-----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, FCZq0LPN+lD63i9s5BzaKFuCuFTVyf7DDiUegGi+7wgCysx2IJ1FFwxYZU5pGzIW YwDx1apYYrOvA18M6dm8IQ== 0000950135-96-004316.txt : 19961011 0000950135-96-004316.hdr.sgml : 19961011 ACCESSION NUMBER: 0000950135-96-004316 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19961010 SROS: NYSE 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: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-11721 FILM NUMBER: 96641494 BUSINESS ADDRESS: STREET 1: 27 BOYLSTON ST STREET 2: P O BOX 9187 CITY: CHESTNUT HILL STATE: MA ZIP: 02167 BUSINESS PHONE: 6172320760 MAIL ADDRESS: STREET 1: 27 BOYLSTON ST STREET 2: P O BOX 9187 CITY: CHESTNUT HILL STATE: MA ZIP: 02167 S-3/A 1 NEIMAN MARCUS AMENDMENT #2 TO FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1996 REGISTRATION NO. 333-11721 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 2 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ THE NEIMAN MARCUS GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-4119509 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
------------------------ 27 BOYLSTON STREET CHESTNUT HILL, MASSACHUSETTS 02167 TELEPHONE: (617) 232-0760 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ ERIC P. GELLER, ESQ. SENIOR VICE PRESIDENT AND GENERAL COUNSEL THE NEIMAN MARCUS GROUP, INC. 27 BOYLSTON STREET CHESTNUT HILL, MASSACHUSETTS 02167 TELEPHONE: (617) 232-0760 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: EDWARD A. BENJAMIN, ESQ. JEFFREY SMALL, ESQ. ROPES & GRAY DAVIS POLK & WARDWELL ONE INTERNATIONAL PLACE 450 LEXINGTON AVENUE BOSTON, MA 02110 NEW YORK, NY 10017 (617) 951-7000 (212) 450-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------------ If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: / / ================================================================================ 2 EXPLANATORY NOTE This Registration Statement contains two separate prospectuses. The first prospectus relates to a public offering of Common Stock in the United States and Canada (the "U.S. Offering"). The second prospectus relates to a concurrent offering of Common Stock outside the United States and Canada (the "International Offering"). The prospectuses for the U.S. Offering and the International Offering will be identical with the exception of the front cover page of the prospectus for the International Offering. Such alternate page appears in this Registration Statement immediately following the complete prospectus for the U.S. Offering. 3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS (Subject To Completion) Issued October 10, 1996 [Neiman Marcus Logo] 8,000,000 Shares The Neiman Marcus Group, Inc. COMMON STOCK ------------------------ OF THE 8,000,000 SHARES OF COMMON STOCK BEING OFFERED, 6,400,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND 1,600,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. THE COMPANY'S COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "NMG." ON SEPTEMBER 13, 1996, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE WAS $35 1/8 PER SHARE. ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ PRICE $ A SHARE ------------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) --------------------------------------------------------------- Per Share....................... $ $ $ Total(3)........................ $ $ $ - ------------ (1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. (2) Before deducting expenses payable by the Company estimated at $ . (3) The Company has granted to the U.S. Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an aggregate of 1,200,000 additional Shares at the price to public less underwriting discounts and commissions for the purpose of covering over-allotments, if any. If the U.S. Underwriters exercise such option in full the total price to public, underwriting discounts and commissions and proceeds to Company will be $ , $ and $ , respectively. See "Underwriters."
------------------------ The Shares are offered, subject to prior sale, when, as and if accepted by the Underwriters named herein and subject to approval of certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that delivery of the Shares will be made on or about , 1996 at the office of Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor in immediately available funds. ------------------------ MORGAN STANLEY & CO. Incorporated GOLDMAN, SACHS & CO. SALOMON BROTHERS INC , 1996 4 [PHOTOS OF SELECTED NEIMAN MARCUS AND BERGDORF GOODMAN STORES] "5TH AVE. NEW YORK" "UNION SQUARE SAN FRANCISCO" "MICHIGAN AVE. CHICAGO" "WILSHIRE BLVD. BEVERLY HILLS" "PREMIER RETAIL LOCATIONS THROUGHOUT THE UNITED STATES" IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 5 "THREE CONSUMER FRANCHISES" [LOGOS OF EACH OF THE COMPANY'S DIVISIONS] "FEATURING HIGH FASHION DESIGNER MERCHANDISE" [PHOTOS OF DESIGNER BOUTIQUES IN THE COMPANY'S STORES] 6 "GEOGRAPHIC DIVERSITY" [UNITED STATES MAP SHOWING STORE LOCATIONS] "WEST "TEXAS "SOUTHEAST NEWPORT BEACH, CA DALLAS (DOWNTOWN) BAL HARBOUR, FL BEVERLY HILLS, CA DALLAS (NORTHPARK) ATLANTA, GA LAS VEGAS, NV DALLAS (PRESTONWOOD) WASHINGTON, DC SAN DIEGO, CA HOUSTON (GALLERIA) FORT LAUDERDALE, FL SAN FRANCISCO, CA HOUSTON (TOWN & COUNTRY) MCLEAN, VA" PALO ALTO, CA FORT WORTH" DENVER, CO SCOTTSDALE, AZ" "NORTHEAST "MIDWEST NEW YORK, NY ST. LOUIS, MO BOSTON, MA NORTHBROOK, IL WESTCHESTER, NY OAK BROOK, IL KING OF PRUSSIA, PA CHICAGO (MICHIGAN AVE.), IL PARAMUS, NJ MINNEAPOLIS, MN SHORT HILLS, NJ" TROY, MI" [PHOTOGRAPHS OF MODELS WEARING APPAREL OFFERED BY THE COMPANY] 7 No person is authorized in connection with the offering made hereby to give any information or to make any representation not contained or incorporated by reference in this Prospectus, and if given or made, such information or representation must not be relied upon as having been authorized by the Company or by any Underwriter. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any security other than the Common Stock offered hereby to any person in any jurisdiction in which it is unlawful to make such an offer or solicitation to such person. Neither the delivery of this Prospectus nor any sale made hereby shall under any circumstance imply that the information contained herein is correct as of any date subsequent to the date hereof. ------------------------ TABLE OF CONTENTS
PAGE ---- Incorporation of Certain Documents by Reference........................... 1 Available Information................. 2 Prospectus Summary.................... 3 Risk Factors.......................... 8 Description of Transactions; Use of Proceeds............................ 10 Dividend Policy....................... 12 Price Range of Common Stock........... 12 Capitalization........................ 13 Selected Consolidated Financial Data................................ 14 PAGE ---- Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 16 Business.............................. 22 Management............................ 31 Principal Stockholders................ 33 Description of Capital Stock.......... 35 Underwriters.......................... 38 Legal Matters......................... 40 Experts............................... 41 Index to Consolidated Financial Statements.......................... F-1
------------------------ Neiman Marcus(R) and Bergdorf Goodman(R) are trademarks and servicemarks owned by the Company. This Prospectus also makes reference to other trademarks and servicemarks owned by the Company and by other persons. ------------------------ INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company's Annual Report on Form 10-K for the fiscal year ended August 3, 1996 filed by the Company with the Commission is incorporated herein by reference. All documents filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the termination of the offering of the Common Stock shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom this Prospectus is delivered, upon a written or oral request of such person, a copy of any or all of the foregoing documents incorporated by reference into this Prospectus (without exhibits to such documents other than exhibits specifically incorporated by reference into such documents). Requests for such copies should be directed to the Corporate Relations Department of the Company, 27 Boylston Street, Chestnut Hill, Massachusetts 02167 (telephone: 617-232-0760). 8 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such materials may also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a World Wide Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as the Company, that submit electronic filings to the Commission. The Company's Common Stock is listed on the New York Stock Exchange, and reports, proxy and information statements and other information concerning the Company may also be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. The Company has filed with the Commission a Registration Statement under the Securities Act of 1933, as amended, with respect to the Common Stock offered hereby (the "Registration Statement"). This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. Reference is made to the Registration Statement and to the exhibits relating thereto for further information with respect to the Company and the Common Stock offered hereby. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete; and with respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved and each such statement shall be deemed qualified in its entirety by such reference. 2 9 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and Consolidated Financial Statements (including the notes thereto) appearing elsewhere and incorporated by reference in this Prospectus. As used in this Prospectus, the "Company" refers to The Neiman Marcus Group, Inc. and "Harcourt General" refers to Harcourt General, Inc., the majority shareholder of the Company. Except as otherwise indicated herein, the information contained in this Prospectus assumes that the U.S. Underwriters' over-allotment option is not exercised. The terms "fiscal year" and "fiscal" refer to the Company's fiscal year, which is the 52- or 53-week period ending on the Saturday closest to July 31 of the calendar year (e.g., a reference to "fiscal 1996" is a reference to the fiscal year ended August 3, 1996). THE COMPANY The Company, operating through Neiman Marcus Stores, Bergdorf Goodman and NM Direct, is the preeminent high end specialty retailer in the United States. The Neiman Marcus and Bergdorf Goodman names are renowned for style, quality and service. The 30 Neiman Marcus stores are in premier retail locations in major markets nationwide and the two Bergdorf Goodman stores, the main store and the Bergdorf Goodman Men store, are located in Manhattan at 58th Street and Fifth Avenue. Neiman Marcus Stores and Bergdorf Goodman have maintained a consistent focus on offering 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 and the world famous Neiman Marcus Christmas Catalogue. The Company offers its customers a carefully edited assortment of high end traditional and contemporary designer merchandise which generally has limited distribution. While the Company serves a wide range of customers, the Company believes that its core customers are 45 years of age and older with household incomes in excess of $100,000. The Company is committed to meeting the lifestyle needs and exceeding the expectations of its customers for both merchandise quality and selection and customer service and attention. The Company strives to create a unique shopping experience for the most discerning and fashion conscious individuals. This experience is created by building personal relationships with its customers and working closely with its designer resources to offer exciting and fashionable merchandise in an elegant retail environment. The Company believes it is well positioned to increase productivity and sales by continuing to capitalize on favorable trends affecting the market for upscale merchandise. The size and purchasing power of the Company's core customer base is expected to continue to grow over the next several years. In addition, management believes that the demand for luxury goods and other high end merchandise has grown substantially over the past several years and should continue to grow for the foreseeable future. Also, in recent years the retail industry has been characterized by consolidation, the withdrawal of certain retailers from the marketplace and a de-emphasis by traditional department stores on high end merchandise, leaving fewer large competitors focused exclusively on the upscale specialty retail market. The Company has pursued a consistent business strategy designed to increase productivity, sales and operating earnings. Key elements of the strategy include: (i) offering an extensive and carefully edited assortment of high end fashion merchandise based on strong relationships with designer resources; (ii) providing a high level of customer service and utilizing a variety of clienteling tools; (iii) investing in the Company's store base and supporting infrastructure; (iv) opening new stores and (v) expanding its customer base by broadening the Company's reach through creative marketing techniques, as well as through NM Direct. The Company intends to continue its commitment to high end merchandise and to remain the preferred choice among many prestige suppliers as well as a showcase for introducing new and innovative designers to the high fashion market. Neiman Marcus Stores recently implemented its Optimum Selling(SM) program with the goal of increasing productivity and sales. The program encourages the Company's sales associates, substantially all of whom are paid on commission, to access merchandise on a storewide basis to serve more of their customers' merchandise needs. 3 10 - -------------------------------------------------------------------------------- The Company also expects to benefit from its investment over the past five years of approximately $350 million in its store base and supporting infrastructure and facilities, and has identified other remodeling opportunities to increase store productivity. Since 1987, the Company has completed remodeling projects in most of its stores. In fiscal 1997, major projects will include (i) commencing a full remodeling and expansion of the Fashion Island store in Newport Beach, California and continuing a partial remodeling and expansion of the Beverly Hills store, (ii) completing a major renovation of the first floor of Bergdorf Goodman Men and (iii) constructing a beauty salon and spa in the newly acquired ninth floor of the Bergdorf Goodman main store. These and other future projects will improve space allocation and departmental adjacencies and increase selling space and, the Company believes, generate increased revenue. The Company continues to seek ways to expand its business. Since August 1995, the Company has opened three new Neiman Marcus stores, adding 430,000 gross square feet, and plans to open a new Neiman Marcus store in Honolulu's Ala Moana Center in August 1998, which will add approximately 160,000 gross square feet. In addition, the Company continues to assess the feasibility of other sites for Neiman Marcus stores and expects to open an additional two to three stores over the next five years. The Company is considering the feasibility of introducing a Bergdorf Goodman Men/Home format (combining men's apparel and accessories with decorative home accessories) in selected markets outside New York City. All proposed capital projects are thoroughly evaluated against the Company's financial return requirements and strategic objectives. To expand its customer base, the Company employs various creative marketing techniques including The Neiman Marcus Christmas Catalogue, its proprietary credit cards, The Book, in-store events and the NM Express Card. NM Direct provides the Company with the opportunity, through selective direct marketing, to introduce new customers to the quality merchandise and service for which the Company is known, especially in those markets where the Company does not operate any stores. The Company is exploring international growth opportunities for NM Direct with the same disciplined approach used for other expansion opportunities. The success of the Company's strategy has resulted in strong sales and earnings growth. The Company's revenues from continuing operations during fiscal 1996 were $2.08 billion, compared to $1.89 billion in 1995 and $1.79 billion in 1994. Comparable sales increased 5.4% in fiscal 1996, 5.5% in 1995 and 7.3% in 1994. Sales per gross square foot reached all time highs of $380 at Neiman Marcus Stores and $786 at Bergdorf Goodman in fiscal 1996. Earnings from continuing operations for fiscal 1996 were $131.2 million, compared to $116.1 million in 1995 and $113.2 million in 1994. Harcourt General currently owns 59% of the common stock and all of the preferred stock of the Company. Upon completion of the Transactions described below, Harcourt General will continue to own a majority of the common stock of the Company. Two of Harcourt General's directors and virtually all of its officers and corporate staff, including its Chairman and its Chief Executive Officer, occupy similar positions with the Company. DESCRIPTION OF TRANSACTIONS The offering in the United States and Canada (the "U.S. Offering") and the offering outside the United States and Canada (the "International Offering" and, together with the U.S. Offering, the "Offering") are part of a group of transactions that are intended to improve the Company's cash flow and capital structure by eliminating all of the Company's outstanding preferred stock, all of which is held by Harcourt General. The Company's outstanding preferred stock consists of 500,000 shares of 9 1/4% Cumulative Redeemable Preferred Stock which has an aggregate stated value of $50 million ("9 1/4% Preferred Stock") and 1,000,000 shares of 6% Cumulative Convertible Preferred Stock which has an aggregate stated value of approximately $375 million ("6% Preferred Stock" and, together with the 9 1/4% Preferred Stock, the "Preferred Stock"). Subject to the terms of the Exchange and Repurchase Agreement (the "Repurchase Agreement") between the Company and Harcourt General, the Preferred Stock will be repurchased from Harcourt General (the "Repurchase") by the Company at a total price (the "Total Purchase Price") of approximately $416 - ------------------------------------------------------------------------------- 4 11 million, representing 98% of the aggregate stated value of the Preferred Stock, plus accrued and unpaid dividends on the Preferred Stock through the date of the closing of the Offering. The Repurchase is scheduled to close on November 12, 1996. The Total Purchase Price will be paid with $135 million in shares of the Company's Common Stock (the "Stock Payment"), valued at the price to public set forth on the cover of this Prospectus, with the remainder (approximately $281 million, plus accrued and unpaid dividends) payable in cash (the "Cash Payment"). At the closing of the Offering, the Company will make a deposit of the lesser of the net proceeds of the Offering and $260 million towards the Cash Payment. Pursuant to the terms of the Repurchase Agreement, at the closing of the Repurchase, the Company will deliver the Stock Payment and the unpaid balance of the Cash Payment with interest at the rate of 5% per annum. The Total Purchase Price was determined by negotiations between Harcourt General and a Special Committee of the Board of Directors of the Company formed for this purpose, comprised entirely of directors independent of Harcourt General. The Special Committee has received an opinion from Bear, Stearns & Co. Inc. as to the fairness of the Transactions from a financial point of view to the public shareholders of the Company. The net proceeds to the Company from the sale of the 8,000,000 shares of Common Stock in the Offering (after deducting the underwriting discounts and commissions and estimated expenses of the Offering) are estimated to be $268 million, assuming a public offering price of $35 1/8, the reported last sale price of the Common Stock set forth on the cover of this Prospectus. To fund the Cash Payment, the Company intends to use all of the net proceeds from the Offering, together with borrowings (the "Borrowings"), to the extent necessary, under its revolving credit facility. Assuming a public offering price of $35 1/8 and no exercise of the U.S. Underwriters' over-allotment option, Borrowings would be approximately $13 million plus the amount of accrued and unpaid dividends. To the extent that the U.S. Underwriters exercise their over-allotment option, the Borrowings will be decreased and, if the amount of the net proceeds from the Offering exceeds the amount of the Cash Payment, the excess proceeds will be used to pay down amounts outstanding under the revolving credit facility. The Offering, the Borrowings, the application of the net proceeds thereof as described above and the Stock Payment are collectively referred to herein as the "Transactions." After the consummation of the Transactions, Harcourt General will continue to be the majority shareholder of the Company. The Company believes that the Transactions will be beneficial primarily because its cash flow will be improved by eliminating both the annual dividends on the Preferred Stock, which are currently approximately $27 million, and the sinking fund requirements associated with the 6% Preferred Stock. The Transactions will also strengthen the Company's balance sheet, improving its financial flexibility and enhancing its access to the capital markets. In addition, the Offering will increase the number of shares of Common Stock held by the public from 15.3 million to 23.3 million shares. In connection with the repurchase of the Preferred Stock, the Company will incur a nonrecurring, non-cash charge to earnings applicable to common shareholders of approximately $22 million, or $.45 per share, in the quarter in which the Repurchase is consummated, assuming a price to public of the reported last sale price of the Common Stock set forth on the cover of this Prospectus. See "Description of Transactions; Use of Proceeds." THE OFFERING Common Stock offered(1): U.S. Offering.......................... 6,400,000 shares International Offering................. 1,600,000 shares Total.......................... 8,000,000 shares Common Stock to be outstanding after the Transactions(2)(3)..................... 49,847,118 shares Use of proceeds.......................... To partially fund the Cash Payment. NYSE symbol.............................. NMG
- ------------ (1) Assumes that the U.S. Underwriters' over-allotment option is not exercised. (2) Excludes 832,137 shares of Common Stock reserved for issuance upon exercise of employee stock options, 653,077 of which shares were subject to options outstanding as of August 3, 1996. (3) Assumes that 3,843,416 shares are issued as the Stock Payment, calculated using a price to public of the reported last sale price of the Common Stock set forth on the cover of this Prospectus. 5 12 - ------------------------------------------------------------------------------- SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA The summary historical consolidated financial and other data presented below have been derived from the audited Consolidated Financial Statements for each of the five fiscal years in the period ended August 3, 1996, are qualified by reference to, and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Consolidated Financial Statements and Notes thereto and the other financial information included elsewhere and incorporated by reference in this Prospectus. The summary pro forma statement of operations and balance sheet data presented below give effect to the Transactions as if they had occurred on July 30, 1995 and as of August 3, 1996, respectively. The pro forma information does not purport to represent what the Company's results of operations would have been if the Transactions had occurred as of the date indicated or what such results will be for any future periods. The summary pro forma financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto and other financial information included elsewhere and incorporated by reference in this Prospectus.
