-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HmDiRWlkTRjYEPLtF6DeDo1ue3aLT3d66AW2ACNnyhtGXRYlqW/zIu7cEThsKZeM NKyecxiNlN798POOgTWPHQ== 0000819539-99-000008.txt : 19991101 0000819539-99-000008.hdr.sgml : 19991101 ACCESSION NUMBER: 0000819539-99-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19991029 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEIMAN MARCUS GROUP INC CENTRAL INDEX KEY: 0000819539 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 954119509 STATE OF INCORPORATION: DE FISCAL YEAR END: 0801 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09659 FILM NUMBER: 99736986 BUSINESS ADDRESS: STREET 1: 27 BOYLSTON ST STREET 2: P O BOX 9187 CITY: CHESTNUT HILL STATE: MA ZIP: 02467 BUSINESS PHONE: 6172320760 MAIL ADDRESS: STREET 1: 27 BOYLSTON ST STREET 2: P O BOX 9187 CITY: CHESTNUT HILL STATE: MA ZIP: 02467 10-K 1 THE NEIMAN MARCUS GROUP, INC. FORM 10K 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 July 31, 1999 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) IdentificationNo.) 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 Class A Common Stock, $.01 par value New York Stock Exchange Class B 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 25, 1999 was $856,866,600. There were 27,602,841 shares of Class A Common Stock and 21,440,960 shares of Class B Common Stock outstanding as of October 25, 1999. _________________________________________________ Documents Incorporated by Reference Portions of the Company's 1999 Annual Report to Shareholders are incorporated by reference in Parts I, II and IV of this Report. Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on January 21, 2000 are incorporated by reference in Part III of this Report. THE NEIMAN MARCUS GROUP, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JULY 31, 1999 TABLE OF CONTENTS Page No. PART I Item 1. Business 1 Item 2. Properties 4 Item 3. Legal Proceedings 5 Item 4. Submission of Matters to a Vote of Security Holders 5 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 5 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 8 Item 12. Security Ownership of Certain Beneficial 8 Owners and Management Item 13. Certain Relationships and Related Transactions 8 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports 8 on Form 8-K Signatures S-1 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. Prior to October 22, 1999, Harcourt General, Inc. ("Harcourt General"), a Delaware corporation based in Chestnut Hill, Massachusetts, owned approximately 54% of the outstanding common stock of the Company. On October 22, 1999 Harcourt General distributed to its stockholders approximately 21.4 million of the 26.4 million shares of the Company's common stock held by Harcourt General (the "Distribution"). For more information about the relationship between the Company and Harcourt General and the Distribution, see Notes 8 and 16 to the Consolidated Financial Statements in Item 14 below. Business Overview The Company is a high-end specialty retailer operating through specialty retail stores, consisting of Neiman Marcus Stores and Bergdorf Goodman, and a direct marketing operation, NM Direct. 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. For more information about the Company's business segments, see Note 15 to the Consolidated Financial Statements in Item 14 below. Description of Operations Specialty Retail Stores 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 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, Plano, Texas in 2001, Tampa, Florida in 2001, Coral Gables, Florida in 2002, and in Houston, Texas and Long Island, New York in years subsequent to 2002 on a schedule not yet determined. 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. The Company has opened three stores in order to test a new concept, known as The Galleries of Neiman Marcus, which focuses on 10,000-15,000 square foot stores featuring precious and fine jewelry, gifts and decorative home accessories. These stores allow the Company to further leverage its expertise in these categories and to extend the Neiman Marcus brand into certain markets that may not be large enough to support full-line stores. The Galleries of Neiman Marcus stores opened in Cleveland, Ohio in November 1998, in Phoenix, Arizona in December 1998 and in Seattle, Washington in October 1999. The Company plans to evaluate the concept based on the performance of these first three stores. 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 fiscal 1999, the Company began construction on a remodeling project at the Bergdorf Goodman main store that will add 25,000 square feet of selling space, including a new 12,000 square foot plaza level below the first floor scheduled to open in November 1999. Clearance Centers The Company operates ten 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 one additional clearance center during fiscal 2000. 2 Direct Marketing The Company's direct marketing operation, 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 catalogues 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. Other Brand Development Initiative In fiscal 1999 the Company launched its Brand Development Initiative to invest in high-potential designer resources that serve affluent customers. In November 1998, the Company acquired a 51% interest in Gurwitch Bristow Products, which manufactures and markets Laura Mercier cosmetic lines, for $6.7 million. In February 1999, the Company acquired a 56% interest in Kate Spade LLC, a manufacturer of high-end fabric and leather handbags and accessories, for $33.6 million. 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 and, in the case of Neiman Marcus Stores and Bergdorf Goodman, on the basis of store ambience. 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 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 July 31, 1999, Neiman Marcus Stores had approximately 12,000 employees, Bergdorf Goodman had approximately 1,100 employees, and NM Direct had approximately 1,700 employees. The Company's staffing requirements fluctuate during the year as a result of the seasonality of the retail apparel industry and, accordingly, 3 the Company expects to add approximately 1,900 more seasonal employees in the second quarter of fiscal 2000. 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 by reference. 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:
Owned Subject to Owned Ground Lease Leased Total Specialty Retail Stores..........348,000 2,112,000 2,555,000 5,015,000 Distribution, Support and Office Facilities........... 1,169,000 0 554,000 1,723,000
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 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 12 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. 4 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 On September 15, 1999 the Company's stockholders approved a recapitalization of the Company and certain related actions for the purpose of facilitating the Distribution described in Item 1 above. For more information, see Note 16 to the Consolidated Financial Statements in Item 14 below. 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 41 of the Company's Annual Report to Shareholders for the fiscal year ended July 31, 1999 (the "1999 Annual Report") is incorporated herein by reference. 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 1999 Annual Report under the caption "Selected Financial Data" on page 40 and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The response to this Item is contained in the 1999 Annual Report under the caption "Management's Discussion and Analysis" on pages 16 through 21 and is incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures about Market Risk. The response to this Item is contained in the 1999 Annual Report under the caption "Management's Discussion and Analysis - Quantitative and Qualitative Disclosure About Market Risk" on page 19 and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Consolidated Financial Statements and supplementary data referred to in Item 14 are incorporated herein by reference. 5 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 The response to this Item regarding the directors of the Company and compliance with Section 16(a) of the Securities Exchange Act of 1934 by the Company's officers and directors is contained in the Proxy Statement for the 2000 Annual Meeting of Stockholders under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by reference. Executive Officers Set forth below are the names, ages at October 22, 1999, and principal occupations for the last five years of each executive officer of the Company. All such persons have been elected to serve until the next annual election of officers and their successors are elected or until their earlier resignation or removal. Richard A. Smith - 74 Chairman of the Company and of Harcourt General; Chief Executive Officer of the Company from January 1997 until December 1998 and prior to December 1991; Chief Executive Officer of Harcourt General from January 1997 until November 1, 1999 and prior to December 1991; Chairman, President (until November 1995) and Chief Executive Officer of GC Companies, Inc.; Director of the Company, Harcourt General and GC Companies, Inc. Mr. Smith is the father of Robert A. Smith and the father-in-law of Brian J. Knez. Robert A. Smith - 40 Co-Chief Executive Officer of the Company since May 1999; Chief Executive Officer of the Company from December 1998 until May 1999; President and Co-Chief Executive Officer of Harcourt General effective November 1, 1999; President and Chief Operating Officer of the Company from January 1997 until December 1998; President and Co-Chief Operating Officer of Harcourt General from January 1997 until November 1, 1999; Group Vice President of the Company and of Harcourt General prior to January 1997; President and Chief Operating Officer of GC Companies, Inc. since November 1995; Director of the Company and of Harcourt General. Mr. Smith is the son of Richard A. Smith and the brother-in-law of Brian J. Knez. 6 Brian J. Knez - 42 Co-Chief Executive Officer of the Company since May 1999; President and Co-Chief Executive Officer of Harcourt General effective November 1, 1999; President and Co-Chief Operating Officer of Harcourt General from January 1997 until November 1, 1999; President (until November 1998) and Chief Executive Officer of Harcourt, Inc. since May 1995; President of the Scientific, Technical, Medical and Professional Group of Harcourt, Inc. prior to May 1995; Director of the Company and Harcourt General. Mr. Knez is the son-in-law of Richard A. Smith and the brother-in-law of Robert A. Smith. John R. Cook - 58 Senior Vice President and Chief Financial Officer and a director of the Company; Senior Vice President and Chief Financial Officer of Harcourt General. Eric P. Geller - 52 Senior Vice President, General Counsel and Secretary of the Company and of Harcourt General. Burton M. Tansky - 61 President and Chief Operating Officer of the Company since December 1998; Executive Vice President of the Company from February 1998 until December 1998; Chairman and Chief Executive Officer of Neiman Marcus Stores. Gerald A. Sampson - 58 President and Chief Operating Officer of Neiman Marcus Stores. Hubert W. Mullins - 48 Vice Chairman of Neiman Marcus Stores since December 1998; Executive Vice President of Neiman Marcus Stores from February 1998 until December 1998; Executive Vice President - Merchandise from February 1996 until February 1998; Senior Vice President and General Merchandise Manager prior thereto. Stephen C. Elkin - 56 Chairman and Chief Executive Officer of Bergdorf Goodman. Sharon Jester Turney - 43 President and Chief Executive Officer of NM Direct since March 1999; Executive Vice President of NM Direct prior thereto. Peter Farwell - 56 Vice President - Corporate Relations of the Company and of Harcourt General. Paul F. Gibbons - 48 Vice President and Treasurer of the Company and of Harcourt General. Gerald T. Hughes - 42 Vice President - Human Resources of the Company and of Harcourt General. 7 Catherine N. Janowski - 38 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. Gail S. Mann - 48 Vice President- Corporate Law of the Company and of Harcourt General since August 1999; Vice President, Assistant General Counsel, Secretary and Clerk, Digital Equipment Corporation from 1994 until September 1998. Michael F. Panutich - 51 Vice President - General Auditor of the Company and of Harcourt General. Paul J. Robershotte - 45 Vice President - Strategy and Business Development of the Company and of Harcourt General since February 1999; President and Chief Executive Officer of Age Wave Communications from February 1996 until June 1998; Executive Vice President and Chief Operating Officer of Age Wave, Inc. from May 1995 until February 1996; Vice President and Director of Bain & Co. prior thereto. Item 11. Executive Compensation The response to this Item is contained in the Proxy Statement for the 2000 Annual Meeting of Stockholders under the captions "Directors' Compensation", "Executive Compensation" and "Transactions Involving Management" and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The response to this Item is contained in the Proxy Statement for the 2000 Annual Meeting of Stockholders under the caption "Stock Ownership of Certain Beneficial Owners and Management" and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The response to this Item is contained in the Proxy Statement for the 2000 Annual Meeting of Stockholders under the captions "Executive Compensation" and "Transactions Involving Management" and is incorporated herein by reference. 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 8 to the 1999 Annual Report, and are incorporated herein by reference into Item 8 hereof: Consolidated Balance Sheets - July 31, 1999 and August 1, 1998 Consolidated Statements of Earnings for the fiscal years ended July 31, 1999, August 1, 1998 and August 2, 1997. Consolidated Statements of Cash Flows for the fiscal years ended July 31, 1999, August 1, 1998 and August 2, 1997. Consolidated Statements of Common Shareholders' Equity for the fiscal years ended July 31, 1999, August 1, 1998 and August 2, 1997. Notes to Consolidated Financial Statements. Independent Auditors' Report. 14(a)(2) Consolidated Financial Statement Schedules The document and schedule listed below are filed as part of this Form 10-K: Page in Document/Schedule Form 10-K Independent Auditors' Report on F-1 Consolidated Financial Statement Schedule Schedule II - Valuation and F-2 Qualifying 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 On May 27, 1999, the Company filed a report on Form 8-K describing a proposed recapitalization of the Company (the "Recapitalization") intended to facilitate the plan of Harcourt General, Inc. to spin off to its stockholders most of its controlling equity position in the Company. 9 On October 1, 1999, the Company filed a report on Form 8-K reporting the completion of the Recapitalization. On October 15, 1999 the Company filed a report on Form 8-K reporting the adoption by the Board of Directors of the Company of a stockholder rights plan. 10 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 July 31, 1999 and August 1, 1998, and for each of the three fiscal years in the period ended July 31, 1999, and have issued our report thereon dated August 31, 1999 (September 22, 1999 as to Note 16); such financial statements and report are included in your 1999 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 31, 1999 (September 22, 1999 as to Note 16) F-1 THE NEIMAN MARCUS GROUP, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES THREE YEARS ENDED JULY 31, 1999 (In thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E Additions _____________________ Balance at Charged to Charged to Balance at Beginning Costs and Other Deductions - End Description of Period Expenses Accounts - (A) of Period _________________________________________________________________________________________________________________ YEAR ENDED JULY 31, 1999 Allowance for doubtful accounts $1,800 2,366 - 1,866 $2,300 (deducted from accounts receivable) YEAR ENDED AUGUST 1, 1998 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 (deducted from accounts receivable) $1,300 2,815 - 2,415 $1,700 (A) Write-off of uncollectible accounts net of recoveries.
