unless written notice of any event which
is in fact such a default is received by the Trustee at the Corporate
Trust Office of the Trustee, and such notice references the Securities
and this Indenture.
Section 6.14. Not Responsible for Recitals or Issuance of
Securities. The recitals contained herein and in the Securities, except the
certificates of authentication, shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the
use or application by the Company of Securities or the proceeds thereof.
Section 6.15. May Hold Securities. The Trustee, any Paying Agent,
the Security Registrar or any other agent of the Company, in its individual or
any other capacity, may become the owner or pledgee of Securities and, subject
to Sections 608 and 613, may otherwise deal with the Company with the same
38<PAGE>
rights it would have if it were not Trustee, Paying Agent, Security Registrar
or such other agent.
Section 6.16. Money Held in Trust. Subject to the provisions of
Section 1003 hereof, all moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the
extent required by law. The Trustee shall be under no liability for interest
on any money received by it hereunder except as otherwise agreed in writing
with the Company.
Section 6.17. Compensation and Reimbursement. The Company agrees
(1) to pay to the Trustee from time to time such compensation as
the Company and the Trustee shall from time to time agree in writing for
all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(2) except as otherwise expressly provided herein to reimburse
the Trustee upon its request for all reasonable expenses, disbursements
and advances incurred or made by the Trustee in accordance with any
provision of this Indenture (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), except any
such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(3) to indemnify each of the Trustee or any predecessor Trustee
for, and to hold it harmless against, any and all losses, damages,
claims, liabilities or expenses, including taxes (other than taxes based
upon, measured by, or determined by the income of the Trustee), incurred
without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim
or liability in connection with the exercise or performance of any of
its powers or duties hereunder.
As security for the performance of the obligations of the Company under
this Section the Trustee shall have a lien prior to the Securities upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (and premium, if any) or interest on
particular Securities.
When the Trustee incurs expenses or renders services in connection with
an Event of Default specified in Section 501(6) or Section 501(7), the
expenses (including the reasonable charges and expenses of its counsel) and
the compensation for the services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
39<PAGE>
Section 6.18. Disqualification; Conflicting Interests. The Trustee
for the Securities of any series issued hereunder shall be subject to the
provisions of Section 310(b) of the Trust Indenture Act during the period of
time provided for therein. In determining whether the Trustee has a
conflicting interest as defined in Section 310(b) of the Trust Indenture Act
with respect to the Securities of any series, there shall be excluded this
Indenture with respect to Securities of any particular series of Securities
other than that series. Nothing herein shall prevent the Trustee from filing
with the Commission the application referred to in the second to last
paragraph of Section 310(b) of the Trust Indenture Act.
Section 6.19. Corporate Trustee Required; Eligibility. There shall
at all times be a Trustee hereunder with respect to each series of Securities,
which shall be either
(i) a corporation organized and doing business under the
laws of the United States of America or of any State, authorized
under such laws to exercise corporate trust powers and subject to
supervision or examination by Federal or State authority, or
(ii) a corporation or other Person organized and doing
business under the laws of a foreign government that is permitted
to act as Trustee pursuant to a rule, regulation or order of the
Commission, authorized under such laws to exercise corporate trust
powers, and subject to supervision or examination by authority of
such foreign government or a political subdivision thereof
substantially equivalent to supervision or examination applicable
to United States institutional trustees,
in either case having a combined capital and surplus of at least $50,000,000.
If such corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
Neither the Company nor any person directly or indirectly controlling,
controlled by, or under common control with the Company shall serve as trustee
for the Securities of any series issued hereunder. If at any time the Trustee
with respect to any series of Securities shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect specified in Section 610.
Section 6.110. Resignation of Successor.
(a) No resignation or removal of the Trustee and no appointment
of a successor Trustee pursuant to this Article shall become effective
until the acceptance of appointment by the successor Trustee under
Section 611.
(b) The Trustee may resign with respect to any series of
Securities at any time by giving written notice thereof to the Company.
If an instrument of acceptance by a successor Trustee shall not have
40<PAGE>
been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition, at the
expense of the Company, any court of competent jurisdiction for the
appointment of a successor Trustee.
(c) The Trustee may be removed with respect to any series of
Securities at any time by Act of the Holders of a majority in principal
amount of the Outstanding Securities of that series, delivered to the
Trustee and to the Company. If an instrument of acceptance by a
successor Trustee shall not have been delivered to the Trustee within 30
days after the giving of such notice of removal, the Trustee subject to
removal may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 310(b) of the
Trust Indenture Act pursuant to Section 608 with respect to any series
of Securities after written request therefor by the Company or by any
Securityholder who has been a bona fide Holder of a Security of that
series for at least 6 months, or
(2) the Trustee shall cease to be eligible under Section 609
with respect to any series of Securities and shall fail to resign after
written request therefor by the Company or by any such Securityholder,
or
(3) the Trustee shall become incapable of acting with respect to
any series of Securities, or
(4) the Trustee shall be adjudged a bankrupt or insolvent or a
receiver of the Trustee or of its property shall be appointed or any
public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, with respect to the series, or in the case of Clause (4), with
respect to all series, or (ii) subject to Section 514, any Securityholder who
has been a bona fide Holder of a Security of such series for at least 6 months
may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee with respect to the series, or, in the case
of Clause (4), with respect to all series.
(e) If the Trustee shall resign, be removed or become incapable
of acting with respect to any series of Securities, or if a vacancy
shall occur in the office of the Trustee with respect to any series of
Securities for any cause, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee for that series of Securities. If,
within one year after such resignation, removal or incapacity, or the
occurrence of such vacancy, a successor Trustee with respect to such
41<PAGE>
series of Securities shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding Securities of such
series delivered to the Company and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee with respect to such series
and supersede the successor Trustee appointed by the Company with
respect to such series. If no successor Trustee with respect to such
series shall have been so appointed by the Company or the
Securityholders of such series and accepted appointment in the manner
hereinafter provided, subject to Section 514, any Securityholder who has
been a bona fide Holder of a Security of that series for at least 6
months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a
successor Trustee with respect to such series.
(f) The Company shall give notice of each resignation and each
removal of the Trustee with respect to any series and each appointment
of a successor Trustee with respect to any series by mailing written
notice of such event by first-class mail, postage prepaid, to the
Holders of Securities of that series as their names and addresses appear
in the Security Register. Each notice shall include the name of the
successor Trustee and the address of its principal Corporate Trust
office.
Section 6.111. Acceptance of Appointment by Successor. Every
successor Trustee appointed hereunder shall execute, acknowledge and deliver
to the Company and to the predecessor Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the predecessor
Trustee shall become effective with respect to any series as to which it is
resigning or being removed as Trustee, and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the predecessor Trustee with respect to any such
series; but, on request of the Company or the successor Trustee, such
predecessor Trustee shall, upon payment of its reasonable charges, if any,
execute and deliver an instrument transferring to such successor Trustee all
the rights, powers and trusts of the predecessor Trustee, and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such predecessor Trustee hereunder with respect to all or any such
series, subject nevertheless to its lien, if any, provided for in Section 607.
Upon request of any such successor Trustee, the Company shall execute any and
all instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts.
In case of the appointment hereunder of a successor Trustee with respect
to the Securities of one or more (but not all) series, the Company, the
predecessor Trustee and each successor Trustee with respect to the Securities
of any applicable series shall execute and deliver an indenture supplemental
hereto which shall contain such provisions as shall be deemed necessary or
desirable to confirm that all the rights, powers, trusts and duties of the
predecessor Trustee with respect to the Securities of any series as to which
the predecessor Trustee is not being succeeded shall continue to be vested in
the predecessor Trustee, and shall add to or change any of the provisions of
42<PAGE>
this Indenture as shall be necessary to provide for or facilitate the adminis-
tration of the trusts hereunder by more than one Trustee, it being understood
that nothing herein or in such supplemental indenture shall constitute such
Trustees co-trustees of the same trust and that each such Trustee shall be
Trustee of a trust or trusts hereunder separate and apart from any trust or
trusts hereunder administered by any other such Trustee.
No successor Trustee with respect to any series of Securities shall
accept its appointment unless at the time of such acceptance such successor
Trustee shall be qualified and eligible with respect to that series under this
Article.
Section 6.112. Merger, Conversion, Consolidation or Succession to
Business. Any corporation into which the Trustee may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on
the part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may
adopt such authentication and deliver the Securities so authenticated with the
same effect as if such successor Trustee had itself authenticated such
Securities.
Section 6.113. Preferential Collection of Claims Against Company.
(a) Subject to Subsection (b) of this Section, if the Trustee
shall be or shall become a creditor, directly or indirectly, secured or
unsecured, of the Company within 3 months prior to a default, as defined
in Subsection (c) of this Section, or subsequent to such a default,
then, unless and until such default shall be cured, the Trustee shall
set apart and hold in a special account for the benefit of the Trustee
individually, the Holders of the Securities and the holders of other
indenture securities (as defined in Subsection (c) of this Section):
(1) an amount equal to any and all reduction in the amount due
and owing upon any claim as such creditor in respect of principal or
interest, effected after the beginning of such 3-month period and valid
as against the Company and its other creditors, except any such
reduction resulting from the receipt or disposition of any property
described in paragraph (2) of this Subsection, or from the exercise of
any right of set-off which the Trustee could have exercised if a
petition in bankruptcy had been filed by or against the Company upon the
date of such default; and
(2) all property received by the Trustee in respect of any claim
as such creditor, either as security therefor, or in satisfaction or
composition thereof, or otherwise, after the beginning of such 3-month
period, or an amount equal to the proceeds of any such property, if
43<PAGE>
disposed of, subject, however, to the rights, if any, of the Company and
its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee
(A) to retain for its own account (i) payments made on account of any
such claim by any Person (other than the Company) who is liable
thereon, and (ii) the proceeds of the bona fide sale of any such
claim by the Trustee to a third person, and (iii) distributions
made in cash, securities or other property in respect of claims
filed against the Company in bankruptcy or receivership or in
proceedings for reorganization pursuant to the Federal Bankruptcy
Act or applicable State law;
(B) to realize, for its own account, upon any property held by it as
security for any such claim, if such property was so held prior to
the beginning of such 3-month period;
(C) to realize, for its own account, but only to the extent of the
claim hereinafter mentioned, upon any property held by it as
security for any such claim, if such claim was created after the
beginning of such 3-month period and such property was received as
security therefor simultaneously with the creation thereof, and if
the Trustee shall sustain the burden of proving that at the time
such property was so received the Trustee had no reasonable cause
to believe that a default as defined in Subsection (c) of this
Section would occur within 3 months; or
(D) to receive payment on any claim referred to in paragraph (B) or
against the release of any property held as security for such
claim as provided in paragraph (B) or (C), as the case may be, to
the extent of the fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property substituted
after the beginning of such 3-month period for property held as security at
the time of such substitution shall, to the extent of the fair value of the
property released, have the same status as the property released, and, to the
extent that any claim referred to in any of such paragraphs is created in
renewal of or in substitution for or for the purpose of repaying or refunding
any pre-existing claim of the Trustee as such creditor, such claim shall have
the same status as such pre-existing claim.
If the Trustee shall be required to account, the funds and property held
in such special account and the proceeds thereof shall be apportioned between
the Trustee, the Securityholders and the holders of other indenture securities
in such manner that the Trustee, the Securityholders and the holders of other
indenture securities realize, as a result of payments from such special
account and payments of dividends on claims filed against the Company in
bankruptcy or receivership or in proceedings for reorganization pursuant to
the Federal Bankruptcy Act or applicable State law, the same percentage of
their respective claims, figured before crediting to the claim of the Trustee
anything on account of the receipt by it from the Company of the funds and
44<PAGE>
property in such special Account and before crediting to the respective claims
of the Trustee and the Securityholders and the holders of other indenture
securities dividends on claims filed against the Company in bankruptcy or
receivership or in proceedings for reorganization pursuant to the Federal
Bankruptcy Act or applicable State law, but after crediting thereon receipts
on account of the indebtedness represented by their respective claims from all
sources other than from such dividends and from the funds and property so held
in such special account. As used in this paragraph, with respect to any
claim, the term "dividends" shall include any distribution with respect to
such claim, in bankruptcy or receivership or proceedings for reorganization
pursuant to the Federal Bankruptcy Act or applicable State law, whether such
distribution is made in cash, securities, or other property, but shall not
include any such distribution with respect to the secured portion, if any, of
such claim. The court in which such bankruptcy, receivership or proceedings
for reorganization is pending shall have jurisdiction (i) to apportion between
the Trustee and the Securityholders and the holders of other indenture
securities, in accordance with the provisions-of this paragraph, the funds and
property held in such special account and proceeds thereof, or (ii) in lieu of
such apportionment, in whole or in part, to give to the provisions of this
paragraph due consideration in determining the fairness of the distributions
to be made to the Trustee and the Securityholders and the holders of other
indenture securities with respect to their respective claims, in which event
it shall not be necessary to liquidate or to appraise the value of any
securities or other property held in such special account or as security for
any such claim, or to make a specific allocation of such distributions as
between the secured and unsecured portions of such claims, or otherwise to
apply the provisions of this paragraph as a mathematical formula.
Any Trustee which has resigned or been removed after the beginning of
such 3-month period shall be subject to the provisions of this Subsection as
though such resignation or removal had not occurred. If any Trustee has
resigned or been removed prior to the beginning of such 3-month period, it
shall be subject to the provisions of this Subsection if and only if the
following conditions exist:
(i) the receipt of property or reduction of claim, which
would have given rise to the obligation to account, if such
Trustee had continued as Trustee, occurred after the beginning of
such 3-month period; and
(ii) such receipt of property or reduction of claim
occurred within 3 months after such resignation or removal.
(b) There shall be excluded from the operation of Subsection (a)
of this Section a creditor relationship arising from
(1) the ownership or acquisition of securities issued under any
indenture or any security or securities having a maturity of one year or
more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court of
competent jurisdiction, or by this Indenture, for the purpose of
45<PAGE>
preserving any property which shall at any time be subject to the lien
of this Indenture or of discharging tax liens or other prior liens or
encumbrances thereon, if notice of such advances and of the
circumstances surrounding the making thereof is given to the
Securityholders at the time and in the manner provided in this
Indenture;
(3) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, fiscal agent or depository, or other similar
capacity;
(4) an indebtedness created as a result of services rendered or
premises rented; or an indebtedness created as a result of goods or
securities sold in a cash transaction as defined in Subsection (c) of
this Section;
(5) the ownership of stock or of other securities of a
corporation organized under the provisions of Section 25(a) of the
Federal Reserve Act, as amended, which is directly or indirectly a
creditor of the Company; or
(6) the acquisition, ownership, acceptance or negotiation of any
drafts, bills of exchange, acceptances or obligations which fall within
the classification of self-liquidating paper as defined in Subsection
(c) of this Section.
(c) For the purposes of this Section only:
(1) The term "default" means any failure to make payment in full
of the principal of or interest on any of the Securities or upon the
other indenture securities when and as such principal or interest
becomes due and payable.
(2) The term "other indenture securities" means securities upon
which the Company is an obligor outstanding under any other indenture
(i) under which the Trustee is also trustee, (ii) which contains
provisions substantially similar to the provisions of this Section, and
(iii) under which a default exists at the time of the apportionment of
the funds and property held in such special account.
(3) The term "cash transaction" means any transaction in which
full payment for goods or securities sold is made within 7 days after
delivery of the goods or securities in currency or in checks or other
orders drawn upon banks or bankers and payable upon demand.
(4) The term "self-liquidating paper" means any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Company for the purpose of financing the purchase,
processing, manufacturing, shipment, storage or sale of goods, wares or
merchandise and which is secured by documents evidencing title to,
possession of, or a lien upon, the goods, wares or merchandise or the
46<PAGE>
receivables or proceeds arising from the sale of the goods, wares or
merchandise previously constituting the security, provided the security
is received by the Trustee simultaneously with the creation of the
creditor relationship with the Company arising from the making, drawing,
negotiating or incurring of the draft, bill of exchange, acceptance or
obligation.
(5) The term "Company" means any obligor upon the Securities.
Section 6.114. Appointment of Authentication Agent. At any time when
any of the Securities remain Outstanding the Trustee, with the approval of the
Company, may appoint an Authenticating Agent or Agents with respect to one or
more series of Securities which shall be authorized to act on behalf of the
Trustee to authenticate Securities of such series issued upon exchange,
registration of transfer or partial redemption thereof or pursuant to Section
306, and Securities so authenticated shall be entitled to the benefits of this
Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or
the Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized
and doing business under the laws of the United States of America, any State
thereof or the District of Columbia, authorized under such laws to act as an
Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and, if other than the Company itself, subject to supervision or
examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Authenticating Agent
shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating
Agent shall be a party, or any corporation succeeding to the corporate agency
or corporate trust business of an Authenticating Agent, shall continue to be
an Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and, if other than the Company, to the Company. The
Trustee may at any time terminate the agency of an Authenticating Agent by
giving written notice thereof to such Authenticating Agent and, if other than
the Company, to the Company. Upon receiving such a notice of resignation or
47<PAGE>
upon such a termination, or in case at any time such Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
the Trustee, with the approval of the Company, may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall mail
written notice of such appointment by first-class mail, postage prepaid, to
all Holders of Securities of the series with respect to which such
Authenticating Agent will serve, as their names and addresses appear in the
Security Register. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and
duties of its predecessor hereunder, with like effect as if originally named
as an Authenticating Agent. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternate
certificate of authentication in the following form:
48<PAGE>
This is one of the Securities referred to in the within-mentioned
Indenture.
THE BANK OF NEW YORK
as Trustee,
By:________________________________
As Authenticating Agent
By:________________________________
Authorized Officer
ARTICLE 7. Securityholders' Lists and Reports by Trustee and Company.
Section 7.11. Company To Furnish Trustee Names and Addresses of
Securityholders. The Company will furnish or cause to be furnished to the
Trustee
(1) semi-annually not later than December 1 and June 1 in each
year in such form as the Trustee may reasonably require, a list of the
names and addresses of the Holders of Securities of each series as of a
date not more than 15 days prior to the date such list is furnished, and
(2) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days
prior to the date such list is furnished,
except that no such list need be furnished so long as the Trustee is acting
as Security Registrar.
Section 7.12. Preservation of Information; Communications to
Securityholders.
(a) The Trustee shall preserve in as current a form as is
reasonably practicable, the names and addresses of Holders of Securities
contained in the most recent list furnished to the Trustee as provided
in Section 701 and the names and addresses of Holders of Securities
received by the Trustee in its capacity as Security Registrar. The
Trustee may destroy any list furnished to it as provided in Section 701
upon receipt of a new list so furnished.