FISCAL YEAR ENDED -------------------------------------------------------------------------- AUGUST 1, JULY 31, JULY 30, JULY 29, AUGUST 3, 1992 1993 1994 1995 1996(1) ---------- ---------- ---------- ---------- -------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues......................................... $1,484,945 $1,667,825 $1,789,461 $1,888,249 $2,075,003 Cost of goods sold including buying and occupancy costs............................ 1,025,670 1,120,561 1,210,262 1,276,776 1,416,296 Selling, general and administrative expenses(2).................................... 366,873 412,044 420,667 448,956 485,533 Corporate expenses............................... 13,116 11,898 13,411 12,465 13,719 ---------- ---------- ---------- ---------- ---------- Operating earnings(2)............................ 79,286 123,322 145,121 150,052 159,455 Interest expense(2).............................. (32,408) (29,589) (31,878) (33,958) (28,228) Other income(3).................................. -- 21,741 -- -- -- ---------- ---------- ---------- ---------- ---------- Earnings from continuing operations before income taxes and accounting change............. 46,878 115,474 113,243 116,094 131,227 Income taxes..................................... 19,220 48,499 47,562 48,759 53,803 ---------- ---------- ---------- ---------- ---------- Earnings from continuing operations before accounting change....................... 27,658 66,975 65,681 67,335 77,424 Loss from discontinued operations net of taxes (including loss on disposal of $9,873 in 1995)(4)................. (5,806) (8,402) (49,755) (11,727) -- ---------- ---------- ---------- ---------- ---------- Earnings before accounting change................ 21,852 58,573 15,926 55,608 77,424 Change in accounting for postretirement health care benefits, net...................... -- (11,199) -- -- -- ---------- ---------- ---------- ---------- ---------- Net earnings..................................... 21,852 47,374 15,926 55,608 77,424 Dividends and accretion on redeemable preferred stocks(5)............................ (29,197) (29,068) (29,080) (29,092) (29,104) ---------- ---------- ---------- ---------- ---------- Net earnings (loss) applicable to common shareholders............................ $ (7,345) $ 18,306 $ (13,154) $ 26,516 $ 48,320 ========== ========== ========== ========== ========== Weighted average shares outstanding.............. 35,551 37,577 37,946 37,999 38,218 ========== ========== ========== ========== ========== Amounts per share applicable to common shareholders: Earnings (loss) from continuing operations before accounting change..................... $ (.05) $ 1.00 $ .96 $ 1.01 $ 1.26 Loss from discontinued operations.............. (.16) (.22) (1.31) (.31) -- Accounting change.............................. -- (.30) -- -- -- ---------- ---------- ---------- ---------- ---------- Net earnings (loss)............................ $ (.21) $ .48 $ (.35) $ .70 $ 1.26 ========== ========== ========== ========== ========== PRO FORMA DATA:(6) Net earnings per share applicable to common shareholders................................... $ 1.56 ========== Weighted average shares outstanding.............. 50,062 ========== (footnotes on next page)
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AS OF AUGUST 3, 1996 ----------------------------- PRO FORMA ACTUAL AS ADJUSTED(7) ---------- -------------- (IN THOUSANDS) BALANCE SHEET DATA: Inventories................................................................................ $ 443,948 $ 443,948 Property and equipment, net................................................................ 457,625 457,625 Total assets............................................................................... 1,252,350 1,252,350 Total debt(8).............................................................................. 325,197 338,382 Redeemable preferred stocks(5)............................................................. 407,426 -- Common shareholders' equity................................................................ 75,607 469,848
FISCAL YEAR ENDED -------------------------------------------------------------------------- AUGUST 1, JULY 31, JULY 30, JULY 29, AUGUST 3, 1992 1993 1994 1995 1996(1) ---------- ---------- ---------- ---------- -------------- (DOLLARS IN THOUSANDS, EXCEPT SALES PER SQUARE FOOT DATA) OTHER DATA: Increase in comparable sales: Neiman Marcus Stores(9)........................ 1.7% 7.7% 7.6% 6.7% 6.5% Total(10)...................................... 2.7% 8.9% 7.3% 5.5% 5.4% Retail store sales per average square foot(11): Neiman Marcus Stores........................... $ 292 $ 314 $ 338 $ 360 $ 380 Bergdorf Goodman............................... $ 630 $ 693 $ 726 $ 764 $ 786 Gross margin(12)................................. 30.9% 32.8% 32.4% 32.4% 31.7% Selling, general and administrative expenses as a percentage of revenues(2)...................... 24.7% 24.7% 23.5% 23.8% 23.4% Operating profit margin(2)(13)................... 5.3% 7.4% 8.1% 7.9% 7.7% Depreciation and amortization.................... $43,026 $45,088 $48,086 $48,397 $56,305 Capital expenditures............................. $58,600 $48,400 $65,074 $93,514 $85,736 Number of stores at year end: Neiman Marcus Stores(14)....................... 26 27 27 27 29 Bergdorf Goodman............................... 2 2 2 2 2 - ------------ (1) Fiscal 1996 was a 53-week year. (2) In March 1995 the Company sold all of its Neiman Marcus credit card receivables to a trust in exchange for certificates representing undivided interests in such receivables. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Review of Financial Condition." The securitization resulted in a decrease in finance charge income (which is recorded as an offset to selling, general and administrative expenses) and a resulting decrease in operating earnings in fiscal 1995 and 1996. To provide a meaningful comparison of selling, general and administrative expenses and operating earnings in fiscal 1995 and 1996 to such items in fiscal 1992 through 1994, the following chart shows each item as if the securitization had not occurred: FISCAL YEAR ENDED ----------------------- JULY 29, AUGUST 3, 1995 1996 -------- -------- Selling, general and administrative expenses................................... $441,856 $466,493 Selling, general and administrative expenses as a percentage of revenues....... 23.4% 22.5% Operating earnings............................................................. $157,152 $178,495 Operating profit margin........................................................ 8.3% 8.6% (3) Represents settlement of several disputes with Carter Hawley Hale Stores, Inc., which had operated the Neiman Marcus and Bergdorf Goodman businesses prior to 1987. (4) Reflects the operations of Contempo Casuals, which was sold by the Company on June 30, 1995. See Note 2 to Consolidated Financial Statements. (5) After the consummation of the Transactions, no shares of preferred stock will be outstanding. See "Description of Transactions; Use of Proceeds." (6) Excludes a nonrecurring, non-cash charge to earnings applicable to common shareholders of approximately $22 million or $.45 per share. See "Description of Transactions; Use of Proceeds" for a description of the pro forma adjustments. (7) As adjusted to give effect to the Transactions. See "Description of Transactions; Use of Proceeds." (8) Includes obligations under capital leases. See Note 5 to Consolidated Financial Statements. (9) Comparable sales represents net sales of stores open in both reporting periods for the portion of such period open. In fiscal 1996, comparable sales exclude the impact of the 53rd week. (10) Total comparable sales represents (i) net sales of stores open in both reporting periods for the portion of such period open and (ii) NM Direct net sales. In fiscal 1996, comparable sales exclude the impact of the 53rd week. (11) Sales per average square foot in each fiscal year represent net retail store sales for such full fiscal year divided by the average of total gross square feet of stores. In fiscal 1996, sales per average square foot exclude sales for the 53rd week. (12) Gross margin represents revenues less cost of goods sold including buying and occupancy costs as a percentage of revenues. (13) Operating profit margin represents operating earnings as a percentage of revenues. (14) On August 16, 1996, the Company opened its 30th Neiman Marcus store in Paramus, New Jersey.
- ------------------------------------------------------------------------------- 7 14 RISK FACTORS Prospective purchasers of shares of Common Stock should consider carefully the following risk factors relating to the Offering and the business of the Company, together with the information and financial data set forth elsewhere or incorporated by reference in this Prospectus, prior to making an investment decision. This Prospectus contains certain statements of a forward looking nature relating to future events or the future financial performance of the Company. Prospective investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider the various factors identified in this Prospectus, including the matters set forth below, which could cause actual results to differ materially from those indicated by such forward-looking statements. SENSITIVITY TO ECONOMIC CONDITIONS AND CONSUMER CONFIDENCE The specialty retail industry is highly dependent upon the level of consumer spending, particularly among affluent customers, and may be adversely affected by an economic downturn, increases in consumer debt levels, uncertainties regarding future economic prospects, or a decline in consumer confidence. An economic downturn in the areas in which the Company has stores, particularly in Texas, California and the New York metropolitan area, from which the Company derives a significant portion of its revenues, could have a material adverse effect on the Company's business and results of operations. CHANGING CONSUMER PREFERENCES The Company's success depends in substantial part upon its ability to anticipate and respond to changing consumer preferences and fashion trends in a timely manner. Although the Company attempts to stay abreast of emerging lifestyle and consumer preferences affecting its merchandise, any failure by the Company to identify and respond to such trends could have a material adverse effect on the Company's business and results of operations. DEPENDENCE ON DESIGNER RESOURCES Because the Company offers high end apparel, the Company's success is dependent in part upon initiating and maintaining strong relationships with designers. The Company has no guaranteed supply arrangements with its principal merchandising sources. Accordingly, there can be no assurance that such sources will continue to meet the Company's quality, style and volume requirements. The inability of the Company to obtain quality and fashionable merchandise in a timely fashion could have a material adverse effect on the Company's business and results of operations. See "Business -- Business Strategy -- Merchandising" and "Business -- Merchandising." STORE LOCATIONS The Company enters into long term leases for its store locations. The Company's store locations have been carefully selected for the appropriate demographics and retail environment. The term of the leases for its store locations limits the Company's ability to respond in a timely manner to the adverse consequences of the failure to correctly predict, or to changes in, the demographic or retail environment at any location. Such failure or changes in any areas in which the Company has stores could have a material adverse effect on the Company's business and results of operations. See "Business -- Stores and Other Facilities" and "Business -- Business Strategy -- Opening New Stores." SEASONALITY; FLUCTUATION IN QUARTERLY RESULTS The specialty retail industry is seasonal in nature, with a disproportionately high level of sales and earnings typically generated in the fall and holiday selling seasons. Working capital requirements and inventory fluctuate during the year, increasing substantially in the first quarter in anticipation of the holiday selling season. If actual sales for a quarter do not meet or exceed projected sales for that quarter, expenditures and inventory levels could be disproportionately high for such quarter and the Company's cash flow and earnings for that quarter and future quarters could be adversely affected. See Note 14 to Consolidated Financial Statements. 8 15 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, store ambience, sales and marketing programs and value. The Company competes for quality merchandise and assortment principally based on relationships with designer resources and purchasing power. The Company competes for real estate opportunities principally on the basis of its ability to attract customers. Many of the Company's competitors are larger and have greater financial resources than the Company. Certain of the Company's merchandise resources have established competing free-standing retail stores in the same vicinity as the Company's stores. See "Business -- Competition." CONTROL BY PRINCIPAL STOCKHOLDER Upon consummation of the Transactions, Harcourt General will continue to be the beneficial owner of a majority of the outstanding shares of Common Stock. See "Description of Transactions; Use of Proceeds." Harcourt General is able, and following the Transactions will continue to be able, to control the Company through its ability to determine the outcome of votes of stockholders regarding the election of directors and its ability to determine or significantly influence the votes of stockholders regarding the approval of significant transactions. Richard A. Smith, Chairman of the Board of the Company and of Harcourt General, his sister, Nancy L. Marks, and certain members of their families may be regarded as controlling persons of Harcourt General and, therefore, of the Company. This concentration of ownership and voting power may have the effect of delaying or preventing a change in control of the Company. See "Principal Stockholders -- Stock Ownership of Certain Beneficial Owners and Management -- Note 2." While the Company has experienced executives and management in each of its operating divisions, two of Harcourt General's directors and virtually all of its officers and corporate staff, including its Chairman and its Chief Executive Officer, occupy similar positions with the Company. 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, including the services of the officers and corporate staff mentioned above. This agreement may be terminated by either party on 180 days' notice. See "Management -- Relationship with Harcourt General." In the event that Harcourt General were to sell its ownership stake in the Company or terminate such agreement, the Company could experience a loss of important members of its corporate management team, a loss of various corporate functions, a potential increase in the cost of providing corporate services and a loss of potential savings from certain consolidated purchasing agreements. DIRECT MARKETING BUSINESS In addition to being sensitive to economic conditions, consumer confidence, seasonality and changing consumer preferences, NM Direct's business, which accounted for approximately 12% of the Company's revenues in fiscal 1996, is subject to other risk factors unique to the direct marketing business, such as fluctuations in paper, printing and postage costs. In particular, NM Direct's operating earnings were adversely affected in fiscal 1995 due, in part, to significant increases in paper and postage costs. NO DIVIDENDS ON COMMON STOCK The Company currently does not intend to pay any cash dividends on the Common Stock. The Company's revolving credit agreement contains restrictions on its ability to pay dividends and make other distributions. See "Dividend Policy." 9 16 DESCRIPTION OF TRANSACTIONS; USE OF PROCEEDS The Offering is part of a group of transactions that are intended to improve the Company's cash flow and capital structure by eliminating all of the Company's outstanding preferred stock, all of which is held by Harcourt General. The Company's outstanding preferred stock consists of 1,000,000 shares of 6% Preferred Stock and 500,000 shares of 9 1/4% Preferred Stock. The 6% Preferred Stock is entitled (i) to receive cumulative dividends at an annual rate of 6% on its aggregate $374.9 million stated value, (ii) to convert on a per share basis into approximately 9.12 shares of Common Stock subject to certain antidilution adjustments and (iii) upon liquidation of the Company, to receive a liquidation distribution equal to its stated value, together with any accrued and unpaid dividends, before any distribution to any junior class of stock. The conversion price of the 6% Preferred Stock at August 3, 1996 was approximately $41.12 per share of Common Stock acquired upon such conversion ($39.79 adjusted for the Offering, assuming a price to public of the reported last sale price of the Common Stock set forth on the cover of this Prospectus). The 6% Preferred Stock may be redeemed by the Company at a premium over its stated value under certain conditions through September 1997. Commencing in September 1997 (when a sinking fund for this purpose commences), the Company is required to redeem annually not less than 5% of the 6% Preferred Stock at a redemption value of $374.92 per share plus any accrued and unpaid dividends. The 9 1/4% Preferred Stock is entitled to receive cumulative dividends at an annual rate of 9 1/4% on its aggregate stated value of $50 million. The 9 1/4% Preferred Stock is not redeemable until July 31, 1998 except under certain limited circumstances, is redeemable at a premium for a twelve month period beginning July 31, 1998, and at par thereafter and must be redeemed in full by July 31, 2001. The 9 1/4% Preferred Stock has a liquidation preference equal to stated value plus accrued and unpaid dividends and ranks equal to the 6% Preferred Stock and is senior to the Common Stock of the Company with respect to dividends and the distribution of assets upon liquidation or dissolution of the Company. Subject to the terms of the Repurchase Agreement, the Preferred Stock will be repurchased from Harcourt General by the Company at the Total Purchase Price of approximately $416 million, representing 98% of the aggregate stated value of the Preferred Stock, plus accrued and unpaid dividends on the Preferred Stock through the date of the closing of the Offering. The Repurchase is scheduled to close on November 12, 1996. The Total Purchase Price will be paid with $135 million in shares of the Company's Common Stock, valued at the price to public set forth on the cover of this Prospectus, with the remainder (approximately $281 million, plus accrued and unpaid dividends) payable in cash. At the closing of the Offering, the Company will make a deposit of the lesser of the net proceeds of the Offering and $260 million towards the Cash Payment. Pursuant to the terms of the Repurchase Agreement, at the closing of the Repurchase, the Company will deliver the Stock Payment and the unpaid balance of the Cash Payment with interest at the rate of 5% per annum. The Total Purchase Price was determined by negotiations between Harcourt General and a Special Committee of the Board of Directors of the Company formed for this purpose, comprised entirely of directors independent of Harcourt General. The Special Committee was advised by independent legal counsel and has received an opinion from Bear, Stearns & Co. Inc. as to the fairness of the Transactions from a financial point of view to the public shareholders of the Company. The net proceeds to the Company from the sale of the 8,000,000 shares of Common Stock in the Offering (after deducting the underwriting discounts and commissions and estimated expenses of the Offering) are estimated to be $268 million, assuming a public offering price of $35 1/8, the reported last sale price of the Common Stock set forth on the cover of this Prospectus. To fund the Cash Payment, the Company intends to use all of the net proceeds from the Offering, together with Borrowings, to the extent necessary. Assuming a public offering price of $35 1/8 and no exercise of the U.S. Underwriters over-allotment option, Borrowings would be approximately $13 million plus the amount of accrued and unpaid dividends. To the extent that the U.S. Underwriters exercise their over-allotment option, the Borrowings will be decreased. To the extent, if any, that the net proceeds of the Offering exceed the amount required to fund the Cash Payment, such proceeds will be used to pay down amounts outstanding under the Company's revolving credit facility, which provides capital for general corporate purposes. The revolving credit facility, which expires in April 2000, has an interest rate that varies according to one of four pricing options (5.9% at August 3, 1996). After the 10 17 consummation of the Transactions, Harcourt General will continue to be the majority shareholder of the Company. The Company believes that the Transactions will be beneficial primarily because its cash flow will be improved by eliminating both the annual dividends on the Preferred Stock, which are currently approximately $27 million, and the sinking fund requirements associated with the 6% Preferred Stock. The Transactions will also strengthen the Company's balance sheet, improving its financial flexibility and enhancing its access to the capital markets. In addition, the Offering will increase the number of shares held by the public from 15.3 million to 23.3 million shares. In connection with the repurchase of the Preferred Stock, the Company will incur a nonrecurring, non-cash charge to earnings applicable to common shareholders of approximately $22 million, or $.45 per share, assuming a price to public of the reported last sale price of the Common Stock set forth on the cover of this Prospectus. The charge is comprised of two components: a charge of approximately $9 million, representing the difference between the book value of the Preferred Stock and 98% of the aggregate stated value of the Preferred Stock and a charge of approximately $13 million related to the Stock Payment. The $13 million charge represents the value (at the price to public of the reported last sale price of the Common Stock set forth on the cover of this Prospectus) of the number of shares to be issued to Harcourt General in excess of the number of shares that would have been issued in accordance with the conversion terms of the 6% Preferred Stock to be acquired with the Stock Payment. The $9 million charge will reduce common shareholders' equity. The $13 million charge will have no net effect on total common shareholders' equity. The following table sets forth certain summary consolidated pro forma financial data for the Company for the fiscal year ended August 3, 1996 on a historical basis and on a pro forma basis, giving effect to the Transactions as if they occurred on July 30, 1995. The pro forma information does not purport to represent what the Company's results of operations would have been if the Transactions had occurred as of the date indicated or what such results will be for any future periods. The summary pro forma financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto and other financial information included elsewhere in this Prospectus.
FISCAL YEAR ENDED AUGUST 3, 1996 ------------------------------- HISTORICAL PRO FORMA(1) ---------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues......................................................... $2,075,003 $2,075,003 ========== ========== Operating earnings............................................... 159,455 159,455 Interest expense................................................. 28,228 27,393(2) ---------- ---------- Earnings from continuing operations before income taxes.......... 131,227 132,062 Income taxes..................................................... 53,803 54,145(3) ---------- ---------- Net earnings..................................................... 77,424 77,917 Dividends and accretion on redeemable preferred stocks........... (29,104) -- (4) ---------- ---------- Net earnings applicable to common shareholders................... $ 48,320 $ 77,917 ========== ========== Weighted average shares outstanding.............................. 38,218 50,062(5) ========== ========== Amounts per share applicable to common shareholders: Net earnings................................................... $ 1.26 $ 1.56 ========== ========== - --------------- (1) Assumes a price to public of the reported last sale price of the Common Stock set forth on the cover of this Prospectus. Excludes the effect of the nonrecurring, non-cash charge. (2) As adjusted to reflect a reduction of $835 of interest expense. The outstanding debt amount used to calculate the pro forma interest expense has been reduced by the excess of the eliminated dividend payment over the amount of the Borrowings. (3) As adjusted to reflect the increase in taxes payable attributable to the reduced interest expense, at the Company's effective tax rate. (4) As adjusted to reflect the elimination of the dividends and accretion on the redeemable preferred stocks. (5) As adjusted to reflect 11,843 shares of Common Stock issued in the Transactions.