F-2 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE NEIMAN MARCUS GROUP, INC. By: /s/ Robert A. Smith Robert A. Smith Co-Chief Executive Officer By: /s/ Brian J. Knez Brian J. Knez Co-Chief Executive Officer Dated: October 27, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the following capacities and on the dates indicated. Signature Title Date Principal Executive Officers: /s/ Robert A. Smith Co-Chief Executive Officer October 27, 1999 Robert A. Smith /s/ Brian J. Knez Co-Chief Executive Officer October 27, 1999 Brian J. Knez Principal Financial Officer: /s/ John R. Cook Senior Vice President and October 27, 1999 John R. Cook Chief Financial Officer Principal Accounting Officer: /s/ Catherine N. Janowski Vice President and October 27, 1999 Catherine N. Janowski Controller S-1 Directors: /s/ Richard A. Smith October 27, 1999 Richard A. Smith /s/ John R. Cook October 27, 1999 John R. Cook October ---,1999 Matina S. Horner /s/ Brian J. Knez October 27, 1999 Brian J. Knez /s/ Vincent M. O'Reilly October 27, 1999 Vincent M. O'Reilly /s/ Walter J. Salmon October 27, 1999 Walter J. Salmon /s/ Jean Head Sisco October 27, 1999 Jean Head Sisco /s/ Robert A. Smith October 27, 1999 Robert A. Smith S-2 EXHIBIT INDEX 3.1(a) Restated Certificate of Incorporation of the Company. 3.1(b) Certificates of Designation with respect to Series A Junior Participating Preferred Stock, Series B Junior Participating Preferred Stock and Series C Junior Participating Preferred Stock. 3.2 By-Laws of the Company. 4.1 Indenture, dated as of May 27, 1998, between the Company and The Bank of New York, as trustee (the "Indenture")incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended August 1, 1998. 4.2 Form of 6.65% Senior Note Due 2008, dated May 27, 1998, issued by the Company pursuant to the Indenture, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended August 1, 1998. 4.3 Form of 7.125% Senior Note Due, 2008, dated May 27, 1998, issued by the Company pursuant to the Indenture, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended August 1, 1998. 4.4 Rights Agreement, dated as of October 6, 1999, between the Company and BankBoston, N.A., as Rights Agent, incorporated herein by reference to Exhibit 4 to the Company's Registration Statement on Form 8-A dated October 15, 1999. *10.1 Intercompany Services Agreement, dated as of July 24, 1987 between Harcourt General and the Company, incorporated by reference herein 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 Reporton 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. E-1 *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 10-K for the fiscal year ended August 3, 1996. *10.5 Termination and Change of Control Agreement between the Company and Gerald A. Sampson dated September 17, 1998, incorporated herein by reference to the Company's Annual Report or Form 10-K for the fiscal year ended August 1, 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 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. *10.8 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. *10.9 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. *10.10 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. *10.11 Key Employee Deferred Compensation Plan, as amended, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended July 30, 1994. *10.12 Deferred Compensation Plan For Non-Employee Directors, as amended, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended August 1, 1998. E-2 10.13(a) 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, (the "Credit Agreement") incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended November 1, 1997. 10.13(b) Amendment to the Credit Agreement dated August 27, 1999. 10.14 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). 10.15 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). 10.16 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). 10.17 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). 10.18 Amended and Restated Agreement and Plan of Merger, dated as of July 1, 1999, among The Neiman Marcus Group, Inc., Harcourt General, Inc. and Spring Merger Corporation, incorporated herein by reference to the Company's Definitive Schedule 14A dated August 10, 1999. 10.19 Amended and Restated Distribution Agreement, dated as of July 1, 1999, between Harcourt General, Inc. and The Neiman Marcus Group, Inc., incorporated herein by reference to the Company's Definitive Schedule 14A dated August 10, 1999. E-3 10.20 Agreement, dated as of September 1, 1999, among the Company and certain holders of the Company's Class B Common Stock. 13.1 The following sections of the 1999 Annual Report to Shareholders ("1999 Annual Report") which are expressly incorporated by reference into this Annual Report on Form 10-K: Management's Discussion and Analysis at pages 16 through 21 of the 1999 Annual Report. Consolidated Financial Statements and the Notes thereto at pages 22 through 38 of the 1999 Annual Report. Independent Auditors' Report at page 39 of the 1999 Annual Report. The information appearing under the caption "Selected Financial Data" on page 40 of the 1999 Annual Report. The information appearing under the captions "Stock Information" and "Shares Outstanding" on page 41 of the 1999 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. E-4 EX-3.1(A) 2 RESTATED CERT. OF INCORPORATION EXHIBIT 3.1(a) RESTATED CERTIFICATE OF INCORPORATION of THE NEIMAN MARCUS GROUP, INC. First: The name of the Corporation is The Neiman Marcus Group, Inc. (hereinafter the "Corporation"). Second: The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at that address is The Corporation Trust Company. Third: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware (the "GCL"). Fourth: 1. Authorized Stock. The total number of shares which the Corporation is authorized to issue is three hundred million (300,000,000) shares. Two hundred fifty million (250,000,000) shares shall be designated common stock (the "Common Stock"), of which one hundred million (100,000,000) shares shall be designated Class A Common Stock (the "Class A Common Stock"), one hundred million (100,000,000) shares shall be designated Class B Common Stock (the "Class B Common Stock") and fifty million (50,000,000) shares shall be designated Class C Common Stock (the "Class C Common Stock"). Fifty million (50,000,000) shares shall be designated preferred stock (the "Preferred Stock"), all of which are presently undesignated as to series. Each share of Preferred Stock shall have a par value of $0.01 and each share of Common Stock shall have a par value of $0.01. 2. Common Stock. The Class A Common Stock, the Class B Common Stock and the Class C Common Stock shall be identical in all respects, except as otherwise expressly provided herein. The relative powers, preferences, rights, qualifications, limitations and restrictions of the shares of Class A Common Stock, Class B Common Stock and Class C Common Stock shall be as follows: (a) Cash Dividends. Subject to the rights and preferences of the Preferred Stock as set forth in any resolution or resolutions of the Board of Directors providing for the issuance of such stock pursuant to this Article Fourth, and except as otherwise provided for herein, the holders of Class A Common Stock, Class B Common Stock and Class C Common Stock are entitled to receive dividends out of assets legally available therefor at such times and in such per share amounts as the Board of Directors may from time to time determine; provided that whenever a cash dividend is paid, the same amount shall be paid in respect of each outstanding share of Class A Common Stock, Class B Common Stock and Class C Common Stock. (b) Stock Dividends. If at any time a dividend is to be paid in shares of Class A Common Stock, shares of Class B Common Stock or shares of Class C Common Stock (a "stock dividend"), such stock dividend may be declared and paid only as follows: only Class A Common Stock may be paid to holders of Class A Common Stock, only Class B Common Stock may be paid to holders of Class B Common Stock and only Class C Common Stock may be paid to holders of Class C Common Stock. Whenever a stock dividend is paid, the same rate or ratio of shares shall be paid in respect of each outstanding share of Class A Common Stock, Class B Common Stock and Class C Common Stock. (c) Property Dividends. If at any time a dividend is to be paid in rights to purchase shares of Series A Preferred Stock, shares of Series B Preferred Stock or shares of Series C Preferred Stock (a "rights dividend") (including in each case with adjustments that will, under certain circumstances, constitute rights to purchase Class A Common Stock, Class B Common Stock and Class C Common Stock, respectively), such rights dividend may be declared and paid only as follows: only rights to purchase Series A Preferred Stock may be paid to holders of Class A Common Stock, only rights to purchase Series B Preferred Stock may be paid to holders of Class B Common Stock and only rights to purchase Series C Preferred Stock may be paid to holders of Class C Common Stock. Whenever any other property dividend is paid, the same rate or ratio of shares or other property shall be paid in respect of each outstanding share of Class A Common Stock, Class B Common Stock and Class C Common Stock. The references in this paragraph to any series of preferred stock contemplate the issuance of such preferred stock pursuant to a stockholders rights plan adopted by the Corporation. (d) Stock Subdivisions and Combinations. The Corporation shall not subdivide, reclassify or combine stock of any class of Common Stock without at the same time making a proportionate subdivision, reclassification or combination of shares of the other classes. (e) Voting. Voting power shall be divided between the classes of stock as follows: (i) Subject to Sections (2)(e)(ii) and (2)(e)(iv) of this Article Fourth, with respect to the election of directors, holders of Class A Common Stock and holders of Class C Common Stock, voting together as a class, shall be entitled to elect that number of directors which constitutes 18% of the authorized number of members of the Board of Directors (or, if such 18% is not a whole number, then the nearest lower whole number) (the "Class A Directors"). Each share of Class A Common Stock shall have one vote in the election of the Class A Directors and each share of Class C Common Stock shall have one- tenth (1/10th) of one vote in the election of the Class A Directors. Subject to Section (2)(e)(ii) of this Article Fourth, holders of Class B Common Stock shall be entitled to elect the remaining directors (the "Class B Directors"). The initial Class A Director shall be designated by a majority of the directors of the Corporation as of the effectiveness of this Amendment, and the holders of Class A Common Stock and Class C Common Stock, voting together as a class, shall be entitled to vote for the election or replacement of such Class A Director in satisfaction of their "Special Voting Rights" as defined in clause (ii) below, at the next election of directors of the Class (e.g. Class I, Class II or Class III) in which such director serves are elected. Each share of Class B Common Stock shall have one vote in the election of Class B Directors. For purposes of this Section (2)(e)(i), references to the authorized number of members of the Board of Directors shall not include any directors which the holders of any shares of any series of Preferred Stock have the right to elect. (ii) For purposes of this Section (2)(e)(ii), "Special Voting Rights" means the different voting rights of the holders of Class A Common Stock and Class C Common Stock, on the one hand, and holders of Class B Common Stock, on the other hand, with respect to the election of the applicable percentage of the authorized number of members of the Board of Directors as described in Section (2)(e)(i). If approved by the Board of Directors, at any annual or special meeting of stockholders of the Corporation held at any time after the fifth anniversary of the distribution by Harcourt General, Inc. to its stockholders of all of the Class B Common Stock owned by it (the "Fifth Year Anniversary"), a majority of the outstanding shares of the Class A Common Stock and Class C Common Stock, voting together as a class, and a majority of the outstanding shares of the Class B Common Stock, voting separately as a class, may vote to eliminate the Special Voting Rights, in which case Section (2)(e)(i) of this Article Fourth shall have no further force or effect, and thereafter holders of Common Stock shall have voting rights as are specified in Section (2)(e)(iv) of this Article Fourth and shall be entitled to elect all members of the Board of Directors. This Section (2)(e)(ii) shall not be amended prior to the Fifth Year Anniversary without the affirmative vote of the holders of at least 66-2/3% of the combined voting power of all of the Voting Stock, voting together as a single class, together with any vote of the holders of any class of stock required by law. (iii) Unless the Special Voting Rights have been eliminated in accordance with Section (2)(e)(ii) of Article Fourth, all newly-created directorships resulting from an increase in the authorized number of directors shall be allocated between Class A Directors and Class B Directors such that at all times the number of Class A directorships shall be 18% of the authorized number of members of the Board of Directors (or, if such 18% is not a whole number, then the nearest lower whole number) and the remaining directorships shall be Class B directorships. (iv) Except as otherwise specified herein or required by law, the holders of Class A Common Stock, Class B Common Stock and Class C Common Stock shall in all matters not otherwise specified in this Section (2)(e) of this Article Fourth vote together as one class (including, without limitation, with respect to increases or decreases in the authorized number of shares of any class of stock of the Corporation and without the vote of any class voting separately as a class), with each share of Class A Common Stock and Class B Common Stock having one vote and each share of Class C Common Stock having one-tenth (1/10th) vote. (v) Every reference in this Restated Certificate of Incorporation or the Corporation's Amended and Restated By- laws to a majority or other proportion of shares of stock shall refer to such majority or other proportion of the votes of such shares of stock. (f) Merger or Consolidation. The Corporation shall not enter into any consolidation of the Corporation with one or more other corporations, a merger of the Corporation with another corporation, a reorganization of the Corporation or other similar combination of the Corporation with one or more third parties, in which each holder of a share of Class A Common Stock, Class B Common Stock and Class C Common Stock is not entitled to receive with respect to such share the same kind and amount of shares of stock and other securities and property (including cash) receivable upon such consolidation, merger, reorganization or other combination as each other holder of a share of Class A Common Stock, Class B Common Stock and Class C Common Stock; provided that, in any such transaction, the holders of shares of Class A Common Stock, Class B Common Stock and Class C Common Stock may each receive different kinds of shares of stock that differ to the extent and only to the extent that the Board of Directors determines in good faith that such shares differ with respect to the rights of holders of such shares as the Class A Common Stock, Class B Common Stock and Class C Common Stock differ as provided herein. (g) Liquidation. In the event of any liquidation, dissolution or winding up of the Corporation, the holders of the Class A Common Stock, Class B Common Stock and Class C Common Stock shall participate equally per share in any distribution to stockholders, without distinction between classes. The Board of Directors is hereby authorized from time to time to provide by resolution for the issuance of shares of Preferred Stock in one or more series not exceeding the aggregate number of shares of Preferred Stock authorized by this Restated Certificate of Incorporation, as amended from time to time; and to determine with respect to each such series the voting powers, if any (which voting powers if granted may be full or limited), designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions relating thereto; including without limiting the generality of the foregoing, the voting rights relating to shares of Preferred Stock of any series (which may be one or more votes per share or a fraction of a vote per share, which may vary over time and which may be applicable generally or only upon the happening and continuance of stated events or conditions), the rate of dividend to which holders of Preferred Stock of any series may be entitled (which may be cumulative or noncumulative), the rights of holders of Preferred Stock of any series in the event of liquidation, dissolution or winding up of the affairs of the Corporation, the rights, if any, of holders of Preferred Stock of any series to convert or exchange such shares of Preferred Stock of such series for shares of any other class or series of capital stock or for any other securities, property or assets of the Corporation or any subsidiary (including the determination of the price or prices or the rate or rates applicable to such rights to convert or exchange and the adjustment thereof, the time or times during which the right to convert or exchange shall be applicable and the time or times during which a particular price or rate shall be applicable), whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates, and whether any shares of that series shall be redeemed pursuant to a retirement or sinking fund or otherwise and the terms and conditions of such obligation. Before the Corporation shall issue any shares of Preferred Stock of any series, a certificate setting forth a copy of the resolution or resolutions of the Board of Directors, fixing the voting powers, designations, preferences, the relative, participating, optional or other rights, if any, and the qualifications, limitations and restrictions, if any, relating to the shares of Preferred Stock of such series, and the number of shares of Preferred Stock of such series authorized by the Board of Directors to be issued shall be made under seal of the Corporation and signed by and shall be filed and a copy thereof recorded in the manner prescribed by the GCL. The Board of Directors is further authorized to increase or decrease (but not below the number of such shares of such series then outstanding) the number of shares of any series subsequent to the issuance of shares of that series. Fifth: The directors shall have concurrent power with the stockholders to make, alter, amend, change, add to or repeal the By-Laws of the Corporation. Sixth: Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of the GCL or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of the GCL, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation. Seventh: Except as otherwise fixed pursuant to the provisions of Article Fourth of this Restated Certificate of Incorporation relating to the rights of the holders of any one or more classes or series of Preferred Stock issued by the Corporation to call an annual or special meeting of stockholders, special meetings of the stockholders of the Corporation may not be called by the stockholders of the Corporation. Eighth: Notwithstanding the GCL, any action required to be taken or which may be taken by the holders of the Common Stock must be effected at a duly called annual or special meeting of such holders and may not be taken by any consent in writing by such holders. Ninth: The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one third of the total number of directors constituting the entire Board of Directors. Initially, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At the annual meeting of stockholders beginning in 1988, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy in the office of a director created by the death, resignation, retirement, disqualification, removal from office of a director or other cause, elected by (or appointed on behalf of) the holders of the Class B Common Stock, on the one hand, or the holders of the Class A Common Stock and any other class of stock entitled to vote for the class of directors elected by the holders of the Class A Common Stock, on the other hand, as the case may be, shall be filled by the vote of the majority of the directors (or the sole remaining director) elected by (or appointed on behalf of) such holders of Class B Common Stock, on the one hand, or Class A Common Stock and any other class of stock entitled to vote for the class of directors elected by the holders of the Class A Common Stock, on the other hand (or on behalf of whom that director was appointed), as the case may be, unless there are no such directors in such Class, in which case such vacancy shall be filled by the stockholders of such Class, or the Special Voting Rights have been eliminated in accordance with Section (2)(e)(ii) of Article Fourth, in which case such vacancy shall be filled by the vote of the majority of the directors (or the sole remaining director), regardless of any quorum requirements set out in the By-laws. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. Unless the Special Voting Rights have been eliminated in accordance with Section (2)(e)(ii) of Article Fourth, all newly-created directorships resulting from an increase in the authorized number of directors shall be allocated pursuant to Section (2)(e)(iii) of Article Fourth. Once such newly-created directorships have been allocated as Class A Directors or Class B Directors, such newly-created directorships shall be filled by the vote of the majority of the directors in such Class (or the sole remaining director in such Class), as the case shall be, unless there are no such directors in such Class, in which case such vacancy shall be filled by the stockholders of such Class, or the Special Voting Rights have been eliminated in accordance with Section (2)(e)(ii) of Article Fourth, in which case such vacancy shall be filled by the vote of the majority of the directors (or the sole remaining director), regardless of any quorum requirements set out in the By-laws. In the event that there are no remaining directors, any vacancy in the office of a director shall be filled by the vote of the majority of stockholders who elected such director (or on whose behalf such director was appointed. Notwithstanding the foregoing, whenever pursuant to the provisions of Article Fourth of this Restated Certificate of Incorporation, the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Restated Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article Ninth unless expressly provided by such terms. Tenth: No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the GCL or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Article Tenth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions for or with respect to any acts or omissions of such director occurring prior to such repeal or modification. Eleventh: Subject to Article Fifth and notwithstanding anything else contained in this Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 66 2/3% of the combined voting power of all of the Voting Stock, voting together as a single class, shall be required to alter, amend, rescind or repeal (A) Article Seventh, Article Eighth, Article Ninth or this Article Eleventh or to adopt any provision inconsistent therewith or (B) Section 3 of Article II, Sections 1, 2 and 10 of Article III, Article VIII or Article IX of the By-Laws of the Corporation or to adopt any provision inconsistent therewith. "Voting Stock" shall mean the securities of the Corporation which are entitled to vote generally for the election of directors of the Corporation. Twelfth: Except as otherwise fixed pursuant to Article Fourth of this Restated Certificate of Incorporation relating to the rights of the holders of any one or more classes or series of Preferred Stock issued by the Corporation acting separately by class or series, to elect, under specified circumstances, directors at an annual or special meeting of stockholders, the Board of Directors shall consist of not less than six nor more than nine persons, the exact number to be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Board of Directors. The affirmative vote of the holders of at least 66-2/3% of the combined voting power of all of the Voting Stock, voting together as a single class, shall be required to alter, amend, rescind or repeal this Article or to adopt any provision inconsistent therewith. Thirteenth: Notwithstanding anything else contained in this Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 66-2/3% of the combined voting power of the Voting Stock, voting together as a single class, shall be required for the Corporation to effect or consummate: (1) any merger or consolidation of the Corporation with or into any other corporation; (2) any sale, lease, exchange or other disposition of all or substantially all of the assets of the Corporation to or with any other person; or (3) any issuance by the Corporation of any voting securities of the Corporation which issuance would require approval by the stockholders of the Corporation pursuant to the GCL or the rules of any exchange on which the voting securities of the Corporation are listed, other than an issuance by the Corporation of voting securities as required by any stockholder rights plan adopted by the Corporation, unless such issuance has been approved by a resolution adopted by not less than two-thirds of all the directors then in office; provided, however, that the foregoing requirement shall not apply, and the provisions of the GCL relating to the percentage of stockholder approval, if any, shall apply to any merger or other transaction described in the preceding subparagraphs (1), (2) or (3) if the other party to the merger or other transaction is a Subsidiary of the corporation. For purposes of this Article Thirteenth a "Subsidiary" is any corporation more than 50% of the voting securities of which are owned directly or indirectly by the Corporation; and a "person" is any individual, partnership, corporation or entity. The affirmative vote of the holders of at least 66-2/3% of the combined voting power of all of the Voting Stock, voting together as a single class, shall be required to alter, amend, rescind or repeal this Article or to adopt any provision inconsistent therewith. This Article Thirteenth shall be of no further force and effect from and after the Fifth Year Anniversary. EX-3.1(B) 3 CERTIFICATES OF DESIGNATION EXHIBIT 3.1(b) CERTIFICATE OF DESIGNATIONS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF THE NEIMAN MARCUS GROUP, INC. (Pursuant to Section 151 of the General Corporation Law of the State of Delaware) ___________________ The Neiman Marcus Group, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Company"), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Company as required by Section 151 of the General Corporation Law of the State of Delaware at a meeting duly called and held on October 6, 1999: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Company (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Company's Restated Certificate of Incorporation, as amended to date (hereinafter called the "Certificate of Incorporation"), the Board of Directors hereby creates a series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Company and hereby adopts the resolution establishing the designation, number of shares, preferences, voting powers and other rights, and the restrictions and limitations thereof, as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 100,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series A Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Class A Common Stock, par value $.01 per share, of the Company ("Class A Common Stock"), Class B Common Stock, par value $.01 per share, of the Company ("Class B Common Stock") and Class C Common Stock, par value $.01 per share, of the Company ("Class C Common Stock" and, together with the Class A Common Stock and Class B Common Stock, the "Common Stock") and of any other stock of the Company ranking junior to the Series A Preferred Stock, and on a pari passu basis with the Series B Preferred Stock and the Series C Preferred Stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for such purpose, quarterly dividends payable in cash on the last day of March, June, September and December in each year (each such date being referred to herein as a "Dividend Payment Date"), commencing on the first Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Class A Common Stock, declared on the Class A Common Stock since the im- mediately preceding Dividend Payment Date or, with respect to the first Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class A Common Stock payable in shares of Class A Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class A Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class A Common Stock) into a greater or lesser number of shares of Class A Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Class A Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class A Common Stock that were outstanding immediately prior to such event. (B) The Company shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Class A Common Stock (other than a dividend payable in shares of Class A Common Stock); provided, that, in the event no dividend or distribution shall have been declared on the Class A Common Stock during the period between any Dividend Payment Date and the next subsequent Dividend Payment Date, a dividend of $1 per share on the Series A Prefer- red Stock shall nevertheless be payable, when, as and if declared, on such subsequent Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative, whether or not earned or declared, on outstanding shares of Series A Preferred Stock from the Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights; (A) Subject to the provision for adjustment hereinafter set forth and except as otherwise provided in the Certificate of Incorporation or required by law, each share of Series A Preferred Stock shall entitle the holder thereof to a number of votes equal to 1,000 times the number of votes which each share of Class A Common Stock is entitled to vote, on all matters upon which the holders of the Class A Common Stock of the Company are entitled to vote. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class A Common Stock payable in shares of Class A Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class A Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class A Common Stock) into a greater or lesser number of shares of Class A Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Class A Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class A Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in the Certificate of Incorporation or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, and except as otherwise required by law, the holders of shares of Series A Preferred Stock and the holders of shares of Class A Common Stock and any other capital stock of the Company having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Company. (C) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Class A Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not earned or declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Company shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (as to dividends) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (as to dividends) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Company ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series A Preferred Stock or rights, warrants or options to acquire such junior stock; (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Company, no distribution shall be made (A) to the holders of the Common Stock or of shares of any other stock of the Company ranking junior, upon liquidation, dissolution or winding up, to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not earned or declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for ad- justment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Class A Common Stock, or (B) to the holders of shares of stock ranking on a parity upon liquidation, dissolution or winding up with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class A Common Stock payable in shares of Class A Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class A Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class A Common Stock) into a greater or lesser number of shares of Class A Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (A) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Class A Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class A Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Class A Common Stock are converted into, exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly converted into, exchanged for or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Class A Common Stock is converted, exchanged or converted. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class A Common Stock payable in shares of Class A Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class A Common Stock) into a greater or lesser number of shares of Class A Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the conversion, exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Class A Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class A Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable from any holder. Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Company, pari passu with the Series B and the Series C Preferred Stock, junior to all other series of Preferred Stock and senior to all classes of Common Stock. Section 10. Amendment. If any proposed amendment to the Certificate of Incorporation (including this Certificate of Designations) would alter, change or repeal any of the preferences, powers or special rights given to the Series A Preferred Stock so as to affect the Series A Preferred Stock adversely, then the holders of the Series A Preferred Stock shall be entitled to vote separately as a class upon such amendment, and the affirmative vote of two-thirds of the outstanding shares of the Series A Preferred Stock, voting separately as a class, shall be necessary for the adoption thereof, in addition to such other vote as may be required by the General Corporation Law of the State of Delaware. Section 11. Fractional Shares. The Series A Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Stock. IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Company by its Secretary this 15th day of October, 1999. ________________________________________ Name: Title: CERTIFICATE OF DESIGNATIONS OF SERIES B JUNIOR PARTICIPATING PREFERRED STOCK OF THE NEIMAN MARCUS GROUP, INC. (Pursuant to Section 151 of the General Corporation Law of the State of Delaware) ___________________ The Neiman Marcus Group, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Company"), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Company as required by Section 151 of the General Corporation Law of the State of Delaware at a meeting duly called and held on October 6, 1999: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Company (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Company's Restated Certificate of Incorporation, as amended to date (hereinafter called the "Certificate of Incorporation"), the Board of Directors hereby creates a series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Company and hereby adopts the resolution establishing the designation, number of shares, preferences, voting powers and other rights, and the restrictions and limitations thereof, as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series B Junior Participating Preferred Stock" (the "Series B Preferred Stock") and the number of shares constituting the Series B Preferred Stock shall be 100,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series B Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series B Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series B Preferred Stock with respect to dividends, the holders of shares of Series B Preferred Stock, in preference to the holders of Class A Common Stock, par value $.01 per share, of the Company ("Class A Common Stock"), Class B Common Stock, par value $.01 per share, of the Company ("Class B Common Stock") and Class C Common Stock, par value $.01 per share, of the Company ("Class C Common Stock" and, together with the Class A Common Stock and Class B Common Stock, the "Common Stock") and of any other stock of the Company ranking junior to the Series B Preferred Stock, and on a pari passu basis with the Series C Preferred Stock and the Series A Preferred Stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for such purpose, quarterly dividends payable in cash on the last day of March, June, September and December in each year (each such date being referred to herein as a "Dividend Payment Date"), commencing on the first Dividend Payment Date after the first issuance of a share or fraction of a share of Series B Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Class B Common Stock, declared on the Class B Common Stock since the im- mediately preceding Dividend Payment Date or, with respect to the first Dividend Payment Date, since the first issuance of any share or fraction of a share of Series B Preferred Stock. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class B Common Stock payable in shares of Class B Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class B Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class B Common Stock) into a greater or lesser number of shares of Class B Common Stock, then in each such case the amount to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Class B Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class B Common Stock that were outstanding immediately prior to such event. (B) The Company shall declare a dividend or distribution on the Series B Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Class B Common Stock (other than a dividend payable in shares of Class B Common Stock); provided, that, in the event no dividend or distribution shall have been declared on the Class B Common Stock during the period between any Dividend Payment Date and the next subsequent Dividend Payment Date, a dividend of $1 per share on the Series B Prefer- red Stock shall nevertheless be payable, when, as and if declared, on such subsequent Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative, whether or not earned or declared, on outstanding shares of Series B Preferred Stock from the Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series B Preferred Stock entitled to receive a quarterly dividend and before such Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series B Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series B Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series B Preferred Stock shall have the following voting rights; (A) Subject to the provision for adjustment hereinafter set forth and except as otherwise provided in the Certificate of Incorporation or required by law, each share of Series B Preferred Stock shall entitle the holder thereof to a number of votes equal to 1,000 times the number of votes which each share of Class B Common Stock is entitled to vote, on all matters upon which the holders of the Class B Common Stock of the Company are entitled to vote. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class B Common Stock payable in shares of Class B Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class B Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class B Common Stock) into a greater or lesser number of shares of Class B Common Stock, then in each such case the number of votes per share to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Class B Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class B Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in the Certificate of Incorporation or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, and except as otherwise required by law, the holders of shares of Series B Preferred Stock and the holders of shares of Class B Common Stock and any other capital stock of the Company having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Company. (C) Except as set forth herein, or as otherwise provided by law, holders of Series B Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Class B Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series B Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not earned or declared, on shares of Series B Preferred Stock outstanding shall have been paid in full, the Company shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (as to dividends) to the Series B Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (as to dividends) with the Series B Preferred Stock, except dividends paid ratably on the Series B Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Company ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series B Preferred Stock or rights, warrants or options to acquire such junior stock; (iv) redeem or purchase or otherwise acquire for consideration any shares of Series B Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series B Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Company, no distribution shall be made (A) to the holders of the Common Stock or of shares of any other stock of the Company ranking junior, upon liquidation, dissolution or winding up, to the Series B Preferred Stock unless, prior thereto, the holders of shares of Series B Preferred Stock shall have received $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not earned or declared, to the date of such payment, provided that the holders of shares of Series B Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for ad- justment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Class B Common Stock, or (B) to the holders of shares of stock ranking on a parity upon liquidation, dissolution or winding up with the Series B Preferred Stock, except distributions made ratably on the Series B Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class B Common Stock payable in shares of Class B Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class B Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class B Common Stock) into a greater or lesser number of shares of Class B Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (A) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Class B Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class B Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Class B Common Stock are converted into, exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series B Preferred Stock shall at the same time be similarly converted into, exchanged for or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Class B Common Stock is converted, exchanged or converted. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class B Common Stock payable in shares of Class B Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class B Common Stock) into a greater or lesser number of shares of Class B Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the conversion, exchange or change of shares of Series B Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Class B Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class B Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series B Preferred Stock shall not be redeemable from any holder. Section 9. Rank. The Series B Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Company, pari passu with the Series C and the Series A Preferred Stock, junior to all other series of Preferred Stock and senior to all classes of Common Stock. Section 10. Amendment. If any proposed amendment to the Certificate of Incorporation (including this Certificate of Designations) would alter, change or repeal any of the preferences, powers or special rights given to the Series B Preferred Stock so as to affect the Series B Preferred Stock adversely, then the holders of the Series B Preferred Stock shall be entitled to vote separately as a class upon such amendment, and the affirmative vote of two-thirds of the outstanding shares of the Series B Preferred Stock, voting separately as a class, shall be necessary for the adoption thereof, in addition to such other vote as may be required by the General Corporation Law of the State of Delaware. Section 11. Fractional Shares. The Series B Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series B Stock. IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Company by its Secretary this 15th day of October, 1999. ________________________________________ Name: Title: CERTIFICATE OF DESIGNATIONS OF SERIES C JUNIOR PARTICIPATING PREFERRED STOCK OF THE NEIMAN MARCUS GROUP, INC. (Pursuant to Section 151 of the General Corporation Law of the State of Delaware) ___________________ The Neiman Marcus Group, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "Company"), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Company as required by Section 151 of the General Corporation Law of the State of Delaware at a meeting duly called and held on October 6, 1999: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Company (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Company's Restated Certificate of Incorporation, as amended to date (hereinafter called the "Certificate of Incorporation"), the Board of Directors hereby creates a series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Company and hereby adopts the resolution establishing the designation, number of shares, preferences, voting powers and other rights, and the restrictions and limitations thereof, as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series C Junior Participating Preferred Stock" (the "Series C Preferred Stock") and the number of shares constituting the Series C Preferred Stock shall be 50,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series C Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Company convertible into Series C Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series C Preferred Stock with respect to dividends, the holders of shares of Series C Preferred Stock, in preference to the holders of Class A Common Stock, par value $.01 per share, of the Company ("Class A Common Stock"), Class B Common Stock, par value $.01 per share, of the Company ("Class B Common Stock") and Class C Common Stock, par value $.01 per share, of the Company ("Class C Common Stock" and, together with the Class A Common Stock and Class B Common Stock, the "Common Stock") and of any other stock of the Company ranking junior to the Series C Preferred Stock, and on a pari passu basis with the Series A Preferred Stock and the Series B Preferred Stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for such purpose, quarterly dividends payable in cash on the last day of March, June, September and December in each year (each such date being referred to herein as a "Dividend Payment Date"), commencing on the first Dividend Payment Date after the first issuance of a share or fraction of a share of Series C Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Class C Common Stock, declared on the Class C Common Stock since the im- mediately preceding Dividend Payment Date or, with respect to the first Dividend Payment Date, since the first issuance of any share or fraction of a share of Series C Preferred Stock. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class C Common Stock payable in shares of Class C Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class C Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class C Common Stock) into a greater or lesser number of shares of Class C Common Stock, then in each such case the amount to which holders of shares of Series C Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Class C Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class C Common Stock that were outstanding immediately prior to such event. (B) The Company shall declare a dividend or distribution on the Series C Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Class C Common Stock (other than a dividend payable in shares of Class C Common Stock); provided, that, in the event no dividend or distribution shall have been declared on the Class C Common Stock during the period between any Dividend Payment Date and the next subsequent Dividend Payment Date, a dividend of $1 per share on the Series C Prefer- red Stock shall nevertheless be payable, when, as and if declared, on such subsequent Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative, whether or not earned or declared, on outstanding shares of Series C Preferred Stock from the Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series C Preferred Stock entitled to receive a quarterly dividend and before such Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series C Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series C Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series C Preferred Stock shall have the following voting rights; (A) Subject to the provision for adjustment hereinafter set forth and except as otherwise provided in the Certificate of Incorporation or required by law, each share of Series C Preferred Stock shall entitle the holder thereof to a number of votes equal to 1,000 times the number of votes which each share of Class C Common Stock is entitled to vote, on all matters upon which the holders of the Class C Common Stock of the Company are entitled to vote. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class C Common Stock payable in shares of Class C Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class C Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class C Common Stock) into a greater or lesser number of shares of Class C Common Stock, then in each such case the number of votes per share to which holders of shares of Series C Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Class C Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class C Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in the Certificate of Incorporation or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, and except as otherwise required by law, the holders of shares of Series C Preferred Stock and the holders of shares of Class C Common Stock and any other capital stock of the Company having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Company. (C) Except as set forth herein, or as otherwise provided by law, holders of Series C Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Class C Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series C Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not earned or declared, on shares of Series C Preferred Stock outstanding shall have been paid in full, the Company shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (as to dividends) to the Series C Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (as to dividends) with the Series C Preferred Stock, except dividends paid ratably on the Series C Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Company ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series C Preferred Stock or rights, warrants or options to acquire such junior stock; (iv) redeem or purchase or otherwise acquire for consideration any shares of Series C Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series C Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Company, no distribution shall be made (A) to the holders of the Common Stock or of shares of any other stock of the Company ranking junior, upon liquidation, dissolution or winding up, to the Series C Preferred Stock unless, prior thereto, the holders of shares of Series C Preferred Stock shall have received $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not earned or declared, to the date of such payment, provided that the holders of shares of Series C Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for ad- justment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Class C Common Stock, or (B) to the holders of shares of stock ranking on a parity upon liquidation, dissolution or winding up with the Series C Preferred Stock, except distributions made ratably on the Series C Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class C Common Stock payable in shares of Class C Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Class C Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class C Common Stock) into a greater or lesser number of shares of Class C Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (A) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Class C Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class C Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Class C Common Stock are converted into, exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series C Preferred Stock shall at the same time be similarly converted into, exchanged for or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Class C Common Stock is converted, exchanged or converted. In the event the Company shall at any time after October 18, 1999 declare or pay any dividend on the Class C Common Stock payable in shares of Class C Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Class C Common Stock) into a greater or lesser number of shares of Class C Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the conversion, exchange or change of shares of Series C Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Class C Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Class C Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series C Preferred Stock shall not be redeemable from any holder. Section 9. Rank. The Series C Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up of the Company, pari passu with the Series A and the Series B Preferred Stock, junior to all other series of Preferred Stock and senior to all classes of Common Stock. Section 10. Amendment. If any proposed amendment to the Certificate of Incorporation (including this Certificate of Designations) would alter, change or repeal any of the preferences, powers or special rights given to the Series C Preferred Stock so as to affect the Series C Preferred Stock adversely, then the holders of the Series C Preferred Stock shall be entitled to vote separately as a class upon such amendment, and the affirmative vote of two-thirds of the outstanding shares of the Series C Preferred Stock, voting separately as a class, shall be necessary for the adoption thereof, in addition to such other vote as may be required by the General Corporation Law of the State of Delaware. Section 11. Fractional Shares. The Series C Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series C Stock. IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf of the Company by its Secretary this 15th day of October, 1999. ________________________________________ Name: Title: EX-3.2 4 BY-LAWS EXHIBIT 3.2 BY-LAWS OF THE NEIMAN MARCUS GROUP, INC. (hereinafter called the "Corporation") (As amended through September 15, 1999) Article I. PREAMBLE These By-Laws shall be subject to all provisions of the General Corporation Law of the State of Delaware ("GCL") and all of the provisions of the Certificate of Incorporation. Article II. MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meetings. The Annual Meeting of Stockholders shall be held on such date and at such time as shall be designated from to time by the Board of Directors and stated in the notice of the meeting, at which meeting the stockholders shall elect directors in the manner provided in the Certificate of Incorporation and in these By-Laws, and transact such other business as may properly be brought before the meeting. Written notice of the Annual Meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 3. Special Meetings. Unless otherwise prescribed by the Certificate of Incorporation, Special Meetings of Stockholders, for any purpose or purposes, may be called by the Chairman of the Board of Directors and shall be called by such officer or the Secretary at the request in writing of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. Written notice of a Special Meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 4. Quorum. Except as otherwise provided by the GCL or by the Certificate of Incorporation or these By-Laws, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. Any stock of the Corporation belonging to the Corporation at the time of any meeting or any adjourned session thereof shall neither be entitled to vote nor counted for quorum purposes provided, however, that this sentence shall not be construed as limiting the right of the Corporation to vote its own stock held by it in a fiduciary capacity. Section 5. Voting. Unless otherwise required by law, the Certificate of Incorporation or these By-Laws, (a) any question brought before any meeting of stockholders shall be decided by the vote of the holders of a majority of the stock represented and entitled to vote thereat and (b) each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his discretion, may require that any votes cast at such meeting shall be cast by written ballot. Section 6. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of the stockholders entitled to vote at every meeting of stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 7. Business Brought Before Meetings. At any Annual Meeting of Stockholders, only such business shall be conducted as shall have been brought before the meeting (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by a stockholder of the Corporation who is a stockholder of record at the time of giving of the notice provided for in this Section 2, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 2. For business to be properly brought before an Annual Meeting of Stockholders pursuant to clause (c) above, the stockholder must have given written notice thereof to, either by personal delivery or by United States mail, postage prepaid, and such notice must have been received by, the Secretary of the Corporation, not later than ninety days prior to the anniversary date of the immediately preceding Annual Meeting. Such notice shall set forth: (a) the name and address, as they appear on the Corporation's books, of the stockholder who is proposing such business, and the name and address of the beneficial owner, if any, on whose behalf the proposal is made; (b) the number and class of shares of stock of the Corporation that are beneficially owned on the date of such notice by the stockholder, or the beneficial owner on whose behalf the proposal is made; (c) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business; (d) a description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (e) any material interest of such stockholder of record and the beneficial owner, if any, on whose behalf the proposal is made, in such business and (f) a statement as to whether such stockholder of record, and the beneficial owner, if any, intend to solicit proxies in support of such proposal. The presiding officer of the meeting shall determine and declare to the meeting whether or not such business was properly brought before the meeting in accordance with the procedures prescribed by these By-laws, and at such officer's discretion, may declare such business not properly brought before the meeting and shall not recognize the bringing of such business. At any Special Meeting of Stockholders, only such business shall be conducted as shall have been brought before the meeting pursuant to the Corporation's notice of Special Meeting. Article III. DIRECTORS Section 1. Number and Election of Directors. Except as otherwise fixed pursuant to Article Fourth of the Certificate of Incorporation relating to the rights of the holders of any one or more classes or series of Preferred Stock issued by the Corporation acting separately by class or series, to elect, under specified circumstances, directors at an annual or special meeting of stockholders, the Board of Directors shall consist of not less than six nor more than nine persons, the exact number to be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the Board of Directors. Except as provided in the Certificate of Incorporation or Section 2 of this Article, directors shall be elected by a plurality of the votes cast at Annual Meetings of Stockholders by the stockholders entitled to vote for the election of directors (or for the election of directors of a given class, as applicable), and each director so elected shall hold office until the annual meeting for the year in which his term expires and until a director of the same class succeeding such director is duly elected and qualified, or until his earlier resignation or removal. Any director may resign at any time upon notice to the Corporation. Directors need not be stockholders. Section 2. Vacancies. Except as otherwise fixed pursuant to the provisions of Article Fourth of the Certificate of Incorporation relating to the rights of the holders of any one or more classes or series of Preferred Stock issued by the Corporation, acting separately by class or series, to elect, under specified circumstances, directors at an annual or special meeting of stockholders, and except as otherwise provided pursuant to the provisions of Article Ninth thereof, relating to the power of the Board of Directors to fill newly created directorships and vacancies in the Board of Directors, any vacancy in the office of a director created by the death, resignation, retirement, disqualification, removal from office of a director or other cause, elected by (or appointed on behalf of) the holders of the Class B Common Stock, par value $.01 per share, of the Corporation (the "Class B Common Stock") on the one hand, or the holders of the Class A Common Stock, par value $.01 per share, of the Corporation (the "Class A Common Stock"), and the Class C Common Stock, par value $.01 per share, of the Corporation (the "Class C Common Stock"), on the other hand, as the case may be, shall be filled by the vote of the majority of the directors (or the sole remaining director) elected by (or appointed on behalf of) such holders of Class B Common Stock, on the one hand, or Class A Common Stock and Class C Common Stock, on the other hand (or on behalf of whom that director was appointed), as the case may be, unless there are no such directors in such Class, in which case such vacancy shall be filled by the stockholders of such Class, or the Special Voting Rights (as defined in Section 2(e)(ii) of Article Fourth of the Certificate of Incorporation) have been eliminated in accordance with Section (2)(e)(ii) of Article Fourth of the Certificate of Incorporation, in which case such vacancy shall be filled by the vote of the majority of the directors (or the sole remaining director), regardless of any quorum requirements set out in these By-laws. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. Unless the Special Voting Rights have been eliminated in accordance with Section (2)(e)(ii) of Article Fourth of the Certificate of Incorporation, all newly-created directorships resulting from an increase in the authorized number of directors shall be allocated pursuant to Section (2)(e)(iii) of Article Fourth of the Certificate of Incorporation. Once such newly- created directorships have been allocated as Class A Directors or Class B Directors (as such terms are defined in Section (2)(e)(ii) of Article Fourth of the Certificate of Incorporation), such newly-created directorships shall be filled by the vote of the majority of the directors in such Class (or the sole remaining director in such Class), as the case shall be, unless there are no such directors in such Class, in which case such vacancy shall be filled by the stockholders of such Class, or the Special Voting Rights have been eliminated in accordance with Section (2)(e)(ii) of Article Fourth of the Certificate of Incorporation, in which case such vacancy shall be filled by the vote of the majority of the directors (or the sole remaining director), regardless of any quorum requirements set out in these By-laws. Any director elected in accordance with the preceding sentence shall hold office until the annual meeting for the year in which his term expires and until a director of the same Class succeeding such director shall have been elected and qualified or until his earlier resignation or removal. No decrease in the number of authorized directors constituting the entire Board of Directors shall shorten the term of any incumbent director. Section 3. Duties and Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By- Laws directed or required to be exercised or done by the stockholders. Section 4. Meetings. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman or a majority of the Board of Directors. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than 48 hours before the date of the meeting, by telephone or telegram on 24 hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Section 5. Quorum. At all meetings of the Board of Directors, a majority of the Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 6. Actions of Board. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 7. Meetings by Means of Conference Telephone. Members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting. Section 8. Committees. The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees to exercise the power and authority provided herein with respect to such committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required. Section 9. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 10. Nomination of Directors. Except as otherwise fixed pursuant to Article Fourth of the Certificate of Incorporation relating to the rights of the holders of any one or more classes or series of Preferred Stock issued by the Corporation acting separately by class or series, to elect, under specified circumstances, directors at an annual or special meeting of stockholders, nominations for the election of directors may be made by the Board of Directors or a committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of directors generally. However, any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of stockholders, ninety days prior to the anniversary date of the immediately preceding annual meeting (or, in the case of the annual meeting to be held in 1988, on or before October 1, 1988); and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the tenth day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (e) the consent of each nominee to serve as a director of the Corporation if so elected. The presiding officer of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. Article IV. OFFICERS Section 1. General. The officers of the Corporation shall be chosen by the Board of Directors and shall be one or more Presidents, a Secretary and a Treasurer. The Board of Directors, in its discretion, may also choose one or more Chief Executive Officers, Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person. The officers of the Corporation need not be stockholders of the Corporation nor need such officers be directors of the Corporation. Section 2. Election. The Board of Directors at its first meeting held after each Annual Meeting of Stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. Section 3. Resignations and Removals. Any director or officer may resign at any time by delivering his resignation in writing to the Chairman of the Board of Directors, the President or the Secretary or to a meeting of the Board of Directors. Such resignation shall take effect at the time stated therein, or if no time be so stated then upon its delivery, and without in either case the necessity of its being accepted unless the resignation shall so state. The Board of Directors may at any time remove from office any officer either with or without cause. Section 4. Chairman of the Board of Directors. The Chairman of the Board of Directors shall preside at all meetings of the stockholders and of the Board of Directors. Section 5. President. The President shall, subject to the control of the Board of Directors, have general supervision of the business of the Corporation. The President shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by the Board of Directors. Section 6. Vice-Presidents. Any Vice-President shall have such duties and powers as shall be designated from time to time by the Board of Directors or the President. Section 7. Treasurer and Assistant Treasurer. The Treasurer shall be in charge of the Corporation's funds and valuable papers. He shall have such other duties and powers as may be designated from time to time by the Board of Directors or the President. Any Assistant Treasurers shall have such duties and powers as shall be designated from time to time by the President or the Treasurer. Section 8. Controller and Assistant Controllers. The Controller shall be the chief accounting officer of the Corporation and shall be in charge of its books of account and accounting records and of its accounting procedures. He shall have such other duties and powers as may be designated from time to time by the Board of Directors or the President. Any Assistant Controllers shall have such duties and powers as shall be designated from time to time by the President or the Controller. Section 9. Secretary and Assistant Secretaries. The Secretary shall record all the proceedings of the meetings of the stockholders, of the Board of Directors and of committees of the Board of Directors, in books kept for that purpose. In his absence from any such meeting an Assistant Secretary or if there be none or he is absent, a temporary Secretary chosen at the meeting shall record the proceedings thereof. Any Assistant Secretaries shall have such duties and powers as shall be designated from time to time by the President or the Secretary. Section 10. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other office of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. Section 11. Loans and Guaranties to Directors or Officers. Upon resolution by vote of disinterested directors, the Corporation may make a loan of money or property to, or guarantee the obligation of, any director or officer of the Corporation or a subsidiary if the Board determines that such transaction may reasonably be expected to benefit the Corporation. Article V. STOCK Section 1. Form of Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed in the name of the Corporation as required by the GCL. Section 2. Signatures. Where a certificate is countersigned by (i) a transfer agent other than the Corporation or its employee, or (ii) a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit (in form and substance satisfactory to the Corporation) of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. In the case of the alleged loss or destruction or the mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms in conformity with the law as the Board of Directors may prescribe. Section 4. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these By- Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. Section 5. Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waiver, at the close of business on the day next preceding the day on which the meeting is held. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 6. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other persons, whether or not it shall have express or other notice thereof, except as otherwise provided by law. Section 7. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chairman, the Vice-Chairman of the Board of Directors, the President or any Vice-President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. Article VI. NOTICES Section 1. Notices. Whenever written notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any stockholder, such notice may be given by mail, addressed to such stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex or cable and such notice shall be deemed to be given upon receipt. Section 2. Waivers of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these By- Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Neither the business to be transacted at, nor the purpose of, any meeting or such other event need be specified in any written waiver of notice. Article VII. GENERAL PROVISIONS Section 1. Dividends. Subject to the provisions of the Certificate of Incorporation, dividends, if any, upon the capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock. Section 2. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 3. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Article VIII. INDEMNIFICATION Section 1. Power to Indemnify in Actions, Suits or Proceedings other Than Those by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. Power to Indemnify in Actions, Suits of Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 3. Authorization of Indemnification. Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith, without the necessity of authorization in the specific case. Notwithstanding anything contained in this Section 3 to the contrary, the Corporation shall not be required to indemnify any person against any liability, cost or expense (including attorneys' fees) incurred by such person in connection with any action, suit or proceeding voluntarily initiated or prosecuted by such person unless the initiation or prosecution of such action, suit, or proceeding by such person was authorized by a majority of the entire Board of Directors, provided, however, that a majority of the entire Board of Directors may, after any such action, suit or proceeding has been initiated or prosecuted, in its discretion, indemnify any such person against any such liability, cost or expense. Section 4. Good Faith Defined. For purposes of any determination under Section 3 of the Article VIII, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or other enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term "another enterprise" as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstance in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 1 or 2 or this Article VIII, as the case may be. Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because he has met the applicable standards of conduct set forth in Sections 1 or 2 of this Article VIII, as the case may be. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. Section 6. Expenses Payable in Advance. Expenses incurred in defending or investigating a threatened or pending action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VIII. Section 7. Non-exclusivity of Indemnification and Advancement of Expenses The indemnification and advancement of expenses provided by or granted pursuant to this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any By-Law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of or advancement of expenses to any person who is not specified in Sections 1 or 2 of this Article VIII, including employees or agents of the Corporation, but whom the Corporation has the power or obligation to indemnify under the provisions of GCL, or otherwise. Section 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or the obligation to indemnify him against such liability under the provisions of this Article VIII. Section 9. Meaning of "Corporation" for Purposes of Article VIII. For purposes of this Article VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. Section 10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. Each person who is or becomes a director, officer, employee or agent as aforesaid shall be deemed to have served or to have continued to serve in such capacity in reliance upon the indemnity provided for in this Article VIII. Article IX. AMENDMENTS These By-Laws may be amended, altered, rescinded or repealed at any meeting of the Board of Directors or of the stockholders, provided, in the case of a meeting of stockholders, notice of the proposed change was given in the notice of the meeting; provided, however, that, notwithstanding any other provisions of the Certificate of Incorporation, these By-Laws or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any Voting Stock (as defined in the Certificate of Incorporation of the Corporation) required by law, the Certificate of Incorporation, or these By-Laws, the affirmative vote of the holders of at least 662/3 percent of the combined voting power of all the then- outstanding shares of the Voting Stock, voting together as a single class, shall be required to amend, alter, rescind or repeal Section 3 of Article II and Sections 1, 2 and 10 of Article III, Article VIII and this Article IX of these By-Laws. EX-10.13(B) 5 CREDIT AGREEMENT AMENDMENT EXHIBIT 10.13(b) AMENDMENT NO. 1 TO CREDIT AGREEMENT AMENDMENT dated August 27, 1999 to the Credit Agreement dated as of October 29, 1997 (the "Credit Agreement") among THE NEIMAN MARCUS GROUP, INC. (the "Borrower"), the BANKS party thereto (the "Banks"), BANK OF AMERICA, N.A., as Syndication Agent (the "Syndication Agent"), THE CHASE MANHATTAN BANK, as Documentation Agent (the "Documentation Agent") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "Administrative Agent"). W I T N E S S E T H : WHEREAS, the parties hereto desire to amend the Credit Agreement as set forth below to accommodate the Distribution (as defined below); NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof," "hereunder," "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby. SECTION 2. Reduction of Commitments. On the Amendment Effective Date, the Commitments will be automatically and ratably reduced to the aggregate amount of $450,000,000. SECTION 3. Amendments. (a) The following new definitions are added to Section 1.01 of the Credit Agreement: "Distribution" means the recapitalization of the Borrower and the distribution by HGI of most of its equity interest in the Borrower and related transactions as described in the Borrower's Proxy Statement dated August 10, 1999. "Smith Family Group" means the group of persons party to the Smith-Lurie/Marks Stockholder Agreement dated as of December 29, 1986, as amended (whether or not such agreement is terminated) and the progeny of each such person. (b) Section 6.01(k) is amended to read in its entirety as follows: (k) (i) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other than a member of the Smith Family Group shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of more voting stock or total equity capital of the Borrower than that beneficially owned by the Smith Family Group, if such person or group of persons is also the beneficial owner (within the meaning of Rule 13d-3 of the Exchange Act) of at least 30% of either the voting stock or total equity capital of the Borrower or (ii) more than half of the members of the Board of Directors of the Borrower shall be persons who are not Continuing Directors; SECTION 4. Limited Waiver. The Banks hereby waive any Default that may arise under Section 5.12 of the Credit Agreement solely by reason of the consummation of the Distribution. The foregoing waiver shall be limited precisely as written and shall not constitute a waiver of any other Default. SECTION 5. Representations of Borrower. The Borrower represents and warrants that (i) the representations and warranties of the Borrower set forth in Article 4 of the Credit Agreement will be true on and as of the Amendment Effective Date and (ii) giving effect to this Amendment, no Default will have occurred and be continuing on such date. SECTION 6. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 8. Effectiveness. This Amendment shall become effective on the date when the following conditions are met (the "Amendment Effective Date"): (a) the Administrative Agent shall have received from each of the Borrower and the Required Banks a counterpart hereof signed by such party or facsimile or other written confirmation (in form satisfactory to the Administrative Agent) that such party has signed a counterpart hereof; and (b) the Administrative Agent shall have received an amendment fee for the account of each Bank in an amount equal to 0.05% of such Bank's Commitment (after giving effect to this Amendment). The Administrative Agent shall promptly notify the Borrower and each Bank of the Amendment Effective Date. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. THE NEIMAN MARCUS GROUP, INC. By /s/ Paul F. Gibbons Title: Vice President and Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Robert Bottamedi Title: Vice President BANK OF AMERICA, N.A. By /s/ Thomas J. Kane Title: Vice President THE CHASE MANHATTAN BANK By /s/ Barry K. Bergman Title: Vice President BANKBOSTON, N.A. By /s/ Stephen J. Garvin Title: Director BANK OF TOKYO-MITSUBISHI TRUST COMPANY By /s/ Thomas Fennessey Title: Vice President FLEET NATIONAL BANK By /s/ Roger C. Boucher Title: Senior Vice President MELLON BANK, N.A. By /s/ Richard J. Schaich Title: Vice President BANCA MONTE DEI PASCHI DI SIENA S.P.A. By /s/ G. Natalicchi Title: S. V. P. & General Manager By /s/ Brian R. Landy Title: Vice President CREDIT AGRICOLE INDOSUEZ By /s/ Craig Welch Title: First Vice President By /s/ Sarah McClintock Title: Vice President CREDIT LYONNAIS By /s/ Vladimir Labun Title: First Vice President-Manager FIRST HAWAIIAN BANK By /s/ Charles L. Jenkins Title: Vice President, Manager FIRST UNION NATIONAL BANK By /s/ Richard A. Clark Title: Senior Vice President THE BANK OF NEW YORK By /s/ William A. Kerr Title: Senior Vice President THE DAI-ICHI KANGYO BANK, LTD. By /s/ David J. McCann Title: Vice President THE FUJI BANK, LTD. By /s/ Raymond Ventura Title: Vice President & Manager THE SAKURA BANK, LTD. By /s/ Tamihiro Kawauchi Title: Senior Vice President THE SANWA BANK LTD. By /s/ Joseph E. Leo Title: Vice President and Area Manager WELLS FARGO BANK By /s/ Tara H. Anderson Title: Officer WACHOVIA BANK, N.A. By /s/ John P. Rafferty Title: Senior Vice President BANK HAPOALIM B. M. By /s/ Dan Josefov Title: Vice President By /s/ Rami Lador Title: First Vice President EX-10.20 6 CLASS B STOCKHOLDERS'AGREEMENT EXHIBIT 10.20 THIS AGREEMENT, dated as of the 1st day of September, 1999, is among The Neiman Marcus Group, Inc., a Delaware corporation (the " Company" ) and certain parties (herein individually referred to as a " Stockholder" and collectively as the " Stockholders" ) who are currently stockholders of Harcourt General, Inc., a Delaware corporation (" HGI" ) and anticipate a distribution of Class B Common Stock of the Company in accordance with the Amended and Restated Distribution Agreement between HGI and the Company dated July 1, 1999 (as amended, supplemented or otherwise modified from time to time, the " Distribution Agreement" ) and who, by executing this instrument, or a supplemental instrument, elect to become parties hereto and to subject the shares of Class B Common Stock identified herein (or in such supplemental instrument) to the terms and provisions hereof. W I T N E S S E T H: The following sets forth the background of this Agreement: A. The Company's authorized capital stock consists of 200,000,000 shares, 150,000,000 of which are common stock, par value $.01 per share (the " Common Stock" ) and 50,000,000 of which are preferred stock, par value $.01 per share (" Preferred Stock" ). As of the date hereof, 49,039,068 shares of Common Stock and no shares of Preferred Stock are issued and outstanding. B. The Company, subject to stockholder approval, intends to, among other things, effect a recapitalization of its common stock to create two classes of common stock, the Class A Common Stock, par value $.01 per share (" Class A Common Stock" ) and the Class B Common Stock, par value $.01 per share (" Class B Common Stock" ), while maintaining its Preferred Stock. 21,440,960 shares of Common Stock owned by HGI will be converted into 21,440,960 fully paid shares of Class B Common Stock. HGI's shares of Class B Common Stock will be distributed in a tax-free spinoff transaction (the " Distribution" ) to HGI's common stockholders, including the Stockholders. The date as of which the distribution of Class B Common Stock is effective to vest ownership thereof in distributees is the " Distribution Date" for purposes of this Agreement. C. By reason of the Distribution, the Stockholders will on the Distribution Date be the holders of approximately 28% of the Class B Common Stock which will generally have the same rights and privileges as the Class A Common Stock except that the Class B Common Stock will be entitled to elect at least 82% of the members of the board of directors of the Company. D. In the Distribution Agreement, HGI has agreed to use its commercially reasonable best efforts to procure the agreement of each of the Stockholders that, for a period of 180 days from the Distribution Date, each Stockholder shall not transfer any of the shares of Class B Common Stock distributed to such Stockholder on the Distribution Date (" Restricted Stock" ) -1- other than, in accordance with the terms of this Agreement, to any other Stockholder or any other person to whom such Stockholder would be permitted to transfer shares of Class B Stock of HGI in accordance with the HGI Restated Certificate of Incorporation (including for bona fide estate planning or charitable purposes); provided, however, that such Stockholder shall be permitted to transfer shares of Restricted Stock pursuant to a bona fide tender offer, exchange offer, merger, consolidation or similar transaction in which the opportunity to transfer shares is made available on the same basis to all holders of Class B Common Stock. Annexed hereto, made a part hereof and hereby incorporated herein by reference is a Schedule of Stockholders (the " Schedule" ) which sets forth the Restricted Stock which it is anticipated will be owned by each of the Stockholders on the Distribution Date. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and adequacy of which are hereby severally acknowledged, the parties hereto agree as follows: 1. Each Stockholder agrees that he, she or it shall not sell, assign, encumber, hypothecate, pledge, transfer or otherwise dispose of or alienate in any way (any such disposition being herein referred to as a " Transfer" or, collectively, the " Transfers" ) all or any part of the Restricted Stock (or any interest therein) owned or controlled by him, her or it except upon and subject to the terms of this Agreement. Nothing contained herein shall preclude a pledge of the Restricted Stock so long as the pledgee shall hold such pledge subject to the restrictions of this Agreement and satisfies each of the terms and conditions set forth in this Agreement. 2. Each Stockholder agrees that, except as otherwise provided in Paragraph 3 herein, he, she or it will not, directly or indirectly, sell, offer, contract to sell, grant any option to purchase or otherwise transfer or dispose of any Restricted Stock for a period of 180 days from the Distribution Date. Notwithstanding the foregoing, Restricted Stock which is transferred or distributed to a Permitted Transferee (as defined in Paragraph 3 herein) by reason of the death of a Stockholder (including Restricted Stock which is held by a revocable trust which has become irrevocable by reason of the death of a stockholder, provided that such trust is a Permitted Transferee) may thereafter be transferred free of the restrictions imposed by the immediately preceding sentence. 3. Notwithstanding the restrictions contained in Paragraph 2 of this Agreement, the following transfers (" Permitted Transfers" ) may be consummated at any time, provided that (except in the case of transfers described in Subsections (i)(C), (vi) and (vii), below) the transferee in such Permitted Transfer (the " Permitted Transferee" ) shall execute such instruments as may be necessary or appropriate (a) to extend the terms, conditions and provisions of this Agreement to such Permitted Transferee while the owner of such Restricted Stock, (b) to agree to comply with and not to suffer any violation of this Agreement and (c) to agree that such Permitted Transferee shall not make or suffer to be made any Transfer of such Restricted Stock except upon compliance with the provisions of this Agreement: (i) In the case of a Stockholder who is a natural person, -2- (A) To the spouse of such Stockholder, any lineal descendant of a grandparent of such Stockholder, and any spouse of such lineal descendant (which lineal descendants, their spouses, the Stockholder, and his or her spouse are herein collectively referred to as the " Stockholder's Family Members" ); (B) To the trustee of a trust (including a voting trust) principally for the benefit of such Stockholder and/or one or more of his or her Permitted Transferees described in each subclause of this clause (i) other than this subclause (B), provided that such trust may also grant a general or special power of appointment to one or more of such Stockholder's Family Members and may permit trust assets to be used to pay taxes, legacies and other obligations of the trust or of the estates of one or more of such Stockholder's Family Members payable by reason of the death of any such Family Members; (C) To an organization a contribution to which is deductible for federal income, estate or gift tax purposes or any split-interest trust described in Section 4947 of the Internal Revenue Code, as it may from time to time be amended (such organization or trust hereinafter called a " Charitable Organization" ); (D) To a corporation, a partnership or limited liability company if, in the case of a corporation, a majority of its outstanding capital stock entitled to vote for the election of directors is owned by, or in the case of a partnership, a majority of its partnership interests entitled to participate in the management of the partnership are held by, or in the case of a limited liability company, a majority of the membership interests in the limited liability company controlling management of the limited liability company are held by, the Stockholder or his or her Permitted Transferees determined under this clause (i); and (E) To the estate of such Stockholder. (ii) In the case of a Stockholder holding the shares of Restricted Stock in question as trustee pursuant to a trust (other than a trust which is a Charitable Organization or a trust described in clause (iii) below), " Permitted Transferee" means (A) any person transferring Restricted Stock to such trust and (B) any Permitted Transferee of any such person determined pursuant to clause (i) above. (iii) In the case of a Stockholder holding the shares of Restricted Stock in question as trustee pursuant to a trust (other than a Charitable Organization) which is irrevocable on the date hereof, " Permitted Transferee" means (A) any person to whom or for whose benefit principal may be distributed either during or at the end of the term of such trust whether by power of appointment or otherwise and (B) any Permitted Transferee of any such person determined pursuant to clause (i) above. -3- (iv) In the case of a Stockholder which is a corporation, partnership or limited liability company (other than a Charitable Organization), " Permitted Transferee" means (A) any person (a " Prior Transferor" ) who theretofore transferred such shares of Restricted Stock to such corporation, partnership or limited liability company, (B) any Permitted Transferee of the Prior Transferor and (C) the stockholders, partners or members, as the case may be, of the Stockholder in connection with a distribution by the Stockholder, so long as such stockholders, partners or members (x) are stockholders, partners or members of such corporation, partnership or limited liability company on the date hereof or (y) would be Permitted Transferees of such stockholders, partners or members on the date hereof pursuant to one of the other subsections of this Paragraph 3. (v) In the case of a Stockholder which is the estate of a deceased Stockholder, or which is the estate of a bankrupt or insolvent Stockholder, which holds record and beneficial ownership of the shares of Restricted Stock in question, " Permitted Transferee" means a Permitted Transferee of such deceased, bankrupt or insolvent Stockholder as determined pursuant to clause (i), (ii), (iii), (iv) or (v), above, as the case may be. (vi) Transfers of shares of Restricted Stock pursuant to a bona fide tender offer, exchange offer, merger, consolidation or similar transaction in which the opportunity to transfer shares is made available on the same basis to all holders of Class B Common Stock. (vii) Transfers of shares of Restricted Stock in connection with the redemption by the Company of all or any portion of the Company's Class B Common Stock, provided that if, at the time of such redemption, the Stockholder holds Class B Common Stock which is not Restricted Stock, the number of shares of Restricted Stock which may be transferred in connection with such redemption shall not exceed that number of shares determined by multiplying the total number of shares to be transferred by the Stockholder in connection with such redemption by a fraction, the numerator of which is the total number of shares of Restricted Stock owned by the Stockholder and the denominator of which is the total number of shares of Class B Common Stock owned by such Stockholder. All Permitted Transferees (other than Permitted Transferees who acquire Restricted Stock pursuant to Paragraph 3(i)(C), 3(vi) or 3(vii) herein) shall be deemed to be Stockholders for purposes of this Agreement. 