(b) If 3 or more Holders of Securities of any series
(hereinafter referred to as "applicants") apply in writing to the
Trustee, and furnish to the Trustee reasonable proof that each such
applicant has owned a Security of such series for a period of at least 6
months preceding the date of such application, and such application
states that the applicants desire to communicate with other Holders of
Securities of such series or with the Holders of all Securities with
respect to their rights under this Indenture or under such Securities
and is accompanied by a copy of the form of proxy or other communication
49<PAGE>
which such applicants propose to transmit, then the Trustee shall,
within 5 Business Days after the receipt of such application, at its
election, either
(i) afford such applicants access to the information
preserved at the time by the Trustee in accordance with Section
702(a), or
(ii) inform such applicants as to the approximate number of
Holders of Securities of such series or all Securities, as the
case may be, whose names and addresses appear in the information
preserved at the time by the Trustee in accordance with Section
702(a), and as to the approximate cost of mailing to such
Securityholders the form of proxy or other communication, if any,
specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder of a Security of such series or to all Securityholders, as
the case may be, whose names and addresses appear in the information preserved
at the time by the Trustee in accordance with Section 702(a), a copy of the
form of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the material to be
mailed and of payment, or provision for the payment, of the reasonable
expenses of mailing, unless, within 5 days after such tender, the Trustee
shall mail to such applicants and file with the Commission, together with a
copy of the material to be mailed, a written statement to the effect that, in
the opinion of the Trustee, such mailing would be contrary to the best
interests of the Holders of Securities of such series or all Securityholders,
as the case may be, or would be in violation of applicable law. Such written
statement shall specify the basis of such opinion. If the Commission, after
opportunity for a hearing upon the objections specified in the written
statement so filed, shall enter an order refusing to sustain any of such
objections or if, after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and opportunity for
hearing, that all the objections so sustained have been met and shall enter an
order so declaring, the Trustee shall mail copies of such material to all
Securityholders of such series or all Securityholders, as the case may be,
with reasonable promptness after the entry of such order and the renewal of
such tender; otherwise the Trustee shall be relieved of any obligation or duty
to such applicants respecting their application.
(c) Every Holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the Company
nor the Trustee shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders of
Securities in accordance with Section 702(b), regardless of the source
from which such information was derived, and that the Trustee shall not
be held accountable by reason of mailing any material pursuant to a
request made under Section 702(b).
50<PAGE>
Section 7.13. Reports by Trustee.
(a) The term "reporting date" as used in this Section means
April 1. Within 60 days after the reporting date in each year, beginning
in 1999, the Trustee shall transmit by mail to all Securityholders, as
their names and addresses appear in the Security Register, a brief
report dated as of such reporting date with respect to any of the
following events which may have occurred during the twelve months
preceding the date of such report (but if no such event has occurred
within such period, no report need be transmitted):
(1) any change to its eligibility under Section 609 and its
qualifications under Section 608;
(2) the creation of or any material change to a relationship
specified in Section 310(b)(1) through Section 310(b)(10) of the Trust
Indenture Act;
(3) the character and amount of any advances (and if the
Trustee elects so to state, the circumstances surrounding the making
thereof) made by the Trustee (as such) which remain unpaid on the date
of such report, and for the reimbursement of which it claims or may
claim a lien or charge, prior to that of Securities of any series, on
any property or funds held or collected by it as Trustee, except that
the Trustee shall not be required (but may elect) to report such
advances if such advances so remaining unpaid aggregate not more than
1/2 of 1% of the principal amount of the Securities of such series
outstanding on the date of such report;
(4) any change to the amount, interest rate and maturity date of
all other indebtedness owing by the Company (or by any other obligor on
the Securities) to the Trustee in its individual capacity, on the date
of such report, with a brief description of any property held as
collateral security therefor, except an indebtedness based upon a
creditor relationship arising in any manner described in Section
613(b)(2), (3), (4), or (6);
(5) any change to the property and funds, if any, physically in
the possession of the Trustee as such on the date of such report;
(6) any additional issue of Securities which the Trustee has not
previously reported; and
(7) any action taken by the Trustee in the performance of its
duties hereunder which it has not previously reported and which in its
opinion materially affects the Securities, except action in respect of a
default, notice of which has been or is to be withheld by the Trustee in
accordance with Section 602.
(b) The Trustee shall transmit by mail to all Securityholders,
as their names and addresses appear in the Security Register, a brief
report with respect to the character and amount of any advances (and if
51<PAGE>
the Trustee elects so to state, the circumstances surrounding the making
thereof) made by the Trustee (as such) since the date of the last report
transmitted pursuant to Subsection (a) of this Section (or if no such
report has yet been so transmitted, since the date of execution of this
instrument) for the reimbursement of which it claims or may claim a lien
or charge, prior to that of the Securities of any series, on property or
funds held or collected by it as Trustee, and which it has not
previously reported pursuant to this Subsection, except that the Trustee
shall not be required (but may elect) to report such advances if such
advances remaining unpaid at any time aggregate 10% or less of the
principal amount of the Securities outstanding of such series at such
time, such report to be transmitted within 90 days after such time.
(c) A copy of each such report shall, at the time of such
transmission to Securityholders, be furnished to the Company and be
filed by the Trustee with each stock exchange upon which the Securities
are listed, and also with the Commission. The Company will promptly
notify the Trustee when the Securities are listed on any stock exchange,
or any delisting thereof.
Section 7.14. Reports by Company. The Company will
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may from time
to time by rules and regulations prescribe) which the Company may be
required to file with the Commission pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934; or, if the Company is not
required to file information, documents or reports pursuant to either of
said Sections, then will file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by
the Commission, such of the supplementary and periodic information,
documents and reports which may be required pursuant to Section 13 of
the Securities Exchange Act of 1934 in respect of a security listed and
registered on a national securities exchange as may be prescribed from
time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission,
such additional information, documents and reports with respect to
compliance by the Company with the conditions and covenant of this
Indenture as may be required from time to time by such rules and
regulations; and
(3) transmit by mail to all Securityholders, as their names and
addresses appear in the Security Register, within 30 days after the
filing thereof with the Trustee, such summaries of any information,
documents and reports required to be filed by the Company pursuant to
paragraphs (1) and (2) of this Section as may be required by rules and
regulations prescribed from time to time by the Commission.
52<PAGE>
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
ARTICLE 8. Consolidation, Merger, Conveyance or Transfer.
Section 8.11. When Company May Merge or Transfer Assets. The
Company, in a single transaction or through a series of related transactions,
shall not consolidate with or merge with or into any other Person or transfer
(by lease, assignment, sale or otherwise) all or substantially all of its
properties and assets to another Person or group of affiliated Persons,
unless:
(a) either (1) the Company shall be the continuing corporation
or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or to which all or
substantially all of the properties and assets of the Company are trans-
ferred (i) shall be a corporation, partnership or trust organized and
validly existing under the laws of the United States or any State
thereof or the District of Columbia and (ii) shall expressly assume, by
an indenture supplemental hereto, executed and delivered to the Trustee,
in form reasonably satisfactory to the Trustee, all of the obligations
of the Company under the Securities and this Indenture and the
performance of every covenant of this Indenture on the part of the
Company to be performed or observed;
(b) immediately after giving effect to such transaction, and the
assumption contemplated by clause (a) above, no Event of Default, and no
event which, after notice or lapse of time, or both, would become an
Event of Default, shall have occurred and be continuing; and
(c) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and, if a supplemental indenture is
required in connection with such transaction, such supplemental
indenture, comply with this Article 8 and that all conditions precedent
herein provided for relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise) of the properties and assets of one or more Restricted
Subsidiaries (other than to the Company or another direct or indirect wholly
owned Subsidiary) in a single transaction or through a series of related
transactions, which, if such assets were owned by the Company, would
constitute all or substantially all of the properties and assets of the
Company, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
The successor Person formed by such consolidation or into which the
Company is merged or the successor Person to which such conveyance, transfer
53<PAGE>
or lease is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture with the same
effect as if such successor had been named as the Company herein, and
thereafter, except in the case of a lease of its properties and assets
substantially as an entirety, the Company shall be discharged and released
from all obligations and covenants under this Indenture and the Securities.
The Trustee shall enter into a supplemental indenture to evidence the
succession and substitution of such successor Person and such discharge and
release of the Company.
ARTICLE 9. Supplemental Indentures.
Section 9.11. Supplemental Indentures Without Consent of
Securityholders. Without the consent of the Holders of any Securities, the
Company, when authorized by a Board Resolution, and the Trustee, at any time
and from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following
purposes:
(1) to evidence the succession of another corporation to the
Company, and the assumption by any such successor of the covenants of
the Company herein and in the Securities contained; or
(2) to add to the covenants of the Company, or to surrender any
right or power herein conferred upon the Company, for the benefit of the
Holders of the Securities of any or all series (and if such covenants or
the surrender of such right or power are to be for the benefit of less
than all series of Securities, stating that such covenants are expressly
being included or such surrenders are expressly being made solely for
the benefit of one or more specified series); or
(3) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture; or
(4) to add to this Indenture such provisions as may be expressly
permitted by the TIA, excluding, however, the provisions referred to in
Section 316(a)(2) of the TIA as in effect at the date as of which this
instrument was executed or any corresponding provision in any similar
Federal statute hereafter enacted; or
(5) to establish any form of Security, as provided in Article
Two, and to provide for the issuance of any series of Securities as
provided in Article Three and to set forth the terms thereof, and/or to
add to the rights of the Holders of the Securities of any series; or
(6) to evidence and provide for the acceptance of appointment by
another corporation as a successor Trustee hereunder with respect to one
or more series of Securities and to add to or change any of the provi-
sions of this Indenture as shall be necessary to provide for or
54<PAGE>
facilitate the administration of the trusts hereunder by more than one
Trustee, pursuant to Section 611; or
(7) to add any additional Events of Default in respect of the
Securities of any or all series (and if such additional Events of
Default are to be in respect of less than all series of Securities,
stating that such Events of Default are expressly being included solely
for the benefit of one or more specified series); or
(8) to provide for the issuance of Securities in coupon as well
as fully registered form.
No supplemental indenture for the purposes identified in Clauses (2),
(3) or (7) above may be entered into if to do so would adversely affect the
interest of the Holders of Securities of any series.
Section 9.12. Supplemental Indentures with Consent of
Securityholders. With the consent of the Holders of not less than a majority
in principal amount of the Outstanding Securities of each series affected by
such supplemental indenture or indentures, by Act of said Holders delivered to
the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders of the Securities of each
such series under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding
Security affected thereby,
(1) change the Maturity of the principal of, or the Stated
Maturity of any premium on, or any installment of interest on, any
Security, or reduce the principal amount thereof or the interest or any
premium thereon, or change the method of computing the amount of
principal thereof or interest thereon on any date or change any Place of
Payment where any Security or any premium or interest thereon is
payable, or impair the right to institute suit for the enforcement of
any such payment on or after the Maturity or the Stated Maturity, as the
case may be, thereof (or, in the case of redemption or repayment, on or
after the Redemption Date or the Repayment Date as the case may be); or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for
any such supplemental indenture, or the consent of whose Holders is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences, provided
for in this Indenture; or
(3) modify any of the provisions of this Section, Section 513 or
Section 1008, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby.
55<PAGE>
A supplemental indenture which changes or eliminates any covenant or
other provision of this Indenture which has expressly been included solely for
the benefit of one or more particular series of Securities, or which modifies
the rights of the Holders of Securities of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under
this Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Securityholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Persons entitled to consent to any indenture
supplemental hereto. If a record date is fixed, the Holders on such record
date, or their duly designated proxies, and only such Persons, shall be
entitled to consent to such supplemental indenture, whether or not such
Holders remain Holders after such record date; provided, that unless such
consent shall have become effective by virtue of the requisite percentage
having been obtained prior to the date which is six months after such record
date, any such consent previously given shall automatically and without
further action by any Holder be canceled and of no further effect.
Section 9.13. Execution of Supplemental Indentures. In executing,
or accepting the additional trusts created by, any supplemental indenture
permitted by this Article or the modifications thereby of the trusts created
by this Indenture, the Trustee shall be entitled to receive, and (subject to
Section 601) shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
Section 9.14. Effect of Supplemental Indentures. Upon the execution
of any supplemental indenture under this Article, this Indenture shall be
modified in accordance therewith, and such supplemental indenture shall form a
part of this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby to the extent provided therein.
Section 9.15. Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article shall conform to the
requirements of the TIA as then in effect.
Section 9.16. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for
in such supplemental indenture. If the Company shall so determine, new
Securities so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.
56<PAGE>
ARTICLE 10. Covenants.
Section 10.11. Payment of Principal, Premium and Interest. With
respect to each series of Securities, the Company will duly and punctually pay
the principal of (and premium, if any) and interest on such Securities in
accordance with their terms and this Indenture, and will duly comply with all
the other terms, agreements and conditions contained in, or made in the
Indenture for the benefit of, the Securities of such series.
Section 10.12. Maintenance of Office or Agency. The Company will
maintain an office or agency in each Place of Payment where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and of any change
in the location, of such office or agency. If at any time the Company shall
fail to maintain such office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the principal Corporate Trust Office of the Trustee,
Attention: Corporate Trust Trustee Administration, and the Company hereby
appoints the Trustee its agent to receive all such presentations, surrenders,
notices and demands.
Section 10.13. Money for Security Payments To Be Held in Trust. If
the Company shall at any time act as its own Paying Agent for any series of
Securities, it will, on or before each due date of the principal of (and
premium, if any) or interest on, any of the Securities of such series,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal (and premium, if any) or interest so
becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided, and will promptly notify the Trustee of its
action or failure to act.
Whenever the Company shall have one or more Paying Agents for any series
of Securities, it will, prior to each due date of the principal of (and
premium, if any) or interest on, any Securities of such series, deposit with a
Paying Agent a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal (and premium, if any) or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee for any
series of Securities to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provi-
sions of this Section, that such Paying Agent will
(1) hold all sums held by it for the payment of principal of
(and premium, if any) or interest on Securities of such series in trust
for the benefit of the Persons entitled thereto until such sums shall be
paid to such Persons or otherwise disposed of as herein provided;
57<PAGE>
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Securities of such series) in the making of
any such payment of principal (and premium, if any) or interest on the
Securities of such series; and
(3) at any time during the continuance of any such default upon
the written request of the Trustee, forthwith pay to the Trustee all
sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture with respect to any series of
Securities or for any other purpose, pay, or by Company Order direct any
Paying Agent to pay, to the Trustee all sums held in trust by the Company or
such Paying Agent in respect of each and every series of Securities as to
which it seeks to discharge this Indenture or, if for any other purpose, all
sums so held in trust by the Company in respect of all Securities, such sums
to be held by the Trustee upon the same trusts as those upon which such sums
were held by the Company or such Paying Agent; and, upon such payment by any
Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Security of any series and remaining unclaimed for two
years after such principal (and premium, if any) or interest has become due
and payable shall be paid to the Company on Company Request, or (if then held
by the Company) shall be discharged from such trust; and the Holder of such
Security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease. The Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company mail to the Holders of the Securities as to which the money to be
repaid was held in trust, as their names and addresses appear in the Security
Register, a notice that such moneys remain unclaimed and that, after a date
specified in the notice, which shall not be less than 30 days from the date on
which the notice was first mailed to the Holders of the Securities as to which
the money to be repaid was held in trust, any unclaimed balance of such moneys
then remaining will be paid to the Company free of the trust formerly
impressed upon it.
Section 10.14. Statement as to Compliance. The Company will deliver
to the Trustee, within 120 days of the end of each fiscal year, a written
statement signed by the principal executive officer, principal financial
officer or principal accounting officer of the Company stating that
(1) in the course of the performance of his duties as an officer
of the Company he would normally have knowledge of the Company's
performance under this Indenture and under the terms of the Securities;
and
58<PAGE>
(2) to the best of his knowledge, the Company has fulfilled all
its obligations under this Indenture and has complied with all
conditions and covenants on its part contained in this Indenture through
such year, or, if there has been a default in the fulfillment of any
such obligation, covenant or condition, specifying each such default
known to him and the nature and status thereof.
For the purpose of this Section 1004, default and compliance shall
be determined without regard to any grace period or requirement of
notice provided pursuant to the terms of this Indenture.
Section 10.15. Legal Existence. Subject to Article Eight the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect its legal existence.
Section 10.16. Limitation on Liens. The Company shall not create,
assume or suffer to exist any Lien upon any Principal Property of the Company
or any Restricted Subsidiary or shares of Capital Stock or indebtedness of any
Subsidiary to secure any debt of any Person, or permit any Restricted
Subsidiary so to do, without making effective provision whereby the Securities
then outstanding and having the benefit of this Section shall be secured by
the Lien equally and ratably with such debt for so long as such debt shall be
so secured, except that the foregoing shall not prevent the Company or any
Restricted Subsidiary from creating, assuming or suffering to exist Liens of
the following character:
(1) with respect to any series of Securities, any Lien existing
on the date of issuance of the series;
(2) any Lien existing on property owned or leased by, or shares
of capital stock or indebtedness of, a Person at the time it becomes a
Restricted Subsidiary;
(3) any Lien existing on property at the time of the acquisition
or lease thereof by the Company or a Restricted Subsidiary;
(4) any Lien on property of a corporation existing at the time
such corporation is merged or consolidated with the Company or a
Restricted Subsidiary or at the time of a sale, lease or other
disposition of the properties of a corporation as an entirety or
substantially as an entirety to the Company or a Restricted Subsidiary;
(5) any Lien to secure any debt on capital stock, property or
assets incurred prior to, at the time of, or within 180 days after, or
pursuant to financing arrangements for which a firm commitment is made
by a bank, insurance company or other lender or investor (not including
the Company or any Restricted Subsidiary) within 180 days after, the
acquisition of capital stock, property or assets for the purpose of
financing all or any part of the purchase price thereof;
(6) any Lien to secure any debt incurred prior to, at the time
of, or within 180 days after, or pursuant to financing arrangements for
59<PAGE>
which a firm commitment is made by a bank, insurance company or other
lender or investor (not including the Company or any Restricted
Subsidiary) within 180 days after, the completion of the construction
and commencement of commercial operation, alteration, repair or
improvement of property or assets for the purpose of financing all or
any part of the cost thereof;
(7) any Lien securing debt of a Restricted Subsidiary owing to
the Company or to another Restricted Subsidiary;
(8) any Lien in favor of any customer arising in respect of
performance deposits and partial, progress, advance or other payments
made by or on behalf of such customer for goods produced or to be
produced for or services rendered or to be rendered to such customer in
the ordinary course of business, which Lien shall not exceed the amount
of such deposits or payments;
(9) mechanics', workmen's, repairmen's, materialmen's, carriers'
and other similar Liens arising in the ordinary course of business;
(10) any Lien created by or resulting from any litigation or
proceedings which are being contested in good faith by appropriate
proceedings; any Lien arising out of a judgment or award against the
Company and/or one or more Restricted Subsidiaries with respect to which
the Company and/or such Restricted Subsidiary or Subsidiaries are in
good faith prosecuting an appeal or proceedings for review; or any Lien
incurred by the Company and/or Restricted Subsidiaries for the purpose
of attaining a stay or discharge in the course of any legal proceedings
to which the Company and/or Restricted Subsidiary or Subsidiaries are a
party; or
(11) any Lien for taxes or assessments or governmental charges or
levies not yet due or delinquent, or which can thereafter be paid
without penalty or which are being contested in good faith by
appropriate proceedings; any landlord's Lien on property held under
lease and tenants' rights under leases; easements and any other liens of
a nature similar to those hereinabove described in this clause (11)
which do not, in the opinion of the Company, materially impair the use
of such property in the operation of the business of the Company or any
Restricted Subsidiary or the value of such property for the purposes of
such business;
(12) any Lien which may be deemed to result from an agreement or
commitment to exchange securities of a Subsidiary for other securities
of the Company, whether or not such securities of a Subsidiary are
placed in escrow for such purpose;
(13) any Lien in favor of the United States of America or any
State thereof or any other country, or any agency, instrumentality or
political subdivision or any of the foregoing, to secure partial,
progress, advance or other payments or performance pursuant to the
60<PAGE>
provisions of any contract or statute, or any Liens securing industrial
development, pollution control, or similar revenue bonds;
(14) any extension, renewal or replacement (or successive
extensions, renewals or replacements) in whole or in part of any Lien
referred to in clauses (1) through (13) above, so long as the principal
amount of the debt secured thereby does not exceed the principal amount
of debt so secured at the time of the extension, renewal or replacement
(except that, where an additional principal amount of debt is incurred
to provide funds for the completion of a specific project, the
additional principal amount, and any related financing costs, may be
secured by the Lien as well) and the Lien is limited to all or part of
the same property subject to the Lien so extended, renewed or replaced
(plus improvements on the property); and
(15) any Lien not permitted by clauses (1) through (14) above
securing debt which, together with the aggregate outstanding principal
amount of all other debt of the Company and its Restricted Subsidiaries
which would otherwise be subject to the foregoing restrictions and the
aggregate Value of existing Sale and Leaseback Transactions which would
be subject to the restrictions of Section 1007 but for this clause (15),
does not at any time exceed 15% of Consolidated Net Assets.