11 18 DIVIDEND POLICY The Company currently does not intend to pay any cash dividends on the Common Stock. The Company's revolving credit agreement contains restrictions on its ability to pay dividends and make other distributions. PRICE RANGE OF COMMON STOCK The Company's Common Stock is listed on the New York Stock Exchange (the "NYSE") under the symbol "NMG." The following table sets forth for the periods indicated the high and low closing sale prices of the Company's Common Stock as reported on the NYSE.
COMMON STOCK PRICE ------------- HIGH LOW ---- ---- Year ended July 29, 1995 First Quarter................................................ $15 1/2 $13 1/2 Second Quarter............................................... 15 13 Third Quarter................................................ 15 1/2 13 Fourth Quarter............................................... 15 7/8 13 1/4 Year ended August 3, 1996 First Quarter................................................ 18 7/8 14 5/8 Second Quarter............................................... 23 1/2 17 1/8 Third Quarter................................................ 23 1/8 17 1/4 Fourth Quarter............................................... 30 1/8 23 5/8 Year ending August 2, 1997 First Quarter (through September 13, 1996)................... 35 3/8 27 1/8
The Company had approximately 12,164 stockholders of record at September 6, 1996. A recent reported last sale price of the Common Stock on the NYSE is set forth on the cover of this Prospectus. 12 19 CAPITALIZATION The following table sets forth the consolidated short-term debt and total capitalization of the Company as of August 3, 1996 and as adjusted to give effect to the Transactions assuming a price to public of the reported last sale price of the Common Stock set forth on the cover of this Prospectus. See "Description of Transactions; Use of Proceeds." This table should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere and incorporated by reference in this Prospectus.
AUGUST 3, 1996 ------------------------ PRO FORMA ACTUAL AS ADJUSTED ------ ----------- (DOLLARS IN THOUSANDS) Short-term debt............................................ $ 27,054 $ 27,054 ======== ======== Long-term debt(1) Revolving credit agreement(2)............................ $160,000 $173,185 Senior notes............................................. 132,000 132,000 Capital lease obligations................................ 6,143 6,143 -------- -------- Total long-term debt.................................. 298,143 311,328 -------- -------- Redeemable preferred stocks 6% Preferred Stock....................................... 357,426 -- 9 1/4% Preferred Stock................................... 50,000 -- -------- -------- Total redeemable preferred stocks..................... 407,426 -- -------- -------- Common shareholders' equity(2) Common stock, $.01 par value; 100 million shares authorized, 38,003,702 shares issued and outstanding (49,847,118 shares issued and outstanding as adjusted)............................................. 380 498 Additional paid-in capital............................... 83,106 486,228 Accumulated deficit...................................... (7,879) (16,878) -------- -------- Total common shareholders' equity..................... 75,607 469,848 -------- -------- Total capitalization............................. $781,176 $781,176 ======== ======== - ------------ (1) Excludes other long-term obligations of the Company. See Note 5 to Consolidated Financial Statements. (2) Assumes that the U.S. Underwriters' over-allotment option is not exercised. If such option is exercised in full, pro forma, as adjusted common shareholders' equity will be $510,312 and the outstanding balance under the revolving credit agreement will be $132,721.
13 20 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below has been derived from the audited Consolidated Financial Statements for each of the five years in the period ended August 3, 1996, and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Consolidated Financial Statements and Notes thereto and the other financial information included elsewhere and incorporated by reference in this Prospectus.
FISCAL YEAR ENDED ------------------------------------------------------------------ AUGUST 1, JULY 31, JULY 30, JULY 29, AUGUST 3, 1992 1993 1994 1995 1996(1) ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues................................... $1,484,945 $1,667,825 $1,789,461 $1,888,249 $2,075,003 Cost of goods sold including buying and occupancy costs.......................... 1,025,670 1,120,561 1,210,262 1,276,776 1,416,296 Selling, general and administrative expenses(2).............................. 366,873 412,044 420,667 448,956 485,533 Corporate expenses......................... 13,116 11,898 13,411 12,465 13,719 ---------- ---------- ---------- ---------- ---------- Operating earnings(2)...................... 79,286 123,322 145,121 150,052 159,455 Interest expense(2)........................ (32,408) (29,589) (31,878) (33,958) (28,228) Other income(3)............................ -- 21,741 -- -- -- ---------- ---------- ---------- ---------- ---------- Earnings from continuing operations before income taxes and accounting change....... 46,878 115,474 113,243 116,094 131,227 Income taxes............................... 19,220 48,499 47,562 48,759 53,803 ---------- ---------- ---------- ---------- ---------- Earnings from continuing operations before accounting change........................ 27,658 66,975 65,681 67,335 77,424 Loss from discontinued operations net of taxes (including loss on disposal of $9,873 in 1995)(4)....................... (5,806) (8,402) (49,755) (11,727) -- ---------- ---------- ---------- ---------- ---------- Earnings before accounting change.......... 21,852 58,573 15,926 55,608 77,424 Change in accounting for postretirement health care benefits, net................ -- (11,199) -- -- -- ---------- ---------- ---------- ---------- ---------- Net earnings............................... 21,852 47,374 15,926 55,608 77,424 Dividends and accretion on redeemable preferred stocks(5)...................... (29,197) (29,068) (29,080) (29,092) (29,104) ---------- ---------- ---------- ---------- ---------- Net earnings (loss) applicable to common shareholders............................. $ (7,345) $ 18,306 $ (13,154) $ 26,516 $ 48,320 ========== ========== ========== ========== ========== Weighted average shares outstanding........ 35,551 37,577 37,946 37,999 38,218 ========== ========== ========== ========== ========== Amounts per share applicable to common shareholders: Earnings (loss) from continuing operations before accounting change.... $ (.05) $ 1.00 $ .96 $ 1.01 $ 1.26 Loss from discontinued operations........ (.16) (.22) (1.31) (.31) -- Accounting change........................ -- (.30) -- -- -- ---------- ---------- ---------- ---------- ---------- Net earnings (loss)...................... $ (.21) $ .48 $ (.35) $ .70 $ 1.26 ========== ========== ========== ========== ========== BALANCE SHEET DATA: Accounts receivable(2)..................... $ 220,388 $ 309,572 $ 362,236 $ 150,110 $ 165,442 Inventories................................ 307,100 362,567 345,145 359,092 443,948 Property and equipment, net................ 422,243 416,519 410,913 423,583 457,625 Total assets............................... 1,141,438 1,278,574 1,323,128 1,108,437 1,252,350 Total debt(6).............................. 345,490 422,299 485,672 256,306 325,197 Redeemable preferred stocks(5)............. 399,562 401,510 403,470 405,442 407,426 Common shareholders' equity................ (2,919) 24,358 3,716 26,547 75,607
(footnotes on next page) 14 21
FISCAL YEAR ENDED ------------------------------------------------------------------ AUGUST 1, JULY 31, JULY 30, JULY 29, AUGUST 3, 1992 1993 1994 1995 1996(1) ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT SALES PER SQUARE FOOT DATA) OTHER DATA: Increase in comparable sales: Neiman Marcus Stores(7).................. 1.7% 7.7% 7.6% 6.7% 6.5% Total(8)................................. 2.7% 8.9% 7.3% 5.5% 5.4% Retail store sales per average square foot(9): Neiman Marcus Stores..................... $ 292 $ 314 $ 338 $ 360 $ 380 Bergdorf Goodman......................... $ 630 $ 693 $ 726 $ 764 $ 786 Gross margin(10)........................... 30.9% 32.8% 32.4% 32.4% 31.7% Selling, general and administrative expenses as a percentage of revenues(2).............................. 24.7% 24.7% 23.5% 23.8% 23.4% Operating profit margin(2)(11)............. 5.3% 7.4% 8.1% 7.9% 7.7% Depreciation and amortization.............. $ 43,026 $ 45,088 $ 48,086 $ 48,397 $ 56,305 Capital expenditures....................... $ 58,600 $ 48,400 $ 65,074 $ 93,514 $ 85,736 Number of stores at year end: Neiman Marcus Stores(12)................. 26 27 27 27 29 Bergdorf Goodman......................... 2 2 2 2 2
- ------------ (1) Fiscal 1996 was a 53-week year. (2) In March 1995 the Company sold all of its Neiman Marcus credit card receivables to a trust in exchange for certificates representing undivided interests in such receivables. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The securitization resulted in a decrease in finance charge income (which is recorded as an offset to selling, general and administrative expenses) and a resulting decrease in operating earnings in fiscal 1995 and 1996. To provide a meaningful comparison of selling, general and administrative expenses and operating earnings in fiscal 1995 and 1996 to such items in fiscal 1992 through 1994, the following chart shows each item as if the securitization had not occurred:
FISCAL YEAR ENDED --------------------- AUGUST JULY 29, 3, 1995 1996 -------- -------- Selling, general and administrative expenses..................... $441,856 $466,493 Selling, general and administrative expenses as a percentage of revenues....................................................... 23.4% 22.5% Operating earnings............................................... $157,152 $178,495 Operating margin................................................. 8.3% 8.6%
The securitization also had the effect of reducing accounts receivable in fiscal 1995 by approximately $246 million. (3) Represents settlement of several disputes with Carter Hawley Hale Stores, Inc., which had operated the Neiman Marcus and Bergdorf Goodman businesses prior to 1987. (4) Reflects the operations of Contempo Casuals which was sold by the Company on June 30, 1995. See Note 2 to Consolidated Financial Statements. (5) After the consummation of the Transactions, no shares of preferred stock will be outstanding. See "Description of Transactions; Use of Proceeds." (6) Includes obligations under capital leases. See Note 5 to Consolidated Financial Statements. (7) Comparable sales represents net sales of stores open in both reporting periods for the portion of such period open. In fiscal 1996, comparable sales exclude the impact of the 53rd week. (8) Total comparable sales represents (i) net sales of stores open in both reporting periods for the portion of such period open and (ii) NM Direct net sales. In fiscal 1996, comparable sales exclude the impact of the 53rd week. (9) Sales per average square foot in each fiscal year represent net retail store sales for such full fiscal year divided by the average of total gross square feet of stores. In fiscal 1996, sales per average square foot exclude sales for the 53rd week. (10) Gross margin represents revenues less cost of goods sold including buying and occupancy costs as a percentage of revenues. (11) Operating profit margin represents operating earnings as a percentage of revenues. (12) On August 16, 1996, the Company opened its 30th Neiman Marcus store in Paramus, New Jersey. 15 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company's financial performance reflects a favorable environment for the sale of high end merchandise as well as the strong competitive position of its three operating entities: Neiman Marcus Stores, Bergdorf Goodman and NM Direct. Management believes that the Company's success can be attributed to its business strategy, which is designed to increase productivity, sales and operating earnings. Key elements of the strategy include: (i) offering an extensive and carefully edited assortment of high end fashion merchandise based on strong relationships with designer resources; (ii) providing a high level of customer service and utilizing a variety of clienteling tools; (iii) investing in the Company's store base and supporting infrastructure; (iv) opening new stores and (v) expanding its customer base by broadening the Company's reach through creative marketing techniques as well as through NM Direct. As a result of the Company's strategy, revenues from continuing operations exceeded $2.0 billion for the first time in fiscal 1996, increasing 16.0% over revenues of $1.8 billion in fiscal 1994. Earnings from continuing operations increased 17.9% from $65.7 million to $77.4 million during the same period. Approximately 75% of the Company's revenues are generated by Neiman Marcus Stores with the balance split approximately equally between Bergdorf Goodman and NM Direct. In fiscal 1995, the Company solidified its focus on the high end specialty retail market with the sale of its Contempo Casuals operations, which is reflected in the Company's financial statements as a discontinued operation. Revenue growth over the last three fiscal years at Neiman Marcus Stores and Bergdorf Goodman can be attributed primarily to increases in comparable store sales during such periods and two new store openings in fiscal 1996. Since August 1995, the Company has opened three new Neiman Marcus stores, adding 430,000 gross square feet in the Northeast market. The Company also plans to open a new Neiman Marcus store in Honolulu's Ala Moana Center in August 1998, which will add approximately 160,000 gross square feet. In fiscal 1996, average sales per gross square foot reached an all-time high of $380 at Neiman Marcus Stores and $786 at Bergdorf Goodman, representing a 12.4% and 8.3% increase, respectively, over fiscal 1994 levels. The Company has consistently focused on renovating and modernizing its stores to improve productivity, while concurrently aiming to improve average transaction amounts and comparable sales growth with programs which are designed to increase the customers' awareness of other merchandise offerings in the store and serve more of their merchandise needs. In addition, to meet the demand of their customers for fine merchandise, over the past two fiscal years Neiman Marcus Stores and Bergdorf Goodman have placed a greater emphasis on higher quality merchandise at higher opening price point ranges. In fiscal 1996, the Company's operating earnings rose to $159.5 million from $150.1 million in fiscal 1995 and $145.1 million in fiscal 1994. The comparability of these results, however, is affected by the Company's securitization of its credit card receivables in fiscal 1995 as part of the Company's overall financing strategy. The sale of these credit card receivables resulted in a decrease in finance charge income (which is recorded as an offset to selling, general and administrative expenses) and a resulting decrease in the Company's operating earnings. This reduction amounted to $19.0 million in fiscal 1996 and $7.1 million in fiscal 1995. Management believes that the fiscal 1997 reduction will be comparable to the reduction experienced in fiscal 1996. The securitization, however, also reduced interest expense during fiscal 1995 and 1996 as the proceeds were used to repay outstanding debt. The Company utilizes the LIFO method of accounting for valuing its inventories, which provides a better matching of revenues with expenses than the FIFO method which is used by some specialty retail companies. The most important factors contributing to differences between the LIFO and FIFO methods include the rate of inflation, inventory levels and markdowns. As a result of these factors, operating earnings were $0.7 million higher in fiscal 1996, $10.4 million higher in fiscal 1995, and $2.4 million lower in fiscal 1994 than they would have been using the FIFO method. Because a substantial portion of the Company's selling, general and administrative expenses is made up of fixed charges, comparable sales increases improve the Company's operating profit margin. Management 16 23 believes that various programs designed to increase sales, coupled with improved technologies in merchandising and selling information systems, have contributed to the Company's increased operating earnings, and will continue to improve productivity and profitability in the future. In fiscal 1995, revenues at NM Direct were adversely affected by weak demand for its apparel merchandise. As a result, NM Direct repositioned its merchandise assortment, placing greater emphasis on hard goods and home furnishings and less emphasis on its Horchow apparel offerings. NM Direct may increase its revenues by selectively entering international markets. NM Direct entered the catalogue market in Japan in fiscal 1995 with its Horchow catalogue and is introducing the Neiman Marcus Christmas Catalogue in Japan this holiday season. NM Direct's results are significantly affected by fluctuations in the cost of paper and postage. In particular, in fiscal 1995, increased paper and postage costs had a significant effect on the operating results of NM Direct. In response, NM Direct reduced the page count and number of its catalogues and repositioned its merchandise mix as discussed above. These initiatives resulted in increased revenues and operating earnings in fiscal 1996 for NM Direct. In addition to opening new stores, the Company continues to make significant capital investments that it believes will result in increased productivity. In particular, during fiscal 1994, 1995 and 1996, the Company invested approximately $90.0 million in remodeling its existing store base. In fiscal 1997, major projects will include (i) commencing a full remodeling and expansion of the Fashion Island store in Newport Beach, California and continuing a partial remodeling and expansion of the Beverly Hills store; (ii) completing a major renovation of the first floor of Bergdorf Goodman Men, which will add a new main entrance on Fifth Avenue and greatly improve the departmental adjacencies and flow of the main floor and (iii) constructing a beauty salon and spa in the newly acquired ninth floor of the Bergdorf Goodman main store which will permit expansion of the decorative home business into the approximately 4,000 square feet of space currently occupied by the existing beauty salon. In addition, in fiscal 1996, the Company began operating a new distribution center for Neiman Marcus Stores, which consolidated the distribution function previously provided by several older facilities in the Dallas area. In fiscal 1995, the Company completed the expansion of its direct marketing distribution and fulfillment center for NM Direct and closed its other NM Direct distribution centers. The Company expects that these facilities will provide future cost savings and operational efficiencies. In connection with the repurchase of the Preferred Stock, the Company will incur a nonrecurring, non-cash charge to earnings applicable to common shareholders of approximately $22 million, or $.45 per share, assuming a price to public of the reported last sale price of the Common Stock set forth on the cover of this Prospectus. The charge is comprised of two components: a charge of approximately $9 million, representing the difference between the book value of the Preferred Stock and 98% of the aggregate stated value of the Preferred Stock, and a charge of approximately $13 million related to the Stock Payment. The $13 million charge represents the value (at the price to public of the reported last sale price of the Common Stock set forth on the cover of this Prospectus) of the number of shares to be issued to Harcourt General in excess of the number of shares that would have been issued in accordance with the conversion terms of the 6% Preferred Stock to be acquired with the Stock Payment. The $9 million charge will reduce common shareholders' equity. The $13 million charge will have no net effect on total common shareholders' equity. 17 24 OPERATING RESULTS In fiscal 1996, the reporting period included 53 weeks as compared to 52 weeks in each of fiscal years 1995 and 1994.