4. In the event that all Restricted Stock shall cease to be outstanding, this Agreement shall automatically terminate and be of no further force and effect. In any event, this Agreement shall terminate 181 days after the Distribution Date. 5. Whenever by the terms of this Agreement notice or demand shall or may be given to the Company or to any Stockholder, the same shall be in writing and shall be sent, postage prepaid, Express Mail or registered or certified mail return receipt requested, or by reputable expedited commercial delivery service such as Federal Express, or by hand, addressed to the party for whom it is intended at the addresses set forth in the Schedule. -4- Whenever by the terms hereof notice is, or is required to be, given to a party hereto, a copy shall also be sent, postage prepaid, Express Mail or registered or certified mail return receipt requested, or by expedited commercial delivery service to Goulston & Storrs, Attention: Mark D. Balk, Esquire, 400 Atlantic Avenue, Boston, Massachusetts 02110-3333. Any address for the giving of notice may be changed from time to time by written notice given to all parties to this Agreement. Whenever by the terms hereof, notice may, or is required to be, given on or before a specified date, notice shall be properly given only if deposited in the United States mail (or with such commercial delivery service) in conformity with the provisions of this Paragraph 5 on or before such date. All notices sent via Express Mail or expedited commercial delivery service shall be deemed to hove been received on the date on which delivery is guaranteed by such Express Mail or commercial delivery service. All notices sent by registered or certified mail shall be deemed to have been received three (3) days from the date on which such notices are mailed. 6. All of the parties hereto acknowledge that the Stockholders' relationship to and with the Company is of a unique and special character, and that in the event of a breach or threatened breach of the covenants of this Agreement by any party hereto (other than the payments of monetary obligations), any remedy at law would be inadequate. It is, therefore, agreed that in the event of such a breach or threatened breach by any party, the party against whom such relief is sought shall not raise the defense that there exists an adequate remedy at law. Any party shall have said remedies in addition to any other rights or remedies which may exist at law or in equity or under the provisions of this Agreement. 7. If any term or provision of this Agreement or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law, but only to the extent the same continues to reflect fairly the intent and understanding of the parties expressed by this Agreement taken as a whole. 8. Unless the context otherwise requires, the terms " Company" , "Stockholder" and " Stockholders" , as used herein, shall be construed to refer to such parties, their respective legal representatives, successors and assigns, and all of the terms, provisions and conditions hereunder shall be binding upon and inure to the benefit of each Stockholder, but the foregoing reference to the assigns of a Stockholder shall not be construed as permitting transfers by such Stockholder of such Restricted Stock, except for such transfers as may be permitted pursuant to this Agreement. Without limitations, references to the " Company" shall include any successor to the Company by merger, consolidation, acquisition of assets, recapitalization, reorganization, or otherwise. As used herein, any reference to Restricted Stock shall include the Restricted Stock described in the Schedule, all stock distributed or transferred by the Company with respect to the Restricted Stock, and all stock issued and from time to time outstanding by reason of transfers of the Restricted Stock -5- described in the Schedule pursuant to Paragraphs 3(i) - (v). Without limiting the generality of the foregoing, references to Restricted Stock shall include all shares issued by reason of a stock split, stock dividend, so-called " reverse stock split," combination of shares, exchange offer or otherwise, as well as rights issuances, with respect to the Restricted Stock subject to this Agreement. 9. If action is required to be taken by or through a legal representative of a Stockholder, and there is no such legal representative, the time within which any action is required hereunder shall ipso facto be deemed to be extended for such period as may be reasonably required to permit the designation and/or appointment of a legal representative, and the Company or any Stockholder shall have the right to apply to any court having jurisdiction for the appointment of such legal representative. 10. The failure to insist upon strict compliance with any of the terms, covenants and conditions herein shall not be deemed a waiver of such terms, covenants and conditions, nor shall any waiver or relinquishment of any right at any one or more times be deemed a waiver or relinquishment of such right at any other time or times. 11. Any reference in this instrument to the masculine gender shall be deemed also to include the feminine and the neuter, and references to the singular shall be deemed also to include the plural and vice-versa; unless the context otherwise requires. 12. This Agreement may not be changed orally, but only by an agreement executed by all of the parties to this Agreement at the time of such amendment. IN WITNESS WHEREOF, the parties have hereto set their hands and seals as of the day and year first above written. /s/ Richard A. Smith RICHARD A. SMITH (Signatures continued on next page) -6- /s/ Susan F. Smith SUSAN F. SMITH /s/ Nancy L. Marks NANCY L. MARKS TRUST U/W/O PHILIP SMITH F/B/O RICHARD A. SMITH By: /s/ Nancy. L. Marks NANCY L. MARKS, as Trustee and not individually By: /s/ Richard A. Smith RICHARD A. SMITH, as Trustee and not individually TRUST U/W/O PHILIP SMITH F/B/O NANCY L. MARKS By: /s/ Nancy L. Marks NANCY L. MARKS, as Trustee and not individually By: /s/ Richard A. Smith RICHARD A. SMITH, as Trustee and not individually A-D-R TRUST F/B/O DEBRA SMITH KNEZ U/I/T dated 2/9/67 By: /s/ Susan F. Smith SUSAN F. SMITH a/k/a SUSAN M. SMITH, as Trustee and not individually By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually (Signatures continued on next page) -7- C-J-P TRUST F/B/O CATHY LURIE U/I/T dated 12/10/73 By: /s/ Richard A. Smith RICHARD A. SMITH, as Trustee and not individually C-J-P TRUST F/B/O PETER LURIE U/I/T dated 12/10/73 By: /s/ Richard A. Smith RICHARD A. SMITH, as Trustee and not individually J-J-E 1988 TRUST F/B/O JAMES T. BERYLSON U/D/T dated 11/1/88 By: /s/ John Berylson JOHN BERYLSON, as Trustee and not individually By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually J-J-E 1988 TRUST F/B/O JENNIFER L. BERYLSON U/D/T dated 11/1/88 By: /s/ John Berylson JOHN BERYLSON, as Trustee and not individually By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually (Signatures continued on next page) -8- J-J-E 1988 TRUST F/B/O ELIZABETH S. BERYLSON U/D/T dated 11/1/88 By: /s/ John Berylson JOHN BERYLSON, as Trustee and not individually By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually DEBRA AND BRIAN KNEZ 1988 CHILDREN'S TRUST F/B/O JESSICA M. KNEZ U/D/T dated 12/1/88 By: /s/ Brian J. Knez BRIAN J. KNEZ, as Trustee and not individually By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually DEBRA AND BRIAN KNEZ 1988 CHILDREN'S TRUST F/B/O ANDREW P. KNEZ U/D/T dated 12/1/88 By: /s/ Brian J. Knez BRIAN J. KNEZ, as Trustee and not individually By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually (Signatures continued on next page) -9- ROBERT SMITH AND DANA WEISS 1994 CHILDREN'S TRUST F/B/O MADELEINE W. SMITH U/D/T dated 12/1/94 By: /s/ Dana A. Weiss DANA A. WEISS, as Trustee and not individually By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually ROBERT SMITH AND DANA WEISS 1994 CHILDREN'S TRUST F/B/O RYAN A. SMITH U/D/T dated 12/1/94 By: /s/ Dana A. Weiss DANA A. WEISS, as Trustee and not individually By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually AMY SMITH BERYLSON 1978 INSURANCE TRUST U/D/T dated 9/5/78 By: /s/ Amy Smith Berylson AMY SMITH BERYLSON, as Trustee and not individually By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually (Signatures continued on next page) -10- DEBRA SMITH KNEZ 1978 INSURANCE TRUST U/D/T dated 9/5/78 By: /s/ Debra Smith Knez DEBRA SMITH KNEZ, as Trustee and not individually By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually ROBERT A. SMITH 1978 INSURANCE TRUST U/D/T dated 9/5/78 By: /s/ Robert A. Smith ROBERT A. SMITH, as Trustee and not individually By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually RICHARD A. SMITH FAMILY TRUST U/W/O MARIAN J. SMITH F/B/O DEBRA SMITH KNEZ By: /s/ Richard A. Smith RICHARD A. SMITH, as Trustee and not individually By: /s/ Nancy L. Marks NANCY L. MARKS, as Trustee and not individually (Signatures continued on next page) -11- RICHARD A. SMITH FAMILY TRUST U/W/O MARIAN J. SMITH F/B/O ROBERT A. SMITH By: /s/ Richard A. Smith RICHARD A. SMITH, as Trustee and not individually By: /s/ Nancy L. Marks NANCY L. MARKS, as Trustee and not individually NANCY S. LURIE FAMILY TRUST U/W/O MARIAN J. SMITH F/B/O CATHY J. LURIE By: /s/ Nancy Lurie Marks NANCY LURIE MARKS, as Trustee and not individually By: /s/ Richard A. Smith RICHARD A. SMITH, as Trustee and not individually PETER A. LURIE TRUST U/W/O MARIAN J. SMITH By: /s/ Nancy Lurie Marks NANCY LURIE MARKS, as Trustee and not individually By: /s/ Richard A. Smith RICHARD A. SMITH, as Trustee and not individually (Signatures continued on next page) -12- MORRIS J. LURIE FAMILY TRUST U/I/T dated 4/15/58 F/B/O CATHY J. LURIE, ET AL By: /s/ Nancy L. Marks NANCY L. MARKS, as Trustee and not individually By: /s/ Richard A. Smith RICHARD A. SMITH, as Trustee and not individually MORRIS J. LURIE FAMILY TRUST U/I/T dated 4/15/58 F/B/O PETER A. LURIE, ET AL By: /s/ Nancy L. Marks NANCY L. MARKS, as Trustee and not individually By: /s/ Richard A. Smith RICHARD A. SMITH, as Trustee and not individually SUSAN F. SMITH GRANTOR RETAINED ANNUITY TRUST - 15 YEARS U/D/T dated 8/10/94 By: /s/ Susan F. Smith SUSAN F. SMITH, as Trustee and not individually By: /s/ Richard A. Smith RICHARD A. SMITH, as Trustee and not individually SUSAN F. SMITH GRANTOR RETAINED ANNUITY TRUST - 7 YEARS U/D/T dated 8/10/94 By: /s/ Richard A. Smith RICHARD A. SMITH, as Trustee and not individually (Signatures continued on next page) -13 SUSAN F. SMITH 1998 GRANTOR RETAINED ANNUITY TRUST - 5 YEARS U/D/T dated 9/1/98 By: /s/ Richard A. Smith RICHARD A. SMITH, as Trustee and not individually NANCY LURIE MARKS GRANTOR RETAINED ANNUITY TRUST U/D/T dated 1/15/97 By: /s/ Richard A. Smith RICHARD A. SMITH, as Trustee and not individually AMY SMITH BERYLSON GRANTOR RETAINED ANNUITY TRUST U/D/T dated 10/25/94 By: /s/ Amy Smith Berylson AMY SMITH BERYLSON, as Trustee and not individually By: /s/ John G. Berylson JOHN G. BERYLSON, as Trustee and not individually AMY SMITH BERYLSON 1998 GRANTOR RETAINED ANNUITY TRUST U/D/T dated 11/2/98 By: /s/ John G. Berylson JOHN G. BERYLSON, as Trustee and not individually By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually (Signatures continued on next page) -14- ROBERT A. SMITH GRANTOR RETAINED ANNUITY TRUST U/D/T dated 10/27/94 By: /s/ Robert A. Smith ROBERT A. SMITH, as Trustee and not individually By: /s/ Dana A. Weiss DANA A. WEISS, as Trustee and not individually ROBERT A. SMITH 1998 GRANTOR RETAINED ANNUITY TRUST U/D/T dated 11/2/98 By: /s/ Dana A. Weiss DANA A. WEISS, as Trustee and not individually By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually DEBRA SMITH KNEZ GRANTOR RETAINED ANNUITY TRUST U/D/T dated 10/27/94 By: /s/ Debra Smith Knez DEBRA SMITH KNEZ, as Trustee and not individually By: /s/ Brian J. Knez BRIAN J. KNEZ, as Trustee and not individually (Signatures continued on next page) -15- DEBRA SMITH KNEZ 1998 GRANTOR RETAINED ANNUITY TRUST U/D/T dated 11/2/98 By: /s/ Brian J. Knez BRIAN J. KNEZ, as Trustee and not individually By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually RICHARD A. SMITH 1976 TRUST F/B/O AMY SMITH BERYLSON U/D/T dated 12/16/76 By: /s/ Susan F. Smith SUSAN F. SMITH, as Trustee and not individually RICHARD A. SMITH 1976 TRUST F/B/O ROBERT A. SMITH U/D/T dated 12/16/76 By: /s/ Susan F. Smith SUSAN F. SMITH, as Trustee and not individually RICHARD A. SMITH 1976 TRUST F/B/O DEBRA SMITH KNEZ U/D/T dated 12/16/76 By: /s/ Susan F. Smith SUSAN F. SMITH, as Trustee and not individually MARIAN SMITH D-R-A 1976 TRUST F/B/O AMY SMITH BERYLSON U/D/T dated 12/16/76 By: /s/ Susan F. Smith SUSAN F. SMITH, as Trustee and not individually (Signatures continued on next page) -16- MARIAN SMITH D-R-A 1976 TRUST F/B/O ROBERT A. SMITH U/D/T dated 12/16/76 By: /s/ Susan F. Smith SUSAN F. SMITH, as Trustee and not individually MARIAN SMITH D-R-A 1976 TRUST F/B/O DEBRA SMITH KNEZ U/D/T dated 12/16/76 By: /s/ Susan F. Smith SUSAN F. SMITH, as Trustee and not individually NANCY LURIE MARKS 1976 TRUST F/B/O JEFFREY R. LURIE U/D/T dated 12/16/76 By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually By: /s/ Darline M. Lewis DARLINE M. LEWIS, as Trustee and not individually NANCY LURIE MARKS 1976 TRUST F/B/O CATHY J. LURIE U/D/T dated 12/16/76 By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually By: /s/ Darline M. Lewis DARLINE M. LEWIS, as Trustee and not individually (Signatures continued on next page) -17- NANCY LURIE MARKS 1976 TRUST F/B/O PETER A. LURIE U/D/T dated 12/16/76 By: /s/ Mark D. Balk MARK D. BALK, as Trustee and not individually By: /s/ Darline M. Lewis DARLINE M. LEWIS, as Trustee and not individually MARIAN SMITH J-C-P 1976 TRUST F/B/O JEFFREY R. LURIE U/D/T dated 12/16/76 By: /s/ Nancy Lurie Marks NANCY LURIE MARKS, as Trustee and not individually MARIAN SMITH J-C-P 1976 TRUST F/B/O CATHY J. LURIE U/D/T dated 12/16/76 By: /s/ Nancy Lurie Marks NANCY LURIE MARKS, as Trustee and not individually MARIAN SMITH J-C-P 1976 TRUST F/B/O PETER A. LURIE U/D/T dated 12/16/76 By: /s/ Nancy Lurie Marks NANCY LURIE MARKS, as Trustee and not individually SMITH MANAGEMENT COMPANY By: /s/ Richard A. Smith RICHARD A. SMITH Its Hereunto duly authorized (Signatures continued on next page) -18- MARIAN REALTY COMPANY By: /s/ Richard A. Smith RICHARD A. SMITH Its Hereunto duly authorized /s/ Amy S. Berylson AMY S. BERYLSON /s/ John G. Berylson JOHN G. BERYLSON /s/ Jennifer L. Berylson JENNIFER L. BERYLSON /s/ Robert A. Smith ROBERT A. SMITH /s/ Debra S. Knez DEBRA S. KNEZ /s/ Brian J. Knez BRIAN J. KNEZ /s/ Jeffrey R. Lurie JEFFREY R. LURIE /s/ Cathy J. Lurie CATHY J. LURIE /s/ Jeffrey R. Lurie JEFFREY R. LURIE, as Guardian of the Property of Milena C. Lurie (Signatures continued on next page) -19- /s/ Jeffrey R. Lurie JEFFREY R. LURIE, as Guardian of the Property of Julian M.J. Lurie /s/ Amy Smith Berylson AMY SMITH BERYLSON, as Guardian of the Property of James T. Berylson /s/ John G. Berylson JOHN G. BERYLSON, as Guardian of the Property of James T. Berylson /s/ Amy Smith Berylson AMY SMITH BERYLSON, as Guardian of the Property of Elizabeth S. Berylson /s/ John G. Berylson JOHN G. BERYLSON, as Guardian of the Property of Elizabeth S. Berylson Receipt of a counterpart execution copy of this Smith-Lurie/Marks Family Stockholders' Agreement is acknowledged this 1st day of September, 1999. THE NEIMAN MARCUS GROUP, INC. By: /s/ Eric P. Geller ERIC P. GELLER Its Senior Vice President, General Counsel and Secretary Hereunto duly authorized -20- EX-13.1 7 ANNUAL REPORT EXHIBIT 13.1 [BEGIN PAGE 16] MANAGEMENT'S DISCUSSION AND ANALYSIS OVERVIEW The Company's operations include specialty retail stores, which consist of Neiman Marcus Stores and Bergdorf Goodman, and a direct marketing operation, NM Direct. The Company's revenues rose to $2.55 billion in fiscal 1999, representing a 15.6% increase over revenues of $2.21 billion in fiscal 1997. Net earnings increased 2.5% from $91.2 million in fiscal 1997. Approximately 86% of the Company's revenues are generated by its specialty retail stores with the balance generated primarily by NM Direct. Revenue growth over the last three fiscal years at Neiman Marcus Stores and Bergdorf Goodman can be attributed principally to increases in overall comparable store sales and new store openings. Since August 1996 the Company has opened three new Neiman Marcus stores, including most recently a new store in Honolulu, Hawaii, in September 1998. The Company currently also plans to open six new Neiman Marcus stores in the next five years, two of which will be replacement stores. In fiscal 1999, average store sales per gross square foot reached a record high of $453, representing an increase of 7.9% over three years. The Company has consistently focused on renovating and modernizing its stores to improve productivity. The Company also aims to improve average transaction amounts and comparable sales growth with carefully edited assortments and marketing and sales programs which are designed to increase its customers' awareness of merchandise offerings in the stores. The Company opened The Galleries of Neiman Marcus stores in Cleveland, Ohio, in November 1998 and in Phoenix, Arizona, in December 1998. The Galleries concept is a smaller retail store of approximately 10,000 to 15,000 square feet focusing on precious and fine jewelry, gifts and home accessories. The Company plans to open the next Galleries store in Seattle, Washington, in October 1999. In January 1998, the Company acquired Chef's Catalog, a direct marketer of gourmet cookware and high-end kitchenware. The Company also launched its Brand Development Initiative in fiscal 1999, a strategy designed to create shareholder value by investing in designer resources that serve affluent customers. In February 1999, the Company acquired a 56% interest in Kate Spade LLC, a manufacturer of high-end fabric and leather handbags and accessories. In November 1998, the Company acquired a 51% interest in Gurwitch Bristow Products, which manufactures and markets the Laura Mercier cosmetic lines. In addition to opening new stores, the Company continues to make significant capital investments in an effort to increase productivity. In particular, during fiscal 1997, 1998 and 1999, the Company invested a total of approximately $225.2 million to remodel its existing stores, to construct a new Neiman Marcus store in Hawaii and to purchase a building adjacent to its existing San Francisco store as part of a plan to enlarge and remodel that store. In fiscal 2000, 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 continued remodeling of the plaza level of the main store of Bergdorf Goodman. [END PAGE 16] [BEGIN PAGE 17] In fiscal 1999, a committee of independent directors of the Company, and the Boards of Directors of the Company and of Harcourt General, Inc. ("Harcourt General"), approved a series of transactions (the "Transactions") relating to a plan by Harcourt General to spin off to the holders of Harcourt General's common stock approximately 21.4 million of the approximately 26.4 million shares of the Company's common stock held by Harcourt General in a distribution to be tax-free to Harcourt General and its shareholders. On September 15, 1999, the shareholders of the Company approved a recapitalization in which, among other things, the approximately 21.4 million shares of the Company's common stock to be distributed will be exchanged for a new class of common stock of the Company that will have the right to elect approximately 82% of the Company's Board of Directors, with the remaining shares having the right to elect approximately 18% of the Company's Board of Directors ( the "Recapitalization"). The Transactions are expected to be completed in October 1999. OPERATING RESULTS
Fiscal years ended --------------------------------- July 31, August 1, August 2, (Dollars in Millions) 1999 1998 1997 --------------------------------- REVENUES Specialty Retail Stores $2,209.5 $2,089.5 $1,950.5 Direct Marketing 321.7 283.8 259.4 Other(1) 22.2 _ _ --------------------------------- Total $2,553.4 $2,373.3 $2,209.9 ================================= OPERATING EARNINGS Specialty Retail Stores $ 178.0 $ 198.1 $ 169.9 Direct Marketing 14.5 15.6 25.5 Other(1) (12.1) (14.6) (14.4) --------------------------------- Total $ 180.4 $ 199.1 $ 181.0 ================================= OPERATING PROFIT MARGIN Specialty Retail Stores 8.1% 9.5% 8.7% Direct Marketing 4.5% 5.5% 9.8% --------------------------------- Total(2) 7.1% 8.4% 8.2% ================================= (1) OTHER INCLUDES UNALLOCATED CORPORATE EXPENSES, KATE SPADE AND GURWITCH BRISTOW PRODUCTS. (2) INCLUDES OTHER.