Section 10.17. Limitation on Sale and Leasebacks. The Company shall
not enter into any Sale and Leaseback Transaction involving a Principal
Property of the Company or any Restricted Subsidiary, nor permit any
Restricted Subsidiary so to do, unless either:
(1) the Company or such Restricted Subsidiary would be entitled
to incur debt, in a principal amount at least equal to the Value of such
Sale and Leaseback Transaction, which is secured by Liens on the
property to be leased (without equally and ratably securing the
outstanding Securities) because such Liens would be of such character
that no violation of any of the provisions of Section 1006 would result,
or
(2) the Company during the 180 days immediately following the
effective date of such Sale and Leaseback Transaction causes to be
applied to either (i) the voluntary retirement of Funded Debt (whether
by redemption, defeasance, repurchase, or otherwise) an amount equal to
the Value of such Sale and Leaseback Transaction, or (ii) the purchase
of other property which will constitute "Principal Property" having a
fair value, as determined by the Company, at least equal to the Value of
such Sale and Leaseback Transaction; or
(3) the Company or a Restricted Subsidiary shall deliver to the
Trustee or other applicable trustee for cancellation Securities or
Funded Debt in an aggregate principal amount at least equal to the Value
of such Sale and Leaseback Transaction.
Section 10.18. Waiver of Certain Covenants. The Company may omit in
respect of any series of Securities, in any particular instance, to comply
61<PAGE>
with any covenant or condition set forth in Sections 1006 and 1007, if before
or after the time for such compliance the Holders of at least a majority in
principal amount of the Securities at the time Outstanding of such series
shall, by Act of such Securityholders, either waive such compliance in such
instance or generally waive compliance with such covenant or condition, but no
such waiver shall extend to or affect such covenant or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any
such covenant or condition shall remain in full force and effect.
Section 10.19. Calculation of Original Issue Discount. The Company
shall file with the Trustee promptly at the end of each calendar year (i) a
written notice specifying the amount of original issue discount (including
daily rates and accrual periods) accrued on Outstanding Securities as of the
end of such year and (ii) such other specific information relating to such
original issue discount as may then be relevant under the Internal Revenue
Code of 1986, as amended from time to time.
ARTICLE 11. Redemption of Securities.
Section 11.11. Applicability of Article. The Company may reserve the
right to redeem and pay before Stated Maturity all or any part of the
Securities of any series, either by optional redemption, sinking or purchase
fund or analogous obligation or otherwise, by provision therefor in the form
of Security for such series established and approved pursuant to Section 202
and on such terms as are specified in such form or in the indenture
supplemental hereto with respect to Securities of such series as provided in
Section 301. Redemption of Securities of any series shall be made in
accordance with the terms of such Securities and, to the extent that this
Article does not conflict with such terms, the succeeding Sections of this
Article.
Section 11.12. Election To Redeem; Notice to Trustee. The election
of the Company to redeem any Securities redeemable at the election of the
Company shall be evidenced by, or pursuant to authority granted by, a Board
Resolution. In case of any redemption at the election of the Company, the
Company shall, at least 60 days prior to the Redemption Date fixed by the
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee of such Redemption Date and of the principal amount of Securities
of such series and the Tranche (as defined in Section 1103) to be redeemed.
In the case of any redemption of Securities (i) prior to the expiration
of any restriction on such redemption provided in the terms of such securities
or elsewhere in this Indenture, or (ii) pursuant to an election of the Company
which is subject to a condition specified in the terms of such Securities, the
Company shall furnish the Trustee with an Officers' Certificate evidencing
compliance with such restriction or condition.
Section 11.13. Selection by Trustee of Securities To Be Redeemed. If
less than all the Securities of like tenor and terms of any series (a
"Tranche") are to be redeemed, the particular Securities to be redeemed shall
be selected not more than 60 days prior to the Redemption Date by the Trustee,
62<PAGE>
from the Outstanding Securities of such Tranche not previously called for
redemption, by such method as the Trustee shall deem fair and appropriate
(other than pro rata selection) and which may include provision for the
election for redemption of portions of the principal of Securities of such
Tranche of a denomination larger than the minimum authorized denomination for
Securities of that series. Unless otherwise provided in the terms of a
particular series of Securities, the portions of the principal of Securities
so selected for partial redemption shall be equal to the minimum authorized
denomination of the Securities of such series, or an integral multiple
thereof, and the principal amount which remains outstanding shall not be less
than the minimum authorized denomination for Securities of such series. If
less than all the Securities of unlike tenor and terms of a series are to be
redeemed, the particular Tranche of Securities to be redeemed shall be
selected by the Company.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Security selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall
relate, in the case of any Security redeemed or to be redeemed only in part,
to the portion of the principal of such Security which has been or is to be
redeemed.
Section 11.14. Notice of Redemption. Notice of redemption shall be
given by first-class mail, postage prepaid, mailed not less than 30 nor more
than 60 days prior to the Redemption Date, to each holder of Securities to be
redeemed, at his address appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the CUSIP number;
(4) if less than all Outstanding Securities of any series are to
be redeemed, the identification (and, in the case of partial redemption,
the respective principal amounts) of the Securities to be redeemed, from
the Holder to whom the notice is given;
(5) that on the Redemption Date the Redemption Price will become
due and payable upon each such Security, and that interest, if any,
thereon shall cease to accrue from and after said date;
(6) the place where such Securities are to be surrendered for
payment of the Redemption Price, which shall be the office or agency of
the Company in the Place of Payment;
63<PAGE>
(7) that the redemption is on account of a sinking or purchase
fund, or other analogous obligation, if that be the case; and
(8) that, if less than the entire principal amount of any
security is being redeemed, a replacement security for the remaining
principal balance shall be issued to the Holder.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
Section 11.15. Deposit of Redemption Price. On or prior to 10:00
a.m., New York City time, on any Redemption Date, the Company shall deposit
with the Trustee or with a Paying Agent (or, if the Company is acting as its
own Paying Agent, segregate and hold in trust as provided in Section 1003) an
amount of money sufficient to pay the Redemption Price of all the Securities
which are to be redeemed on that date; provided that such amount shall be so
deposited with the Trustee or Paying Agent in time for the Trustee or Paying
Agent, as the case may be, to pay such Redemption Price in accordance with its
normal procedures.
Section 11.16. Securities Payable on Redemption Date. Notice of
Redemption having been given as aforesaid, the Securities so to be redeemed
shall, on the Redemption Date, become due and payable at the Redemption Price
therein specified and from and after such date (unless the Company shall
default in the payment of the Redemption Price) such Securities shall cease to
bear interest. Upon surrender of such Securities for redemption in accordance
with the notice, such Securities shall be paid by the Company at the
Redemption Price. Unless otherwise provided with respect to such Securities
pursuant to Section 301, installments of interest the Stated Maturity of which
is on or prior to the Redemption Date shall be payable to the Holders of such
securities registered as such on the relevant Regular Record Dates according
to their terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid, bear
interest from the Redemption Date at the rate borne by the Security, or as
otherwise provided in such Security.
Section 11.17. Securities Redeemed in Part. Any Security which is to
be redeemed only in part shall be surrendered at the office or agency of the
Company in the Place of Payment with respect to that series (with, if the
Company or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Trustee
duly executed by, the Holder thereof or his attorney duly authorized in
writing) and the Company shall execute and the Trustee shall authenticate and
make available for delivery to the Holder of such Security without service
charge, a new Security or Securities of the same series and Stated Maturity
and of like tenor and terms, of any authorized denomination as requested by
such Holder in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
64<PAGE>
Section 11.18. Provisions with Respect to any Sinking Funds. Unless
the form or terms of any series of Securities shall provide otherwise, in lieu
of making all or any part of any mandatory sinking fund payment with respect
to such series of Securities in cash, the Company may at its option (1)
deliver to the Trustee for cancellation any Securities of such series
theretofore acquired by the Company, or (2) receive credit for any Securities
of such series (not previously so credited) acquired by the Company (including
by way of optional redemption (pursuant to the sinking fund or otherwise) but
not by way of mandatory sinking fund redemption) and theretofore delivered to
the Trustee for cancellation, and if it does so then (i) Securities so
delivered or credited shall be credited at the applicable sinking fund
Redemption Price with respect to Securities of such series, and (ii) on or
before the 60th day next preceding each sinking fund Redemption Date with
respect to such series of Securities, the Company will deliver to the Trustee
(A) an Officers' Certificate specifying the portions of such sinking fund
payment to be satisfied by payment of cash and by delivery or credit of
Securities of such series acquired by the Company, and (B) such Securities, to
the extent not previously surrendered. Such Officers' Certificate shall also
state the basis for such credit and that the Securities for which the Company
elects to receive credit have not been previously so credited and were not
acquired by the Company through operation of the mandatory sinking fund, if
any, provided with respect to such Securities and shall also state that no
Event of Default with respect to Securities of such series has occurred and is
continuing. All Securities so delivered to the Trustee shall be canceled by
the Trustee and no Securities shall be authenticated in lieu thereof.
If the sinking fund payment or payments (mandatory or optional) with
respect to any series of Securities made in cash plus any unused balance of
any preceding sinking fund payments with respect to Securities of such series
made in cash shall exceed $50,000 (or a lesser sum if the Company shall so
request), unless otherwise provided by the terms of such series of Securities,
that cash shall be applied by the Trustee on the sinking fund Redemption Date
with respect to Securities of such series next following the date of such
payment to the redemption of Securities of such series at the applicable
sinking fund Redemption Price with respect to Securities of such series,
together with accrued interest, if any, to the date fixed for redemption, with
the effect provided in Section 1106. The Trustee shall select, in the manner
provided in Section 1103, for redemption on such sinking fund Redemption Date
a sufficient principal amount of Securities of such series to utilize that
cash and shall thereupon cause notice of redemption of the Securities of such
series for the sinking fund to be given in the manner provided in section 1104
(and with the effect provided in Section 1106) for the redemption of
Securities in part at the option of the Company. Any sinking fund moneys not
so applied or allocated by the Trustee to the redemption of Securities of such
series shall be added to the next cash sinking fund payment with respect to
Securities of such series received by the Trustee and, together with such
payment, shall be applied in accordance with the provisions of this Section
1108. Any and all sinking fund moneys with respect to Securities of any
series held by the Trustee at the Maturity of Securities of such series, and
not held for the payment or redemption of particular Securities of such
series, shall be applied by the Trustee, together with other moneys, if
65<PAGE>
necessary, to be deposited sufficient for the purpose, to the payment of the
principal of the Securities of such series at Maturity.
Prior to each sinking fund Redemption Date provided with respect to
Securities of any series, the Company shall deposit with the Trustee cash in a
sum equal to all accrued interest, if any, to the date fixed for redemption on
Securities to be redeemed on such sinking fund Redemption Date pursuant to
this Section 1108; provided that such cash shall be so deposited with the
Trustee in time for the Trustee to make the payment of such accrued interest
in accordance with its normal procedures.
66<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
THE NEIMAN MARCUS GROUP, INC.
By: s/ Richard A. Smith
Name: Richard A. Smith
Title: Chairman and Chief Executive Officer
THE BANK OF NEW YORK
as Trustee,
By: s/ Mary Jane Schmalzel
Name: Mary Jane Schmalzel
Title: Vice President
67<PAGE>
EXHIBIT 4.2
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to Issuer or its
agent for registration of transfer, exchange or payment and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC, ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
THE NEIMAN MARCUS GROUP, INC.
6.65% Senior Note Due 2008
REGISTERED CUSIP 640204 AA 1
No. R-1
THE NEIMAN MARCUS GROUP, INC., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company," which
term includes any successor under the Indenture hereinafter referred to), for
value received, hereby promises to pay to
Cede & Co.
or registered assigns, the principal sum of $125,000,000 at the office or
agency of the Company in the Borough of Manhattan, The City of New York, on
June 1, 2008 in such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and
private debts, and to pay interest on said principal sum semiannually on June
1 and December 1 of each year (each an "Interest Payment Date"), commencing
December 1, 1998, at said office or agency, in like coin or currency, at the
rate per annum specified in the title hereof, from the most recent Interest
Payment Date to which interest on the Notes has been paid, or, if no interest
has been paid on the Notes since May 27, 1998, from May 27, 1998, until
payment of said principal sum has been made or duly provided for. The
interest so payable, and punctually paid or duly provided for, on any June 1
or December 1 will, except as provided in the Indenture dated as of May 27,
1998 (the "Indenture"), duly executed and delivered by the Company to The Bank
of New York, Trustee (herein called the "Trustee"), be paid to the Person in
whose name this Note (or one or more Predecessor Securities) is registered at
the close of business on the 15th day of the next preceding May or November
(herein called the "Regular Record Date") whether or not a Business Day, and
may, at the option of the Company, be paid by check mailed to the registered
address of such Person. Any such interest which is payable, but is not so
punctually paid or duly provided for, shall forthwith cease to be payable to
the registered Holder on such Regular Record Date and may be paid either to
the Person in whose name this Note (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment
of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Notes not less than 10 days prior to such Special Record
Date, or may be paid at any time in any other lawful manner not inconsistent
<PAGE>
with the requirements of any securities exchange on which the Notes may be
listed and upon such notice as may be required by such exchange, if such
manner of payment shall be deemed practical by the Trustee, all as more fully
provided in the Indenture.
The Bank of New York will be the Paying Agent and the Security Registrar
with respect to this Note. The Company reserves the right at any time to vary
or terminate the appointment of any Paying Agent or Security Registrar, to
appoint additional or other Paying Agents and other Security Registrars, which
may include the Company, and to approve any change in the office through which
any Paying Agent or Security Registrar acts; provided, that there will at all
times be a Paying Agent in the City of New York.
This Note is one of the duly authorized issue of debentures, notes,
bonds or other evidences of indebtedness (hereinafter called the "Securities")
of the Company, of the series hereinafter specified, all issued or to be
issued under and pursuant to the Indenture, to which Indenture and all other
indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee and any agent of the Trustee, any Paying
Agent, the Company and the Holders of the Securities and the terms upon which
the Securities are issued and are to be authenticated and delivered.
The Securities may be issued in one or more series, which different
series may be issued in various aggregate principal amounts, may mature at
different times, may bear interest (if any) at different rates, may be subject
to different redemption provisions (if any), may be subject to different
sinking, purchase or analogous funds (if any), may be subject to different
covenants and Events of Default and may otherwise vary as provided or
permitted in the Indenture. This Note is one of the series of Securities of
the Company issued pursuant to the Indenture and designated as the 6.65%
Senior Notes Due 2008 (herein called the "Notes"), limited in aggregate
principal amount to $125,000,000.
The Notes of this series are not redeemable prior to the Stated Maturity
of the principal hereof except as provided herein and will not be subject to
any sinking fund.
This Note is redeemable, as a whole or in part, at the option of the
Company at any time, at a redemption price equal to the greater of (a) 100% of
the principal amount of this Note to be redeemed and (b) the sum of the
present values of the Remaining Scheduled Payments thereon discounted to the
redemption date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate plus 15 basis points, plus accrued
interest on the principal amount being redeemed to the date of redemption.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury
Price for such redemption date.
-2-<PAGE>
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable
to the remaining term of the Notes that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining
term of such Securities. "Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Company.
"Comparable Treasury Price" means, with respect to any redemption date,
(a) the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for
U.S. Government Securities" or (b) if such release (or any successor release)
is not published or does not contain such prices on such business day, (i) the
average of the Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (ii) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such Quotations. "Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any redemption date, the average, as determined by the Trustee, of
the bid and asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to the Trustee
by such Reference Treasury Dealer at 5:00 p.m. New York time on the third
business day preceding such redemption date.
"Reference Treasury Dealer" means each of Salomon Brothers Inc, Chase
Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith, Incorporated and
their respective successors and any such other Primary Treasury Dealer as the
Company designates; provided, however, that if any of the foregoing shall
cease to be a primary U.S. Government securities dealer in New York City (a
"Primary Treasury Dealer"), the Company shall substitute therefor another
Primary Treasury Dealer.
"Remaining Scheduled Payments" means the remaining scheduled payments of
the principal of the Notes to be redeemed and interest thereon that would be
due after the related redemption date but for such redemption; provided,
however, that, if such redemption date is not an Interest Payment Date, the
amount of the next succeeding scheduled interest payment thereon will be
reduced by the amount of interest accrued thereon to such redemption date.
Unless the Company defaults in payment of the redemption price, on and
after the applicable redemption date, interest will cease to accrue on the
Securities or portions thereof called for redemption.
If an Event of Default with respect to the Notes shall occur and be
continuing, the principal of all of the Notes may be declared due and payable
in the manner, with the effect and subject to the conditions provided in the
Indenture.
-3-<PAGE>
The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee to enter into supplemental indentures to the Indenture
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of modifying in any
manner the rights or the Holders of the Securities of each series under the
Indenture with the consent of the Holders of not less than a majority in
principal amount of the Securities at the time Outstanding of each series to
be affected thereby on behalf of the Holders of all Securities of such series.
The Indenture also permits the Holders of a majority in principal amount of
the Securities at the time Outstanding of each series on behalf of the Holders
of all Securities of such series, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults and their
consequences with respect to such series under the Indenture. Any such
consent or waiver by the Holder of this Note shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Note
issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof, whether or not notation of such consent or waiver is made upon
this Note or such other Notes.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal and any premium of and any
interest on this Note at the place, rate and respective times and in the coin
or currency herein and in the Indenture prescribed.
As provided in the Indenture and subject to the satisfaction of certain
conditions therein set forth, including the deposit of certain trust funds in
trust, at the Company's option, either the Company shall be deemed to have
paid and discharged the entire indebtedness represented by, and the
obligations under, the Securities of any series and to have satisfied all the
obligations (with certain exceptions) under the Indenture relating to the
Securities of such series or the Company shall cease to be under any
obligation to comply with any term, provision or condition of certain
restrictive covenants or provisions with respect to the Securities of such
series.
The Notes are issuable in registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000. Notes may be
exchanged for a like aggregate principal amount and Stated Maturity of Notes
of other authorized denominations at the office or agency of the Company in
the Borough of Manhattan, The City of New York, designated for such purpose
and in the manner and subject to the limitations provided in the Indenture.
Upon due presentment for registration of transfer of this Note at the
office or agency of the Company in the Borough of Manhattan, The City of New
York designated for such purpose, a new Note or Notes of authorized
denominations for a like aggregate principal amount and Stated maturity will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Indenture.
-4-<PAGE>
No charge shall be made for any such transfer or exchange, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
Prior to due presentment for registration of transfer of this Note, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note is overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
Unless otherwise defined herein, all terms used in this Note which are
defined in the Indenture shall have the meanings assigned to them in the
Indenture.