FISCAL YEAR ENDED -------------------------------------- AUGUST JULY 30, JULY 29, 3, 1994 1995 1996 -------- -------- -------- (DOLLARS IN MILLIONS) REVENUES Neiman Marcus Stores............................. $1,311.5 $1,398.8 $1,566.7 Bergdorf Goodman................................. 229.5 241.5 251.9 NM Direct........................................ 248.5 247.9 256.4 -------- -------- -------- Total............................................ $1,789.5 $1,888.2 $2,075.0 ======== ======== ======== OPERATING EARNINGS(1) Neiman Marcus Stores............................. $ 119.8 $ 132.3 $ 134.0 Bergdorf Goodman................................. 10.3 16.6 16.5 NM Direct........................................ 28.4 13.7 22.7 Corporate expenses............................... (13.4) (12.5) (13.7) -------- -------- -------- Total............................................ $ 145.1 $ 150.1 $ 159.5 ======== ======== ======== OPERATING PROFIT MARGINS(1) Neiman Marcus Stores............................. 9.1% 9.5% 8.6% Bergdorf Goodman................................. 4.5% 6.9% 6.6% NM Direct........................................ 11.4% 5.5% 8.9% Total(2)......................................... 8.1% 7.9% 7.7%
- --------------- (1) In fiscal 1995 and fiscal 1996 operating earnings and operating profit margins include the impact of the Company's credit card receivables securitization. For comparison purposes, excluding the impact of the Company's credit card receivables securitization, operating earnings for Neiman Marcus Stores and NM Direct would have been $138.3 and $14.8 in fiscal 1995 and $150.4 and $25.4 in fiscal 1996, respectively and the operating profit margins would have been 9.9% and 6.0% in fiscal 1995 and 9.6% and 9.9% in fiscal 1996, respectively. See "-- Review of Financial Condition." (2) After corporate expenses. FISCAL 1996 VERSUS FISCAL 1995 Revenues in fiscal 1996 increased 9.9% to $2.08 billion from $1.89 billion in fiscal 1995. The revenue growth was primarily attributable to a 5.4% increase in comparable sales and, to a lesser extent, the opening of two new Neiman Marcus stores during the year. Additionally, fiscal 1996 included 53 weeks, while fiscal 1995 consisted of 52 weeks. The 53rd week is not included in comparable sales. Cost of goods sold increased 10.9% to $1.42 billion in fiscal 1996, primarily due to higher sales volume. As a percentage of revenues, cost of goods sold was 68.3% in fiscal 1996 compared to 67.6% in fiscal 1995. The higher percentage is primarily due to higher markdowns during the holiday season. Selling, general and administrative expenses increased 8.1% to $485.5 million in fiscal 1996 from $449.0 million in fiscal 1995, primarily due to new store openings, higher selling costs and lower finance charge income. As a percentage of revenues, selling, general and administrative expenses were 23.4% in fiscal 1996 compared to 23.8% in fiscal 1995. The Company's securitization of its credit card receivables, which was completed in March 1995, reduced finance charge income, and thereby increased selling, general and administrative expenses, by approximately $19.0 million in fiscal 1996 and $7.1 million in fiscal 1995. 18 25 Corporate expenses, which consist primarily of charges for salaries, benefits and overhead for the individuals who provide services under the intercompany services agreement with Harcourt General, legal fees and professional fees, increased $1.2 million in fiscal 1996 to $13.7 million, compared to $12.5 million in the prior year. See "Management -- Relationship with Harcourt General." The increase is primarily attributable to higher compensation expense resulting from the Company's employees accepting the cash value of certain stock options rather than exercising such options for shares of Common Stock. Operating earnings increased to $159.5 million in fiscal 1996 from $150.1 million in the prior year. The increase is attributable to higher sales volume at each of the Company's operating entities, partially offset by the full year impact of the credit card receivables securitization. Operating earnings at NM Direct improved significantly in comparison to fiscal 1995, due to increased revenues and lower paper and postage expenses. Interest expense decreased 16.9% to $28.2 million in fiscal 1996, primarily due to lower debt levels resulting from the use of the proceeds from the Company's credit card receivables securitization in March 1995 to pay down outstanding debt. The Company's effective income tax rate decreased to 41% in fiscal 1996 from 42% in fiscal 1995. The decrease was attributable to lower state income taxes. FISCAL 1995 VERSUS FISCAL 1994 Revenues in fiscal 1995 increased to $1.89 billion from $1.79 billion in fiscal 1994. The 5.5% increase was attributable to comparable sales growth resulting from increased transaction volume and a higher average transaction amount at both Neiman Marcus Stores and Bergdorf Goodman. Revenues at NM Direct were essentially flat compared to fiscal 1994. Cost of goods sold increased 5.5% to $1.28 billion in fiscal 1995, primarily due to incremental merchandise sold. Neiman Marcus Stores and Bergdorf Goodman both experienced improved gross profit through increased transaction volume and higher average transaction amounts, partially offset by higher markdowns. The improvements at Neiman Marcus Stores and Bergdorf Goodman were offset by lower gross profit at NM Direct, primarily as a result of lower retail markups and higher markdowns. As a percentage of revenues, cost of goods sold was unchanged at 67.6% in fiscal 1995 compared to fiscal 1994. Selling, general and administrative expenses increased 6.7% in fiscal 1995 to $449.0 million. The increase was a result of both higher sales volume and higher sales promotion expenses. As a percentage of revenues, selling, general and administrative expenses were 23.8% in fiscal 1995 compared to 23.5% in fiscal 1994. The securitization of the Company's credit card receivables, which was completed in March 1995, had the effect of reducing finance charge income by $7.1 million in fiscal 1995. Corporate expenses decreased 7.1% to $12.5 million in fiscal 1995 compared to fiscal 1994. This decrease was primarily due to lower fees under the intercompany services agreement with Harcourt General and lower professional fees. Operating earnings increased to $150.1 million from $145.1 million in the prior year. Neiman Marcus Stores and Bergdorf Goodman operating earnings improved primarily as a result of increased transaction volume. NM Direct operating earnings decreased substantially primarily as a result of higher paper and postage costs in fiscal 1995. Interest expense increased 6.5% in fiscal 1995 to $34.0 million, reflecting higher interest rates on bank borrowings and higher average outstanding borrowings during the first half of fiscal 1995. The Company's effective income tax rate was unchanged at 42% in fiscal 1995. The loss from discontinued operations of $11.7 million in fiscal 1995 included $1.9 million of after-tax Contempo Casuals operating losses and an after-tax loss on disposal of $9.9 million. In fiscal 1994, the after- 19 26 tax loss from discontinued Contempo Casuals operations was $49.8 million, which included an after-tax restructuring charge of $28.1 million. REVIEW OF FINANCIAL CONDITION In fiscal 1996, the Company had sufficient cash flows from operations and its revolving credit agreement to finance its working capital needs, capital expenditures and preferred dividend requirements. Operating activities provided net cash of $42.7 million in fiscal 1996 compared to $105.7 million in fiscal 1995. Despite the increase in net earnings from $55.6 million in fiscal 1995 to $77.4 million in fiscal 1996, cash provided by operations decreased primarily due to higher inventory levels and accounts receivable balances attributable to new Neiman Marcus stores. The Company's capital expenditures consisted principally of construction of new stores and a new distribution and service center, and renovations of existing stores. The Company opened new Neiman Marcus stores in Short Hills, New Jersey in August 1995, in King of Prussia, Pennsylvania in February 1996 and in Paramus, New Jersey in August 1996. Capital expenditures were $85.7 million in fiscal 1996, $93.5 million in fiscal 1995 and $65.1 million in fiscal 1994. Additional store renovation plans include the remodeling of certain Neiman Marcus stores and the expansion and remodeling of both Bergdorf Goodman stores. Capital expenditures are currently estimated to approximate $75.0 million in fiscal 1997. During fiscal 1996, the Company increased its bank borrowings by $109.9 million which included borrowings made in May 1996 to repay $40.0 million of senior notes. At August 3, 1996, the Company had $340.0 million available under its $500.0 million revolving credit facility, which expires in April 2000. In August 1996, an additional $52.0 million of senior notes were paid on maturity through borrowings under the revolving credit facility. The Company believes that, following the consummation of the Offering, it will have sufficient financial resources to fund its planned capital expenditures, operating requirements, the Cash Payment and the retirement of the Company's remaining $80.0 million of senior notes which become due in December 1996. Beginning with the third quarter of fiscal 1995, the Company eliminated its quarterly cash dividend on common stock (previously $.05 per share per quarter). Elimination of this dividend conserves approximately $7.6 million of cash annually for use in the Company's operations. In fiscal 1996, the Company paid aggregate dividends of $27.1 million on the Preferred Stock. Consummation of the Transactions will eliminate the required future dividend and sinking fund payments on the Preferred Stock. See "Description of Transactions; Use of Proceeds." As discussed above, in March 1995, the Company sold all of its Neiman Marcus credit card receivables through a subsidiary to a trust in exchange for certificates representing undivided interests in such receivables. Certificates representing an undivided interest in $246.0 million of these receivables were sold to third parties in a public offering of $225.0 million 7.60% Class A certificates and $21.0 million 7.75% Class B certificates. The Company's subsidiary will retain the remaining undivided interest in the receivables not represented by the Class A and Class B certificates. A portion of that interest is subordinated to the Class A and Class B certificates. The Company will continue to service all receivables for the trust. This sale had the effect of decreasing accounts receivable and outstanding debt by $246.0 million. IMPACT OF INFLATION The Company has adjusted selling prices to maintain certain profit levels and will continue to do so as competitive conditions permit. In general, management believes that the impact of inflation or of changing prices has not had a material effect on the Company's results of operations during the last three fiscal years, except as discussed above in "Overview" with respect to the LIFO method of inventory valuation. RECENT ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). The Statement 20 27 establishes a fair value-based method of accounting for stock-based compensation plans, which may be recognized or disclosed at the Company's option. The Company will adopt the disclosure approach under SFAS 123 beginning in fiscal year 1997. In June 1996, the FASB issued Statement of Financial Accounting Standard No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 125), which is effective for transactions entered into after December 31, 1996. The Statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. The effect of adopting SFAS 125 is not expected to be material to the Company's financial position or results of operations. 21 28 BUSINESS OVERVIEW The Company, operating through Neiman Marcus Stores, Bergdorf Goodman and NM Direct, is the preeminent high end specialty retailer in the United States. The Neiman Marcus and Bergdorf Goodman names are renowned for style, quality and service. The 30 Neiman Marcus stores are in premier retail locations in major markets nationwide and the two Bergdorf Goodman stores, the main store and the Bergdorf Goodman Men store, are located in Manhattan at 58th Street and Fifth Avenue. Neiman Marcus Stores and Bergdorf Goodman have maintained a consistent focus on offering 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 and the world famous Neiman Marcus Christmas Catalogue. The Company offers its customers an extensive and carefully edited assortment of high end traditional and contemporary designer merchandise which generally has limited distribution. While the Company serves a wide range of customers, the Company believes that its core customers are 45 years of age and older with household incomes in excess of $100,000. The Company is committed to meeting the lifestyle needs and exceeding the expectations of its customers for both merchandise quality and selection and customer service and attention. The Company strives to create a unique shopping experience for the most discerning and fashion conscious individuals. This experience is created by building personal relationships with its customers and working closely with its designer resources to offer exciting and fashionable merchandise in an elegant retail environment. The Company's corporate headquarters are located at 27 Boylston Street, Chestnut Hill, Massachusetts 02167 and its telephone number is (617) 232-0760. HISTORY The Company was formed in 1987 in connection with the restructuring of Carter Hawley Hale Stores, Inc. ("CHH"). At that time, the Company acquired the specialty store divisions of CHH, which included the operations of Neiman Marcus Stores, Bergdorf Goodman and NM Direct. As part of the CHH restructuring in 1987, Harcourt General obtained a significant equity ownership in the Company. Harcourt General has subsequently increased its equity ownership in the Company and as of August 3, 1996 owned approximately 59% of the Company's Common Stock. Neiman Marcus Stores is the successor to a business founded in 1907 by Herbert Marcus, his sister Carrie Marcus Neiman, and her husband, Al Neiman. From 1907 until 1965, the business operated a single store in downtown Dallas. From that base, Neiman Marcus Stores has expanded to 30 stores nationwide. Bergdorf Goodman is the successor to a business founded in New York City at the turn of the century by Edwin Goodman and Herman Bergdorf. Bergdorf Goodman has operated its main store in Manhattan at 58th Street and Fifth Avenue since that time, and, in 1990, opened Bergdorf Goodman Men directly across from the main store. NM Direct is the successor to the Neiman Marcus direct marketing business which began in 1915 with the introduction of the Neiman Marcus Christmas Catalogue. In 1960, Neiman Marcus began operating its mail order business as a separate division and in 1988 NM Direct acquired the direct marketing business known as the Horchow collection. INDUSTRY The Company operates in the high end specialty retail industry where it 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 believes that it is well positioned to increase productivity and sales by continuing to capitalize on the following favorable trends affecting the market for upscale merchandise. 22 29 While the Company serves a wide range of customers, the Company believes that its core customers are 45 years of age and older with household incomes in excess of $100,000. The segment of the population aged 45 to 54, which has one of the highest median household income among all demographic groups, is expected to grow significantly over the next ten years. In addition, management believes that the demand for luxury goods and high end designer apparel and accessories has grown substantially in the past several years and evidences a renewed desire by the Company's customer base to enjoy the quality, uniqueness and style generally represented by such goods. In recent years the retail industry has been characterized by consolidation, the withdrawal of certain retailers from the marketplace and a de-emphasis by traditional department stores on high end merchandise, leaving fewer large competitors focused exclusively on the upscale specialty retail market. BUSINESS STRATEGY The Company has pursued a consistent business strategy designed to increase productivity, sales and operating earnings. Key elements of the strategy include: (i) offering an extensive and carefully edited assortment of high end fashion merchandise based on strong relationships with designer resources; (ii) providing a high level of customer service and utilizing a variety of clienteling tools; (iii) investing in the Company's store base and supporting infrastructure; (iv) opening new stores and (v) expanding its customer base by broadening the Company's reach through creative marketing techniques, as well as through NM Direct. Merchandising. Neiman Marcus Stores and Bergdorf Goodman are dedicated to merchandise leadership, offering an extensive and carefully edited assortment of the finest in quality merchandise and the latest in fashion. To meet the demand of their customers for fine merchandise, over the last two years Neiman Marcus Stores and Bergdorf Goodman have placed a greater emphasis on higher quality merchandise at higher opening price point ranges. The Company believes this has increased both productivity and sales and strengthened the Company's position as the preeminent retailer of quality, upscale merchandise. The Company intends to continue its commitment to high end merchandise and to remain the preferred choice among many prestige suppliers as well as a showcase for introducing new and innovative designers to the high fashion market. Customer Service and Clienteling. The Company is committed to providing the highest level of customer service to enhance the Neiman Marcus and Bergdorf Goodman upscale shopping experience and to capture a greater share of expenditures by its customers. The Company has made significant investments in customer service, including intensified training, increases in the number of sales associates in its stores and point-of-sale systems which help track merchandise availability and customer preferences. Clienteling consists of sales associates forming personal client relationships by identifying customers' lifestyles and needs, maintaining detailed client books and engaging in frequent personal and written communication with their customers. Sales associates, substantially all of whom are compensated on a commission basis, are supported in their clienteling efforts by state-of-the-art point-of-sale systems that allow them to record and readily access customer information including designer preferences, sizes, important dates and upcoming events. In this way, the sales associate and customer establish a true working relationship, allowing the associate to provide merchandise appropriate to the customer's lifestyle. Also, Neiman Marcus Stores recently implemented its Optimum Selling program to coordinate sales efforts storewide to increase average transaction amounts. The Optimum Selling program encourages sales associates to view the entire store as their department, familiarizing customers with the entire store to help them better satisfy their merchandise needs. The Company also utilizes other clienteling and customer loyalty programs such as its InCircle(R) program, which provides rewards to customers who make significant purchases with the Neiman Marcus credit card. Investing in Store Base and Supporting Infrastructure. The Company strives to ensure that its retail space is conducive to selling high end merchandise, further enhancing the stylish and fashionable image of its stores. In addition, management believes that its supporting infrastructure is among the most modern and 23 30 efficient in the industry. Over the past five years, the Company has invested approximately $350 million in its store base and supporting infrastructure and facilities, and has identified other remodeling opportunities to increase store productivity. Since 1987, the Company has completed remodeling projects in most of its stores. In fiscal 1997, major projects will include (i) commencing a full remodeling and expansion of the Fashion Island store in Newport Beach, California and continuing a partial remodeling and expansion of the Beverly Hills store, (ii) completing a major renovation of the first floor of Bergdorf Goodman Men, and (iii) constructing a beauty salon and spa in the newly acquired ninth floor of the Bergdorf Goodman main store. These and other future projects will improve space allocation and departmental adjacencies and increase selling space and, the Company believes, generate increased revenues. In addition, in fiscal 1996, the Company began operating a new distribution center for Neiman Marcus Stores, which consolidated the distribution function previously provided by several older facilities in the Dallas area. In fiscal 1995, the Company completed the expansion of its direct marketing distribution and fulfillment center for NM Direct and closed its other NM Direct distribution centers. The Company expects that these facilities will provide future cost savings and operational efficiencies. The Company maintains internal rate of return requirements for invested capital. All proposed capital projects are thoroughly evaluated against these financial requirements and the Company's strategic objectives. After completion, capital projects are monitored and executives are evaluated based on how actual results compare to forecasts. Opening New Stores. The Company will continue to evaluate opportunities to expand its store base in a selective and financially disciplined manner. Since August 1995, the Company has opened three new Neiman Marcus stores adding over 430,000 gross square feet, and plans to open a new Neiman Marcus store in the Ala Moana Center in Honolulu in August 1998, which will add approximately 160,000 gross square feet. The Company continues to assess the feasibility of other sites for Neiman Marcus stores and expects to open two to three additional stores over the next five years. Although the Company has not yet committed to any new locations other than Honolulu, it believes the Neiman Marcus store concept can be expanded to a number of new markets in which it does not now compete. The Company is also considering the feasibility of introducing a Bergdorf Goodman Men/Home format (combining men's apparel and accessories with decorative home accessories) in selected markets outside of New York City. Expansion of Customer Base. To expand its customer base, the Company employs various creative marketing techniques including The Neiman Marcus Christmas Catalogue, its proprietary credit cards, The Book, in-store events and the NM Express Card. NM Direct provides the Company with the opportunity, through selective direct marketing, to introduce new customers to the quality merchandise and service for which the Company is known, especially in those markets where the Company does not operate any stores. NM Direct entered the catalogue market in Japan in fiscal 1995 with its Horchow catalogue and is introducing the world famous Neiman Marcus Christmas Catalogue in Japan this holiday season. The Company is exploring other international growth opportunities for NM Direct with the same disciplined approach used for other expansion opportunities. DESCRIPTION OF OPERATIONS Neiman Marcus Stores. Neiman Marcus Stores offer women's and men's apparel, fashion accessories, shoes, cosmetics, furs, precious jewelry, decorative home accessories, fine china, crystal and silver, gourmet food products and children's apparel and gift items. The 30 Neiman Marcus stores are located in premier retail locations in major markets throughout the United States. In fiscal 1996, 24% of Neiman Marcus Stores sales were generated from Texas, 30% from the West, 16.5% from the Midwest, 16.5% from the Northeast and 11% from the Southeast and the remainder through its store catalogues and clearance centers. The opening of three new stores in the Northeast since August 1995 is expected to enhance the geographic diversity of the Company's sales. All but one of the Neiman Marcus stores that have been operating for more than 15 months are profitable. Three of the Neiman Marcus stores had revenues of over $100 million in fiscal 1996 and ten additional stores had revenues over $50 million. No Neiman Marcus store accounted for more than 7.5% of Neiman Marcus Stores revenues in fiscal 1996. The average size of the Neiman Marcus stores is 24 31 approximately 142,000 gross square feet, and the stores range in size from 90,000 gross square feet to 269,000 gross square feet. Bergdorf Goodman. The Company operates two Bergdorf Goodman stores in Manhattan at 58th Street and Fifth Avenue, which is among the most prestigious and well known retail locations in the world. The main Bergdorf Goodman store consists of 250,000 gross square feet. The core of Bergdorf Goodman's offerings includes high end women's apparel and unique fashion accessories from leading designers. Bergdorf Goodman also features traditional and contemporary decorative home accessories, precious jewelry, gifts and gourmet foods. Bergdorf Goodman Men, which opened in August 1990, consists of 66,000 gross square feet and is dedicated to men's apparel and accessories. Major renovations to the first floor of the Bergdorf Goodman Men store are scheduled to be completed in October 1996, in advance of the holiday selling season, increasing the store's selling square footage from 44,000 to 46,000, greatly improving the departmental adjacencies and flow of the first floor and adding a new main entrance on Fifth Avenue. During fiscal 1997, Bergdorf Goodman will begin construction of a beauty salon and spa in newly acquired space on the ninth floor of its main store, which will allow the decorative home business on the store's seventh floor to expand into the approximately 4,000 square feet occupied by the existing salon. Bergdorf Goodman has emphasized a creative fashion-forward style, while sustaining a residential feeling of understated elegance. The Company believes that Bergdorf Goodman is a destination retail establishment for customers seeking the finest merchandise and latest fashions. NM Direct. NM Direct offers customers throughout the country the opportunity to purchase upscale quality designed and crafted merchandise with the convenience of at-home shopping. NM Direct mailed 71 different catalogues during fiscal 1996, with an approximate average circulation of 1.25 million households per catalogue. The total number of catalogues mailed during fiscal 1996 was approximately 89 million. NM Direct primarily offers women's apparel under the Neiman Marcus name and, through its Horchow catalogue, offers hard goods such as quality home furnishings, tabletop, linens and decorative accessories. NM Direct also offers a broad range of more modestly priced items through its Trifles and Grand Finale lines and continues to publish the world famous Neiman Marcus Christmas Catalogue. Clearance Centers. The Company also operates several small clearance centers, which provide an efficient and controlled outlet for the sale of marked down merchandise from