FISCAL 1999 COMPARED TO FISCAL 1998 Revenues in fiscal 1999 increased $180.1 million to $2.55 billion from $2.37 billion in fiscal 1998. The 7.6% increase was primarily attributable to higher overall comparable sales, sales from Chef's Catalog, acquired in January 1998, and the new Neiman Marcus store in Hawaii which opened in September 1998. Total comparable sales increased 2.6%. Comparable sales increased 3.4% at Neiman Marcus Stores, decreased 2.3% at Bergdorf Goodman, and increased 2.0% at NM Direct. Cost of goods sold including buying and occupancy costs increased 8.6% to $1.74 billion in fiscal 1999 from $1.60 billion in fiscal 1998, primarily due to increased sales. As a percentage of revenues, cost of goods sold was 68.2% in fiscal 1999 compared to 67.6% in fiscal 1998. The increase in fiscal 1999 resulted primarily from lower gross margins at both Neiman Marcus Stores and Bergdorf Goodman in comparison to the prior year, principally as a result of higher markdowns. Selling, general and administrative expenses increased 10.8% in fiscal 1999 to $615.9 million from $556.1 million in fiscal 1998. As a percentage of revenues, selling, general and administrative expenses increased to 24.1% in [END PAGE 17] [BEGIN PAGE 18] fiscal 1999 from 23.4% in fiscal 1998. The proportionate increase in 1999 was primarily due to higher selling and sales promotion expenses. 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 12.2% to $16.4 million from $14.6 million in the prior year. The increase resulted primarily from expenses incurred in connection with the Company's Recapitalization. Operating earnings decreased by 9.4% to $180.4 million from $199.1 million in the prior year. This decrease was attributable to lower gross margins, higher selling and sales promotion expenses and Bergdorf Goodman's decline in comparable sales. Interest expense increased 14.2% in fiscal 1999 to $25.0 million from $21.9 million in the prior year. The increase resulted from higher average borrowings as well as a higher effective interest rate, which resulted from the issuance of fixed rate debt in May 1998. The Company's effective income tax rate was 39% in fiscal 1999, as compared to 40% in fiscal 1998. 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 sales from Chef's Catalog, 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 increased 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. 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. [END PAGE 18] [BEGIN PAGE 19] REVIEW OF FINANCIAL CONDITION In fiscal 1999, the Company had sufficient cash flows from operations and its revolving credit facility to finance its working capital needs, capital expenditures, stock repurchases and the acquisitions of Gurwitch Bristow Products and Kate Spade LLC. Operating activities provided net cash of $120.0 million in fiscal 1999. The Company's capital expenditures in fiscal 1999 included the purchase of a building adjacent to the Neiman Marcus store in Union Square in San Francisco for a future expansion of this store, existing store renovations and completion of the construction of the new Neiman Marcus store in Honolulu, Hawaii opened in September 1998. Capital expenditures were $91.0 million in fiscal 1999, $81.2 million in fiscal 1998 and $53.0 million in fiscal 1997. Capital expenditures are currently estimated to approximate $115 million for fiscal 2000. In February 1999, the Company acquired a 56% interest in Kate Spade LLC for approximately $33.6 million in cash. In November 1998, the Company acquired a 51% interest in Gurwitch Bristow Products for approximately $6.7 million in cash. Both acquisitions were funded primarily through borrowings under the Company's revolving credit facility. In January 1998, the Company acquired Chef's Catalog for approximately $31.0 million in cash, which was also funded primarily through borrowings under the Company's revolving credit facility. In September 1998, the Company's Board of Directors authorized an increase in the stock repurchase program to 1.5 million shares. In fiscal 1999 the Company repurchased 827,000 shares at an average price of $18.57; in fiscal 1998 the Company repurchased 160,100 shares at an average price of $29.32. At July 31, 1999 there were 512,900 shares remaining under this program. In May 1998, the Company issued $250 million of senior notes and debentures to the public, the proceeds from which 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. At July 31, 1999, the Company had $625.0 million available under its $650.0 million revolving credit facility, which expires in October 2002. In September 1999 the Company reduced the revolving credit facility to $450 million, to reflect its current and anticipated cash flow requirements. Additionally, the Company's five year revolving securitization of its accounts receivable matures in the year 2000. The Company expects to finance with similar securities the repayment of the Class A and B certificates, which were sold to third parties under the securitization and which have an aggregate principal value of $246 million. The Company believes that it will have sufficient resources to fund its planned capital growth, operating requirements and the maturities of the Class A and B certificates. 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 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. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The market risk inherent in the Company's financial instruments represents the potential loss arising from adverse changes in interest rates. The Company does not enter into financial instruments for trading purposes. At July 31, 1999 and August 1, 1998, the fair values of the Company's fixed-rate debt were estimated at $230.4 million and $251.6 million, respectively, using quoted market prices and comparable publicly-traded issues. Such fair values were less than carrying value by approximately $22.3 million at July 31, 1999 and greater than the carrying value by approximately $1.2 million at August 1, 1998. Market risk is estimated as the potential change in fair value resulting from a hypothetical 10% adverse change in interest rates and amounted to approximately $15.2 million at July 31, 1999. [END PAGE 19] [BEGIN PAGE 20] At July 31, 1999 and August 1, 1998, the Company had $25.0 million and $35.0 million, respectively, of variable rate borrowings outstanding under its revolving credit facility, which approximate fair value. A hypothetical 10% adverse change in interest rates for this variable rate debt would have an approximate $1.7 million negative effect on the Company's earnings and cash flows. The Company uses derivative financial instruments to manage foreign currency risk related to merchandise inventories. The effect of such instruments was not material to the Company's financial condition, results of operations or cash flows. SEASONALITY The specialty retail industry is seasonal in nature, and a disproportionately higher 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 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 2001. 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 noncompliant 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 90% complete, with substantial completion of the Year 2000 project currently anticipated for October 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' failures 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 following up to monitor 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. 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. [END PAGE 20] [BEGIN PAGE 21] 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 October 1999. FORWARD-LOOKING STATEMENTS Statements in this report referring to the expected future plans and performance of the Company are forward-looking statements. Actual future results may differ materially from such statements. Factors that could affect future performance 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. [END PAGE 21] [BEGIN PAGE 22] Consolidated Balance Sheets
July 31, August 1, (Dollar Amounts in Thousands) 1999 1998 ---------------------- ASSETS CURRENT ASSETS Cash and equivalents $ 29,191 $ 56,644 Undivided interests in NMG Credit Card Master Trust 133,151 138,867 Accounts receivable, less allowance for doubtful accounts of $2,300 and $1,800 59,317 53,571 Merchandise inventories 528,452 499,068 Deferred income taxes 21,953 24,058 Other current assets 53,102 61,188 ---------------------- TOTAL CURRENT ASSETS 825,166 833,396 ---------------------- PROPERTY AND EQUIPMENT Land, buildings and improvements 486,862 435,166 Fixtures and equipment 364,757 310,726 Construction in progress 47,656 66,927 ---------------------- 899,275 812,819 Less accumulated depreciation and amortization 385,836 333,563 ---------------------- PROPERTY AND EQUIPMENT, NET 513,439 479,256 ---------------------- OTHER ASSETS 163,583 125,140 ---------------------- $1,502,188 $1,437,792 ======================= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable and current maturities of long-term liabilities $ 921 $ 5,963 Accounts payable 203,071 201,490 Accrued liabilities 176,188 180,809 ---------------------- TOTAL CURRENT LIABILITIES 380,180 388,262 ---------------------- LONG-TERM LIABILITIES Notes and debentures 274,640 284,617 Other long-term liabilities 74,664 71,083 Deferred income taxes 32,038 37,139 ---------------------- TOTAL LONG-TERM LIABILITIES 381,342 392,839 ---------------------- MINORITY INTEREST 4,485 - COMMITMENTS AND CONTINGENCIES COMMON STOCK Common stock - $.01 par value Authorized - 100,000,000 shares Issued and outstanding - 49,039,035 and 49,759,686 shares 490 498 ADDITIONAL PAID-IN CAPITAL 467,283 481,295 RETAINED EARNINGS 268,408 174,898 ---------------------- $1,502,188 $1,437,792 ====================== SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
[END PAGE 22] [BEGIN PAGE 23] Consolidated Statements of Earnings
Years Ended ----------------------------------- July 31, August 1, August 2, (In Thousands Except for Per Share Data) 1999 1998 1997 ----------------------------------- Revenues $2,553,421 $2,373,347 $2,209,891 Cost of goods sold including buying and occupancy costs 1,740,711 1,603,602 1,504,858 Selling, general and administrative expenses 615,890 556,051 509,687 Corporate expenses 16,406 14,620 14,364 ----------------------------------- Operating earnings 180,414 199,074 180,982 Interest expense 24,972 21,862 26,330 ----------------------------------- Earnings before income taxes and minority interest 155,442 177,212 154,652 Income taxes 60,622 70,885 63,407 ----------------------------------- Earnings before minority interest 94,820 106,327 91,245 Minority interest in net earnings of subsidiaries (1,310) - - ----------------------------------- Net earnings 93,510 106,327 91,245 Loss on redemption of redeemable preferred stocks - - (22,361) Dividends and accretion on redeemable preferred stocks - - (6,201) ----------------------------------- Net earnings applicable to common shareholders $ 93,510 $ 106,327 $ 62,683 ----------------------------------- Weighted average number of common and common equivalent shares outstanding: Basic 49,129 49,808 47,162 =================================== Diluted 49,237 49,981 47,335 =================================== Earnings per share applicable to common shareholders: Basic $ 1.90 $ 2.13 $ 1.33 =================================== Diluted $ 1.90 $ 2.13 $ 1.32 =================================== SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
[END PAGE 23] [BEGIN PAGE 24] Consolidated Statements of Cash Flows
Years Ended ----------------------------------- July 31, August 1, August 2, (In Thousands) 1999 1998 1997 ----------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 93,510 $ 106,327 $ 91,245 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 64,921 60,097 59,820 Deferred income taxes (2,996) 228 1,190 Minority interest 1,310 - - Other (4,344) 1,629 2,199 Changes in current assets and liabilities: Accounts receivable (1,999) 2,431 (3,991) Merchandise inventories (25,642) (33,006) (16,464) Accounts payable and accrued liabilities (12,944) 48,841 (15,790) Other 8,151 (3,985) (8,971) ----------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 119,967 182,562 109,238 ----------------------------------- CASH FLOWS USED FOR INVESTING ACTIVITIES Additions to property and equipment (91,026) (81,176) (53,037) Purchases of held-to-maturity securities (641,364) (636,342) (461,791) Maturities of held-to-maturity securities 647,080 625,816 447,842 Acquisitions, net of cash acquired (36,754) (31,000) - ----------------------------------- NET CASH USED FOR INVESTING ACTIVITIES (122,064) (122,702) (66,986) ----------------------------------- CASH FLOWS USED FOR FINANCING ACTIVITIES Proceeds from borrowings - 249,617 113,500 Repayment of debt (10,000) (265,000) (132,000) Payment of redemption of preferred stock - - (281,426) Issuance (repurchase) of common stock (15,356) (4,694) 267,672 Dividends paid - - (5,796) ----------------------------------- NET CASH USED FOR FINANCING ACTIVITIES (25,356) (20,077) (38,050) ----------------------------------- CASH AND EQUIVALENTS Increase (decrease) during the year (27,453) 39,783 4,202 Beginning balance 56,644 16,861 12,659 ----------------------------------- Ending balance $ 29,191 $ 56,644 $ 16,861 =================================== SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 26,098 $ 20,932 $ 28,441 =================================== Income taxes $ 62,626 $ 59,656 $ 63,951 =================================== SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
[END PAGE 24] [BEGIN PAGE 25] Consolidated Statements of Common Shareholder's Equity
Retained Additional Earnings Common Stock Paid-in (Accumulated (In Thousands) Shares Amount Capital Decit) ------------------------------------------------ BALANCE - AUGUST 4, 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 Net earnings - - - 93,510 Repurchase of common stock (827) (11) (15,345) - Other equity transactions 106 3 1,333 - ------------------------------------------------ BALANCE - JULY 31, 1999 49,039 $ 490 $ 467,283 $ 268,408 ================================================ SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
[END PAGE 25] [BEGIN PAGE 26] Notes to Consolidated Financial Statements NOTE 1 Summary of Significant Accounting Policies BASIS OF REPORTING The Company's businesses consist of specialty retail stores, which includes Neiman Marcus Stores and Bergdorf Goodman, and NM Direct, the Company's direct marketing operation. The consolidated financial statements include the accounts of all of the Company's majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company's fiscal year ends on the Saturday closest to July 31. 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. 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 $16.7 million and $14.5 million higher than reported at July 31, 1999 and August 1, 1998, respectively. As a result of using the LIFO valuation method, net earnings were $1.3 million lower in 1999, $0.3 million higher in 1998, and $0.9 million lower in 1997 than they would have been using the FIFO method. [END PAGE 26] [BEGIN PAGE 27] OTHER LONG-TERM LIABILITIES Other long-term liabilities consist primarily of certain employee benefit obligations, postretirement health care benefits and the liability for scheduled rent increases. 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, ranging from four to 40 years. Amortization expense was $6.4 million in 1999, $4.8 million in 1998 and $3.7 million in 1997. 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. 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 $45.8 million in 1999, $47.8 million in 1998 and $47.0 million in 1997. 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. [END PAGE 27] [BEGIN PAGE 28] 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 $125.0 million, $114.4 million and $108.7 million in 1999, 1998 and 1997, respectively. Direct response advertising amounts included in other current assets in the consolidated balance sheets of July 31, 1999 and August 1, 1998 were $10.6 million and $9.5 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 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," which will require recognition and measurement of all derivatives as either assets or liabilities on the balance sheet at fair value. The Company is currently evaluating the effect of implementing SFAS 133, which will be effective for fiscal 2001. NOTE 2 Acquisitions On February 1, 1999, the Company acquired a 56% interest in Kate Spade LLC for approximately $33.6 million in cash. Kate Spade is a manufacturer and marketer of high-end fabric and leather handbags and accessories. The acquisition has been accounted for by the purchase method of accounting and, accordingly, the results of operations of Kate Spade for the period from February 1, 1999 are included in the accompanying consolidated financial statements. The excess of cost over the estimated fair value of net assets acquired of $32.7 million was allocated to trademarks which are amortized on a straight- line basis over 25 years. Assets acquired and liabilities assumed have been recorded at their estimated fair values. On November 2, 1998, the Company acquired a 51% interest in Gurwitch Bristow Products for approximately $6.7 million in cash. Gurwitch Bristow Products manufactures and markets the Laura Mercier cosmetic lines. The acquisition has been accounted for by the purchase method of accounting and, accordingly, the results of operations of Gurwitch Bristow Products for the period from November 2, 1998 are included in the accompanying consolidated financial statements. The excess of cost over the estimated fair value of net assets acquired of $5.3 million was allocated to trademarks, which is amortized on a straight-line basis over 25 years. Assets acquired and liabilities assumed have been recorded at their estimated fair values. On 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. The excess of cost over the estimated fair value of net assets acquired of $30.3 million was allocated to goodwill, customer lists, and trademarks, which are amortized on a straight-line basis over lives ranging from four to 30 years. These acquisitions did not materially impact consolidated results, and therefore no pro forma information is provided. [END PAGE 28] [BEGIN PAGE 29] NOTE 3 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. 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 at the beginning of the period, diluted net earnings per share applicable to common shareholders would have been $1.82 in 1997. NOTE 4 Other Assets Other assets consisted of the following:
July 31, August 1, (In Thousands) 1999 1998 --------------------- Trademarks $ 126,654 $ 88,300 Goodwill 33,202 33,202 Other 47,460 40,894 --------------------- 207,316 162,396 Accumulated amortization (43,733) (37,256) --------------------- $ 163,583 $ 125,140 =====================
Trademarks and goodwill are amortized using the straight-line method over their estimated useful lives, ranging from 25 to 40 years. Customer lists (which are included in Other) are amortized using the straight-line method over their estimated useful lives, ranging from four to 11 years. NOTE 5 Accrued Liabilities Accrued liabilities consisted of the following:
July 31, August 1, (In Thousands) 1999 1998 --------------------- Accrued salaries and related liabilities $ 33,698 $ 37,857 Self-insurance reserves 25,436 24,694 Income taxes payable 27,474 26,552 Other 90,294 91,706 --------------------- $ 176,902 $ 180,809 =====================
[END PAGE 29] [BEGIN PAGE 30] NOTE 6 Notes and Debentures Notes and debentures consisted of the following:
Interest July 31, August 1, (In Thousands) Rate 1999 1998 --------------------------------- Revolving credit facility(a) Variable $ 25,000 $ 35,000 Senior notes(b) 6.65% 124,863 124,848 Senior debentures(b) 7.125% 124,777 124,769 --------------------- $ 274,640 $ 284,617 =====================
(a) The Company has a revolving credit facility with 21 banks, pursuant to which the Company may borrow up to $650 million at July 31,1999. 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 (5.4% at July 31, 1999) 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. The aggregate maturities of notes and debentures are $0 million in fiscal 2000, fiscal 2001 and fiscal 2002, $25.0 million in fiscal 2003, $0 million in fiscal 2004 and $249.6 million thereafter. NOTE 7 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 8 Common Shareholders' Equity OWNERSHIP BY AND RELATIONSHIP WITH HARCOURT GENERAL At July 31, 1999, Harcourt General owned approximately 26.4 million shares of Common Stock, representing approximately 54% 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 $6.0 million in 1999, $5.4 million in 1998 and $5.7 million in 1997. Most of the senior officers of the Company serve in similar capacities with Harcourt General. Three of such officers also serve as directors of both companies. 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. [END PAGE 30] [BEGIN PAGE 31] COMMON STOCK INCENTIVE PLANS The Company has established common stock incentive plans allowing for the granting of stock options, restricted stock and other stock-based awards to its employees. The Company applies Accounting Principles Board (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). 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 July 31, 1999, August 1, 1998 and August 2, 1997 as follows:
(In Thousands, Except Per Share Amounts) 1999 1998 1997 --------------------------------- Net earnings: As reported $ 93,510 $ 106,327 $ 62,683 Pro forma $ 91,686 $ 105,339 $ 62,320 Basic earnings per share: As reported $ 1.90 $ 2.13 $ 1.33 Pro forma $ 1.87 $ 2.11 $ 1.32 Diluted earnings per share: As reported $ 1.90 $ 2.13 $ 1.32 Pro forma $ 1.86 $ 2.11 $ 1.32
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 July 31, 1999 were granted under the Company's 1997 Plan and the 1987 Stock Incentive Plan. At July 31, 1999, there were 1.7 million shares of Common Stock available for grants under the 1997 Plan. Options outstanding at July 31, 1999 were granted at prices (not less than 100% of the fair market value on the date of the grant) varying from $11.63 to $33.38. Options generally vest ratably over five years and expire after ten years. There were 116 employees with options outstanding at July 31, 1999. For all outstanding options at July 31, 1999, the weighted average exercise price was $24.36, and the weighted average remaining contractual life was approximately 7.1 years. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions used for grants in 1999, 1998 and 1997, respectively:
1999 1998 1997 ------------------------------ Expected life (years) 7 8 7 Expected volatility 45.6% 29.4% 31.1% Risk-free interest rate 6.0% 5.5% 7.0% ==============================
[END PAGE 31] [BEGIN PAGE 32] A summary of the status of the Company's 1997 and 1987 Stock Incentive Plans as of July 31, 1999, August 1, 1998 and August 2, 1997 and changes during the years ended on those dates is presented below:
1999 1998 1997 ------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price -------------------------------------------------------------- Options outstanding at beginning of year 847,960 $ 23.83 660,780 $ 17.95 653,077 $ 14.41 Granted 468,000 24.82 325,800 32.87 131,050 33.38 SAR Surrenders - - (107,240) 17.75 (82,207) 14.45 Exercised (47,400) 14.62 (2,300) 14.90 (1,200) 14.53 Canceled (88,860) 26.98 (29,080) 24.92 (39,940) 17.85 --------- -------- ------- Outstanding at end of year 1,179,700 $ 24.36 847,960 $ 23.83 660,780 $ 17.95 ========= ======== ======= Options exercisable at year-end 403,150 $ 19.23 286,700 $ 15.53 273,090 $ 14.21 ========= ======= ======= The weighted-average fair value of options granted in 1999, 1998 and 1997 was $14.17, $15.94 and $16.32, respectively.
The following summarizes information about the Company's stock options as of July 31, 1999.