This Note shall be construed in accordance with and governed by the laws
of the State of New York.
Unless the certificate of authentication hereon has been manually
executed by or on behalf of the Trustee under the Indenture, this Note shall
not be entitled to any benefits under the Indenture, or be valid or obligatory
for any purpose
IN WITNESS WHEREOF, THE NEIMAN MARCUS GROUP, INC. has caused this Note
to be duly executed.
Dated: May 27, 1998 THE NEIMAN MARCUS GROUP, INC.
By: s/ Richard A. Smith
Signature
Richard A. Smith, Chairman and Chief Executive Officer
(Print name and title)
-5-<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
The Bank of New York,
as Trustee,
By: s/ Mary Jane Schmalzel
Authorized Signatory
Dated: May 27, 1998
-6-<PAGE>
EXHIBIT 4.3
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to Issuer or its
agent for registration of transfer, exchange or payment and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC, ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
THE NEIMAN MARCUS GROUP, INC.
7.125% Senior Debenture Due 2028
REGISTERED CUSIP 640204 AB 9
No. R-1
THE NEIMAN MARCUS GROUP, INC., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company," which
term includes any successor under the Indenture hereinafter referred to), for
value received, hereby promises to pay to
Cede & Co.
or registered assigns, the principal sum of $125,000,000 at the office or
agency of the Company in the Borough of Manhattan, The City of New York, on
June 1, 2028 in such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and
private debts, and to pay interest on said principal sum semiannually on June
1 and December 1 of each year (each an "Interest Payment Date"), commencing
December 1, 1998 at said office or agency, in like coin or currency, at the
rate per annum specified in the title hereof, from the most recent Interest
Payment Date to which interest on the Debentures has been paid, or, if no
interest has been paid on the Debentures since May 27, 1998, from May 27,
1998, until payment of said principal sum has been made or duly provided for.
The interest so payable, and punctually paid or duly provided for, on any June
1 or December 1 will, except as provided in the Indenture dated as of May 27,
1998 (the "Indenture"), duly executed and delivered by the Company to The Bank
of New York, Trustee (herein called the "Trustee"), be paid to the Person in
whose name this Debenture (or one or more Predecessor Securities) is
registered at the close of business on the 15th day of the next preceding May
or November (herein called the "Regular Record Date") whether or not a
Business Day, and may, at the option of the Company, be paid by check mailed
to the registered address of such Person. Any such interest which is payable,
but is not so punctually paid or duly provided for, shall forthwith cease to
be payable to the registered Holder on such Regular Record Date and may be
paid either to the Person in whose name this Debenture (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Debentures not less than
10 days prior to such Special Record Date, or may be paid at any time in any
<PAGE>
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Debentures may be listed and upon such notice as may be
required by such exchange, if such manner of payment shall be deemed practical
by the Trustee, all as more fully provided in the Indenture.
The Bank of New York will be the Paying Agent and the Security Registrar
with respect to this Debenture. The Company reserves the right at any time to
vary or terminate the appointment of any Paying Agent or Security Registrar,
to appoint additional or other Paying Agents and other Security Registrars,
which may include the Company, and to approve any change in the office through
which any Paying Agent or Security Registrar acts; provided, that there will
at all times be a Paying Agent in the City of New York.
This Debenture is one of the duly authorized issue of debentures, notes,
bonds or other evidences of indebtedness (hereinafter called the "Securities")
of the Company, of the series hereinafter specified, all issued or to be
issued under and pursuant to the Indenture, to which Indenture and all other
indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee and any agent of the Trustee, any Paying
Agent, the Company and the Holders of the Securities and the terms upon which
the Securities are issued and are to be authenticated and delivered.
The Securities may be issued in one or more series, which different
series may be issued in various aggregate principal amounts, may mature at
different times, may bear interest (if any) at different rates, may be subject
to different redemption provisions (if any), may be subject to different
sinking, purchase or analogous funds (if any), may be subject to different
covenants and Events of Default and may otherwise vary as provided or
permitted in the Indenture. This Debenture is one of the series of Securities
of the Company issued pursuant to the Indenture and designated as the 7.125%
Senior Debentures Due 2028 (herein called the "Debentures"), limited in
aggregate principal amount to $125,000,000.
The Debentures of this series are not redeemable prior to the Stated
Maturity of the principal hereof except as provided herein and will not be
subject to any sinking fund.
This Debenture is redeemable, as a whole or in part, at the option of
the Company at any time, at a redemption price equal to the greater of (a)
100% of the principal amount of this Debenture to be redeemed and (b) the sum
of the present values of the Remaining Scheduled Payments thereon discounted
to the redemption date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate plus 20 basis points,
plus accrued interest on the principal amount being redeemed to the date of
redemption.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury
Price for such redemption date.
-2-<PAGE>
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable
to the remaining term of the Debentures that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining
term of such Securities. "Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Company.
"Comparable Treasury Price" means, with respect to any redemption date,
(a) the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for
U.S. Government Securities" or (b) if such release (or any successor release)
is not published or does not contain such prices on such business day, (i) the
average of the Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (ii) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such Quotations. "Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any redemption date, the average, as determined by the Trustee, of
the bid and asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to the Trustee
by such Reference Treasury Dealer at 5:00 p.m. New York time on the third
business day preceding such redemption date.
"Reference Treasury Dealer" means each of Salomon Brothers Inc, Chase
Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith, Incorporated and
their respective successors and any such other Primary Treasury Dealer as the
Company designates; provided, however, that if any of the foregoing shall
cease to be a primary U.S. Government securities dealer in New York City (a
"Primary Treasury Dealer"), the Company shall substitute therefor another
Primary Treasury Dealer.
"Remaining Scheduled Payments" means the remaining scheduled payments of
the principal of the Debentures to be redeemed and interest thereon that would
be due after the related redemption date but for such redemption; provided,
however, that, if such redemption date is not an Interest Payment Date, the
amount of the next succeeding scheduled interest payment thereon will be
reduced by the amount of interest accrued thereon to such redemption date.
Unless the Company defaults in payment of the redemption price, on and
after the applicable redemption date, interest will cease to accrue on the
Securities or portions thereof called for redemption.
If an Event of Default with respect to the Debentures shall occur and be
continuing, the principal of all of the Debentures may be declared due and
payable in the manner, with the effect and subject to the conditions provided
in the Indenture.
-3-<PAGE>
The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee to enter into supplemental indentures to the Indenture
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of modifying in any
manner the rights or the Holders of the Securities of each series under the
Indenture with the consent of the Holders of not less than a majority in
principal amount of the Securities at the time Outstanding of each series to
be affected thereby on behalf of the Holders of all Securities of such series.
The Indenture also permits the Holders of a majority in principal amount of
the Securities at the time Outstanding of each series on behalf of the Holders
of all Securities of such series, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults and their
consequences with respect to such series under the Indenture. Any such
consent or waiver by the Holder of this Debenture shall be conclusive and
binding upon such Holder and upon all future Holders of this Debenture and of
any Debenture issued upon the registration of transfer hereof or in exchange
hereof or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Debenture or such other Debentures.
No reference herein to the Indenture and no provision of this Debenture
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal and any premium of and any
interest on this Debenture at the place, rate and respective times and in the
coin or currency herein and in the Indenture prescribed.
As provided in the Indenture and subject to the satisfaction of certain
conditions therein set forth, including the deposit of certain trust funds in
trust, at the Company's option, either the Company shall be deemed to have
paid and discharged the entire indebtedness represented by, and the
obligations under, the Securities of any series and to have satisfied all the
obligations (with certain exceptions) under the Indenture relating to the
Securities of such series or the Company shall cease to be under any
obligation to comply with any term, provision or condition of certain
restrictive covenants or provisions with respect to the Securities of such
series.
The Debentures are issuable in registered form without coupons in
denominations of $1,000 and any integral multiple of $1,000. Debentures may
be exchanged for a like aggregate principal amount and Stated Maturity of
Debentures of other authorized denominations at the office or agency of the
Company in the Borough of Manhattan, The City of New York, designated for such
purpose and in the manner and subject to the limitations provided in the
Indenture.
Upon due presentment for registration of transfer of this Debenture at
the office or agency of the Company in the Borough of Manhattan, The City of
New York designated for such purpose, a new Debenture or Debentures of
authorized denominations for a like aggregate principal amount and Stated
maturity will be issued to the transferee in exchange therefor, subject to the
limitations provided in the Indenture.
-4-<PAGE>
No charge shall be made for any such transfer or exchange, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
Prior to due presentment for registration of transfer of this Debenture,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Debenture is registered as the owner hereof for
all purposes, whether or not this Debenture is overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
Unless otherwise defined herein, all terms used in this Debenture which
are defined in the Indenture shall have the meanings assigned to them in the
Indenture.
This Debenture shall be construed in accordance with and governed by the
laws of the State of New York.
Unless the certificate of authentication hereon has been manually
executed by or on behalf of the Trustee under the Indenture, this Debenture
shall not be entitled to any benefits under the Indenture, or be valid or
obligatory for any purpose
IN WITNESS WHEREOF, THE NEIMAN MARCUS GROUP, INC. has caused this
Debenture to be duly executed.
Dated: May 27, 1998 THE NEIMAN MARCUS GROUP, INC.
By: s/ Richard A. Smith
Signature
Richard A. Smith, Chairman and Chief Executive Officer
(Print name and title)
-5-<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
The Bank of New York,
as Trustee,
By: s/ Mary Jane Schmalzel
Authorized Signatory
Dated: May 27, 1998
-6-<PAGE>
TERMINATION AND CHANGE OF CONTROL AGREEMENT
1. This Termination and Change of Control Agreement ("Agreement") is
entered into as of September 17, 1998 between Gerald A. Sampson ("Mr.
Sampson") and The Neiman Marcus Group, Inc. ("NMG")
2. Mr. Sampson is employed "at-will" as Neiman Marcus Stores' President and
Chief Operating Officer, and Mr. Sampson or NMG may terminate Mr. Sampson's
employment at any time, with or without notice, for any reason.
Notwithstanding this at-will employment, (a) Mr. Sampson agrees to provide NMG
with three months advance notice of his resignation when such resignation does
not follow a change of control of NMG, as a change of control is defined in
paragraph 4.c., and (b) NMG wishes to provide some protection to Mr. Sampson
if his employment is terminated or if he resigns under certain circumstances.
3. a. While Mr. Sampson is employed at-will, if NMG terminates Mr.
Sampson's employment other than "for cause" or other than due to "total
disability" or death, NMG agrees to provide Mr. Sampson with a
termination package consisting of (a) an amount equivalent to one and
one-half times his then-current, annual base salary, less required
withholding, which amount would be paid in an 18 month period in
regular, monthly installments following such termination; and (b)
continuation of the medical and dental insurance coverage in which he
participates at the time of such termination (or as such coverage may be
changed from time-to-time for employees generally) for 18 months or
until he starts full-time employment, whichever is sooner. Mr. Sampson
will be responsible for paying his portion of monthly premiums for the
medical and dental insurance coverage at the same rate paid by active
employees, and Mr. Sampson authorizes NMG to deduct such amounts from
the payments it makes to him.
b. If Mr. Sampson's services are terminated by a successor to NMG other
than "for cause" or other than due to "total disability" or death within
two years of a change of control of NMG, as a change of control is
defined in paragraph 4.c., or if the Executive resigns his employment
within two years of such a change of control because he is not permitted
to continue in a position comparable in duties and responsibilities to
that which he held before such a change of control, Mr. Sampson shall
receive the termination package set forth in paragraph 3.a.
c. Notwithstanding the payment obligations set forth in paragraphs 3.a.
and 3.b., if Mr. Sampson is engaged in employment (including contract
employment or self-employment) of any kind or if Mr. Sampson receives
severance pay of any kind during the period beginning six months after a
covered termination or resignation, NMG's payments to Mr. Sampson will
be reduced dollar-for-dollar by the amount Mr. Sampson earns through
such employment or receives as severance pay.
4. For the purposes of determining Mr. Sampson's eligibility for the
termination package set forth in this Agreement:
a. "For cause" means, in NMG's reasonable judgment, a breach of duty by
Mr. Sampson in the course of his employment involving fraud, acts of
dishonesty, or moral turpitude, repeated insubordination, failure to
devote his full, working time and best efforts to the performance of his
duties, or conviction of a felony or other criminal offense.
b. "Total disability" means that, in NMG's reasonable judgment, Mr.
Sampson is unable to perform his duties for (i) 45 consecutive business
days or (ii) a total of 90 business days during any nine month period.
c. "Change of control" means (i) the sale of all or substantially all of
the stock or assets of Neiman Marcus Stores to an entity other than
Harcourt General, Inc. or an entity wholly owned or controlled by
Harcourt General, Inc; (ii) the sale of all or substantially all of the
stock or assets of NMG to an entity other than Harcourt General, Inc. or
an entity wholly owned or controlled by Harcourt General, Inc. or (iii)
any person, entity or group having greater voting power in the election
of NMG's directors than Harcourt General, Inc. or an entity wholly owned
or controlled by Harcourt General, Inc.
5. Payment by NMG of the termination package set forth in paragraph 3
constitutes full satisfaction of NMG's obligations to Mr. Sampson, if any,
(including the right to any severance payments) which arise from or relate in
any way to the termination of Mr. Sampson's employment. However, nothing in
this Agreement is intended to limit any earned, vested benefits (other than
any entitlement to severance pay) that Mr. Sampson may have under the
applicable provisions of any benefit plan in which Mr. Sampson is
participating at the time of his termination of employment or resignation.
6. The unenforceability of any provision of this Agreement shall not affect
the enforceability of any other provision of this Agreement.
7. This Agreement contains the entire agreement between the parties and
supersedes all prior agreements and understandings, oral or written, with
respect to the termination of Mr. Sampson's at-will employment and the subject
matter of the Agreement. This Agreement may not be changed orally. It may be
changed only by written agreement signed by the party against whom any waiver,
change amendment, modification or discharge is sought.
8. The validity, performance and enforceability of this Agreement will be
determined and governed by the laws of the Commonwealth of Massachusetts
without regard to its conflict of laws principles.
The Neiman Marcus Group, Inc.
s/Gerald A. Sampson By: s/ Robert A. Smith
Gerald A. Sampson
<PAGE>
EXHIBIT 10.14
THE NEIMAN MARCUS GROUP, INC.
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
Effective January 17, 1997
As Amended and Restated June 8, 1998
<PAGE>
THE NEIMAN MARCUS GROUP, INC.
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
Table of Contents
ARTICLE PAGE
ARTICLE I
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Adoption, amendment and restatement . . . . . . . . . . . . . . 1
ARTICLE 2
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1. "Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2. "Board" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3. "Committee" . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4. "Common Stock" . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5. "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6. "Compensation" . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7. "Effective Date" . . . . . . . . . . . . . . . . . . . . . . . . 2
2.8. "Market Price" . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.9. "Non-Employee Director" . . . . . . . . . . . . . . . . . . . . 2
2.10 "Participant" . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.11."Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.12."Plan Year" . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.13."Unforeseen Emergency" . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3
Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1. Commencement of participation . . . . . . . . . . . . . . . . . 3
3.2. Continuation of participation . . . . . . . . . . . . . . . . . 3
ARTICLE 4
Elective Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.1. Elective deferrals . . . . . . . . . . . . . . . . . . . . . . . 3
4.2. Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.3. Investment equivalent alternatives . . . . . . . . . . . . . . . 4
4.4. Time of payment . . . . . . . . . . . . . . . . . . . . . . . . 6
4.5. Form of payment . . . . . . . . . . . . . . . . . . . . . . . . 6
4.6. Death prior to payment . . . . . . . . . . . . . . . . . . . . . 7
<PAGE>
ARTICLE 5
Non-Elective Deferrals . . . . . . . . . . . . . . . . . . . . . . . 8
5.1. Crediting of Common Stock equivalent units . . . . . . . . . . 8
5.2. Method of payment . . . . . . . . . . . . . . . . . . . . . . . 8
5.3. Modification of form or time of payment . . . . . . . . . . . . 8
ARTICLE 6
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.1. Plan administration and interpretation . . . . . . . . . . . . . 9
6.2. Powers, duties, procedures, etc . . . . . . . . . . . . . . . . 9
6.3. Information . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 7
Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . 10
7.1. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.2. Termination of Plan . . . . . . . . . . . . . . . . . . . . . . 10
7.3. Existing rights . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 8
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.1. No funding . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.2. Grantor trust . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.3. Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . 11
8.4. Limitation of Participants' rights . . . . . . . . . . . . . . . 12
8.5. Participants bound . . . . . . . . . . . . . . . . . . . . . . . 12
8.6. Receipt and release . . . . . . . . . . . . . . . . . . . . . . 12
8.7. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.8. Unforeseen Emergency . . . . . . . . . . . . . . . . . . . . . . 12
8.9. Governing law . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.10.Headings and subheadings . . . . . . . . . . . . . . . . . . . . 13
<PAGE>
THE NEIMAN MARCUS GROUP, INC.
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
ARTICLE I
Introduction
1.1. Adoption, amendment and restatement. The Company adopted the Plan
effective January 17, 1997 to provide a means by which members of the Board
who are not employees of the Company may elect to defer receipt of designated
amounts of Compensation earned in that capacity. The Plan has been amended
and restated effective June 8, 1998, to provide for non-elective deferred
compensation as set forth in Article 5.
1.2. Status of Plan. The Plan is intended neither to be a qualified plan
within the meaning of 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), nor to constitute a "pension benefit plan" or a "welfare benefit
plan" subject to the requirements of the Employee Retirement Income Security
Act of 1974. The Plan shall be administered and interpreted to the extent
possible in a manner consistent with that intent.
ARTICLE 2
Definitions
Whenever used herein, the following terms have the meanings set forth
below, unless a different meaning is clearly required by the context:
2.1. "Account" means, for each Participant, the account maintained for
his or her benefit under Section 4.2 or 5.1.
2.2. "Board" means the Board of Directors of the Company.
2.3. "Committee" means the Compensation Committee of the Board.
1<PAGE>
2.4. "Common Stock" means the Common Stock, $.01 par value, of the
Company.
2.5. "Company" means The Neiman Marcus Group, Inc., a Delaware
corporation, and any successor to all or substantially all of the Company's
assets or business which assumes the obligations of the Company.
2.6. "Compensation" means the amount of retainer payable for service on
the Board, plus any fees payable for attendance at or participation in a
meeting, for service as Chair or Vice Chair of the Board, or for service on or
as a chair of any committee of the Board, determined without reduction for any
elective deferrals under Article 4. Notwithstanding the foregoing,
Compensation does not include any Common Stock equivalent units which may be
credited pursuant to Section 5.1, which amounts are not subject to the
elective deferral provisions of Section 4.1.
2.7. "Effective Date" means January 17, 1997.
2.8. "Market Price" means, as of any date, the mean of the highest and
lowest sales prices of the Common Stock on such date (or, if no trading shall
have occurred on such date, on the next previous date on which trading shall
have occurred), as reported on the New York Stock Exchange Composite Tape.
2.9. "Non-Employee Director" means a member of the Board who is not an
officer or employee of the Company or Harcourt General, Inc. or any of the
subsidiaries of either the Company or Harcourt General, Inc.
2.10. "Participant" means any Non-Employee Director who participates in
the Plan as set forth in Article 3.
2.11. "Plan" means The Neiman Marcus Group, Inc. Deferred Compensation
Plan for Non-Employee Directors as set forth herein and all subsequent
amendments hereto.