Neiman Marcus Stores, Bergdorf Goodman and NM Direct. MERCHANDISING Neiman Marcus Stores and Bergdorf Goodman are major customers of, and offer carefully edited designer and bridge apparel and accessories from, designers such as Akris, Giorgio Armani, Luciano Barbera, Manolo Blahnik, Brioni, Chanel, Charvet, Escada, Ferragamo, Gucci, Hermes, Donna Karan, Barry Kieselstein-Cord, Calvin Klein, Rena Lange, Judith Leiber, Bruno Magli, Oxxford, Prada, Jil Sander, St. John, Turnbull & Asser, Richard Tyler, Emmanuel Ungaro, Bottega Veneta, Versace and Ermenegildo Zegna, and luxury products from suppliers such as Baccarat, Christofle and Steuben. To enhance its exclusive image and to offer its customers original and fashionable styles not available elsewhere, the Company often enters into arrangements with the most fashion forward designers for apparel and accessories to be distributed on a very limited basis or, in some markets, only to the Company. The Company believes that it is uniquely positioned as the principal choice for many well known designers, who believe that both their prestige and profitability will be enhanced by having their merchandise offered at Neiman Marcus Stores and Bergdorf Goodman, based on the stores' ability to sell high percentages of merchandise at full retail prices. As a result, many designers make available to the Company new product introductions and enhance the Company's marketing and merchandising efforts with personal appearances, trunk shows and cooperative marketing support. Neiman Marcus Stores, and especially Bergdorf Goodman, seek out the most creative and innovative designers and have introduced many of them to the high fashion market. Neiman Marcus Stores and Bergdorf Goodman present an extensive and carefully edited selection of merchandise which emphasizes style, fashion and quality. To meet the demand of their customers for fine merchandise, over the last two fiscal years Neiman Marcus Stores and Bergdorf Goodman have placed a 25 32 greater emphasis on higher quality merchandise at higher opening price point ranges. Merchandise is selected, edited and presented in a way that reflects the unique style of each of the Company's designer resources as well as the local retail environment. The Company carefully monitors its merchandise mix to maximize profitability. The planning process involves the review of merchandise needs by department and merchandise groups, as well as on a store-by-store basis. The Company relies upon its buyers to identify the appropriate assortment of merchandise, and to acquire such merchandise on a timely basis. Neiman Marcus Stores, Bergdorf Goodman and NM Direct each maintain separate and distinct buying organizations with a unique focus on their respective customers. The Company's highly trained, knowledgable and experienced buyers acquire merchandise from manufacturers and distributors both domestically and internationally. The Company provides an intensive training program for its new buyers, and offers on-going supervision, support and training to its experienced buyers. The Company's inventory management strategy is designed to maintain inventory levels that provide optimum in-stock positions. The Company's strong relationships with its designer resources allow it to incorporate automatic replenishment systems for basic apparel and accessories, cosmetics and fragrances and even such luxury items as cashmere sweaters and designer jewelry. Having popular designer items in stock helps to avoid customer disappointment and increases sales. The Company enhances its ability to offer a fresh assortment of the most exclusive and fashion forward apparel and accessories by promptly marking down goods which are not selling. This enables the Company to minimize the amount of unsold merchandise at the end of each season and to keep current fashionable merchandise available in the stores. The Company's state-of-the-art merchandising information systems assist management in promptly identifying sales trends, identifying merchandise to be marked down and monitoring merchandise mix and inventory levels. The Company believes that these systems provide a number of benefits, including improved store inventory management, better in-stock availability and higher operating efficiency. CUSTOMER SERVICE AND CLIENTELING An integral part of the Company's ability to maintain a store environment conducive to selling high end merchandise is its ability to provide the highest level of customer service. The Company's sales associates and direct marketing representatives are trained to have a high level of product knowledge and to devote the necessary personal service and attention to the Company's customers. InCircle[Registered Trademark] Program. The Company believes that its InCircle program is the leading customer loyalty program in the specialty retail industry. The InCircle program, which is open to customers who purchase in excess of $3,000 annually from Neiman Marcus Stores and NM Direct using the Neiman Marcus credit card, provides incentives and rewards to those customers and enhances their shopping experience. Each member receives one point per dollar spent in the stores and catalogues which can be used to receive awards of merchandise, services and travel. Additionally, Neiman Marcus stores often stage exclusive thematic events known as "InCircle parties," during which InCircle members can preview merchandise and receive double points for purchases. To further enhance this program, last year the Company introduced the "Platinum Card" which offers double points and other additional benefits to selected customers. Point-of-Sale Systems. The Neiman Marcus Stores sales associates' customer service and clienteling are supported by state-of-the-art proprietary point-of-sale systems, which will be implemented at Bergdorf Goodman in fiscal 1997. The Company's point-of-sale computer system has features that allow the recording of customer information, merchandise scanning and on-line credit card approval. It also enables a sales associate to quickly locate merchandise at any other Neiman Marcus store and ship it directly to a customer. The use of the Company's computer systems by sales associates to gather, record and later utilize information about clients' merchandise preferences improves the Company's ability to maximize sales to its customers. An associate could, for example, use the computer system to record information about a customer's favorite designer and later contact that customer with information about the arrival of new merchandise from that designer. Furthermore, the computer system's features improve transaction accuracy, efficiency and checkout time. 26 33 Optimum Selling(SM) Program. The Company is in the process of implementing its Optimum Selling program which will heighten the level of customer service at the Neiman Marcus Stores. The Optimum Selling program encourages sales associates to function like personal shoppers for their customers, helping a customer satisfy all of his or her merchandise needs. Contact with a limited number of sales associates who have a greater focus on a particular customer's needs enables a customer to shop with greater fashion consistency and ease. Sales associates in each department are able to access merchandise throughout the store. Bergdorf Goodman and certain Neiman Marcus stores have long provided the customer service represented by the Optimum Selling program through the use of personal shoppers. MARKETING The Company's primary marketing strategy is direct communication with the customer through personal contact and various techniques including The Neiman Marcus Christmas Catalogue, its proprietary credit cards, The Book, in-store events and the NM Express Card. The Company believes that these methods of reaching its customer base are the most effective and cost efficient ways to increase sales and to establish and maintain contact with potential and existing customers. In addition, particularly during the holiday season, the Company advertises in newspapers and high fashion magazines and on television and radio in selected markets. The Neiman Marcus Christmas Catalogue. The Christmas Catalogue, which generates extensive publicity for Neiman Marcus, is the Company's most important catalogue, with the largest circulation, page count and sales volume each year. The Neiman Marcus Christmas Catalogue currently is distributed to over 2.5 million households annually in the United States. Through the Christmas Catalogue, the Company offers a wide variety of apparel, hard goods, jewelry and gift items, including the annual "His & Hers" extraordinary gift offering. Proprietary Credit Card. One of the Company's most important marketing tools is its proprietary Neiman Marcus and Bergdorf Goodman credit cards which were established in the 1960s. As of July 31, 1996, 3.2 million persons were Neiman Marcus credit card holders, of which 1.4 million had made a purchase within the last 12 months. The proprietary credit cards allow the Company to target merchandise information, special events and promotions to its customers. The Book. In 1996 Neiman Marcus Stores introduced a marketing vehicle called "The Book." The Book is a high quality, magazine-like, 10" X 12" glossy catalogue that presents a selection of designer apparel and accessories offered by Neiman Marcus Stores. The Book, which also allows customers to purchase the merchandise presented by mail or by phone, ranges from 150 to 192 pages in length and will be published and distributed eight times per year to between 500,000 and 1.2 million customers. The Company believes that The Book generates enthusiasm among customers and designer resources and results in increased store traffic. In-Store Events. In-store events such as designer trunk shows, personal appearances by key designers and other suppliers, fashion shows, charity events and informational speakers are among other effective marketing methods, which are often supported by the Company's designer resources. The Company believes that these events generate sales and also help to maintain a sense of shopping enthusiasm, increasing customer loyalty. NM Express(R) Card. Neiman Marcus Stores recently introduced the NM Express Card. Designed to replace traditional paper gift certificates, the NM Express Card is a debit card similar in size to a standard credit card and is festively decorated for various holidays and occasions such as Christmas, Mother's Day, Valentine's Day and birthdays. The card can be purchased with any initial credit balance and can be supplemented with additional credit. The Company believes that this electronic gift card is unique in the specialty retail industry and that the NM Express Card will be more effective at generating sales than traditional paper gift certificates. 27 34 DISTRIBUTION AND LOGISTICS In January 1996, the Company commenced operations at its 465,000 square foot National Service Center ("NSC") in Longview, Texas, consolidating distribution operations for those Neiman Marcus stores which previously had been handled by several separate facilities in the Dallas area. The Company also contracts with a third party in Totowa, New Jersey for the provision of distribution services to those stores not served by the NSC. NM Direct distributes its goods from its warehouse and distribution center in Las Colinas, Texas, near Dallas. By arranging for vendors to "drop-ship" goods such as furniture, other hard goods and gourmet food directly to the customer, NM Direct reduces the amount of inventory warehousing. NM Direct has unused warehouse capacity which will permit it to expand its business. The Company has contracted with third party carriers, including Federal Express, to provide NM Direct with 2-day delivery service with no additional charge to the customer, and it utilizes its carrier services to automate the process of shipping and invoicing for drop-shipped merchandise. The Company has implemented various programs designed to improve processing productivity by speeding the flow of merchandise from vendors through the Company's distribution facilities to the selling floor and customer. These programs include size and color marking and tracking, increased vendor pre- marking, central stocking, a variety of pre-distribution services, integrated universal product code identification methods, radio frequency scanning and electronic data interchange technologies. The Company generally transports merchandise from its distribution centers to its stores by means of its leased truck fleet. In addition, the Company uses contract carriers for a portion of its merchandise and air cargo service for international and domestic shipments for select designer resources. When appropriate, the Company arranges for vendors to ship merchandise directly to its stores. STORES AND OTHER FACILITIES The Company's corporate headquarters are located at Harcourt General's leased facility in Chestnut Hill, Massachusetts. The operating headquarters for Neiman Marcus Stores, Bergdorf Goodman and NM Direct are located in Dallas, New York City, and Las Colinas, Texas, respectively. The aggregate square footage used in the Company's operations is approximately as follows:
OWNED SUBJECT TO OWNED GROUND LEASE LEASED TOTAL --------- ------------ --------- --------- Stores.............................. 348,000 1,931,000 2,297,000 4,576,000 Distribution, Support and Office Facilities and Clearance Centers........................... 1,170,000 0 634,000 1,804,000
Leases for Neiman Marcus stores, including renewal options, range from 30 to 99 years. The lease on the Bergdorf Goodman main store expires in 2050, and the lease on the Bergdorf Goodman Men store expires in 2010, with two 10-year renewal options. Leases are generally at fixed rentals, and a majority of leases provide for additional rentals based on sales in excess of predetermined levels. The Company owns approximately 50 acres of land in Las Colinas, Texas where its 705,000 square foot NM Direct facility is located and also owns approximately 34 acres of land in Longview, Texas where the NSC is located. For further information on the Company's properties, see "Operating Leases" in Note 11 of the Notes to the Consolidated Financial Statements. 28 35 The following table sets forth the location, year operations began and gross square footage of each Neiman Marcus and Bergdorf Goodman store: NEIMAN MARCUS STORES
CALENDAR GROSS YEAR SQUARE LOCATIONS OPENED FEET -------------------------------------------------------- -------- --------- Dallas (Downtown)....................................... 1907 269,000 Dallas (NorthPark)...................................... 1965 218,000 Houston (Galleria)...................................... 1969 206,000 Bal Harbour, Florida.................................... 1971 94,000 Atlanta................................................. 1972 154,000 St. Louis............................................... 1974 143,000 Northbrook, Illinois.................................... 1976 143,000 Fort Worth.............................................. 1977 119,000 Washington, D.C......................................... 1977 130,000 Newport Beach, California............................... 1978 124,000 Beverly Hills........................................... 1979 170,000 Dallas (Prestonwood).................................... 1979 123,000 Westchester, New York................................... 1980 138,000 Las Vegas............................................... 1981 103,000 Oak Brook, Illinois..................................... 1981 119,000 San Diego............................................... 1981 106,000 Fort Lauderdale......................................... 1982 92,000 San Francisco........................................... 1982 195,000 Houston (Town & Country)................................ 1983 153,000 Chicago (Michigan Avenue)............................... 1983 188,000 Boston.................................................. 1984 108,000 Palo Alto, California................................... 1985 120,000 McLean, Virginia........................................ 1989 130,000 Denver.................................................. 1990 90,000 Minneapolis............................................. 1991 122,000 Scottsdale, Arizona..................................... 1991 116,000 Troy, Michigan.......................................... 1992 157,000 Short Hills, New Jersey................................. 1995 137,000 King of Prussia, Pennsylvania........................... 1996 145,000 Paramus, New Jersey..................................... 1996 148,000 --------- Total................................................... 4,260,000 ========
BERGDORF GOODMAN Bergdorf Goodman Main Store............................. 1901 250,000 Bergdorf Goodman Men.................................... 1990 66,000 --------- Total................................................... 316,000 ========
In addition, the Company plans to open a 160,000 square foot Neiman Marcus store in Honolulu in August 1998. 29 36 COMPETITION The specialty retail industry is highly competitive and fragmented. Moreover, the Company's apparel business is especially dependent upon its designer resources. The Company believes that the principal competitive factors for specialty retail operations are quality, assortment and presentation of merchandise, customer service, store ambience, sales and marketing programs and value, and that the principal competitive factors for direct marketing operations are quality, assortment and presentation of merchandise, customer service, price and speed of delivery. The Company believes that it is a strong competitor in all of these areas. See "Risk Factors -- Competition." Neiman Marcus Stores and Bergdorf Goodman compete with large specialty retailers, traditional and better department stores, national apparel chains, designer boutiques, individual specialty apparel stores and direct marketing firms for customers, quality merchandise and real estate opportunities. NM Direct faces competition from other direct marketing firms which may specialize in one or two merchandise categories and from the direct marketing operations of some of the Company's other competitors. TRADEMARKS AND SERVICE MARKS The Company owns its principal United States trademarks and service marks, including the "Neiman Marcus" and "Bergdorf Goodman" marks. These marks, together with various other marks used by the Company in connection with its business, such as "Horchow(R)" and "Last Call(R)," are registered with the United States Patent and Trademark Office. The term of these registrations is generally ten years, and they generally are renewable indefinitely for additional ten year periods so long as they are in use at the time of renewal. The Company also has registered various of its important trademarks and service marks internationally. The Company vigorously protects its trademarks and service marks and initiates appropriate legal action whenever necessary. EMPLOYEES At August 3, 1996, Neiman Marcus Stores had 11,000 employees, of whom 3,100 were part-time, Bergdorf Goodman had 1,040 employees, of whom 40 were part-time, and NM Direct had 1,100 employees, of whom 500 were part-time. All employee numbers are approximate. None of the employees of Neiman Marcus Stores or NM Direct are subject to collective bargaining agreements. Approximately 12.1% of the Bergdorf Goodman employees are subject to collective bargaining agreements. The Company believes that its relations with its employees are generally good. The Company's staffing requirements fluctuate during the year as a result of the seasonality of the retail apparel industry and, accordingly, the Company generally adds 3,000 to 3,500 more seasonal employees in the second quarter. LITIGATION 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. 30 37 MANAGEMENT RELATIONSHIP WITH HARCOURT GENERAL Richard A. Smith, the Company's Chairman of the Board; Robert J. Tarr, Jr., the President, Chief Executive Officer and Chief Operating Officer; John R. Cook, the Senior Vice President and Chief Financial Officer; and Eric P. Geller, the Senior Vice President and General Counsel, as well as certain other officers, serve in similar capacities with Harcourt General. Mr. Smith and Mr. Tarr also serve as directors of both companies. Under the terms of an Intercompany Services Agreement which has been in place since 1987, Harcourt General provides certain management, accounting, financial, legal, tax, personnel and other corporate services to the Company, including the services of the senior officers mentioned above, in consideration of a fee based on Harcourt General's direct and indirect costs of providing such corporate services. The level of and fees for these services are subject to the approval of a committee of directors of the Company who are independent of Harcourt General. This agreement may be terminated by either party on 180 days' notice. Charges to the Company under this agreement were $6.9 million in fiscal 1996, $6.5 million in fiscal 1995 and $6.9 million in fiscal 1994. DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth the name, age and position of each of the directors and executive officers of the Company.
NAME AGE POSITION - ------------------------ --- ----------------------------------------------------- Richard A. Smith........ 71 Chairman of the Board Robert J. Tarr, Jr. .... 52 President, Chief Executive Officer, Chief Operating Officer and Director Matina S. Horner........ 57 Director Walter J. Salmon........ 65 Director Jean Head Sisco......... 71 Director John R. Cook............ 55 Senior Vice President and Chief Financial Officer Stephen C. Elkin........ 53 Chairman and Chief Executive Officer of Bergdorf Goodman Peter Farwell........... 53 Vice President -- Corporate Relations Bernie Feiwus........... 48 President and Chief Executive Officer of NM Direct Eric P. Geller.......... 49 Senior Vice President and General Counsel Paul F. Gibbons......... 45 Vice President and Treasurer Gerald T. Hughes........ 39 Vice President -- Human Resources Dawn Mello.............. 64 President of Bergdorf Goodman Michael F. Panutich..... 48 Vice President -- General Auditor Stephen C. Richards..... 40 Vice President and Controller Gerald A. Sampson....... 55 President and Chief Operating Officer of Neiman Marcus Stores Craig B. Sawin.......... 40 Vice President -- Planning and Analysis Robert A. Smith......... 37 Group Vice President Burton M. Tansky........ 58 Chairman and Chief Executive Officer of Neiman Marcus Stores
Below are the principal occupations for the last five years of each director and principal executive officer of the Company. Richard A. Smith. Director since 1987. Chairman of the Board of the Company and of Harcourt General; Chairman of the Board, President (until November 1, 1995) and Chief Executive Officer of GC Companies, Inc. since December 1993; Chief Executive Officer of the Company and of Harcourt General until December 1991; Director of Harcourt General, GC Companies, Inc., Liberty Mutual Insurance 31 38 Company, Liberty Mutual Fire Insurance Company, Liberty Financial Companies, Inc., Bank of Boston Corporation and its principal subsidiary, The First National Bank of Boston. Mr. Smith is the father of Robert A. Smith, Group Vice President of the Company and a Director of Harcourt General. Robert J. Tarr, Jr. Director since 1987. President, Chief Executive Officer (since December 1991) and Chief Operating Officer of the Company and of Harcourt General; Director of Harcourt General, Open Market, Inc. and John Hancock Mutual Life Insurance Company. Matina S. Horner. Director since 1993. Executive Vice President of the Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF) and President Emerita of Radcliffe College since 1989; President of Radcliffe College for 17 years prior thereto; Director of Boston Edison Company. Walter J. Salmon. Director since 1987. Stanley Roth, Sr. Professor of Retailing, Graduate School of Business Administration, Harvard University; Director of Hannaford Bros. Co., The Quaker Oats Company, Circuit City Stores, Inc., Luby's Cafeterias, Inc. and Harrah's Entertainment, Inc. Jean Head Sisco. Director since 1987. Partner in Sisco Associates, international management consultants; Director of Textron, Inc., Santa Fe Pacific Gold Corp., Washington Mutual Investors Fund, Chiquita Brands International, Inc., The American Funds Tax-Exempt Series I and K-Tron International, Inc. John R. Cook. Senior Vice President and Chief Financial Officer of the Company and of Harcourt General since September 1992; Senior Vice President -- Finance and Administration and Chief Financial Officer of NACCO Industries, Inc. prior thereto. Stephen C. Elkin. Chairman and Chief Executive Officer of Bergdorf Goodman since May 1994; President and Chief Operating Officer of Bergdorf Goodman prior thereto. Bernie Feiwus. President and Chief Executive Officer of NM Direct since October 1991; Executive Vice President of Neiman Marcus Stores -- Horchow Mail Order Division from March 1991 to October 1991. Eric P. Geller. Senior Vice President and General Counsel of the Company and of Harcourt General since May 1992; Secretary of the Company since January 1992 and of Harcourt General since December 1991; Vice President, Associate General Counsel and Assistant Secretary of the Company and of Harcourt General prior thereto. Dawn Mello. President of Bergdorf Goodman since May 1994 and from 1983 to 1989; Executive Vice President and Creative Director Worldwide of Guccio Gucci Spa from October 1989 to May 1994. Gerald A. Sampson. President and Chief Operating Officer of Neiman Marcus Stores since April 1993; Chairman of May Company California, a division of May Department Stores Company, from 1991 to January 1993. Robert A. Smith. Group Vice President of the Company since January 1992 and of Harcourt General since December 1991; President and Chief Operating Officer of GC Companies, Inc. since November 1, 1995; Vice President -- Corporate Development of the Company from March 1989 to January 1992; Vice President -- Corporate Development of Harcourt General from December 1988 to December 1991; Director of Harcourt General. Mr. Smith is the son of Richard A. Smith, the Chairman of the Company and Harcourt General. Burton M. Tansky. Chairman and Chief Executive Officer of Neiman Marcus Stores since May 1994; Chairman and Chief Executive Officer of Bergdorf Goodman from February 1992 to May 1994; Vice Chairman of Bergdorf Goodman from February 1991 to February 1992. 32 39 PRINCIPAL STOCKHOLDERS STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information, as of August 3, 1996, with respect to the beneficial ownership of the Common Stock of the Company prior to giving effect to the Transactions by (i) each person known to the Company to own beneficially more than 5% of the outstanding shares of Common Stock; (ii) certain executive officers of the Company; (iii) each director of the Company; and (iv) all directors and executive officers of the Company as a group. After giving effect to the Transactions, assuming a price to public of the reported last sale price of the Common Stock set forth on the cover of this Prospectus, Harcourt General would have owned 26,415,776 shares of Common Stock representing approximately 53% of the outstanding shares of Common Stock.