Options Outstanding Options Exercisable ------------------------------------------------------------------ Weighted- Weighted- Weighted- Shares Average Average Shares Average Outstanding Remaining Exercise Outstanding Exercise Range of Exercise Prices At 7/31/99 Contractual Life Price At 7/31/99 Price ----------------------------------------------------------------------------------------------------- $11.63 - $12.75 60,070 2.9 $ 12.15 60,070 $ 12.15 $13.38 - $16.75 297,720 4.5 $ 14.69 234,600 $ 14.63 $24.81 - $24.94 426,000 9.1 $ 24.82 - - $29.19 - $33.38 395,910 7.6 $ 33.00 108,480 $ 33.08 --------------- --------- ------- $11.63 - $33.38 1,179,700 7.1 $ 24.36 403,150 $ 19.23 ============== ========= =======
NOTE 9 Stock Repurchase Program In December 1997, the Board of Directors of the Company authorized the repurchase of up to 1 million shares of common stock in the open market. In September 1998, the Company's Board of Directors authorized an increase in the stock repurchase program to 1.5 million shares. During the year ended July 31, 1999, the Company repurchased 827,000 shares at an average price of $18.57 per share under this stock repurchase program; 512,900 shares were remaining under this program at July 31, 1999. During the year ended August 1, 1998, the Company repurchased 160,100 shares at an average price of $29.32 per share. [END PAGE 32] [BEGIN PAGE 33] NOTE 10 Income Taxes Income tax expense was as follows:
Years Ended --------------------------------- July 31, August 1, August 2, (In Thousands) 1999 1998 1997 --------------------------------- Current: Federal $ 56,397 $ 62,100 $ 53,292 State 7,221 8,557 8,925 --------------------------------- 63,618 70,657 62,217 --------------------------------- Deferred: Federal (1,993) (101) 836 State (1,003) 329 354 --------------------------------- (2,996) 228 1,190 --------------------------------- Income tax expense $ 60,622 $ 70,885 $ 63,407 =================================
The Company's effective income tax rate was 39% in 1999, 40% in 1998 and 41% 1997. The difference between the statutory federal tax rate and the effective tax rate is due primarily to state income taxes. Significant components of the Company's net deferred income tax liability stated on a gross basis were as follows:
July 31, August 1, (In Thousands) 1999 1998 -------------------- Gross deferred income tax assets: Financial accruals and reserves $ 17,311 $ 19,901 Employee benefits 25,640 25,472 Inventories 9,219 12,068 Deferred lease payments 2,003 2,618 Other 639 537 -------------------- Total deferred tax assets 54,812 60,596 -------------------- Gross deferred income tax liabilities: Excess tax depreciation (55,610) (63,092) Pension accrual (1,273) (4,087) Other assets previously deducted on tax return (8,014) (6,498) -------------------- Total deferred tax liabilities (64,897) (73,677) -------------------- Net deferred income tax liability $ (10,085) $ (13,081) ====================
NOTE 11 Pension Plans and Postretirement Health Care Benefits In fiscal 1999, the Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The provisions of SFAS No. 132 provide new disclosure requirements for pensions and other postretirement benefit plans but do not change the measurement or recognition of these plans. SFAS No. 132 standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable and requires additional information on the changes in benefit obligations and fair values of plan assets. The Company has a noncontributory defined benefit pension plan covering substantially all full-time employees. The Company also sponsors an unfunded supplemental executive retirement plan which provides certain employees additional pension benefits. Benefits under the plans are based on the employees' years of service and compensation over defined periods of employment. When funding is required, the Company's policy is to contribute amounts that are deductible for federal income tax purposes. Pension plan assets consist primarily of equity and fixed income securities. [END PAGE 33] [BEGIN PAGE 34] Retirees and active employees hired prior to March 1, 1989 are eligible for certain limited postretirement health care benefits if they have met certain service and minimum age requirements. The cost of these benefits is accrued during the years in which an employee provides services. The Company paid postretirement health care benefit claims of $1.2 million during 1999, $1.3 million during 1998 and $1.2 million during 1997. Components of net pension expense were as follows:
Years Ended --------------------------------- July 31, August 1, August 2, (In Thousands) 1999 1998 1997 --------------------------------- Service cost $ 7,160 $ 5,527 $ 5,591 Interest cost on projected benefit obligation 12,641 10,843 10,055 Expected return on assets (11,826) (9,270) (8,592) Net amortization and deferral 1,208 1,178 2,127 --------------------------------- Net pension expense $ 9,183 $ 8,278 $ 9,181 ================================= The periodic postretirement health care benefit cost was as follows: Years Ended --------------------------------- July 31, August 1, August 2, (In Thousands) 1999 1998 1997 --------------------------------- Net periodic cost: Service cost $ 136 $ 155 $ 48 Interest cost on accumulated benefit obligation 1,151 1,282 819 Net amortization and deferral (17) (30) (563) --------------------------------- Total $ 1,270 $ 1,407 $ 304 =================================
The changes in the benefit obligations and the reconciliations of the funded status of the Company's plans to the consolidated balance sheets were as follows:
CHANGE IN BENEFIT OBLIGATIONS: Pension Benefits Postretirement Benefits ---------------------- --------------------- (In Thousands) 1999 1998 1999 1998 ---------------------- --------------------- Benefit obligations at beginning of year $ 179,427 $ 144,676 $ 16,942 $ 17,554 Service cost 7,160 5,527 136 155 Interest 12,641 10,844 1,151 1,282 Benefits paid (5,710) (5,249) (1,247) (1,276) Actuarial loss (gain) (9,746) 23,629 (3,340) (773) ---------------------- --------------------- Benefit obligation at end of year $ 183,772 $ 179,427 $ 13,642 $ 16,942 ====================== =====================
CHANGE IN PLAN ASSETS: Pension Plans -------------------- (In Thousands) 1999 1998 -------------------- Fair value of plan assets at beginning of year $ 159,093 $ 144,288 Actual return on assets 9,302 16,750 Company contributions 980 3,304 Benefits paid (5,710) (5,249) -------------------- Fair value of plan assets at end of year $ 163,665 $ 159,093 =====================
[END PAGE 34] [BEGIN PAGE 35]
FUNDED STATUS: Pension Plans Postretirement Plans ---------------------- ----------------------- (In Thousands) 1999 1998 1999 1998 ---------------------- ----------------------- Fair value of plan assets less than benefit obligation $ (20,107) $ (20,334) $ (13,642) $ (16,942) Unrecognized net actuarial gain (9,195) (1,058) (5,343) (2,020) Unrecognized prior service cost 4,845 4,650 - - Unrecognized net obligation at transition 2,305 2,796 - - ------------------------------------------------ Liability recognized in the consolidated balance sheets $ (22,152) $ (13,946) $ (18,985) $ (18,962) ================================================
Pension Benefits ---------------------- WEIGHTED AVERAGE ASSUMPTIONS: 1999 1998 ---------------------- Discount rate 7.5% 7.0% Expected long-term rate of return on plan assets 9.0% 9.0% Rate of future compensation increases 5.0% 5.0%
The weighted average assumptions for postretirement health care benefits included a discount rate of 7.5% in 1999 and 7.0% in 1998. For measurement purposes, a 7.0% annual rate of increase in the per capita cost of covered care benefits was assumed for fiscal 2000. The rate was assumed to decrease gradually to 5.0% in fiscal 2002 and remain at that level beyond. If the health care trend rate was increased one percentage point, postretirement benefit costs for the year ended July 31, 1999 would have been $0.1 million higher, and the accumulated postretirement benefit obligation as of July 31, 1999 would have been $1.4 million higher. If the health care trend rate was decreased one percentage point, postretirement benefit costs for the year ended July 31, 1999 would have been $0.1 million lower, and the accumulated postretirement benefit obligations as of July 31, 1999 would have been $1.2 million lower. 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 July 31, 1999, August 1, 1998 and August 2, 1997 were $2.9 million, $2.9 million and $2.6 million, respectively. NOTE 12 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. [END PAGE 35] [BEGIN PAGE 36] Rent expense under operating leases was as follows:
Years Ended --------------------------------- July 31, August 1, August 2, (In Thousands) 1999 1998 1997 --------------------------------- Minimum rent $ 34,000 $ 31,800 $ 31,200 Rent based on revenues 14,500 13,300 11,600 --------------------------------- Total rent expense $ 48,500 $ 45,100 $ 42,800 =================================
Future minimum lease payments, excluding renewal options, under operating leases are as follows: fiscal 2000 - $37.7 million; fiscal 2001 - $36.8 million; fiscal 2002 - $36.1 million; fiscal 2003 - $34.4 million; fiscal 2004 - $37.0 million; all years thereafter - $528.8 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, cash flows or the financial position of the Company. LETTERS OF CREDIT The Company had approximately $21.4 million of outstanding irrevocable letters of credit relating to purchase commitments and insurance liabilities at July 31, 1999. NOTE 13 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 continues 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 14 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 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. Options to purchase 395,910 shares of common stock were not included in the computation of diluted EPS for the year ended July 31, 1999, because the exercise price of those options was greater than the average market price of the common shares. All options were included in the computation of diluted EPS for the years ended August 1, 1998 and August 2, 1997, because the exercise price of those options was less than the average market price of the common shares. [END PAGE 36] [BEGIN PAGE 37]
Years Ended --------------------------------- July 31, August 1, August 2, (In Thousands of Shares) 1999 1998 1997 --------------------------------- Shares for computation of basic EPS 49,129 49,808 47,162 Effect of assumed option exercises 108 173 173 --------------------------------- Shares for computation of diluted EPS 49,237 49,981 47,335 =================================
NOTE 15 Segment Reporting In 1999, the Company adopted SFAS 131, "Disclosure about Segments of an Enterprise and Related Information," which established reporting and disclosure standards for an enterprise's operating segments. Operating segments are defined as components of an enterprise for which separate financial information is available and regularly reviewed by the Company's senior management. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The Company's senior management evaluates the performance of the Company's assets on a consolidated basis. Therefore, separate financial information for the Company's assets on a segment basis is not presented. In applying SFAS 131, the Company identified two reportable segments, which are as follows: specialty retail stores and direct marketing. The specialty retail stores segment includes all specialty retail stores which the Company operates. Direct marketing includes the operations of NM Direct, which publishes NM by Mail, the Horchow catalogues, Chef's Catalog and the Neiman Marcus Christmas Catalogue. Other includes unallocated corporate expenses and operations which do not meet the quantitative thresholds of SFAS 131, including Kate Spade and Gurwitch Bristow Products. The following tables set forth the information for the Company's reportable segments:
Years Ended ------------------------------------ July 31, August 1, August 2, (In Thousands) 1999 1998 1997 ------------------------------------ REVENUES Specialty Retail Stores $ 2,209,451 $ 2,089,553 $ 1,950,544 Direct Marketing 321,747 283,794 259,347 Other 22,223 - - ------------------------------------ Total $ 2,553,421 $ 2,373,347 $ 2,209,891 ==================================== OPERATING EARNINGS Specialty Retail Stores $ 177,982 $ 198,123 $ 169,877 Direct Marketing 14,543 15,571 25,469 Other (12,111) (14,620) (14,364) ------------------------------------ Total $ 180,414 $ 199,074 $ 180,982 ==================================== CAPITAL EXPENDITURES Specialty Retail Stores $ 89,296 $ 79,920 $ 48,301 Direct Marketing 970 1,256 4,736 Other 760 _ _ ------------------------------------ Total $ 91,026 $ 81,176 $ 53,037 ====================================
[END PAGE 37] [BEGIN PAGE 38] NOTE 16 Subsequent Event On May 14, 1999, a committee of independent directors of the Company, and the Boards of Directors of the Company and of Harcourt General approved a series of transactions (the "Transactions") relating to a plan by Harcourt General to spin off to the holders of Harcourt General's common stock approximately 21.4 million of the approximately 26.4 million shares of the Company's common stock held by Harcourt General in a distribution to be tax-free to Harcourt General and its shareholders (the "Distribution"). The Transactions were approved by the shareholders of the Company and Harcourt General on September 15, 1999. Harcourt General received a favorable ruling from the Internal Revenue Service dated September 22, 1999 that the Distribution could be completed on a tax-free basis. The approximately 21.4 million shares to be distributed are shares of Class B common stock of the Company that will have the right to elect approximately 82% of the Company's Board of Directors, and the remaining shares, designated Class A common stock, will have the right to elect approximately 18% of the Company's Board of Directors. The Distribution is expected to be completed in October 1999. NOTE 17 Quarterly Financial Information (unaudited)
Year Ended July 31, 1999 ------------------------------------------------- First Second Third Fourth (In Millions, Except for Per Share Data) Quarter Quarter Quarter Quarter Total ------------------------------------------------- Revenues $ 587.1 $ 789.2 $ 611.8 $ 565.3 $ 2,553.4 ================================================= Gross profit $ 202.2 $ 241.4 $ 214.3 $ 154.8 $ 812.7 ================================================= Net earnings applicable to common shareholders $ 25.0 $ 30.6 $ 35.2 $ 2.7 $ 93.5 ================================================= Earnings per share applicable to common shareholders: Basic $ 0.50 $ 0.62 $ 0.72 $ .06 $ 1.90 ================================================= Diluted $ 0.50 $ 0.62 $ 0.72 $ .06 $ 1.90 ================================================= Year Ended August 1, 1998 -------------------------------------------------- First Second Third Fourth (In Millions, Except for Per Share Data) Quarter Quarter Quarter Quarter Total -------------------------------------------------- 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 =================================================
In the fourth quarter, the effect of adjusting the LIFO reserve for inventories to actual amounts increased net earnings by $.5 million in 1999 and $3.9 million in 1998. [END PAGE 38] [BEGIN PAGE 39] 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 July 31, 1999 and August 1, 1998, and the related consolidated statements of earnings, common shareholders' equity and cash flows for each of the three fiscal years in the period ended July 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Neiman Marcus Group, Inc. and subsidiaries as of July 31, 1999 and August 1, 1998, and the results of their operations and their cash flows for each of the three fiscal years in the period ended July 31, 1999, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Boston, Massachusetts August 31, 1999 (September 22, 1999 as to Note 16) 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 [END PAGE 39] [BEGIN PAGE 40] Selected Financial Data (Unaudited)
Years Ended -------------------------------------------------------- July 31, August 1, August 2, August 3, July 29, (In Millions, Except for Per Share Data) 1999 1998 1997 1996(A) 1995 -------------------------------------------------------- OPERATING RESULTS Revenues $ 2,553.4 $ 2,373.3 $ 2,209.9 $ 2,075.0 $ 1,888.2 ======================================================== Earnings from continuing operations $ 93.5 $ 106.3 $ 91.2 $ 77.4 $ 67.3 Loss from discontinued operations - - - - (11.7) -------------------------------------------------------- Net earnings $ 93.5 $ 106.3 $ 91.2 $ 77.4 $ 55.6 ======================================================== Net earnings applicable to common shareholders $ 93.5 $ 106.3 $ 62.7 $ 48.3 $ 26.5 ======================================================== Basic amounts per share applicable to common shareholders: Continuing operations $ 1.90 $ 2.13 $ 1.33 $ 1.27 $ 1.01 Discontinued operations - - - - (.31) -------------------------------------------------------- Basic net earnings $ 1.90 $ 2.13 $ 1.33 $ 1.27 $ .70 ======================================================== Diluted amounts per share applicable to common shareholders: Continuing operations $ 1.90 $ 2.13 $ 1.32 $ 1.26 $ 1.01 Discontinued operations - - - - (.31) -------------------------------------------------------- Diluted net earnings $ 1.90 $ 2.13 $ 1.32 $ 1.26 $ .70 ======================================================== Common dividends $ - $ - $ - $ - $ .10 ======================================================== FINANCIAL POSITION Total assets $ 1,503.1 $ 1,437.8 $ 1,287.9 $ 1,252.4 $ 1,108.4 Long-term liabilities $ 381.6 $ 392.8 $ 401.6 $ 395.3 $ 341.9 Redeemable preferred stocks $ - $ - $ - $ 407.4 $ 405.4 ========================================================
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. [END PAGE 40] [BEGIN PAGE 41] SHAREHOLDER INFORMATION Requests for general information or published financial information should be made in writing to: CORPORATE RELATIONS DEPARTMENT The Neiman Marcus Group, Inc. Post Office Box 9187 Chestnut Hill, MA 02467-9187 (617) 232-0760 TRANSFER AGENT AND REGISTRAR BankBoston, N.A. c/o EquiServe Limited Partnership Post Office Box 8040, Mail Stop 45-01-05 Boston, MA 02266-8040 (800) 730-4001 FORM 10-K THE COMPANY'S FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE UPON WRITTEN REQUEST TO THE CORPORATE RELATIONS DEPARTMENT OF THE COMPANY. ANNUAL MEETING The Annual Meeting of Stockholders will be held on Friday, January 21, 2000 at 10:00 a.m. at the Company's Corporate Headquarters, 27 Boylston Street, Chestnut Hill, Massachusetts. SHARES OUTSTANDING The Neiman Marcus Group had 49.0 million common shares outstanding and 11,463 common shareholders of record at July 31, 1999. CORPORATE ADDRESS The Neiman Marcus Group, Inc. 27 Boylston Street Post Office Box 9187 Chestnut Hill, MA 02467-9187 (617) 232-0760 STOCK INFORMATION The Neiman Marcus Group's Class A common stock and Class B com- mon stock are currently traded on the New York Stock Exchange under the symbols NMG.A and NMG.B, respectively. The following table indicates for the past two fiscal years the quarterly price range of the Common Stock, traded under the symbol NMG prior to the Company's recapitalization during the first quarter of fiscal 2000.
1999 1998 ---------------------------------------- Quarter High Low High Low ---------------------------------------- First $ 33.50 $ 16.08 $ 35.56 $ 27.88 Second $ 26.75 $ 22.08 $ 35.36 $ 28.81 Third $ 27.00 $ 22.00 $ 41.00 $ 34.63 Fourth $ 31.00 $ 24.18 $ 43.44 $ 33.00 ================= =================
[END PAGE 41] EX-21.1 8 SUBSIDIARIES EXHIBIT 21.1 THE NEIMAN MARCUS GROUP, INC. SUBSIDIARIES & AFFILIATES
JURISDICTION OF SUBSIDIARY/AFFILIATE INCORPORATION Bergdorf Goodman, Inc. New York Bergdorf Graphics, Inc. New York Chef's Catalog, Inc. Delaware Ermine Trading Corporation California Gurwich Bristow Products, L.L.C. Delaware Kate Spade LLC Delaware NM Direct de Mexico, S.A. de C.V. Mexico NM Financial Services, Inc. Delaware NM Nevada Trust Massachusetts Neiman Marcus Funding Corporation Delaware Neiman Marcus Holdings, Inc. California Neiman Marcus Special Events, Inc. Delaware Pastille By Mail, Inc. Delaware Worth Avenue Leasing Corporation Florida
EX-23.1 9 DELOITTE & TOUCHE CONSENT Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-352599, No. 333-35829 and 333-49893 of The Neiman Marcus Group, Inc. and subsidiaries on Form S-8, S-8 and S-3, respectively, of our reports dated August 31, 1999 (September 22, 1999 as to Note 16), appearing and incorporated by reference in the Annual Report on Form 10-K of The Neiman Marcus Group, Inc. and subsidiaries for the year ended July 31, 1999. /s/ DELOITTE & TOUCHE LLP Boston, Massachusetts October 26, 1999 EX-27.1 10 FINANCIAL DATA SCHEDULE
5 Need legend 1000 12-MOS JUL-31-1999 JUL-31-1999 29,191 133,151 61,617 2,300 528,452 825,166 899,275 385,836 1,502,188 380,180 274,640 0 0 490 735,691 1,502,188 2,553,421 2,553,421 1,740,711 2,373,007 0 2,366 24,972 155,442 60,622 93,510 0 0 0 93,510 1.90 1.90
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