2<PAGE>
2.12. "Plan Year" means the calendar year.
2.13. "Unforeseen Emergency" means a severe financial hardship to a
Participant resulting from illness or accident of the Participant or of a
dependent (as defined in 152(a) of the Code) of the Participant, loss of
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant.
ARTICLE 3
Participation
3.1. Commencement of participation. Each Non-Employee Director shall
become a Participant in this Plan upon the later of (a) the Effective Date or
(b) the day on which he or she becomes a Non-Employee Director.
3.2. Continuation of participation. An individual who has become a
Participant in the Plan shall continue to be a Participant so long as he or
she remains a Non-Employee Director, and so long thereafter as any amount is
payable to him or her in accordance with Article 4 or 5.
ARTICLE 4
Elective Deferrals
4.1. Elective deferrals. An individual who is a Non-Employee Director on
January 17, 1997 may elect, by filing a written election with the Committee
prior to February 14, 1997, to defer all or a specified portion of his or her
Compensation for services to be performed on or after such deferral election.
An individual who is a Non-Employee Director on the first day of any fiscal
year of the Company after the Effective Date may elect to defer all or a
specified portion of his or her Compensation for services to be performed on
or after such date by filing a written election with the Committee before such
3<PAGE>
date. An individual who has been nominated or elected to serve as a Non-
Employee Director, and who was not a Non-Employee Director immediately prior
to such nomination or election, may elect before or within thirty (30) days
after becoming a Non-Employee Director to defer all or a specified portion of
his or her Compensation for services to be performed after such deferral
election.
Each deferral election under this Section 4.1 shall be made on a form
approved or prescribed by the Committee and shall also specify the time and
form of distribution of the amounts deferred and the investment equivalent
alternative described in Section 4.3 to be applied to such amounts.
An election to defer Compensation and to specify the time and form of
distribution may be revoked or modified, effective for amounts earned on and
after the first day of any fiscal year of the Company, by an election filed
before that date, but may not otherwise be revoked or modified except as
provided in Section 8.8 in the event of an Unforeseen Emergency.
4.2. Accounts. The Committee shall maintain a bookkeeping account (the
"Account") for each Participant reflecting elective deferrals made for the
Participant's benefit under Section 4.1, and the value of such elective
deferrals determined in accordance with Section 4.3, together with any
adjustments hereunder. Elective deferrals shall be credited to the Account as
of the day such amounts become payable to the Participant. As of each
February 15th, the Committee shall provide the Participant with a statement of
his or her Account as of the end of the preceding Plan Year.
4.3. Investment equivalent alternatives. When a Participant elects to
make elective deferrals in accordance with Section 4.1, he or she shall also
4<PAGE>
elect whether the value of such elective deferrals shall be determined under
the cash-based option or the stock-based option described below.
(a) Cash-based option:
Under the cash-based option, elective deferrals shall accrue
interest, to be compounded at the end of each fiscal quarter of the
Company, at a rate equal to the average of the top rates paid by major
New York banks on primary new issues of three-month negotiable
certificates of deposit (usually on amounts of $1,000,000 or more) as
quoted in the Wall Street Journal on the last business day of the fiscal
quarter.
(b) Stock-based option:
Under the stock-based option, elective deferrals will be converted
hypothetically into Common Stock equivalent units. The number of such
units shall be determined by dividing the amount of elective deferrals
in each fiscal quarter by the average of the Market Prices of the Common
Stock during the last five (5) trading days of such fiscal quarter.
Units will be calculated to the nearest thousandth. On each dividend
payment date, if any, for the Common Stock dividend equivalents in the
form of additional units representing Common Stock will be credited to
the Participant's Account equal to (i) the per-share cash dividend
divided by the Market Price of Common Stock on the dividend payment
date, multiplied by (ii) the number of such units reflected in such
Account on the day before the dividend payment date.
At the end of the period of deferral elected by the Participant, the
Common Stock equivalent units will be valued for payment by multiplying the
applicable number of units by the average of the Market Prices of Common Stock
5<PAGE>
during the last ten (10) trading days before the date on which the value of
the elective deferrals is to be paid or begin to be paid.
If the outstanding shares of Common Stock are increased, decreased or
exchanged for a different number or kind of shares or other securities, or if
additional shares or new or different shares or other securities are
distributed with respect to such shares of Common Stock or other securities
through merger, consolidation, sale of all or substantially all the property
of the Company, reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other distribution with respect
to such shares of Common Stock or other securities, appropriate adjustments
will be made by the Company in the number of Common Stock equivalent units
credited to a Participant's Account.
4.4. Time of payment. When a Participant elects to make elective
deferrals in accordance with Section 4.1, the Participant shall also elect
whether the value of the elective deferrals shall be paid, or begin to be
paid, (a) at a specified date at least twenty-four months in the future (which
date shall be the last day of a fiscal quarter) or (b) upon termination of his
or her service as a member of the Board. If alternative (a) under this Section
4.4 is elected, payment will be made or will commence on the date specified.
If alternative (b) under this Section 4.4 is elected, payment will be made or
will commence at the end of the fiscal quarter in which the Participant's
service as a member of the Board terminates. The foregoing election shall be
made on a form approved or prescribed by the Committee.
Payment of a Participant's Account shall be made in accordance with the
Participant's elections under this Section 4.4 and Section 4.5. Each
Participant's Account shall be reduced by the amount of any payment made to or
6<PAGE>
on behalf of the Participant (including interest paid with respect to such
payment) as of the date such payment is made.
4.5. Form of payment. When a Participant elects to make elective
deferrals in accordance with Section 4.1, the Participant shall also elect
whether the value of such elective deferrals shall be paid in (a) a lump sum,
or (b) a specified number of annual installments (not to exceed 10). Each
installment (other than the first) shall accrue interest from the date of the
first installment to the date on which such installment is paid, compounded
quarterly at a rate equal to the average of the top rates paid by major New
York banks on primary new issues of three-month negotiable certificates of
deposit (usually on amounts of $1,000,000 or more) as quoted in the Wall
Street Journal on the last business day of the fiscal quarter. The foregoing
election shall be made on a form approved or prescribed by the Committee.
4.6. Death prior to payment. In the event that a Participant dies prior
to complete distribution of his or her Account, the balance of his or her
Account shall be paid in a single lump sum to the beneficiary or beneficiaries
designated by the Participant. If no such beneficiary has been designated or
if no designated beneficiary survives the Participant, the balance of such
Account shall be paid to the Participant's estate. Payment of such amount
shall be made within sixty (60) days from the date of receipt by the office of
the Secretary of the Company of notice of the Participant's death. Such
designation or designations of beneficiary must be in writing, dated and
signed by the Participant, and no such designation shall require Company
consent. No beneficiary designation shall be deemed effective unless the same
is on file in the office of the Secretary of the Company prior to the death of
the Participant. The Company may rely in all cases on the genuineness,
7<PAGE>
accuracy and date of any such beneficiary designation and shall be fully
protected in making payment in accordance therewith. Any beneficiary
designation filed in the office of the Secretary of the Company prior to the
death of the Participant shall be deemed to have revoked all earlier
designations, and no beneficiary designation filed after the date of a
Participant's death shall be deemed effective.
8<PAGE>
ARTICLE 5
Non-Elective Deferrals
5.1 Crediting of Common Stock equivalent units. It is contemplated
that Board compensation after the Effective Date may, in the Board's sole
discretion, include credits to the Accounts of Participants consisting of
Common Stock equivalent units, and that the value thereof shall be determined
under the stock-based option described in Section 4.3(b). For this purpose,
for each Participant who has not elected to defer Compensation pursuant to
Section 4.1, an Account shall be established. Any amounts so credited shall
remain in each Participant's Account until termination of his or her service
as a member of the Board, and payment from such Account will be made or will
commence at the end of the fiscal quarter in which the Participant's service
as a member of the Board terminates.
5.2 Method of payment. At the Participant's election, made prior to
October 1, 1998, on a form approved or prescribed by the Committee, the value
of any amount so credited shall be paid in a lump sum or in annual
installments (not to exceed 10), and if the latter, installments (other than
the first) shall accrue interest as described in Section 4.5. In the event
that a Participant dies prior to complete distribution of any amounts credited
to his or her Account pursuant to Section 5.1, the balance of such amounts
shall be paid in the manner prescribed and to the persons specified in Section
4.6.
5.3 Modification of form or time of payment. Each election under
Section 5.2 as to form of payment may be modified, effective for any amounts
credited under Section 5.1 for service on or after the first day of any fiscal
year of the Company, by an election filed before such date. Moreover, a
9<PAGE>
majority of the disinterested members of the Committee may, at their
discretion, at the request or with the consent of a Participant, change the
form (or, in the case of elective deferrals, the time) of payment elected by
such Participant with respect to amounts previously credited to his or her
Account pursuant to Article 4 or this Article 5, provided that (a) the revised
form of payment be one of the forms permitted by Sections 4.5 and 5.2, and (b)
no such change shall be effective unless made at least 24 months prior to the
date such amounts would otherwise have been paid.
ARTICLE 6
Administration
6. 1. Plan administration and interpretation. The Plan shall be
administered by the Committee which may appoint persons to assist in the
administration of the Plan. The Committee shall have complete control and
authority to determine the rights and benefits and all claims, demands and
actions arising out of the provisions of the Plan of any Participant or other
person having or claiming to have any interest under the Plan. The Committee
shall have the exclusive power to interpret the Plan and to decide all matters
under the Plan. Such interpretation and decision shall be final, conclusive
and binding on all Participants and any person claiming under or through any
Participant, in the absence of clear and convincing evidence that the
Committee acted arbitrarily and capriciously. Any individual serving on the
Committee who is a Participant will not vote or act on any matter relating
solely to himself or herself. When making a determination or calculation, the
Committee shall be entitled to rely on information furnished by a Participant
or the Company.
10<PAGE>
6.2. Powers, duties, procedures, etc. The Committee shall have such
powers and duties, may adopt such rules and tables, may act in accordance with
such procedures, may appoint such officers or agents, and may delegate such
powers and duties as it deems necessary or advisable for the administration of
the Plan.
6.3. Information. To enable the Committee to perform its functions, the
Company shall supply full and timely information to the Committee on all
matters relating to the service of
Participants as members of the Board and such other pertinent facts as the
Committee may require.
ARTICLE 7
Amendment and Termination
7.1. Amendments. The Board shall have the right to amend the Plan from
time to time, subject to Section 7.3, by an instrument in writing approved by
the Board and executed on the Company's behalf by a duly authorized officer.
7.2. Termination of Plan. The Plan is strictly a voluntary undertaking
on the part of the Company and shall not be deemed to constitute a contract
between the Company and any Participant or a consideration for, or an
inducement or condition of, the performance of services by any Participant as
a member of the Board. The Board reserves the right to terminate the Plan at
any time, subject to Section 7.3, by an instrument in writing approved by the
Board and executed on the Company's behalf by a duly authorized officer. Upon
termination of the Plan, no further benefits shall accrue on behalf of any
individual then a Participant, nor shall any individual not a Participant as
of the date of termination be eligible to become a Participant thereafter.
11<PAGE>
7.3. Existing rights. No amendment or termination of the Plan shall
reduce:
(a) any benefits payable to (or in respect of) a Participant who has
ceased to be a member of the Board, or
(b) any benefits to which a current Board member would have been
entitled, currently or in the future, in the event his or her service as a
Board member had terminated on the date of such amendment or termination.
ARTICLE 8
Miscellaneous
8.1. No funding. Nothing in the Plan will be construed to create a
trust or to obligate the Company or any other person to segregate a fund,
purchase an insurance contract, or in any other way currently to fund the
future payment of any benefits hereunder, nor will anything herein be
construed to give any Participant or any other person rights to any specific
assets of the Company or of any other person. The Plan constitutes a mere
promise by the Company to make benefit payments in the future, and is intended
to be unfunded for tax purposes. Any benefits which become payable hereunder
shall be paid from the general assets of the Company, and the rights of any
Participant or of his or her estate or beneficiary shall be those of an
unsecured general creditor.
8.2. Grantor trust. The Company in its sole discretion may establish a
trust (a "grantor trust") of which it is treated as the owner under Subpart E
of Subchapter J, Chapter 1 of the Code to provide for the payment of benefits
hereunder, subject to the claims of the Company's general creditors in the
event of insolvency, and subject to such other terms and conditions as the
Company may deem necessary or advisable to ensure that benefits are not
12<PAGE>
includable, by reason of the trust, in the income of trust beneficiaries prior
to their actual distribution.
8.3. Nonassignability. None of the benefits, payments, proceeds or
claims of any Participant shall be subject to any claim of any creditor and,
in particular, the same shall not be subject to attachment or garnishment or
other legal process by any creditor of the Participant or his or her
beneficiary, nor shall any Participant or beneficiary have any right to
alienate, anticipate, commute, pledge, sell, transfer, encumber or assign any
of the benefits or payments or proceeds which he or she may expect to receive,
contingently or otherwise, under the Plan.
8.4. Limitation of Participants' rights. Participation in the Plan
shall not give any Participant the right to be retained as a member of the
Board or any right or interest in the Plan other than as herein provided.
8.5. Participants bound. Any action with respect to the Plan taken by
the Committee, the Board or the Company or any action authorized by or taken
at the direction of the Committee, the Board or the Company shall be
conclusive upon all Participants entitled to benefits under the Plan.
8.6. Receipt and release. Any payment to any Participant in accordance
with the provisions of the Plan shall, to the extent thereof, be in full
satisfaction of all claims against the Company, the Board and the Committee
under the Plan, and the Committee may require such Participant, as a condition
precedent to such payment, to execute a receipt and release to such effect. If
any Participant is determined by the Committee to be incompetent by reason of
physical or mental disability to give a valid receipt and release, the
Committee may cause the payment or payments becoming due to such person to be
made to another person for his or her benefit without responsibility on the
13<PAGE>
part of the Committee, the Board or the Company to follow the application of
such funds.
8.7. Notices. All notices and elections to be delivered hereunder to
the Committee, the Board or the Company shall be delivered to the attention of
the Secretary of the Company.
8.8. Unforeseen Emergency. A Participant who has an Unforeseen
Emergency may, with the consent of a majority of the disinterested members of
the Committee, receive a distribution of that portion of his or her Account
which the Committee determines is necessary to satisfy the emergency need,
including any amounts necessary to pay any federal, state or local income
taxes reasonably anticipated to result from the distribution, but only to the
extent such need is not covered by insurance and cannot reasonably be relieved
by the liquidation of the Participant's assets (to the extent that such
liquidation would not in itself cause a severe financial hardship) or by
cessation of elective deferrals under the Plan. A Participant who has an
Unforeseen Emergency may also cease or reduce future deferrals under the Plan
with the consent of a majority of the disinterested members of the Committee.
A Participant requesting a distribution, or a cessation or reduction of future
deferrals, on account of an Unforeseen Emergency shall apply in writing in a
letter submitted to the Committee and shall provide such information as the
Committee may require.
8.9 Governing law. The Plan shall be construed, administered, and
governed in all respects under and by the laws of the Commonwealth of
Massachusetts. If any provision shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.
14<PAGE>
8.10. Headings and subheadings. Headings and subheadings in the Plan
are inserted for convenience only and are not to be considered in the
construction of the provisions hereof.
IN WITNESS WHEREOF, The Neiman Marcus Group, Inc. has caused the Plan to
be
amended and restated by its duly authorized officer this 8th day of June,
1998.
THE NEIMAN MARCUS GROUP, INC.
By: s/ Eric P. Geller
Eric P. Geller, Senior Vice President,
General Counsel and Secretary
15<PAGE>
[PAGE 23]
THE NEIMAN MARCUS GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
The Company's financial performance reflects a focused strategy executed in a
favorable economic environment during the past three years and the strong
competitive position of its three operating entities: Neiman Marcus Stores,
Bergdorf Goodman and NM Direct. Management believes that the Company's success
can be attributed to its business strategy, which is designed to increase
productivity, sales and operating earnings. Key elements of the strategy
include: (i) offering an extensive and carefully edited assortment of high-end
fashion merchandise; (ii) providing a high level of customer service; (iii)
investing in the Company's store base and supporting infrastructure; (iv)
opening new stores; and (v) expanding its customer base by broadening the
Company's reach through both creative marketing techniques and its direct
marketing operations, NM Direct. As a result of the Company's successful
implementation of this strategy, revenues rose to $2.37 billion in fiscal
1998, representing a 14.4% increase over revenues of $2.08 billion in fiscal
1996. Net earnings increased 37.3% from $77.4 million to $106.3 million during
the same period.
Comparable sales were down 4.9% for the first nine weeks (ended October 3,
1998) of fiscal 1999. Management is unable at this time to predict whether
this weakness in sales will continue through the year and, therefore, whether
the Company will be able to maintain the positive revenue and earnings trends
of the last three fiscal years.
Approximately 77% of the Company's revenues are generated by Neiman Marcus
Stores with the balance split between Bergdorf Goodman and NM Direct. Revenue
growth over the last three fiscal years at Neiman Marcus Stores and Bergdorf
Goodman can be attributed primarily to increases in comparable store sales and
new store openings. Since August 1995, the Company has opened three new Neiman
Marcus stores in the Northeast market and a new store in Hawaii in September
1998. The Company currently also plans to open new Neiman Marcus stores in
Coral Gables, Florida, in 2001 (120,000 gross square feet), in Palm Beach,
Florida, in 2000 (49,000 gross square feet), in Plano, Texas, in 2002 (150,000
gross square feet), in Houston, Texas, in 2001 (150,000 gross square feet),
and in Tampa, Florida, in 2002 (90,000 gross square feet). The Plano, Texas
store will replace an existing store in nearby Prestonwood, Texas and the
Houston store will replace the existing Town & Country store. In fiscal 1998,
average sales per gross square foot reached all-time highs of $416 at Neiman
Marcus Stores and $867 at Bergdorf Goodman, representing increases of 9.5% and
10.3%, respectively, over fiscal 1996 levels. The Company has consistently
focused on renovating and modernizing its stores to improve productivity. The
Company aims to improve average transaction amounts and comparable sales
growth with programs which are designed to increase the customers' awareness
of other merchandise offerings in the store and serve more of their
merchandise needs. In addition, to meet the demands of their customers for
fine merchandise, Neiman Marcus Stores and Bergdorf Goodman have placed a
greater emphasis on higher quality merchandise at higher opening price points.
In fiscal 1998, the Company announced a new retail concept, "The Galleries of
Neiman Marcus." The Galleries is a concept of smaller retail stores of
approximately 10,000 to 15,000 square feet focusing on precious and fine
jewelry, gifts and home accessories. The Company plans to open Galleries
stores in Cleveland, Ohio, in November 1998, in Phoenix, Arizona, in January
1999 and in Seattle, Washington, in the summer of 1999 to test this concept.
In January 1998, the Company acquired Chef's Catalog, a direct marketer of
gourmet cookware and high-end kitchenware for $31 million. The operations of
Chef's Catalog have been integrated with NM Direct.
In fiscal 1998, the Company's operating earnings rose to $199.1 million from
$181.0 million in fiscal 1997 and $159.5 million in fiscal 1996. Because a
substantial portion of the Company's selling, general and administrative
expenses consists of fixed charges, comparable sales increases improve the
Company's operating profit margin. Management believes that various programs
designed to increase sales, coupled with improved use of technology and
information systems in the Company's merchandising and inventory control, have
contributed to the Company's increased operating earnings.
In addition to opening new stores, the Company continues to make significant
capital investments that it believes will result in increased productivity. In
particular, during fiscal 1996, 1997 and 1998, the Company invested a total of
approximately $220 million in remodeling its existing store base and
constructing three new Neiman Marcus stores. In fiscal 1999, major projects
will include the commencement of multiyear construction projects to remodel
and expand Neiman Marcus stores in San Francisco and Las Vegas, as well as the
remodeling of the plaza level of the main store of Bergdorf Goodman.
In connection with the repurchase of its redeemable preferred stock in fiscal
1997, the Company incurred a nonrecurring, non-cash charge to earnings
applicable to common shareholders of approximately $22.4 million, or
approximately $.48 per share.
<PAGE>
[PAGE 24]
<TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS THE THINGS THAT COUNT
<CAPTION>
OPERATING RESULTS
Fiscal Years Ended
..................................
August 1, August 2, August 3,
(Dollars in Millions) 1998 1997 1996(2)
REVENUES ---------- ---------- ----------
<S> <C> <C> <C>
Neiman Marcus Stores $ 1,815.6 $ 1,696.8 $ 1,566.7
Bergdorf Goodman 273.9 253.7 251.9
NM Direct 283.8 259.4 256.4
---------- ---------- ----------
Total $ 2,373.3 $ 2,209.9 $ 2,075.0
========== ========== ==========
OPERATING EARNINGS
Neiman Marcus Stores $ 173.6 $ 151.7 $ 134.0
Bergdorf Goodman 24.5 18.2 16.5
NM Direct 15.6 25.5 22.7
Corporate expenses (14.6) (14.4) (13.7)
---------- ---------- ----------
Total $ 199.1 $ 181.0 $ 159.5
========== ========== ==========
OPERATING PROFIT MARGIN
Neiman Marcus Stores 9.6% 8.9% 8.6%
Bergdorf Goodman 8.9% 7.2% 6.6%
NM Direct 5.5% 9.8% 8.9%
---------- ---------- ----------
Total(1) 8.4% 8.2% 7.7%
========== ========== ==========
</TABLE>
(1) After corporate expenses.
(2) In fiscal 1996, the reporting period included 53 weeks as compared to 52
weeks in each of fiscal years 1998 and 1997.
FISCAL 1998 COMPARED TO FISCAL 1997
Revenues in fiscal 1998 increased to $2.37 billion from $2.21 billion in
fiscal 1997. The 7.4% increase was primarily attributable to comparable sales
growth of 7.0% and 8.0% at Neiman Marcus Stores and Bergdorf Goodman,
respectively. NM Direct revenues increased in comparison to the prior year
period as a result of the inclusion of sales from Chef's Catalog, a direct
marketer of gourmet cookware and high-end kitchenware, which was acquired in
January 1998. On a comparable basis, revenues at NM Direct decreased 2.3%.
Cost of goods sold increased 6.6% to $1.60 billion in fiscal 1998, primarily
due to incremental sales. As a percentage of revenues, cost of goods sold was
67.6% in fiscal 1998 compared to 68.1% in fiscal 1997. The decrease in fiscal
1998 resulted primarily from proportionately lower buying and occupancy costs.
Gross margins at both Neiman Marcus Stores and Bergdorf Goodman were
essentially unchanged, while gross margins at NM Direct decreased in
comparison to the prior year primarily as a result of higher markdowns.
Selling, general and administrative expenses increased 9.1% in fiscal 1998 to
$556.1 million. As a percentage of revenues, selling, general and
administrative expenses increased to 23.4% in fiscal 1998 from 23.1% in fiscal
1997. The proportionate increase in 1998 was primarily due to higher catalogue
circulation costs at NM Direct and pre-opening expenses associated with the
new Neiman Marcus store in Hawaii.
Corporate expenses, which consist primarily of charges for salaries, benefits
and overhead for the individuals who provide services under the intercompany
services agreement with Harcourt General, and professional fees, increased
1.8% to $14.6 million in fiscal 1998 compared to fiscal 1997. The increase was
primarily due to higher professional fees.
Operating earnings increased by 10% to $199.1 million from $181.0 million in
the prior year. This increase is attributed to higher sales volume,
particularly the comparable sales increases at Neiman Marcus Stores and
Bergdorf Goodman.
<PAGE>
[PAGE 25]
THE NEIMAN MARCUS GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS
Interest expense decreased 17.0% in fiscal 1998 to $21.9 million. The decrease
resulted from lower average borrowings as well as a lower effective interest
rate which resulted from the repayment at maturity of the Company's fixed rate
senior notes with borrowings under its revolving credit facility.
The Company's effective income tax rate was 40% in fiscal 1998, as compared to
41% in fiscal 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenues in fiscal 1997 increased to $2.21 billion from $2.08 billion in
fiscal 1996. The 6.5% increase was primarily attributable to comparable sales
growth of 5.3% at Neiman Marcus Stores, and to new Neiman Marcus stores opened
in King of Prussia, Pennsylvania, in February 1996 and Paramus, New Jersey, in
August 1996. Comparable sales increases at Bergdorf Goodman and NM Direct were
2.1% and 2.9%, respectively.
Cost of goods sold increased 6.3% to $1.50 billion in fiscal 1997, primarily
due to incremental merchandise sold. As a percentage of revenues, cost of
goods sold was 68.1% in fiscal 1997 compared to 68.3% in fiscal 1996. The
decrease in fiscal 1997 resulted primarily from improved gross margins across
all divisions, and proportionately lower buying and occupancy costs.
Selling, general and administrative expenses increased 5.0% in fiscal 1997 to
$509.7 million. As a percentage of revenues, selling, general and
administrative expenses decreased to 23.1% in fiscal 1997 from 23.4% in fiscal
1996. The proportionate decrease was primarily due to higher revenues.
Corporate expenses, which consist primarily of charges for salaries, benefits
and overhead for the individuals who provide services under the intercompany
services agreement with Harcourt General, and professional fees, increased
4.7% to $14.4 million in fiscal 1997 compared to fiscal 1996. This increase
was primarily due to higher professional fees.
Operating earnings increased by 13.5% to $181.0 million from $159.5 million in
the prior year. This increase is attributed to higher sales volume,
particularly at Neiman Marcus Stores, and improved gross margins.
Interest expense decreased 6.7% in fiscal 1997 to $26.3 million. Higher
average borrowings were offset by a lower effective interest rate which
resulted from repayment at maturity of a portion of the Company's fixed rate
senior notes with borrowings under its revolving credit facility.
The Company's effective income tax rate of 41% in fiscal 1997 was unchanged
from the prior fiscal year.
REVIEW OF FINANCIAL CONDITION
In fiscal 1998, the Company had sufficient cash flows from operations and its
revolving credit facility to finance its working capital needs, capital
expenditures and the acquisition of Chef's Catalog. Operating activities
provided net cash of $182.6 million in fiscal 1998 compared to $109.2 million
in fiscal 1997.
The Company's capital expenditures in fiscal 1998 related principally to the
construction of a new store in Hawaii and renovations of existing stores.
Capital expenditures were $81.2 million in fiscal 1998, $53.0 million in
fiscal 1997 and $85.7 million in fiscal 1996. The Company opened new Neiman
Marcus stores in Paramus, New Jersey, in August 1996 (141,000 gross square
feet) and in Honolulu's Ala Moana Center in September 1998 (160,000 gross
square feet). The Company currently plans to open six new full-line Neiman
Marcus stores over the next five years, two of which are replacement stores,
adding more than 400,000 gross square feet in total. Capital expenditures are
currently estimated to approximate $120 million for fiscal 1999.
In January 1998, the Company acquired Chef's Catalog for approximately $31.0
million in cash. The acquisition was funded primarily through borrowings under
the Company's revolving credit facility.
In May 1998, the Company issued $250 million of senior notes and debentures to
the public. The proceeds of the debt offering were used to repay borrowings
outstanding on the Company's revolving credit facility. The debt is comprised
of $125 million 6.65% senior notes due 2008 and $125 million 7.125% senior
debentures due 2028. Interest on the securities is payable semiannually in
arrears beginning December 1998. At August 1, 1998, the Company had $615.0
million available under its $650.0 million revolving credit facility, which
expires in October 2002. The Company believes that it will have sufficient
resources to fund its planned capital growth and operating requirements.
<PAGE>
[PAGE 26]
MANAGEMENT'S DISCUSSION AND ANALYSIS THE THINGS THAT COUNT
In October 1996, the Company issued 8.0 million shares of common stock to the
public at $35.00 per share. The net proceeds were used in November 1996,
together with 3.9 million shares of the Company's common stock and borrowings
of approximately $20.0 million, to purchase all of its outstanding redeemable
preferred stock from Harcourt General and pay accrued and unpaid dividends.
The repurchase of the preferred stock resulted in a reduction of dividend
payments of $21.3 million in fiscal 1997 compared to fiscal 1996 and
eliminated all related future preferred dividend and sinking fund
requirements.
The Company declared and paid the final dividends on its preferred stock in
the first quarter of fiscal 1997 in the amount of $5.8 million on November 12,
1996 concurrent with the repurchase of this preferred stock.
SEASONALITY
The specialty retail industry is seasonal in nature, and a disproportionately
high level of the Company's sales and earnings are generated in the fall and
holiday selling seasons. The Company's working capital requirements and
inventories increase substantially in the first quarter in anticipation of the
holiday selling season.
IMPACT OF INFLATION
The Company has adjusted selling prices to maintain certain profit levels and
will continue to do so as competitive conditions permit. In general,
management believes that the impact of inflation or of changing prices has not
had a material effect on the Company's results of operations during the last
three fiscal years.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). Under the new standard,
companies will be required to report certain information about operating
segments in consolidated financial statements. Operating segments will be
determined based on the method that management uses to organize its businesses
for making operating decisions and assessing performance. The standard also
requires that companies report certain information about their products and
services, the geographic areas in which they operate, and their major
customers. The Company is currently evaluating the additional disclosures
required by SFAS 131, which will be effective for fiscal 1999.
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" (SFAS 132). Upon adoption in fiscal 1999, the Company will provide
the additional disclosures required by SFAS 132.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133), which will require recognition of all derivatives as either assets or
liabilities on the balance sheet at fair value. The Company is currently
evaluating the additional disclosures required in implementing SFAS 133, which
will be effective for fiscal 2000.
YEAR 2000 DATE CONVERSION
The Company has completed its assessment of its hardware and software systems,
including the embedded systems in the Company's buildings, property and
equipment, and is implementing plans to ensure that the operation of such
systems will not be adversely affected by the Year 2000 date change.
The Company is presently in the process of renovating non-compliant systems
and implementing converted and replaced systems for substantially all of its
hardware and software systems. The Company estimates that its efforts to make
these systems Year 2000 compliant are approximately 60% complete, with
substantial completion of the Year 2000 project currently anticipated for
February 1999.
The Company has established an ongoing program to communicate with its
significant suppliers and vendors to determine the extent to which the
Company's systems and operations are vulnerable to those third parties'
failure to rectify their own Year 2000 issues. Based on responses to the
Company's inquiries, the Company has identified those suppliers and vendors
most at risk for failing to achieve Year 2000 compliance on a timely basis and
is monitoring their continuing progress. The Company is not presently aware of
any significant exposure arising from potential third party failures. However,
there can be no assurance that the systems of other companies on which the
Company's systems or operations rely will be timely converted or that any
failure of such parties to achieve Year 2000 compliance would not have an
adverse effect on the Company's results of operations.
<PAGE>
[PAGE 27]
THE NEIMAN MARCUS GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company has engaged both internal and external resources to assess,
reprogram, test and implement its systems for Year 2000 compliance. Based on
management's current estimates, the costs of Year 2000 remediation, including
system renovation, modifications and enhancements, which have been and will be
expensed as incurred, are not expected to be material to the results of
operations or the financial position of the Company. Additionally, such
expenditures have not adversely affected the Company's ability to continue its
investment in new technology in connection with its ongoing systems
development plans.
Management presently believes the Company's most reasonably likely worst case
Year 2000 scenario could arise from a business interruption caused by
governmental agencies, utility companies, telecommunication service companies,
shipping companies or other service providers outside the Company's control.
There can be no assurance that such providers will not suffer business
interruption caused by a Year 2000 issue. Such an interruption could have a
material adverse effect on the Company's results of operations.
The Company is in the process of developing a contingency plan for continuing
operations in the event of Year 2000 failures, and the current target for
completing that plan is December 1998.
FORWARD-LOOKING STATEMENTS
Statements in this report referring to the expected future plans and
performance of the Company are forward-looking statements. Actual future
results may differ materially from such statements. Factors that could affect
future performance include, but are not limited to: changes in economic
conditions or consumer confidence; changes in consumer preferences or fashion
trends; delays in anticipated store openings; adverse weather conditions,
particularly during peak selling seasons; changes in demographic or retail
environments; competitive influences; failure of the Company or third parties
to be Year 2000 compliant; significant increases in paper, printing and
postage costs; and changes in the Company's relationships with
designers and other resources.
<PAGE>
[PAGE 28]
<TABLE>
CONSOLIDATED BALANCE SHEETS THE THINGS THAT COUNT
<CAPTION>
August 1, August 2,
(Dollar Amounts in Thousands) 1998 1997
---------- ----------
Assets
CURRENT ASSETS
<S> <C> <C>
Cash and equivalents $ 56,644 $ 16,861
Undivided interests in NMG Credit Card Master Trust 138,867 128,341
Accounts receivable, less allowance for
doubtful accounts of $1,800 and $1,700 53,571 55,041
Merchandise inventories 499,068 460,412
Deferred income taxes 24,058 19,049
Other current assets 61,188 54,339
---------- ----------
TOTAL CURRENT ASSETS 833,396 734,043
---------- ----------
PROPERTY AND EQUIPMENT
Land, buildings and improvements 435,166 428,325
Fixtures and equipment 310,726 300,579
Construction in progress 66,927 26,029
---------- ----------
812,819 754,933
Less accumulated depreciation and amortization 333,563 300,800
---------- ----------
PROPERTY AND EQUIPMENT, NET 479,256 454,133
---------- ----------
OTHER ASSETS 125,140 99,684
---------- ----------
$1,437,792 $1,287,860
========== ==========
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Notes payable and current maturities of long-term liabilities $ 5,963 $ 8,810
Accounts payable 201,490 174,952
Accrued liabilities 180,809 147,730
---------- ----------
TOTAL CURRENT LIABILITIES 388,262 331,492
---------- ----------
LONG-TERM LIABILITIES
Notes and debentures 284,617 300,000
Other long-term liabilities 71,083 69,738
---------- ----------
355,700 369,738
---------- ----------
Deferred Income Taxes 37,139 31,902
COMMITMENTS AND CONTINGENCIES
COMMON STOCK
Common stock - $.01 par value
Authorized - 100,000,000 shares
Issued and outstanding - 49,759,686 and 49,873,347 shares 498 499
ADDITIONAL PAID-IN CAPITAL 481,295 485,658
RETAINED EARNINGS 174,898 68,571
---------- ----------
$1,437,792 $1,287,860
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
[PAGE 29]
<TABLE>
THE NEIMAN MARCUS GROUP CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended
..................................
August 1, August 2, August 3,
(In Thousands Except for Per Share Data) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $2,373,347 $2,209,891 $2,075,003
Cost of goods sold including buying and occupancy costs 1,603,602 1,504,858 1,416,296
Selling, general and administrative expenses 556,051 509,687 485,533
Corporate expenses 14,620 14,364 13,719
---------- ---------- ----------
Operating earnings 199,074 180,982 159,455
Interest expense 21,862 26,330 28,228
---------- ---------- ----------
Earnings before income taxes 177,212 154,652 131,227
Income taxes 70,885 63,407 53,803
---------- ---------- ----------
Net earnings 106,327 91,245 77,424
Loss on redemption of redeemable preferred stocks - (22,361) -
Dividends and accretion on redeemable preferred stocks - (6,201) (29,104)
---------- ---------- ----------
Net earnings applicable to common shareholders $ 106,327 $ 62,683 $ 48,320
========== ========== ==========
Weighted average number of common and
common equivalent shares outstanding:
Basic 49,808 47,162 38,000
========== ========== ==========
Diluted 49,981 47,335 38,218
========== ========== ==========
Earnings per share applicable to common shareholders:
Basic $ 2.13 $ 1.33 $ 1.27
========== ========== ==========
Diluted $ 2.13 $ 1.32 $ 1.26
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
[PAGE 30]
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS THE THINGS THAT COUNT
<CAPTION>
Years Ended
..................................
August 1, August 2, August 3,
(In Thousands) 1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES ---------- ---------- ----------
<S> <C> <C> <C>
Net earnings $ 106,327 $ 91,245 $ 77,424
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 60,097 59,820 56,305
Deferred income taxes 228 1,190 (2,047)
Other 1,629 2,199 2,447
Changes in current assets and liabilities:
Accounts receivable 2,431 (3,991) (5,401)
Merchandise inventories (33,006) (16,464) (84,856)
Accounts payable and accrued liabilities 48,841 (15,790) 15,751
Other (3,985) (8,971) (6,958)
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 182,562 109,238 52,665
---------- ---------- ----------
CASH FLOWS USED FOR INVESTING ACTIVITIES
Additions to property and equipment (81,176) (53,037) (85,736)
Purchases of held-to-maturity securities (636,342) (461,791) (502,604)
Maturities of held-to-maturity securities 625,816 447,842 492,673
Acquisition of Chef's Catalog (31,000) - -
---------- ---------- ----------
NET CASH USED FOR INVESTING ACTIVITIES (122,702) (66,986) (95,667)
---------- ---------- ----------
CASH FLOWS USED FOR FINANCING ACTIVITIES
Proceeds from borrowings 249,617 113,500 109,917
Repayment of debt (265,000) (132,000) (41,571)
Payment of redemption of preferred stock - (281,426) -
Issuance (repurchase) of common stock (4,694) 267,672 740
Dividends paid - (5,796) (27,120)
---------- ---------- ----------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (20,077) (38,050) 41,966
---------- ---------- ----------
CASH AND EQUIVALENTS
Increase/(Decrease) during the year 39,783 4,202 (1,036)
Beginning balance 16,861 12,659 13,695
---------- ---------- ----------
Ending balance $ 56,644 $ 16,861 $ 12,659
========== ========== ==========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 20,932 $ 28,441 $ 27,816
========== ========== ==========
Income taxes $ 59,656 $ 63,951 $ 56,523
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
[PAGE 31]
<TABLE>
THE NEIMAN MARCUS GROUP CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
<CAPTION>
Retained
Additional Earnings
Common Stock Paid-in (Accumulated
(In Thousands) Shares Amount Capital Deficit)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance - July 30, 1995 37,960 $ 380 $ 82,366 $ (56,199)
Net earnings - - - 77,424
Accretion of redeemable preferred stock - - - (1,984)
Preferred dividends - - - (27,120)
Other equity transactions 44 - 740 -
---------- ---------- ---------- ----------
Balance - August 3, 1996 38,004 380 83,106 (7,879)
Net earnings - - - 91,245
Accretion of redeemable preferred stock - - - (405)
Preferred dividends - - - (5,796)
Loss on redemption of redeemable preferred stock - - - (8,594)
Issuance of common stock 11,857 119 402,161 -
Other equity transactions 12 - 391 -
---------- ---------- ---------- ----------
Balance - August 2, 1997 49,873 499 485,658 68,571
Net earnings - - - 106,327
Repurchase of common stock (160) (2) (4,692) -
Other equity transactions 47 1 329 -
---------- ---------- ---------- ----------
Balance - August 1, 1998 49,760 $ 498 $ 481,295 $ 174,898
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
[PAGE 32]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE THINGS THAT COUNT
NOTE
ONE Summary of Significant Accounting Policies
BASIS OF REPORTING
The Company's specialty retailing businesses include Neiman Marcus Stores, NM
Direct and Bergdorf Goodman. The consolidated financial statements include the
accounts of all of the Company's wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The Company's
fiscal year ends on the Saturday closest to July 31. In fiscal 1996, the
reporting period included 53 weeks as compared to 52 weeks in each of fiscal
years 1997 and 1998.
CASH AND EQUIVALENTS
Cash and equivalents consist of cash and highly liquid investments with
maturities of three months or less from the date of purchase.
UNDIVIDED INTERESTS IN NMG CREDIT CARD MASTER TRUST
In March 1995, the Company sold all of its Neiman Marcus credit card
receivables through a subsidiary to The Neiman Marcus Group Credit Card Master
Trust (the "Trust") in exchange for certificates representing undivided
interests in such receivables. The undivided interests in the Trust include
the interests retained by the Company's subsidiary which are represented by
the Class C Certificate ($54.0 million) and the Seller's Certificate (the
excess of the total receivables transferred to the Trust over the portion
represented by certificates sold to investors and the Class C Certificate).
The undivided interests in the Trust represent securities which the Company
intends to hold to maturity in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Due to the short-term revolving nature of the credit card
portfolio, the carrying value of the Company's undivided interests in the
Trust approximates fair value.
MERCHANDISE INVENTORIES
Inventories are stated at the lower of cost or market. Substantially all of
the Company's inventories are valued using the retail method on the last-in,
first-out (LIFO) basis. While the Company believes that the LIFO method
provides a better matching of costs and revenues, some specialty retailers use
the first-in, first-out (FIFO) method and, accordingly, the Company has
provided the following data for comparative purposes.
If the FIFO method of inventory valuation had been used to value all
inventories, merchandise inventories would have been $14.5 million and $15.0
million higher than reported at August 1, 1998 and August 2, 1997,
respectively. As a result of using the LIFO valuation method, net earnings
were $0.3 million higher in 1998, $0.9 million lower in 1997, and $0.4 million
higher in 1996 than they would have been using the FIFO method.
DERIVATIVES
The Company uses treasury lock agreements (a derivative) as a means of
managing interest-rate risk associated with current debt or anticipated debt
transactions. The differentials to be received or paid under these contracts
designated as hedges are deferred and amortized to interest expense over the
remaining life of the associated debt. Derivative financial instruments are
not held for trading purposes.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided on a straight-line basis over the
shorter of the estimated useful lives of the related assets or the lease term.
Buildings and improvements are depreciated over 15 to 30 years while fixtures
and equipment are depreciated over two to 15 years.
When property and equipment are retired or have been fully depreciated, the
cost and the related accumulated depreciation are eliminated from the
respective accounts. Gains or losses arising from dispositions are reported as
income or expense.
Intangibles are amortized on a straight-line basis over their estimated useful
lives, not exceeding 40 years. Amortization expense was $4.8 million in 1998
and $3.7 million in 1997 and 1996.
Upon occurrence of an event or a change in circumstances, the Company compares
the carrying value of its long-lived assets against projected undiscounted
cash flows to determine any impairment and to evaluate the reasonableness of
the depreciation or amortization periods.
<PAGE>
[PAGE 33]
THE NEIMAN MARCUS GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
Income taxes are calculated in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes." SFAS
109 requires the asset and liability method of accounting for income taxes.
REVENUE RECOGNITION
The Company recognizes revenue at point-of-sale or upon shipment.
RECEIVABLES AND FINANCE CHARGE INCOME
The Company's credit operations generate finance charge income, which is
recognized as income when earned and is recorded as a reduction of selling,
general and administrative expenses. Finance charge income amounted to $47.8
million in 1998, $47.0 million in 1997 and $47.7 million in 1996. The
securitization of the Company's credit card receivables, which was completed
in March 1995, had the effect of reducing finance charge income by $19.0
million in each of 1998, 1997 and 1996.
Concentration of credit risk with respect to trade receivables is limited due
to the large number of customers to whom the Company extends credit. Ongoing
credit evaluation of customers' financial position is performed, and
collateral is not required as a condition of extending credit. The Company
maintains reserves for potential credit losses.
In 1997, the Company adopted Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (SFAS 125). The effect of adopting SFAS 125
was not material to the Company's consolidated financial position or results
of operations.
PREOPENING EXPENSES
Costs associated with the opening of new stores are expensed as incurred.
ADVERTISING AND CATALOGUE COSTS
Direct response advertising relates primarily to the production and
distribution of the Company's catalogues and is amortized over the estimated
life of the catalogue. All other advertising costs are expensed in the period
incurred. Advertising expenses were $114.4 million, $108.7 million and $104.2
million in 1998, 1997 and 1996, respectively. Direct response advertising
amounts included in other current assets in the consolidated balance sheets of
August 1, 1998 and August 2, 1997 were $7.6 million and $6.9 million,
respectively.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
In 1998, the Company adopted Statement of Financial Accounting Standards No.
128 (SFAS 128) "Earnings per Share." All earnings per share amounts for all
periods presented have been restated to conform to the requirements of SFAS
128.
SIGNIFICANT ESTIMATES
In the process of preparing its consolidated financial statements, the Company
estimates the appropriate carrying value of certain assets and liabilities
which are not readily apparent from other sources. The primary estimates
underlying the Company's consolidated financial statements include allowances
for doubtful accounts, accruals for pension and postretirement benefits and
other matters. Actual results could differ from these estimates. Management
bases its estimates on historical experience and on various assumptions which
are believed to be reasonable under the circumstances.
RECENT ACCOUNTING DEVELOPMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS 131). The Company is currently evaluating the
additional disclosures required by SFAS 131, which will be effective for
fiscal 1999.
In February 1998, the FASB issued SFAS 132, "Employers' Disclosures about
Pensions and other Postretirement Benefits." Upon adoption in fiscal 1999, the
Company will provide the additional disclosures required by SFAS 132.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities," which will require recognition of all derivatives as
either assets or liabilities on the balance sheet at fair value. The Company
is currently evaluating the effect of implementing SFAS 133, which will be
effective for fiscal 2000.
<PAGE>
[PAGE 34]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE THINGS THAT COUNT
NOTE
TWO Acquisition of Chef's Catalog
On January 5, 1998 the Company acquired Chef's Catalog for approximately $31.0
million in cash. Chef's Catalog is a direct marketer of gourmet cookware and
high-end kitchenware, and its operations have been integrated with NM Direct.
The acquisition has been accounted for by the purchase method of accounting
and, accordingly, the results of operations of Chef's Catalog for the period
from the date of acquisition are included in the accompanying consolidated
financial statements. Intangible assets acquired, consisting primarily of
trademarks, customer lists and goodwill, are amortized on a straight-line
basis over their estimated useful lives.
NOTE
THREE Company Public Offering
In October 1996, the Company completed a public offering of 8.0 million shares
of its common stock at a price of $35.00 per share. The net proceeds from the
offering ($267.3 million) were used by the Company to partially fund the
repurchase of all of the Company's issued and outstanding preferred stocks
from Harcourt General, Inc., the Company's majority shareholder. In addition
to the net proceeds, on November 12, 1996 the Company issued Harcourt General
3.9 million shares of the Company's common stock (valued at $135.0 million at
$35.00 per share) and completed the exchange for all of the Company's issued
and outstanding preferred stocks. The total consideration paid by the Company
to Harcourt General in connection with the repurchase was $416.4 million,
representing 98% of the aggregate stated value of the preferred stock, plus
accrued and unpaid dividends through the date of the closing of the public
offering.
In connection with the transaction, the Company incurred a non-recurring
charge to net earnings applicable to common shareholders of $22.4 million,
comprised of two components: (i) $8.6 million representing the difference
between the book value of the preferred stock and the total purchase price,
and (ii) $13.8 million representing the fair value of shares issued to
Harcourt General in excess of the number of shares that would have been issued
in accordance with the conversion terms of the 6% Preferred Stock.
Had the public offering and repurchase of the preferred stock taken place on
July 30, 1995, diluted net earnings per share applicable to common
shareholders would have been $1.82 in 1997 and $1.55 in 1996.
NOTE
FOUR Other Assets
Other assets consisted of the following:
<TABLE>
<CAPTION>
August 1, August 2,
(In Thousands) 1998 1997
---------- ----------
<S> <C> <C>
Trademarks $ 88,300 $ 73,000
Goodwill 33,202 22,729
Other 40,894 36,394
---------- ----------
162,396 132,123
Accumulated amortization (37,256) (32,439)
---------- ----------
$ 125,140 $ 99,684
========== ==========
</TABLE>
Trademarks and goodwill are amortized using the straight-line method over
their estimated useful lives, ranging from 30 to 40 years. Mailing lists
(which are included in Other) are amortized using the straight-line method
over their estimated useful lives, ranging from four to 11 years.
<PAGE>
[PAGE 35]
<TABLE>
THE NEIMAN MARCUS GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
FIVE Accrued Liabilities
Accrued liabilities consisted of the following:
<CAPTION>
August 1, August 2,
(In Thousands) 1998 1997
---------- ----------
<S> <C> <C>
Accrued salaries and related liabilities $ 37,857 $ 29,322
Self-insurance reserves 24,694 23,478
Income taxes payable 26,552 15,551
Other 91,706 79,379
---------- ----------
$ 180,809 $ 147,730
========== ==========
</TABLE>
NOTE
SIX Long-term Liabilities
Long-term liabilities consisted of the following:
<TABLE>
<CAPTION>
Interest August 1, August 2,
(In Thousands) Rate 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revolving credit facility (a) Variable $ 35,000 $ 300,000
Senior notes (b) 6.65% 124,848 -
Senior debentures (b) 7.125% 124,769 -
Capital lease obligations (c) 7.63-10.25% 5,598 6,142
Other long-term liabilities (d) Various 71,448 72,406
---------- ----------
Total long-term liabilities 361,663 378,548
Less current maturities (5,963) (8,810)
---------- ----------
$ 355,700 $ 369,738
========== ==========
</TABLE>
(a) The Company has a revolving credit facility with 20 banks, pursuant to
which the Company may borrow up to $650 million. The facility, which expires
in October 2002, may be terminated by the Company at any time on three
business days' notice. The rate of interest payable (5.9% at August 1, 1998)
varies according to one of four pricing options selected by the Company. The
revolving credit facility contains covenants which require the Company to
maintain certain leverage and fixed charge ratios.
(b) In May 1998, the Company issued $250 million of senior notes and
debentures to the public. The proceeds of the debt offering were used to repay
borrowings outstanding on the Company's revolving credit facility. The debt is
comprised of $125 million 6.65% senior notes due 2008 and $125 million 7.125%
senior debentures due 2028. Interest on the securities is payable semiannually
in arrears beginning December 1998.
(c) The amount of assets under capital leases included in property and
equipment net of amortization was $2.7 million at August 1, 1998 and $3.1
million at August 2, 1997.
(d) Other long-term liabilities consisted primarily of certain employee
benefit obligations, postretirement health care benefits and the liability for
scheduled rent increases.
The aggregate maturities of all long-term liabilities and capital lease
obligations are $6.0 million in 1999, $4.0 million in 2000, $4.4 million in
2001, $39.6 million in 2002, $4.3 million in 2003 and $303.4 million
thereafter.
<PAGE>
[PAGE 36]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE THINGS THAT COUNT
NOTE
SEVEN Redeemable Preferred Stocks
The Company is authorized to issue up to 50,000,000 shares of preferred stock.
In fiscal 1997, the Company repurchased its issued and outstanding preferred
stocks which consisted of 1,000,000 shares of 6% Cumulative Convertible
Preferred Stock and 500,000 shares of 9 1/4% Cumulative Redeemable Preferred
Stock, all of which were owned by Harcourt General.
NOTE
EIGHT Common Shareholders' Equity
OWNERSHIP BY AND RELATIONSHIP WITH HARCOURT GENERAL
Harcourt General owns approximately 26.4 million shares of Common Stock,
representing approximately 53% of the issued and outstanding shares of Common
Stock of the Company.
The Company and Harcourt General are parties to an agreement pursuant to which
Harcourt General provides certain management, accounting, financial, legal,
tax and other corporate services to the Company. The fees for these services
are based on Harcourt General's costs and are subject to the approval of a
committee of directors of the Company who are independent of Harcourt General.
This agreement may be terminated by either party on 180 days' notice. Charges
to the Company under this agreement were $5.4 million in 1998, $5.7 million in
1997 and $6.9 million in 1996.
The Company's Chairman and Chief Executive Officer; President and Chief
Operating Officer; Senior Vice President and Chief Financial Officer; Senior
Vice President and General Counsel; as well as certain other officers, serve
in similar capacities with Harcourt General. The first two named officers also
serve as directors of both companies. In addition, two other directors of the
Company serve respectively as Senior Vice President and Chief Financial
Officer and President and Co-Chief Operating Officer of Harcourt General.
COMMON STOCK
Common Stock is entitled to dividends if and when declared by the Board of
Directors, and each share carries one vote. Holders of Common Stock have no
cumulative voting, conversion, redemption or preemptive rights.
COMMON STOCK INCENTIVE PLANS
The Company has established common stock incentive plans allowing for the
granting of stock options, stock appreciation rights (SARs) and stock-based
awards to its employees. The Company applies Accounting Principles Board (APB)
Opinion No. 25 and related interpretations in accounting for its plans. The
Company has adopted the disclosure-only provision of the Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). Accordingly, no compensation cost has been
recognized for its common stock incentive plans.
Had the fair-value based method of accounting been applied at grant date to
the Company's stock incentive plans, net earnings and earnings per share would
have been reduced to pro forma amounts for the years ended August 1, 1998,
August 2, 1997 and August 3, 1996 as follows:
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Amounts) 1998 1997 1996
---------- ---------- ----------
Net earnings:
<S> <C> <C> <C>
As reported $ 106,327 $ 62,683 $ 48,320
Pro forma $ 105,339 $ 62,320 $ 48,214
Basic earnings per share:
As reported $ 2.13 $ 1.33 $ 1.27
Pro forma $ 2.11 $ 1.32 $ 1.27
Diluted earnings per share:
As reported $ 2.13 $ 1.32 $ 1.26
Pro forma $ 2.11 $ 1.32 $ 1.26
</TABLE>
<PAGE>
[PAGE 37]
THE NEIMAN MARCUS GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The effects on pro forma net earnings and earnings per share of expensing the
estimated fair value of stock options are not necessarily representative of
the effects on reported net earnings for future years due to such factors as
the vesting period of the stock options and the potential for issuance of
additional stock options in future years. In addition, the disclosure
requirements of SFAS 123 are presently applicable only to options granted
subsequent to July 30, 1995.
The Company has adopted the 1997 Incentive Plan (the "1997 Plan") which is
currently used for grants of equity-based awards to employees. All outstanding
equity-based awards at August 1, 1998 were granted under the Company's 1997
Plan and the 1987 Stock Incentive Plan. At August 1, 1998, there were 2.2
million shares of Common Stock available for grants under the 1997 Plan.
Options outstanding at August 1, 1998 were granted at prices (not less than
100% of the fair market value on the date of the grant) varying from $11.63 to
$33.75. Options generally vest ratably over five years and expire after ten
years. There were 111 employees with options outstanding at August 1, 1998.
For all outstanding options at August 1, 1998, the weighted average exercise
price was $23.83 and the weighted average remaining contractual life was
approximately 7.1 years.
The Company has allowed SAR treatment in connection with the exercise of
certain options. Optionees allowed SAR treatment surrendered an exercisable
option in exchange for an amount of cash equal to the excess of the market
price of the Common Stock at the time of the surrender over the option
exercise price.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions
used for grants in 1998, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Expected life (years) 8 7 7
Expected volatility 29.4% 31.1% 24.4%
Risk-free interest rate 5.5% 7.0% 7.0%
========== ========== ==========
</TABLE>
A summary of the status of the Company's 1987 and 1997 Stock Incentive Plans
as of August 1, 1998, and August 2, 1997 and changes during the years ending
on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
..................... ..................... .....................
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year 660,780 $ 17.95 653,077 $ 14.41 784,864 $ 14.47
Granted 325,800 32.87 131,050 33.38 128,600 15.38
SAR Surrenders (107,240) 17.75 (82,207) 14.45 (202,192) 14.95
Exercised (2,300) 14.90 (1,200) 14.53 (2,900) 15.28
Canceled (29,080) 24.92 (39,940) 17.85 (55,295) 15.63
--------- --------- --------- --------- --------- ---------
Outstanding at
end of year 847,960 $ 23.83 660,780 $ 17.95 653,077 $ 14.41
========= ========= =========
Options exercisable
at year-end 286,700 $ 15.53 273,090 $ 14.21 239,247 $ 14.34
========= ========= =========
</TABLE>
The weighted-average fair value of options granted in 1998, 1997 and 1996 was
$15.94, $16.32 and $6.88, respectively.
<PAGE>
[PAGE 38]
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE THINGS THAT COUNT
The following summarizes information about the Company's stock options as of August 1, 1998.
<CAPTION>
Options Outstanding Options Exercisable
...............................................................................................
Weighted- Weighted- Weighted-
Shares Average Average Shares Average
Outstanding Remaining Exercise Outstanding Exercise
Range of Exercise Prices At 8/1/98 Contractual Life Price At 8/1/98 Price
- --------------------------------------- ---------------- ----------- ----------- ----------
<C> <C> <C> <C> <C> <C>
$11.63 - $12.75 62,070 3.9 $ 12.15 62,070 $ 12.15
$13.38 - $16.75 354,040 5.6 $ 14.70 202,620 $ 14.63
$29.19 - $33.38 431,850 8.8 $ 33.01 22,010 $ 33.38
- --------------- ---------- ---------------- ---------- ---------- ----------
$11.63 - $33.38 847,960 7.1 $ 23.83 286,700 $ 15.53
- --------------- ---------- ---------------- ---------- ---------- ----------
</TABLE>
NOTE
NINE Stock Repurchase Program
In December 1997, the Board of Directors of the Company authorized the
repurchase of up to one million shares of common stock in the open market. For
the year ended August 1, 1998, the Company repurchased 160,100 shares at an
average price of $29.32 per share under this stock repurchase program.
In August 1998, the Company repurchased an additional 247,000 shares at an
average price of $26.85 per share.
NOTE
TEN Income Taxes
Income tax expense was as follows:
<TABLE>
<CAPTION>
Years Ended
...................................
August 1, August 2, August 3,
(In Thousands) 1998 1997 1996
---------- ---------- -----------
Current:
<S> <C> <C> <C>
Federal $ 62,100 $ 53,292 $ 47,517
State 8,557 8,925 8,333
---------- ---------- ----------
70,657 62,217 55,850
---------- ---------- ----------
Deferred:
Federal (101) 836 (1,588)
State 329 354 (459)
---------- ---------- ----------
228 1,190 (2,047)
---------- ---------- ----------
Income tax expense $ 70,885 $ 63,407 $ 53,803
========== ========== ==========
</TABLE>
The Company's effective income tax rate was 40% in 1998 and 41% in both 1997
and 1996. The difference between the statutory federal tax rate and the
effective tax rate is due primarily to state income taxes.
<PAGE>
[PAGE 39]
<TABLE>
THE NEIMAN MARCUS GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of the Company's net deferred income tax liability
stated on a gross basis were as follows:
<CAPTION>
August 1, August 2,
(In Thousands) 1998 1997
---------- ----------
Gross deferred income tax assets:
<S> <C> <C>
Financial accruals and reserves $ 19,901 $ 19,578
Employee benefits 25,472 23,630
Inventories 12,068 8,276
Deferred lease payments 2,618 3,066
Other 537 754
---------- ----------
Total deferred tax assets 60,596 55,304
Gross deferred income tax liabilities:
Excess tax depreciation (63,092) (57,429)
Pension accrual (4,087) (4,581)
Other assets previously deducted on tax return (6,498) (6,147)
---------- ----------
Total deferred tax liabilities (73,677) (68,157)
---------- ----------
Net deferred income tax liability $ (13,081) $ (12,853)
========== ==========
</TABLE>
NOTE
ELEVEN Pension Plans
The Company has a noncontributory defined benefit pension plan covering
substantially all full-time employees. The Company also sponsors an unfunded
supplemental executive retirement plan which provides certain employees
additional pension benefits. Benefits under the plans are based on the
employees' years of service and compensation over defined periods of
employment. When funding is required, the Company's policy is to contribute
amounts that are deductible for federal income tax purposes. Pension plan
assets consist primarily of equity and fixed income securities.
Components of net pension expense were as follows:
<TABLE>
<CAPTION>
Years Ended
...................................
August 1, August 2, August 3,
(In Thousands) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Service cost $ 5,527 $ 5,591 $ 5,700
Interest cost on projected benefit obligation 10,843 10,055 8,300
Actual return on assets (16,750) (40,235) (12,100)
Net amortization and deferral 8,658 33,770 5,700
---------- ---------- ----------
Net pension expense $ 8,278 $ 9,181 $ 7,600
========== ========== ==========
The actuarial assumptions used in the computation of pension expense and
valuation of the benefit obligation were as follows:
1998 1997 1996
---------- ---------- ----------
Discount rate 7.0% 7.5% 7.5%
Long-term rate of return on plan assets 9.0% 9.0% 9.0%
Rate of increases in future compensation levels 5.0% 5.0% 5.0%
========== ========== ==========
</TABLE>
<PAGE>
[PAGE 40]
<TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE THINGS THAT COUNT
The plans' funded status and amounts recognized in the consolidated balance
sheets were as follows:
<CAPTION>
August 1, 1998 August 2, 1997
...................... ......................
Funded Unfunded Funded Unfunded
(In Thousands) Plan Plan Plan Plan
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Vested benefit obligation $ 111,824 $ 22,200 $ 99,591 $ 15,447
========== ========== ========== ==========
Accumulated benefit obligation $ 115,580 $ 27,853 $ 103,100 $ 19,922
========== ========== ========== ==========
Projected benefit obligation $ 143,206 $ 36,221 $ 119,477 $ 25,199
Pension plan assets at fair value 159,092 - 144,288 -
---------- ---------- ---------- ----------
Funded (underfunded) projected obligation 15,886 (36,221) 24,811 (25,199)
Net amortization and deferral (7,936) 6,878 (14,123) 804
Unrecognized net obligation at transition
and unrecognized prior service cost 1,330 6,116 1,579 3,156
---------- ---------- ---------- ----------
Pension asset (liability) recognized in
the consolidated balance sheets $ 9,280 $(23,227) $ 12,267 $ (21,239)
========== ========== ========== ==========
</TABLE>
The Company has a qualified defined contribution 401(k) plan, which covers
substantially all employees. Employees make contributions to the plan, and the
Company matches 25% of an employee's contribution up to a maximum of 6% of the
employee's compensation. Company contributions for the years ended August 1,
1998, August 2, 1997 and August 3, 1996 were $2.9 million, $2.6 million and
$2.3 million, respectively.
NOTE
TWELVE Postretirement Health Care Benefits
Retirees and active employees hired prior to March 1, 1989 are eligible for
certain limited postretirement health care benefits if they have met certain
service and minimum age requirements. The cost of these benefits is accrued
during the years in which an employee provides services. The Company paid
postretirement health care benefit claims of $1.3 million during 1998, $1.2
million during 1997 and $1.2 million during 1996.
The actuarial present value of accumulated postretirement health care benefit
obligations and the amounts recognized in the consolidated balance sheets were
as follows:
<TABLE>
<CAPTION>
August 1, August 2,
(In Thousands) 1998 1997
---------- ----------
<S> <C> <C>
Retirees $ 10,716 $ 11,202
Fully eligible active plan participants 3,381 3,409
Other active plan participants 2,844 2,944
---------- ----------
Accumulated postretirement benefit obligation 16,941 17,555
Unrecognized net gain 2,020 1,276
---------- ----------
Total $ 18,961 $ 18,831
</TABLE>
<PAGE>
[PAGE 41]
<TABLE>
THE NEIMAN MARCUS GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The periodic postretirement health care benefit cost was as follows:
<CAPTION>
Years Ended
..................................
August 1, August 2, August 3,
(In Thousands) 1998 1997 1996
---------- ---------- ----------
Net periodic cost:
<S> <C> <C> <C>
Service cost $ 155 $ 48 $ 222
Interest cost on accumulated benefit obligation 1,282 819 1,621
Net amortization and deferral (30) (563) -
---------- ---------- ----------
Total $ 1,407 $ 304 $ 1,843
========== ========== ==========
</TABLE>
A health care cost trend rate of 9% was assumed in measuring the accumulated
postretirement health care benefit obligation at August 1, 1998, gradually
declining to 5% by the year 2002. Measurement of the accumulated
postretirement health care benefit obligation was based on an assumed 7.0%
discount rate in 1998 and 7.5% in 1997 and 1996. An increase of 1% in the
health care cost trend rate would increase the accumulated postretirement
health care benefit obligation as of August 1, 1998 by $1.8 million. The
effect of this change on the annual net periodic postretirement health care
benefit cost would be an increase of approximately $150,000.
NOTE
THIRTEEN Commitments and Contingencies
OPERATING LEASES
The Company's operations are conducted primarily in leased properties which
include retail stores, distribution centers and other facilities.
Substantially all leases are for periods of up to thirty years with renewal
options at fixed rentals, except that certain leases provide for additional
rent based on revenues in excess of predetermined levels.
Rent expense under operating leases was as follows:
<TABLE>
<CAPTION>
Years Ended
...................................
August 1, August 2, August 3,
(In Thousands) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Minimum rent $ 31,800 $ 31,200 $ 29,200
Rent based on revenues 13,300 11,600 10,700
---------- ---------- ----------
Total rent expense $ 45,100 $ 42,800 $ 39,900
========== ========== ==========
</TABLE>
Future minimum lease payments, excluding renewal options, under operating
leases are as follows: 1999 - $35.0 million; 2000 - $34.8 million; 2001 -
$33.7 million; 2002 - $33.3 million; 2003 - $31.9 million; all years
thereafter - $529.8 million.
LITIGATION
The Company is involved in various suits and claims in the ordinary course of
business. Management does not believe that the disposition of any such suits
and claims will have a material adverse effect upon the consolidated results
of operations or the financial position of the Company.
LETTERS OF CREDIT
The Company had approximately $18.7 million of outstanding irrevocable letters
of credit relating to purchase commitments and insurance liabilities at August
1, 1998.
<PAGE>
[PAGE 42]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE THINGS THAT COUNT
NOTE
FOURTEEN Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments are as
reported and disclosed in the consolidated financial statements, and as
discussed below.
SECURITIZATION OF CREDIT CARD RECEIVABLES
In March 1995 the Company sold all of its Neiman Marcus credit card
receivables through a subsidiary to The Neiman Marcus Group Credit Card Master
Trust (the "Trust") in exchange for certificates representing undivided
interests in such receivables. Certificates representing undivided interests
in $246.0 million of these receivables were sold to third parties in a public
offering of $225.0 million of 7.60% Class A certificates and $21.0 million of
7.75% Class B certificates. The Company used the proceeds from this offering
to pay down existing debt. The Company's subsidiary will retain the remaining
undivided interests in the receivables not represented by the Class A and
Class B certificates. A portion of these interests is subordinated to the
Class A and Class B certificates. The Company will continue to service all
receivables for the Trust.
In anticipation of the securitization, the Company entered into several
forward interest rate lock agreements. The agreements allowed the Company to
establish a weighted average effective interest rate of approximately 8.0% on
the certificates issued as part of the securitization.
NOTE
FIFTEEN Earnings Per Share
Pursuant to the provisions of SFAS 128, the weighted average shares used in
computing basic and diluted earnings per share (EPS) are as presented in the
table below. No adjustments were made to net earnings applicable to common
shareholders for the computations of basic and diluted EPS during the periods
presented. All options were included in the computation of diluted EPS because
the exercise price of those options was less than the average market price of
the common shares.
<TABLE>
<CAPTION>
Years Ended
..................................
August 1, August 2, August 3,
(In Thousands of Shares) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Shares for computation of basic EPS 49,808 47,162 38,000
Effect of assumed option exercises 173 173 218
---------- ---------- ----------
Shares for computation of diluted EPS 49,981 47,335 38,218
========== ========== ==========
</TABLE>
<PAGE>
[PAGE 43]
<TABLE>
THE NEIMAN MARCUS GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
SIXTEEN Quarterly Financial Information (unaudited)
<CAPTION>
Year Ended August 1, 1998
..........................................................
First Second Third Fourth
(In Millions Except for Per Share Data) Quarter Quarter Quarter Quarter Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 580.5 $ 708.4 $ 547.7 $ 536.7 $ 2,373.3
========== ========== ========== ========== ==========
Gross profit $ 204.4 $ 221.4 $ 179.3 $ 164.6 $ 769.7
========== ========== ========== ========== ==========
Net earnings applicable
to common shareholders $ 32.6 $ 33.5 $ 24.0 $ 16.2 $ 106.3
========== ========== ========== ========== ==========
Earnings per share applicable
to common shareholders:
Basic $ .65 $ .67 $ .48 $ .33 $ 2.13
========== ========== ========== ========== ==========
Diluted $ .65 $ .67 $ .48 $ .33 $ 2.13
========== ========== ========== ========== ==========
Year Ended August 2, 1997
..........................................................
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
---------- ---------- ---------- ---------- ----------
Revenues $ 544.1 $ 661.9 $ 506.5 $ 497.3 $ 2,209.8
========== ========= ========== ========== ==========
Gross profit $ 193.5 $ 201.3 $ 162.7 $ 147.5 $ 705.0
========== ========= ========== ========== ==========
Net earnings 30.9 25.6 20.7 14.0 91.2
Loss on redemption of redeemable
preferred stocks (22.4) - - - (22.4)
Preferred dividends and accretion (6.2) - - - (6.2)
---------- ---------- ---------- ---------- ----------
Net earnings applicable
to common shareholders $ 2.3 $ 25.6 $ 20.7 $ 14.0 $ 62.6
========== ========= ========== ========== ==========
Earnings per share applicable
to common shareholders:
Basic $ .06 $ .52 $ .42 $ .28 $ 1.33
========== ========== ========== ========== ==========
Diluted $ .06 $ .52 $ .41 $ .28 $ 1.32
========== ========== ========== ========== ==========
</TABLE>
In the fourth quarter, the effect of adjusting the LIFO reserve for
inventories to actual amounts increased net earnings by $3.9 million in 1998
and $2.7 million in 1997.
<PAGE>
[PAGE 44]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE THINGS THAT COUNT
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
The Neiman Marcus Group, Inc.
Chestnut Hill, Massachusetts
We have audited the accompanying consolidated balance sheets of The Neiman
Marcus Group, Inc. and subsidiaries as of August 1, 1998 and August 2, 1997,
and the related consolidated statements of earnings, common shareholders'
equity and cash flows for each of the three fiscal years in the period ended
August 1, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Neiman
Marcus Group, Inc. and subsidiaries as of August 1, 1998 and August 2, 1997,
and the results of their operations and their cash flows for each of the three
fiscal years in the period ended August 1, 1998, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
August 27, 1998
<PAGE>
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
The management of The Neiman Marcus Group, Inc. and its subsidiaries is
responsible for the integrity and objectivity of the financial and operating
information contained in this Annual Report, including the consolidated
financial statements covered by the Independent Auditors' Report. These
statements were prepared in conformity with generally accepted accounting
principles and include amounts that are based on the best estimates and
judgments of management.
The Company maintains a system of internal controls which provides management
with reasonable assurance that transactions are recorded and executed in
accordance with its authorizations, that assets are properly safeguarded and
accounted for, and that records are maintained so as to permit preparation of
financial statements in accordance with generally accepted accounting
principles. This system includes written policies and procedures, an
organizational structure that segregates duties, financial reviews and a
comprehensive program of periodic audits by the internal auditors. The Company
also has instituted policies and guidelines which require employees to
maintain a high level of ethical standards.
In addition, the Audit Committee of the Board of Directors, consisting solely
of outside directors, meets periodically with management, the internal
auditors and the independent auditors to review internal accounting controls,
audit results and accounting principles and practices and annually recommends
to the Board of Directors the selection of independent auditors.
JOHN R. COOK
Senior Vice President and Chief Financial Officer
Catherine N. Janowski
VICE PRESIDENT AND CONTROLLER
<PAGE>
[PAGE 45]
<TABLE>
THE NEIMAN MARCUS GROUP SELECTED FINANCIAL DATA
<CAPTION>
Years Ended
...........................................................
August 1, August 2, August 3, July 29, July 30,
(In Millions Except for Per Share Data) 1998 1997 1996(a) 1995 1994
---------- ---------- ---------- ---------- ----------
OPERATING RESULTS:
<S> <C> <C> <C> <C> <C>
Revenues $ 2,373.3 $ 2,209.9 $ 2,075.0 $ 1,888.2 $ 1,789.5
Earnings from continuing operations $ 106.3 $ 91.2 $ 77.4 $ 67.3 $ 65.7
Loss from discontinued operations - - - (11.7) (49.8)
========== ========== ========== ========== ==========
Net earnings $ 106.3 $ 91.2 $ 77.4 $ 55.6 $ 15.9
========== ========== ========== ========== ==========
Net earnings (loss)
applicable to common
shareholders $ 106.3 $ 62.7 $ 48.3 $ 26.5 $ (13.2)
========== ========== ========== ========== ==========
Basic amounts per share
applicable to common
shareholders:
Continuing operations $ 2.13 $ 1.33 $ 1.27 $ 1.01 $ .96
Discontinued operations- - - - (.31) ( 1.31)
---------- ---------- ---------- ---------- ----------
Basic net earnings (loss) $ 2.13 $ 1.33 $ 1.27 $ .70 $ (.35)
========== ========== ========== ========== ==========
Diluted amounts per share
applicable to common shareholders:
Continuing operations $ 2.13 $ 1.32 $ 1.26 $ 1.01 $ .96
Discontinued operations - - - (.31) (1.31)
---------- ---------- ---------- ---------- ----------
Diluted net earnings (loss) $ 2.13 $ 1.32 $ 1.26 $ .70 $ (.35)
========== ========== ========== ========== ==========
Common dividends $ - $ - $ - $ .10 $ .20
========== ========== ========== ========== ==========
FINANCIAL POSITION:
Total assets $ 1,437.8 $ 1,287.9 $ 1,252.4 $ 1,108.4 $ 1,323.1
Long-term liabilities $ 355.7 $ 369.7 $ 361.9 $ 311.1 $ 443.6
Redeemable preferred stocks $ - $ - $ 407.4 $ 405.4 $ 403.5
========== ========== ========== ========== ==========
</TABLE>
The selected financial data should be read in conjunction with the
Consolidated Financial Statements contained elsewhere in this report.
(a) Fiscal 1996 was a 53 week year.
<PAGE>
[PAGE 47]
THE NEIMAN MARCUS GROUP SHAREHOLDER INFORMATION
STOCK INFORMATION
The Neiman Marcus Group's Common Stock is traded on the New York Stock
Exchange under the symbol NMG. The following table indicates the quarterly
price range of the Common Stock for the past two fiscal years.
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
Quarter High Low High Low
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
First $ 35.56 $ 27.88 $ 35.88 $ 27.13
Second $ 35.36 $ 28.81 $ 36.00 $ 22.75
Third $ 41.06 $ 34.63 $ 28.13 $ 23.88
Fourth $ 43.44 $ 33.00 $ 29.25 $ 24.50
========= ========= ========= =========
SHARES OUTSTANDING
The Neiman Marcus Group has 49.5 million common shares outstanding. Harcourt
General, Inc. owns approximately 53% of NMG's outstanding common equity. The
Neiman Marcus Group had 11,619 common shareholders of record at August 1,
1998.
<PAGE>
</TABLE>
<TABLE>
Exhibit 21.1
THE NEIMAN MARCUS GROUP, INC.
SUBSIDIARIES & AFFILIATES
<CAPTION>
<S> <S> <S>
JURISDICTION
OF
SUBSIDIARY/AFFILIATE INCORPORATION STOCKHOLDER
Bergdorf Goodman, Inc. New York Neiman Marcus Holdings, Inc.
Bergdorf Graphics, Inc. New York Bergdorf Goodman, Inc.
Chef s Catalog, Inc. Delaware The Neiman Marcus Group, Inc.
Ermine Trading Corporation California The Neiman Marcus Group, Inc.
NM Direct de Mexico, S.A. de C.V. Mexico The Neiman Marcus Group, Inc.
Neiman Marcus Holdings, Inc.
NM Financial Services, Inc. Delaware The Neiman Marcus Group, Inc.
NM Nevada Trust Massachusetts The Neiman Marcus Group, Inc.
Bergdorf Goodman, Inc.
Neiman Marcus Funding Corporation Delaware The Neiman Marcus Group, Inc.
Neiman Marcus Holdings, Inc. California The Neiman Marcus Group, Inc.
Neiman Marcus Special Events, Inc. Delaware The Neiman Marcus Group, Inc.
Pastille By Mail, Inc. Delaware The Neiman Marcus Group, Inc.
Worth Avenue Leasing Company Florida The Neiman Marcus Group, Inc.
</TABLE> <PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in Registration
Statement No.33-35299, No.333-35829 and 333-49893 of The Neiman
Marcus Group, Inc. and subsidiaries on Forms S-8, S-8 and S-3,
respectively, of our report dated August 27, 1998, appearing in
this Annual Report on Form 10-K of The Neiman Marcus Group, Inc.
and subsidiaries for the year ended August 1, 1998.
s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 23, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Need to fill in the text in this area.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-01-1998
<PERIOD-END> AUG-02-1998
<CASH> 56,644
<SECURITIES> 138,867
<RECEIVABLES> 55,371
<ALLOWANCES> 1,800
<INVENTORY> 499,068
<CURRENT-ASSETS> 833,396
<PP&E> 812,819
<DEPRECIATION> 333,563
<TOTAL-ASSETS> 1,437,792
<CURRENT-LIABILITIES> 388,262
<BONDS> 284,617
0
0
<COMMON> 498
<OTHER-SE> 656,193
<TOTAL-LIABILITY-AND-EQUITY> 1,437,792
<SALES> 2,373,347
<TOTAL-REVENUES> 2,373,347
<CGS> 1,603,602
<TOTAL-COSTS> 2,174,273
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,771
<INTEREST-EXPENSE> 21,862
<INCOME-PRETAX> 177,212
<INCOME-TAX> 70,885
<INCOME-CONTINUING> 106,327
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,327
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 2.13
</TABLE>