SHARES OWNED BENEFICIALLY --------------------- NUMBER PERCENT ------ ------- NAME AND ADDRESS OF BENEFICIAL OWNER(1) Harcourt General, Inc.(2)....................................... 22,572,360 59.4% 27 Boylston Street Chestnut Hill, MA 02167 Gabelli Funds, Inc.(3).......................................... 5,391,800 14.2% One Corporate Center Rye, NY 10580 Neuberger & Berman, L.P.(4)..................................... 2,384,300 6.3% 605 Third Avenue New York, NY 10158 Burton M. Tansky(5)............................................. 69,900 * Gerald A. Sampson(6)............................................ 29,400 * Stephen Elkin(7)................................................ 77,380 * Dawn Mello(8)................................................... 8,000 * Bernie Feiwus(9)................................................ 29,784 * Matina S. Horner................................................ -- * Walter J. Salmon................................................ 8,942 * Jean Head Sisco................................................. 1,134 * Richard A. Smith(10)............................................ -- * Robert J. Tarr, Jr.(10)......................................... -- * All current executive officers and directors as a group (19 224,540 * persons)(11).................................................. - ------------ * Less than 1%. (1) Unless otherwise indicated in the following footnotes, each stockholder referred to above has sole voting and investment power with respect to the shares listed. (2) Harcourt General owns 500,000 shares of 9 1/4% Preferred Stock and 1,000,000 shares of 6% Preferred Stock, representing all of the Company's issued and outstanding preferred stock. The Company will repurchase all of its shares of Preferred Stock owned by Harcourt General in the Transactions. See "Description of Transactions: Use of Proceeds." Richard A. Smith, Chairman of the Board of the Company and of Harcourt General, his sister, Nancy L. Marks, and certain members of their families may be regarded as controlling persons of Harcourt General, and therefore of the Company. The shares of Harcourt General Class B Stock and Harcourt General Common Stock beneficially owned by or for the benefit of the Smith family constitute approximately 28% of the aggregate number of outstanding equity securities of Harcourt General. Each share of Harcourt General voting stock is entitled to one vote on all matters submitted to Harcourt General's stockholders, except that each share of the Harcourt General Class B Stock (virtually all of which is owned by the Smith family) is entitled to ten votes on the election of directors at any Harcourt General stockholders' meeting under certain
33 40 circumstances. Accordingly, as to any elections in which the Harcourt General Class B Stock would carry ten votes per share at a Harcourt General stockholders' meeting, the Smith family would have approximately 80% of the combined voting power of the Harcourt General voting securities. Under the definition of "beneficial ownership" in Rule 13d-3 of the Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended, the Smith family and the members of Harcourt General's Board of Directors may be deemed to be the beneficial owners of the securities of the Company beneficially owned by Harcourt General in that they may be deemed to share with Harcourt General the power to direct the voting and/or disposition of such securities. However, this information should not be deemed to constitute an admission that any such person or group of persons is the beneficial owner of such securities. See "Risk Factors -- Control by Principal Stockholder." (3) The information reported is based on a Schedule 13D dated July 10, 1995 filed with the Commission by the Gabelli Funds, Inc. and its affiliates (collectively, the "Gabelli Affiliates"). The Gabelli Affiliates have sole voting power with respect to 5,115,900 shares and sole dispositive power with respect to all of the shares shown in the table. (4) The information reported is based on a Schedule 13G dated February 12, 1996 filed with the Commission by Neuberger & Berman, L.P. Neuberger & Berman has sole voting power with respect to 215,700 shares shown in the table. (5) Includes 59,900 shares of Common Stock which are subject to outstanding options exercisable within 60 days of August 3, 1996. Also includes 10,000 shares of restricted stock over which Mr. Tansky has voting but not dispositive power. (6) Includes 8,400 shares of Common Stock which are subject to outstanding options exercisable within 60 days of August 3, 1996. Also includes 4,000 shares of restricted stock over which Mr. Sampson has voting but not dispositive power. (7) Includes 54,350 shares of Common Stock which are subject to outstanding options exercisable within 60 days of August 3, 1996. Also includes 8,500 shares of restricted stock over which Mr. Elkin has voting but not dispositive power. (8) Includes 4,500 shares of Common Stock which are subject to outstanding options exercisable within 60 days of August 3, 1996. Also includes 3,500 shares of restricted stock over which Ms. Mello has voting but not dispositive power. (9) Includes 6,500 shares of Common Stock which are subject to outstanding options exercisable within 60 days of August 3, 1996. Also includes 5,400 shares of restricted stock over which Mr. Feiwus has voting but not dispositive power. (10) The members of the Board of Directors of Harcourt General, including Messrs. Smith and Tarr, may be deemed to be the beneficial owners of the securities of the Company owned by Harcourt General. However, this information should not be deemed to be an admission that any such person or group is the beneficial owner of such securities. (11) Excludes the beneficial ownership of securities of the Company which may be deemed to be attributed to Messrs. Smith and Tarr (see Notes 2 and 10 above). Includes 133,650 shares of Common Stock which are subject to outstanding options exercisable within 60 days of August 3, 1996. Also includes 31,400 shares of restricted stock over which individuals in the group have voting but not dispositive power. 34 41 DESCRIPTION OF CAPITAL STOCK Upon completion of the Transactions, the Company's authorized capital stock will consist of 50 million shares of preferred stock, $.01 par value, none of which will be issued and outstanding, and 100 million shares of Common Stock, $.01 par value per share, of which 49,847,118 shares will be issued and outstanding (51,047,118 if the U.S. Underwriters over allotment option is exercised) assuming a price to public of the reported last sale price of the Common Stock set forth on the cover of this Prospectus. The following summary description of the Company's capital stock is not intended to be complete and is subject to and qualified in its entirety by reference to the provisions of applicable law and to the pertinent sections of the Company's Restated Certificate of Incorporation (the "Charter") and by-laws (the "By-Laws"). COMMON STOCK The holders of Common Stock are entitled to one vote for each share of Common Stock on all matters voted on by stockholders, including the election of directors. The holders of Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors out of assets legally available therefor, provided that if any shares of any series of preferred stock which has a preference with respect to the payment of dividends are at the time outstanding, no dividends or distributions (other than dividends or distributions payable in Common Stock) may be paid with respect to Common Stock and no Common Stock shall be purchased by the Company, unless at the time of declaration and payment or purchase, as the case may be, full cumulative dividends have been paid, and no arrearage in any mandatory sinking fund exists, on such outstanding shares of preferred stock. The Company does not anticipate paying cash dividends on the Common Stock in the foreseeable future. See "Dividend Policy." The holders of Common Stock do not have any cumulative voting, conversion, redemption or preemptive rights. Upon the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to receive ratably the net assets of the Company available after the payment of all debts and other liabilities of the Company, subject to the prior rights of any outstanding preferred stock. The rights, powers, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which the Company may designate and issue in the future. PREFERRED STOCK The Charter provides that the Company is authorized to issue up to 50,000,000 shares of preferred stock, par value $.01 per share. Upon completion of the Transactions, no shares of preferred stock will be issued and outstanding. See "Description of Transactions; Use of Proceeds." Shares of preferred stock may be issued from time to time in one or more classes or series, each of which class or series shall have such distinctive designation or title as shall be fixed by the Board of Directors of the Company prior to the issuance of any such shares. Each such series of preferred stock shall have such number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by the Board of Directors, which may include, among others, dividend rights, voting rights, redemption and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights. The stockholders of the Company have granted the Board of Directors authority to issue the preferred stock and to determine its rights and preferences in order to eliminate delays associated with a stockholder vote on specific issuances. The rights of the holders of Common Stock will be subject to the rights of holders of any preferred stock issued in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could adversely affect the voting power or other rights of the holders of Common Stock, and could make it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, a majority of the outstanding voting stock of the Company. The Company has no present plans to issue any shares of preferred stock. DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS The Company is incorporated under the Delaware General Corporation Law (the "DGCL"). The Company is subject to Section 203 of the DGCL, which restricts certain transactions and "business 35 42 combinations" between a Delaware corporation and an "interested stockholder" (in general, a stockholder owning 15% or more of the corporation's outstanding voting stock) or an affiliate or associate of an interested stockholder, for a period of three years from the date the stockholder becomes an interested stockholder. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, unless the transaction is approved by the Board of Directors and the holders of at least 66 2/3% of the outstanding voting stock of the corporation (excluding shares held by the interested stockholder), Section 203 prohibits significant business transactions such as a merger with, disposition of assets to or receipt of disproportionate financial benefits by the interested stockholder, or any other transaction that would increase the interested stockholder's proportionate ownership of any class or series of the corporation's stock. The statutory ban does not apply if, upon consummation of the transaction in which any person becomes an interested stockholder, the interested stockholder owns at least 85% of the outstanding voting stock of the corporation (excluding shares held by persons who are both directors and officers or by certain employee stock plans). Transactions between Harcourt General and the Company are not subject to Section 203. The Charter also provides that: (i) the Board of Directors of the Company shall be classified into three classes, as nearly equal in number as possible, each class to serve for three years, with one class elected each year (the "Classified Board Provision"), (ii) holders of Common Stock may not act without a meeting (the "Consent Provision"), (iii) stockholders of the Company may not call a special meeting of stockholders (the "Stockholder Meeting Provision") and (iv) the affirmative vote of the holders of at least 66 2/3% of the combined voting power of all of the voting securities of the Company, voting together as a single class, will be required to alter, amend or repeal the Consent Provision, the Stockholder Meeting Provision, the Classified Board Provision or the By-Laws Supermajority Provisions (as defined below) or to adopt any provision inconsistent therewith (the "Certificate Supermajority Provision") and further, such 66 2/3% approval is required to alter, amend or repeal the Certificate Supermajority Provision or to adopt any provision inconsistent therewith. As a result of the Certificate Supermajority Provision, the various provisions discussed above may not be altered, amended or repealed without the consent of Harcourt General by virtue of its voting interest in the Company, which will represent in excess of fifty percent of the total voting power of all voting shares of the Company following the completion of the Transactions. The By-Laws provide, among other things, that except for the rights of the holders of preferred stock issued by the Company to elect directors under specified circumstances, nominations for the election of directors may be made by the Board of Directors of the Company or a committee appointed by it 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 director at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given to the Secretary of the Company within specified times and includes certain required information. The foregoing provision of the By-Laws is hereinafter referred to as the "Nomination Provision." The purpose of the Nomination Provision, by requiring advance notice of nominations by stockholders, is to afford the Board of Directors of the Company a meaningful opportunity to consider the qualifications of the proposed nominees and, to the extent deemed necessary or desirable by the Board of Directors, to inform stockholders about such qualifications. Although the Nomination Provision does not give the Company's Board of Directors any power to approve or disapprove of stockholder nominations for the election of directors, the Nomination Provision may have the effect of precluding a nomination for the election of directors at a particular annual meeting if the proper procedures are not followed. The By-Laws may be amended, altered, rescinded or repealed at any meeting of the Board of Directors of the Company or of the stockholders'; provided, however, that the affirmative vote of the holders of at least 66 2/3% of the combined voting power of all the then outstanding shares of the voting securities of the Company, voting together as a single class, will be required to amend, alter, rescind or repeal Section 3 of Article II, Sections 1, 2 and 10 of Article III, Article VIII or Article IX of the By-Laws (the "By-Laws Supermajority Provisions"), each of which is described below. Section 3 of Article II of the By-Laws identifies, among other things, the persons who are authorized to call a special meeting of stockholders of the Company, which does not include the stockholders of the 36 43 Company. Except for the rights of the holders of preferred stock issued by the Company to elect directors under specified circumstances, (i) Section 1 of Article III of the By-Laws provides, among other things, that the Company's Board of Directors shall consist of not less than three nor more than nine persons, the exact number to be fixed from time to time exclusively by the Board of Directors of the Company pursuant to a resolution adopted by a majority of the entire Board of Directors and (ii) Section 2 of Article III of the By-Laws provides, among other things, that newly created directorships resulting from death, resignation, retirement, disqualification, removal from office or other causes may be filled only by a majority vote of the directors then in office, even though less than a quorum of the Board of Directors act at a regular or special meeting. Section 10 of Article III of the By-Laws contains the Nomination Provision. Article VIII of the By-Laws provides, among other things, for the indemnification by the Company of officers and directors of the Company under certain circumstances. Pursuant to Article IX of the Bylaws, Article IX and the other By-Laws Supermajority Provisions may not be amended, altered, rescinded or repealed without the consent of Harcourt General by virtue of its voting interest in the Company, which will represent in excess of fifty percent of the total voting power of all voting shares of the Company following the consummation of the Transactions. The Classified Board Provision, the Consent Provision, the Stockholder Meeting Provision, the Nomination Provision, the Certificate Supermajority Provision, the By-Laws Supermajority Provisions and Section 203 of the DGCL described above may make more difficult or discourage the removal of Company management, which some or a majority of holders of shares of the Company may believe to be beneficial, and may make more difficult a proxy contest or certain mergers involving the Company or a tender offer, open market purchase program or other purchases of Common Stock in circumstances that would give stockholders the opportunity to realize a premium on their Common Stock over the then prevailing market prices, which some or a majority of such holders may deem to be in their best interests. TRANSFER AGENT The transfer agent and registrar for the Common Stock is Boston EquiServe Limited Partnership. 37 44 UNDERWRITERS Under the terms and subject to the conditions in the Underwriting Agreement, dated the date of this Prospectus (the "Underwriting Agreement"), the Company has agreed to sell 8,000,000 shares of Common Stock, and the U.S. Underwriters named below, for whom Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and Salomon Brothers Inc are serving as U.S. Representatives, have severally agreed to purchase, and the International Underwriters named below, for whom Morgan Stanley & Co. International Limited, Goldman Sachs International and Salomon Brothers International Limited are serving as International Representatives, have severally agreed to purchase, the respective number of shares of Common Stock set forth opposite their names below:
NUMBER OF NAME SHARES -------------------------------------------------------------------------- --------- U.S. Underwriters: Morgan Stanley & Co. Incorporated....................................... Goldman, Sachs & Co..................................................... Salomon Brothers Inc.................................................... Subtotal........................................................ 6,400,000 --------- International Underwriters: Morgan Stanley & Co. International Limited.............................. Goldman Sachs International............................................. Salomon Brothers International Limited.................................. Subtotal........................................................ 1,600,000 --------- Total...................................................... 8,000,000 =========
The U.S. Underwriters and the International Underwriters are collectively referred to as the "Underwriters." The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to the approval of certain legal matters by counsel and to certain other conditions. The Underwriters are obligated to take and pay for all the shares of Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. Pursuant to the Agreement Between U.S. and International Underwriters, each U.S. Underwriter has represented and agreed that, with certain exceptions, (a) it is not purchasing any U.S. Shares (as defined below) being sold by it for the account of anyone other than a United States or Canadian Person (as defined below); and (b) it has not offered or sold, and will not offer or sell, directly or indirectly, any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside the United States or Canada or to anyone other than a United States or Canadian Person. Pursuant to the Agreement Between U.S. and International Underwriters, each International Underwriter has represented and agreed that, with certain exceptions, (a) it is not purchasing any International Shares (as defined below) being sold by it for the account of any United States or Canadian Person; and (b) it has not offered or sold, and will not offer or sell, directly or indirectly, any International Shares or distribute any prospectus relating to the International Shares within the United States or Canada or to any United States or Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and an International Underwriter, the foregoing representations and agreements (i) made by it in its capacity as a U.S. Underwriter shall apply only to shares purchased by it in its capacity as a U.S. 38 45 Underwriter, (ii) made by it in its capacity as an International Underwriter shall apply only to shares purchased by it in its capacity as an International Underwriter, and (iii) do not restrict its ability to distribute any prospectus relating to the shares of Common Stock to any person. The foregoing limitations do not apply to stabilization actions or to certain other transactions specified in the Agreement Between U.S. and International Underwriters. As used herein, "United States or Canadian Person" means any national or resident of the United States or Canada or any corporation, pension, profit-sharing or other trust or other entity organized under the laws of the United States or Canada or of any political subdivision thereof (other than a branch located outside the United States and Canada of any United States or Canadian Person) and includes any United States or Canadian branch of a person who is otherwise not a United States or Canadian Person. All shares of Common Stock to be purchased by the U.S. Underwriters and the International Underwriters under the Underwriting Agreement are referred to herein as the U.S. Shares and the International Shares, respectively. Pursuant to the Agreement Between U.S. and International Underwriters, sales may be made between the U.S. Underwriters and International Underwriters of any number of shares of Common Stock to be purchased pursuant to the Underwriting Agreement as may be mutually agreed. The per share price of any shares so sold shall be the Price to Public set forth on the cover page hereof, in United States dollars, less an amount not greater than the per share amount of the concession to dealers set forth below. Pursuant to the Agreement Between U.S. and International Underwriters, each U.S. Underwriter has represented that it has not offered or sold, and has agreed not to offer or sell, any shares of Common Stock, directly or indirectly, in Canada in contravention of the securities laws of Canada or any province or territory thereof and has represented that any offer of shares of Common Stock in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province or territory of Canada in which such offer is made. Each U.S. Underwriter has further agreed to send to any dealer who purchases from it any shares of Common Stock a notice stating in substance that, by purchasing such shares of Common Stock, such dealer represents and agrees that it has not offered or sold, and will not offer or sell, directly or indirectly, any of such shares of Common Stock in Canada or to, or for the benefit of, any resident of Canada in contravention of the securities laws of Canada or any province or territory thereof and that any offer of shares of Common Stock in Canada will be made only pursuant to an exemption from the requirement to file a prospectus in the province of Canada in which such offer is made, and that such dealer will deliver to any other dealer to whom it sells any of such shares of Common Stock a notice to the foregoing effect. Pursuant to the Agreement Between U.S. and International Underwriters, each International Underwriter has represented and agreed that (a) it has not offered or sold and will not, during the period of six months from the date of the Offering, offer or sell any shares of Common Stock in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations (1995) (the "Regulations"); (b) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 and the Regulations with respect to anything done by it in relation to the shares of Common Stock offered hereby in, from or otherwise involving the United Kingdom; and (c) it has only issued or passed on and will only issue or pass on to any person in the United Kingdom any document received by it in connection with the issue of the shares of Common Stock if that person is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995, or to any person to whom the document may lawfully be issued or passed on. Pursuant to the Agreement Between U.S. and International Underwriters, each International Underwriter has represented and agreed that it has not offered or sold, and agrees not to offer or sell, directly or indirectly, in Japan or to or for the account of any resident thereof, any of the shares of Common Stock acquired in connection with the distribution contemplated hereby, except for offers or sales to Japanese International Underwriters or dealers and except pursuant to an exemption from the registration requirements of the Securities and Exchange Law of Japan. Each International Underwriter further agrees to send to any dealer who purchases from it any of the shares of Common Stock a notice stating in substance that, by 39 46 purchasing such shares, such dealer represents and agrees that it has not offered or sold and will not offer or sell any of such shares, directly or indirectly in Japan or to or for the account of any resident thereof except pursuant to an exemption from the registration requirements of the Securities and Exchange Law of Japan, and that such dealer will send to any other dealer to whom it sells any of such shares of Common Stock a notice containing substantially the same statement as contained in the foregoing. The Underwriters propose to offer part of the shares of Common Stock directly to the public at the Price to Public set forth on the cover page hereof and part to certain dealers at a price which represents a concession not in excess of $ a share below the public offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ a share to other Underwriters or to certain dealers. After the initial offering of the shares of Common Stock, the offering price and other selling terms may from time to time be varied by the Underwriters. Pursuant to the Underwriting Agreement, the Company has granted the U.S. Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to 1,200,000 additional shares of Common Stock at the Price to Public set forth on the cover page hereof, less underwriting discounts and commissions. The U.S. Underwriters may exercise such option to purchase solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of Common Stock offered hereby. To the extent such option is exercised, each U.S. Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of Common Stock as the number set forth next to such U.S. Underwriter's name in the preceding table bears to the total number of shares of Common Stock offered by the U.S. Underwriters hereby. The Company, Harcourt General and all of the Company's executive officers and directors have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated, they will not (a) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (whether such shares or any such securities are then owned by such person or are thereafter acquired), or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (a) or (b) of this paragraph is to be settled by delivery of such Common Stock or such other securities, in cash or otherwise, for a period of 90 days after the date of this Prospectus, other than (i) the sale to the Underwriters of the shares of Common Stock under the Underwriting Agreement; (ii) in connection with the Stock Payment; (iii) the grant by the Company of options to purchase shares of Common Stock pursuant to an existing employee benefit plan of the Company; (iv) the issuance by the Company of shares of Common Stock upon the exercise of an option granted pursuant to an existing employee benefit plan of the Company; or (v) surrendering an option to purchase Common Stock in exchange for a cash payment equal to the value of the option. The Company and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. The Common Stock is traded on the NYSE under the symbol "NMG." The Underwriters have informed the Company that they do not intend to confirm sales to any accounts over which they exercise discretionary authority. From time to time in the ordinary course of their businesses, certain of the Underwriters and their affiliates have provided and may in the future provide investment banking services and have engaged and may in the future engage in general financing and banking transactions with the Company and Harcourt General, for which they have received or will receive customary fees and commissions. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Ropes & Gray and for the Underwriters by Davis Polk & Wardwell. 40 47 EXPERTS The consolidated balance sheets of the Company as of August 3, 1996 and July 29, 1995 and the consolidated statements of operations, common shareholders' equity and cash flows and schedule for each of the three years in the period ended August 3, 1996 have been included herein and incorporated herein by reference in reliance on the reports of Deloitte & Touche LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. 41 48 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report.......................................................... F-2 Consolidated Balance Sheets........................................................... F-3 Consolidated Statements of Operations................................................. F-4 Consolidated Statements of Cash Flows................................................. F-5 Consolidated Statements of Common Shareholders' Equity................................ F-6 Notes to Consolidated Financial Statements............................................ F-7
F-1 49 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders The Neiman Marcus Group, Inc. Chestnut Hill, Massachusetts We have audited the accompanying consolidated balance sheets of The Neiman Marcus Group, Inc. and subsidiaries as of August 3, 1996 and July 29, 1995, and the related consolidated statements of operations, common shareholders' equity and cash flows for each of the three fiscal years in the period ended August 3, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Neiman Marcus Group, Inc. and subsidiaries as of August 3, 1996 and July 29, 1995, and the results of their operations and their cash flows for each of the three fiscal years in the period ended August 3, 1996, in conformity with generally accepted accounting principles. Deloitte & Touche LLP Boston, Massachusetts August 29, 1996, (September 10, 1996 as to Note 13) F-2 50 THE NEIMAN MARCUS GROUP, INC. CONSOLIDATED BALANCE SHEETS
JULY 29, AUGUST 3, 1995 1996 ---------- ---------- (DOLLAR AMOUNTS IN THOUSANDS) ASSETS CURRENT ASSETS Cash and equivalents.............................................. $ 13,695 $ 12,659 Accounts receivable, less allowance for doubtful accounts of $6,100 and $5,800.............................................. 150,110 165,442 Merchandise inventories........................................... 359,092 443,948 Deferred income taxes............................................. 17,102 21,666 Other current assets.............................................. 38,410 45,368 ---------- ---------- TOTAL CURRENT ASSETS...................................... 578,409 689,083 ---------- ---------- PROPERTY AND EQUIPMENT Land, buildings and improvements.................................. 342,551 396,541 Fixtures and equipment............................................ 200,664 271,852 Construction in progress.......................................... 84,956 36,431 ---------- ---------- 628,171 704,824 Less accumulated depreciation and amortization.................... 204,588 247,199 ---------- ---------- PROPERTY AND EQUIPMENT, NET....................................... 423,583 457,625 ---------- ---------- OTHER ASSETS........................................................ 106,445 105,642 ---------- ---------- $1,108,437 $1,252,350 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable and current maturities of long-term liabilities..... $ 11,859 $ 35,576 Accounts payable.................................................. 170,672 192,146 Accrued liabilities............................................... 152,049 146,326 ---------- ---------- TOTAL CURRENT LIABILITIES................................. 334,580 374,048 ---------- ---------- LONG-TERM LIABILITIES Notes and debentures.............................................. 242,000 292,000 Other long-term liabilities....................................... 69,056 69,940 ---------- ---------- TOTAL LONG-TERM LIABILITIES............................... 311,056 361,940 ---------- ---------- DEFERRED INCOME TAXES............................................... 30,812 33,329 COMMITMENTS AND CONTINGENCIES REDEEMABLE PREFERRED STOCKS (redemption value $424,923)............. 405,442 407,426 COMMON STOCK Common stock -- $.01 par value Authorized -- 100,000,000 shares Issued and outstanding -- 37,959,646 and 38,003,702 shares..... 380 380 ADDITIONAL PAID-IN CAPITAL.......................................... 82,366 83,106 ACCUMULATED DEFICIT................................................. (56,199) (7,879) ---------- ---------- $1,108,437 $1,252,350 ========== ==========
See Notes to Consolidated Financial Statements. F-3 51 THE NEIMAN MARCUS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED ---------------------------------------- JULY 30, JULY 29, AUGUST 3, 1994 1995 1996 ---------- ---------- ---------- (IN THOUSANDS EXCEPT FOR PER SHARE DATA) Revenues............................................... $1,789,461 $1,888,249 $2,075,003 Cost of goods sold including buying and occupancy costs................................................ 1,210,262 1,276,776 1,416,296 Selling, general and administrative expenses........... 420,667 448,956 485,533 Corporate expenses..................................... 13,411 12,465 13,719 ---------- ---------- ---------- Operating earnings..................................... 145,121 150,052 159,455 Interest expense....................................... 31,878 33,958 28,228 ---------- ---------- ---------- Earnings from continuing operations before income taxes................................................ 113,243 116,094 131,227 Income taxes........................................... 47,562 48,759 53,803 ---------- ---------- ---------- Earnings from continuing operations.................... 65,681 67,335 77,424 Loss from discontinued operations, net of taxes (including loss on disposal of $9,873 in 1995)....... (49,755) (11,727) -- ---------- ---------- ---------- Net earnings........................................... 15,926 55,608 77,424 Dividends and accretion on redeemable preferred stocks............................................... (29,080) (29,092) (29,104) ---------- ---------- ---------- Net earnings (loss) applicable to common shareholders......................................... ($ 13,154) $ 26,516 $ 48,320 ========== ========== ========== Weighted average shares outstanding.................... 37,946 37,999 38,218 ========== ========== ========== Amounts per share applicable to common shareholders: Earnings from continuing operations.................. $ .96 $ 1.01 $ 1.26 Loss from discontinued operations.................... (1.31) (.31) -- ---------- ---------- ---------- Net earnings (loss).................................. ($ .35) $ .70 $ 1.26 ========== ========== ==========
See Notes to Consolidated Financial Statements. F-4 52 THE NEIMAN MARCUS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED -------------------------------- JULY 30, JULY 29, AUGUST 3, 1994 1995 1996 ------- -------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net earnings................................................... $15,926 $ 55,608 $77,424 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization................................ 48,086 48,397 56,305 Deferred income taxes........................................ (7,131) 259 (2,047) Change in net assets of discontinued operations.............. 22,162 8,317 -- Other........................................................ 4,963 (3,479) 2,447 Changes in current assets and liabilities: Accounts receivable.......................................... (52,664) (34,584) (15,332) Merchandise inventories...................................... 17,422 (38,709) (84,856) Accounts payable and accrued liabilities..................... (1,975) 63,005 15,751 Other........................................................ (13,203) 6,846 (6,958) -------- --------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES...................... 33,586 105,660 42,734 -------- --------- -------- CASH FLOWS USED FOR INVESTING ACTIVITIES Additions to property and equipment............................ (65,074) (93,514) (85,736) -------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings of debt............................................. 73,800 17,065 109,917 Repayment of debt.............................................. (11,307) (247,276) (41,571) Proceeds from receivables securitization....................... -- 245,965 -- Common stock issued............................................ 100 112 740 Dividends paid................................................. (34,709) (30,917) (27,120) -------- --------- -------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES........... 27,884 (15,051) 41,966 -------- --------- -------- CASH AND EQUIVALENTS Decrease during the year....................................... (3,604) (2,905) (1,036) Beginning balance.............................................. 20,204 16,600 13,695 -------- --------- -------- Ending balance................................................. $16,600 $ 13,695 $12,659 ======== ========= ======== SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash paid during the year for: Interest..................................................... $31,504 $ 34,466 $27,816 ======== ========= ======== Income taxes................................................. $34,258 $ 17,614 $56,523 ======== ========= ========
See Notes to Consolidated Financial Statements. F-5 53 THE NEIMAN MARCUS GROUP, INC. CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
COMMON STOCK ADDITIONAL --------------- PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT ------ ------ ---------- ----------- (IN THOUSANDS) Balance -- August 1, 1993............................ 37,938 $379 $ 82,154 ($ 58,175) Net earnings......................................... -- -- -- 15,926 Accretion of redeemable preferred stock.............. -- -- -- (1,960) Common dividends..................................... -- -- -- (7,589) Preferred dividends.................................. -- -- -- (27,120) Other equity transactions............................ 13 1 100 -- ------ ---- ------- ------- Balance -- July 30, 1994............................. 37,951 380 82,254 (78,918) Net earnings......................................... -- -- -- 55,608 Accretion of redeemable preferred stock.............. -- -- -- (1,972) Common dividends..................................... -- -- -- (3,797) Preferred dividends.................................. -- -- -- (27,120) Other equity transactions............................ 9 -- 112 -- ------ ---- ------- ------- Balance -- July 29, 1995............................. 37,960 380 82,366 (56,199) Net earnings......................................... -- -- -- 77,424 Accretion of redeemable preferred stock.............. -- -- -- (1,984) Preferred dividends.................................. -- -- -- (27,120) Other equity transactions............................ 44 -- 740 -- ------ ---- ------- ------- Balance -- August 3, 1996............................ 38,004 $380 $ 83,106 ($ 7,879) ====== ==== ======= =======
See Notes to Consolidated Financial Statements. F-6 54 THE NEIMAN MARCUS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF REPORTING The Company's specialty retailing businesses include Neiman Marcus Stores, NM Direct and Bergdorf Goodman. The consolidated financial statements include the accounts of all of the Company's wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company's fiscal year ends on the Saturday closest to July 31. In fiscal 1996, the reporting period included 53 weeks as compared to 52 weeks in each of fiscal years 1995 and 1994. CASH AND EQUIVALENTS Cash and equivalents consist of cash and highly liquid investments with maturities of three months or less from the date of purchase. MERCHANDISE INVENTORIES Inventories are stated at the lower of cost or market. Substantially all of the Company's inventories are valued using the retail method on the last-in, first-out (LIFO) basis. While the Company believes that the LIFO method provides a better matching of costs and revenues, some specialty retailers use the first-in, first-out (FIFO) method and, accordingly, the Company has provided the following data for comparative purposes. If the FIFO method of inventory valuation had been used to value all inventories, merchandise inventories would have been $13.5 million and $14.2 million higher than reported at August 3, 1996 and July 29, 1995, respectively. As a result of using the LIFO valuation method, net earnings were $0.4 million higher in 1996, $6.0 million higher in 1995, and $1.4 million lower in 1994 than they would have been using the FIFO method. DEPRECIATION AND AMORTIZATION Depreciation and amortization are provided on a straight-line basis over the shorter of the estimated useful lives of the related assets or the lease term. Buildings and improvements are depreciated over 15 to 30 years while fixtures and equipment are depreciated over 2 to 15 years. When property and equipment are retired or have been fully depreciated, the cost and the related accumulated depreciation are eliminated from the respective accounts. Gains or losses arising from dispositions are reported as income or expense. Intangibles are amortized on a straight-line basis over their estimated useful lives, not exceeding 40 years. Amortization expense was $3.7 million in 1996, $3.7 million in 1995 and $3.8 million in 1994. In 1996 the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and determined that no impairment loss need be recognized. On an annual basis the Company compares the carrying value of its long-lived assets against projected undiscounted cash flows to determine any impairment and to evaluate the reasonableness of the depreciation or amortization periods. INCOME TAXES Income taxes are calculated in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes." SFAS 109 requires the asset and liability method of accounting for income taxes. F-7 55 THE NEIMAN MARCUS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) RECEIVABLES AND FINANCE CHARGE INCOME The Company's credit operations generate finance charge income, which is recognized as income when earned and is recorded as a reduction of selling, general and administrative expenses. Finance charge income amounted to $47.7 million in 1996, $55.9 million in 1995 and $54.3 million in 1994. The securitization of the Company's credit card receivables, which was completed in March 1995, had the effect of reducing finance charge income by $19.0 million in 1996 and $7.1 million in 1995. Concentration of credit risk with respect to trade receivables is limited due to the large number of customers to whom the Company extends credit. Ongoing credit evaluation of customers' financial position is performed, and collateral is not required as a condition of extending credit. The Company maintains reserves for potential credit losses. EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE Earnings (loss) per share information reflects the earnings and losses of the Company applicable to common shareholders. The dividend and accretion requirements of the redeemable preferred stocks are deducted from earnings from continuing operations of the Company to arrive at net earnings (loss) applicable to common shareholders. Earnings (loss) per common share is based upon the weighted average number of common and, when dilutive, common equivalent shares outstanding during the year. PREOPENING EXPENSES Costs associated with the opening of new stores are expensed as incurred. SIGNIFICANT ESTIMATES In the process of preparing its consolidated financial statements, the Company estimates the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. The primary estimates underlying the Company's consolidated financial statements include allowances for doubtful accounts, accruals for pension and postretirement benefits and other matters. Actual results could differ from these estimates. Management bases its estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances. RECLASSIFICATIONS Certain reclassifications have been made to the 1995 and 1994 financial statements to conform to the 1996 presentation. 2. DISCONTINUED OPERATIONS On June 30, 1995, the Company sold its Contempo Casuals operations to The Wet Seal, Inc. for approximately $1.0 million of Wet Seal Class A Common Stock and $100,000 in cash. The consolidated financial statements have been restated to present Contempo Casuals as a discontinued operation. The losses from discontinued operations recorded for the fiscal years ended 1995 and 1994 are net of applicable income tax benefits of $1.3 million and $36.0 million, respectively. The loss on disposal in 1995 of $9.9 million is net of $7.1 million of applicable income tax benefits. Revenues related to the discontinued Contempo Casuals operations were $207.2 million in 1995 and $303.4 million in 1994. F-8 56 THE NEIMAN MARCUS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. OTHER ASSETS Other assets consisted of the following:
AUGUST JULY 29, 3, 1995 1996 -------- -------- (IN THOUSANDS) Trademarks................................................... $ 73,000 $ 73,000 Goodwill..................................................... 22,729 22,729 Other assets................................................. 35,805 38,677 -------- -------- 131,534 134,406 Accumulated amortization..................................... (25,089) (28,764) -------- -------- $106,445 $105,642 ======== ========
4. ACCRUED LIABILITIES Accrued liabilities consisted of the following:
AUGUST JULY 29, 3, 1995 1996 -------- -------- (IN THOUSANDS) Accrued salaries and related charges......................... $ 29,878 $ 26,336 Self-insurance reserves...................................... 27,433 27,860 Income taxes payable......................................... 17,957 17,285 Other........................................................ 76,781 74,845 -------- -------- $152,049 $146,326 ======== ========
5. LONG-TERM LIABILITIES Long-term liabilities consisted of the following:
AUGUST INTEREST JULY 29, 3, RATE 1995 1996 ---------- -------- -------- (IN THOUSANDS) Revolving credit agreement (a).................... Variable $ 77,100 $186,500 Senior notes (b).................................. Various 172,000 132,000 Capital lease obligations (c)..................... 7.63-10.25% 7,206 6,697 Other long-term liabilities (d)................... Various 66,609 72,319 -------- -------- Total long-term liabilities....................... 322,915 397,516 Less current maturities........................... (11,859) (35,576) -------- -------- $311,056 $361,940 ======== ========
(a) The Company has a five year, $500 million revolving credit facility which expires in April, 2000. The Company may terminate this agreement at any time on three business days' notice. The rate of interest payable (5.9% at August 3, 1996) varies according to one of four pricing options selected by the Company. The revolving credit facility contains, among other restrictions, provisions limiting the issuance of additional debt, the amount and type of investments and the payment of dividends. In addition to its revolving credit facility, the Company borrows from other banks on an uncommitted basis. Such borrowings are included in notes payable and current maturities of long-term liabilities and amounted to $26.5 million at August 3, 1996 and $7.1 million at July 29, 1995. F-9 57 THE NEIMAN MARCUS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (b) Senior notes consisted of the following:
PRINCIPAL AMOUNT INTEREST RATE DUE ---------------- - ------------- -------------- (IN THOUSANDS) 9.59% August 1996 $ 52,000 9.24% December 1996 $ 40,000 Variable December 1996 $ 40,000
The notes have no sinking fund requirements. All fixed rate senior notes may be redeemed at any time at a premium plus accrued interest. The variable rate note bears interest at LIBOR plus 0.7% (6.0% at August 3, 1996) and is adjusted semiannually. The notes are classified as long-term, since the Company has the ability and intent to repay them upon maturity through borrowings on the revolving credit facility. (c) The amount of assets under capital leases included in property and equipment net of amortization was $3.5 million at August 3, 1996 and $4.0 million at July 29, 1995. (d) Other long-term liabilities consisted primarily of certain employee benefit obligations, postretirement health care benefits and the liability for certain scheduled rent increases. The aggregate maturities of all long-term liabilities and capital lease obligations are $35.6 million in 1997, $5.6 million in 1998, $5.8 million in 1999, $297.9 million in 2000, $6.1 million in 2001 and $46.5 million thereafter. 6. REDEEMABLE PREFERRED STOCKS The Company is authorized to issue up to 50,000,000 shares of preferred stock. The Company's issued and outstanding preferred stocks consist of 1,000,000 shares of 6% Cumulative Convertible Preferred Stock (6% Preferred Stock) and 500,000 shares of 9 1/4% Cumulative Redeemable Preferred Stock (9 1/4% Preferred Stock), all of which are owned by Harcourt General, Inc. (Harcourt General). The 6% Preferred Stock is entitled to receive cumulative dividends at an annual rate of 6% on its $374.9 million stated value, to a class vote on certain matters, to convert on a per share basis into approximately 9.12 shares of Common Stock subject to certain antidilution adjustments and, upon liquidation of the Company, is entitled to receive a liquidation distribution equal to its stated value, together with any accrued and unpaid dividends, before any distribution to any junior class of stock. The conversion price of the 6% Preferred Stock at August 3, 1996 was approximately $41.12 per share of Common Stock acquired upon such conversion; the market value per share of Common Stock on August 3, 1996 was $27.38. The 6% Preferred Stock may be redeemed by the Company at a premium over its stated value under certain conditions through September 1997. Commencing in September 1997 (when a sinking fund for this purpose commences), the Company is required to redeem annually not less than 5% of the 6% Preferred Stock at a redemption value of $374.92 per share plus any accrued dividends. The difference between the redemption value and the carrying value is being accreted over a thirty-year period. The 9 1/4% Preferred Stock has a stated value of $100 per share and is entitled to receive cumulative dividends at an annual rate of 9 1/4% on its aggregate stated value of $50 million. The 9 1/4% Preferred Stock is not redeemable until July 31, 1998 except under certain limited circumstances, is redeemable at a premium for a twelve month period beginning July 31, 1998, and at par thereafter and must be redeemed in full by July 31, 2001. The 9 1/4% Preferred Stock has a liquidation preference equal to its stated value plus accrued and unpaid dividends. The 9 1/4% Preferred Stock ranks equal to the 6% Preferred Stock and is senior to the Common Stock of the Company with respect to dividends and the distribution of assets upon liquidation or dissolution of the Company. If dividends payable on the 9 1/4% Preferred Stock are in arrears for six full quarters or any mandatory redemption is in arrears, the holders of the 9 1/4% Preferred Stock, voting together as one class with other series of the Company's preferred stock, shall be entitled to elect two members to the F-10 58 THE NEIMAN MARCUS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company's Board of Directors. The 9 1/4% Preferred Stock also contains restrictions regarding the issuance of senior securities and the consolidation or merger of the Company and sales of assets. 7. COMMON SHAREHOLDERS' EQUITY OWNERSHIP BY AND RELATIONSHIP WITH HARCOURT GENERAL Harcourt General owns approximately 22.6 million shares of Common Stock and all of the outstanding Redeemable Preferred Stocks. The shares presently owned by Harcourt General represent approximately 67% of the voting power and fully converted equity of the Company. The Company and Harcourt General are parties to an agreement pursuant to which Harcourt General provides certain management, accounting, financial, legal, tax and other corporate services to the Company. The fees for these services are based on Harcourt General's costs and are subject to the approval of a committee of directors of the Company who are independent of Harcourt General. This agreement may be terminated by either party on 180 days' notice. Charges to the Company under this agreement were $6.9 million in 1996, $6.5 million in 1995 and $6.9 million in 1994. The Company's Chairman of the Board; President, Chief Executive Officer and Chief Operating Officer; Senior Vice President and Chief Financial Officer; Senior Vice President and General Counsel; as well as certain other officers, serve in similar capacities with Harcourt General. The first two named officers also serve as directors of both companies. COMMON STOCK Common Stock is entitled to dividends as declared by the Board of Directors, and each share carries one vote. Holders of Common Stock have no cumulative voting, conversion, redemption or preemptive rights. COMMON STOCK INCENTIVE PLAN The Company has established a common stock incentive plan allowing for the granting of stock options, stock appreciation rights (SARs) and stock-based awards to its employees. The aggregate number of shares of Common Stock that may be issued pursuant to the plan is 1.3 million shares. At August 3, 1996, there were 179,060 shares of Common Stock available for grant under the plan. Options outstanding at August 3, 1996 were granted at prices (not less than 100% of the fair market value on the date of the grant) varying from $11.63 to $19.27 per share and expire between 1996 and 2005. There were 93 employees with options outstanding at August 3, 1996. The weighted average exercise price for all outstanding shares at August 3, 1996 was $14.41. The Company has allowed SAR treatment in connection with the exercise of certain options. Optionees allowed SAR treatment surrender an exercisable option in exchange for an amount of cash equal to the excess of the market price of the Common Stock at the time of surrender over the option exercise price. F-11 59 THE NEIMAN MARCUS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Option activity was as follows:
YEARS ENDED --------------------------------- JULY AUGUST JULY 30, 29, 3, 1994 1995 1996 -------- ------- -------- Options outstanding -- beginning of year............ 684,136 666,348 784,864 Granted........................................... 214,100 228,050 128,600 SAR surrenders.................................... (43,715) (13,470) (202,192) Exercised......................................... (10,401) (1,644) (2,900) Canceled.......................................... (177,772) (94,420) (55,295) -------- ------- -------- Options outstanding -- end of year.................. 666,348 784,864 653,077 ======== ======= ======== Exercisable options -- end of year.................. 294,800 356,064 239,247 ======== ======= ========
8. INCOME TAXES Income tax expense was as follows:
YEARS ENDED --------------------------------- JULY JULY 30, 29, AUGUST 3, 1994 1995 1996 ------- ------- --------- (IN THOUSANDS) Current: Federal............................................. $37,800 $39,965 $47,517 State............................................... 8,736 9,136 8,333 ------- ------- ------- 46,536 49,101 55,850 ------- ------- ------- Deferred: Federal............................................. 1,835 668 (1,588) State............................................... (809) (1,010) (459) ------- ------- ------- 1,026 (342) (2,047) ------- ------- ------- Income tax expense.................................... $47,562 $48,759 $53,803 ======= ======= =======
The Company's effective income tax rate was 41% in 1996 and 42% in 1995 and 1994. The difference between the statutory federal tax rate and the effective tax rate is due primarily to state income taxes. Significant components of the Company's net deferred income tax liability stated on a gross basis were as follows:
AUGUST JULY 29, 3, 1995 1996 -------- -------- (IN THOUSANDS) Gross deferred income tax assets: Financial accruals and reserves.............................. $ 22,297 $ 19,468 Employee benefits............................................ 22,471 25,941 Inventories.................................................. 3,256 8,006 Deferred lease payments...................................... 3,735 3,481 Other........................................................ 3,960 3,566 -------- -------- Total deferred tax assets............................ 55,719 60,462 -------- --------
F-12 60 THE NEIMAN MARCUS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST JULY 29, 3, 1995 1996 -------- -------- (IN THOUSANDS) Gross deferred income tax liabilities: Excess tax depreciation...................................... (57,257) (59,128) Pension accrual.............................................. (5,933) (7,178) Other assets previously deducted on tax return............... (6,239) (5,819) -------- -------- Total deferred tax liabilities....................... (69,429) (72,125) -------- -------- Net deferred tax liability..................................... ($13,710) ($11,663) ======== ========
9. PENSION PLANS The Company has a noncontributory defined benefit pension plan covering substantially all full-time employees. The Company also sponsors an unfunded supplemental executive retirement plan which provides certain employees additional pension benefits. Benefits under the plans are based on the employees' years of service and compensation over defined periods of employment. The Company's general funding policy is to contribute amounts that are deductible for federal income tax purposes. Pension plan assets consist primarily of equity and fixed income securities. Components of net pension expense were as follows:
YEARS ENDED -------------------------------- JULY JULY AUGUST 30, 29, 3, 1994 1995 1996 ------- ------- -------- (IN THOUSANDS) Service cost......................................... $ 4,800 $ 5,800 $ 5,700 Interest cost on projected benefit obligation........ 7,200 7,900 8,300 Actual return on assets.............................. (2,700) (7,500) (12,100) Net amortization and deferral........................ (3,000) 1,200 5,700 ------- ------- -------- Net pension expense.................................. $ 6,300 $ 7,400 $ 7,600 ======= ======= ========
The accounting assumptions used in the computation of pension expense were as follows:
1994 1995 1996 ------- ------- -------- Discount rate........................................ 7.5% 7.5% 7.5% Long-term rate of return on plan assets.............. 9.0% 9.0% 9.0% Rate of increases in future compensation levels...... 5.0% 5.0% 5.0%
F-13 61 THE NEIMAN MARCUS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The plans' funded status and amounts recognized in the consolidated balance sheets were as follows:
JULY 29, 1995 AUGUST 3, 1996 -------------------- --------------------- FUNDED UNFUNDED FUNDED UNFUNDED PLAN PLAN PLAN PLAN ------- -------- -------- -------- (IN THOUSANDS) Vested benefit obligation................ $73,600 $ 11,400 $ 90,500 $ 13,200 ======= ======== ======== ======== Accumulated benefit obligation........... $77,200 $ 13,400 $ 94,000 $ 15,300 ======= ======== ======== ======== Projected benefit obligation............. $91,700 $ 23,100 $108,000 $ 25,200 Pension plan assets at fair value........ 91,300 -- 106,600 -- ------- -------- -------- -------- Underfunded projected obligation......... (400) (23,100) (1,400) (25,200) Net amortization and deferral............ 12,600 2,600 16,200 3,100 Unrecognized net obligation at transition and unrecognized prior service cost.... 2,200 3,900 1,900 3,500 ------- -------- -------- -------- Pension asset (liability) recognized in the consolidated balance sheets........ $14,400 ($16,600) $ 16,700 ($18,600) ======= ======== ======== ========
The Company has a qualified defined contribution 401(k) plan, which covers substantially all employees. Employees make contributions to the plan, and the Company matches 25% of an employee's contribution up to a maximum of 6% of the employee's compensation. Company contributions for the years ended August 3, 1996, July 29, 1995 and July 30, 1994 were $2.3 million, $2.2 million, and $1.9 million, respectively. 10. POSTRETIREMENT HEALTH CARE BENEFITS Retirees and active employees hired prior to March 1, 1989 are eligible for certain limited postretirement health care benefits if they have met certain service and minimum age requirements. The cost of these benefits is accrued during the years in which an employee provides services. The Company paid postretirement health care benefit claims of $1.2 million during 1996, $1.4 million during 1995 and $1.8 million during 1994. The actuarial present value of accumulated postretirement health care benefit obligations and the amounts recognized in the consolidated balance sheets were as follows:
JULY 29, AUGUST 3, 1995 1996 ------- --------- (IN THOUSANDS) Retirees......................................................... $11,364 $11,692 Fully eligible active plan participants.......................... 1,470 3,488 Other active plan participants................................... 3,943 3,587 ------- ------- Accumulated postretirement benefit obligation.................... 16,777 18,767 Unrecognized net gain............................................ 2,350 1,003 ------- ------- Total.................................................. $19,127 $19,770 ======= =======
F-14 62 THE NEIMAN MARCUS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The periodic postretirement health care benefit cost was as follows:
YEARS ENDED ----------------------------------- JULY 30, JULY 29, AUGUST 3, 1994 1995 1996 -------- -------- --------- (IN THOUSANDS) Net periodic cost: Service cost.......................................... $ 286 $ 300 $ 222 Interest cost on accumulated benefit obligation....... 1,288 1,249 1,621 ------ ------ ------ Total......................................... $ 1,574 $ 1,549 $ 1,843 ====== ====== ======
A health care cost trend rate of 10% was assumed in measuring the accumulated postretirement health care benefit obligation at August 3, 1996, gradually declining to 5% by the year 2002. Measurement of the accumulated postretirement health care benefit obligation was based on an assumed 7.5% discount rate in 1996, 1995 and 1994. An increase of 1% in the health care cost trend rate would increase the accumulated postretirement health care benefit obligation as of August 3, 1996 by $2.2 million. The effect of this change on the annual net periodic postretirement health care benefit cost would be an increase of approximately $262,000. 11. COMMITMENTS AND CONTINGENCIES OPERATING LEASES The Company's operations are conducted primarily in leased properties which include retail stores, distribution centers and other facilities. Substantially all leases are for periods of up to thirty years with renewal options at fixed rentals, except that certain leases provide for additional rent based on revenues in excess of predetermined levels. Rent expense under operating leases was as follows:
YEARS ENDED ----------------------------------- JULY 30, JULY 29, AUGUST 3, 1994 1995 1996 -------- -------- --------- (IN THOUSANDS) Minimum rent.......................................... $ 28,600 $ 29,300 $29,200 Rent based on revenues................................ 9,100 8,400 10,700 ------- ------- ------- Total rent expense.......................... $ 37,700 $ 37,700 $39,900 ======= ======= =======
Future minimum lease payments, excluding renewal options, under operating leases are as follows: 1997 -- $30.8 million; 1998 -- $29.4 million; 1999 -- $28.5 million; 2000 -- $28.4 million; 2001 -- $27.8 million; all years thereafter -- $520.6 million. LITIGATION The Company is involved in various suits and claims in the ordinary course of business. Management does not believe that the disposition of any such suits and claims will have a material adverse effect upon the results of operations or the financial position of the Company. LETTERS OF CREDIT The Company had approximately $5.0 million of outstanding irrevocable letters of credit relating to purchase commitments at August 3, 1996. F-15 63 THE NEIMAN MARCUS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments are as reported and disclosed in the consolidated financial statements, and as discussed below. SECURITIZATION OF CREDIT CARD RECEIVABLES In March 1995 the Company sold all of its Neiman Marcus credit card receivables through a subsidiary to a trust in exchange for certificates representing undivided interests in such receivables. Certificates representing an undivided interest in $246.0 million of these receivables were sold to third parties in a public offering of $225.0 million of 7.60% Class A certificates and $21.0 million of 7.75% Class B certificates. The Company used the proceeds from this offering to pay down existing debt. The Company's subsidiary will retain the remaining undivided interest in the receivables not represented by the Class A and Class B certificates. A portion of that interest is subordinated to the Class A and Class B certificates. The Company will continue to service all receivables for the trust. In anticipation of the securitization, the Company entered into several forward interest rate lock agreements. The agreements allowed the Company to establish a weighted average effective rate of approximately 8.0% on the certificates issued as part of the securitization. During March 1995, the Company paid $5.4 million to settle all of its interest rate lock agreements. INTEREST RATE SWAP During September 1991, the Company entered into an interest rate swap agreement having a notional principal amount of $50.0 million that effectively fixed the interest rate on $50.0 million of the Company's variable rate debt at 8.94%. The amount to be paid or received is accrued as interest rates change and is recognized over the life of the agreement. The interest rate swap matures in September 1996. The fair value of the interest rate swap is the amount at which it could be settled, based on estimates obtained from dealers. The estimated unrealized pre-tax loss on the interest rate swap was approximately $0.7 million at August 3, 1996, $1.5 million at July 29, 1995 and $2.8 million at July 30, 1994. This amount changes during the life of the swap as a function of maturity, interest rates and the credit standing of the parties to the swap agreement. The incremental pre-tax interest expense incurred due to the interest rate swap agreement was $1.2 million in 1996, $1.0 million in 1995 and $2.3 million in 1994. 13. COMPANY PUBLIC OFFERING On September 10, 1996, the Company authorized the filing of a Registration Statement with the Securities and Exchange Commission for a public offering of 8,000,000 shares of the Company's Common Stock (excluding 1,200,000 shares subject to an over-allotment option). The Company will purchase all of its outstanding preferred stock from Harcourt General at a total purchase price of approximately $416.4 million, representing 98% of the aggregate stated value of the preferred stock, plus accrued and unpaid dividends on the preferred stock through the date of the closing of the offering. The total purchase price will be paid with $135.0 million in shares of the Company's Common Stock valued at the public offering price and the remainder payable in cash. Such cash payment will be funded with the net proceeds of the public offering, together with borrowings under the Company's revolving credit agreement. After the consummation of the above transactions, Harcourt General will continue to be the majority shareholder of the Company. In connection with the repurchase of the preferred stock, the Company will incur a charge to earnings applicable to common shareholders comprised of two components: (i) an amount representing the difference between the book value of the preferred stock and the total purchase price, and (ii) an amount related to the conversion of the 6% Preferred Stock that is exchanged with Harcourt General for Common Stock, representing the fair value of shares to be issued to Harcourt General in excess of the number of shares that would have been issued in accordance with the conversion terms of the 6% Preferred Stock. F-16 64 THE NEIMAN MARCUS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
YEAR ENDED AUGUST 3, 1996 ------------------------------------------------ FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL ------- ------- ------- ------- -------- (IN MILLIONS EXCEPT FOR PER SHARE DATA) Revenues..................................... $ 489.9 $ 625.4 $ 474.1 $ 485.6 $2,075.0 ====== ====== ====== ====== ======== Gross profit................................. $ 171.8 $ 186.5 $ 153.3 $ 147.1 $ 658.7 ====== ====== ====== ====== ======== Net earnings................................. 25.0 22.8 18.8 10.8 77.4 Preferred dividends and accretion............ (7.3) (7.3) (7.3) (7.2) (29.1) ------ ------ ------ ------ -------- Net earnings applicable to common shareholders............................... $ 17.7 $ 15.5 $ 11.5 $ 3.6 $ 48.3 ====== ====== ====== ====== ======== Amounts per share applicable to common shareholders: Net earnings............................... $ .47 $ .41 $ .30 $ .09 $ 1.26 ====== ====== ====== ====== ========
YEAR ENDED JULY 29, 1995 ------------------------------------------------ FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL ------- ------- ------- ------- -------- Revenues..................................... $ 462.3 $ 589.5 $ 415.7 $ 420.7 $1,888.2 ====== ====== ====== ====== ======== Gross profit................................. $ 165.0 $ 184.2 $ 135.3 $ 127.0 $ 611.5 ====== ====== ====== ====== ======== Earnings from continuing operations.......... $ 21.6 $ 25.0 $ 11.1 $ 9.6 $ 67.3 Earnings (loss) from discontinued operations, net........................................ (1.8) 1.5 (11.4) -- (11.7) ------ ------ ------ ------ -------- Net earnings (loss).......................... 19.8 26.5 (.3) 9.6 55.6 Preferred dividends and accretion............ (7.3) (7.3) (7.3) (7.2) (29.1) ------ ------ ------ ------ -------- Net earnings (loss) applicable to common shareholders............................... $ 12.5 $ 19.2 ($ 7.6) $ 2.4 $ 26.5 ====== ====== ====== ====== ======== Amounts per share applicable to common shareholders: Continuing operations...................... $ .38 $ .47 $ .10 $ .06 $ 1.01 Discontinued operations, net............... (.05) .04 (.30) -- (.31) ------ ------ ------ ------ -------- Net earnings (loss)........................ $ .33 $ .51 ($ .20) $ .06 $ .70 ====== ====== ====== ====== ======== Dividends.................................. $ .05 $ .05 $ -- $ -- $ .10 ====== ====== ====== ====== ========
In the fourth quarter, the effect of adjusting the LIFO reserve for inventories to actual amounts increased net earnings by $3.9 million in 1996 and $10.9 million in 1995. F-17 65 "CREATIVE MARKETING" [PHOTOS OF NEIMAN MARCUS CATALOGUES, NM EXPRESS CARDS, INCIRCLE CARDS, INCIRCLE BROCHURE AND NEIMAN MARCUS CREDIT CARD BROCHURE] 66 LOGO 67 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS (Subject To Completion) Issued October 10, 1996 [Neiman Marcus Logo] 8,000,000 Shares The Neiman Marcus Group, Inc. COMMON STOCK ------------------------ OF THE 8,000,000 SHARES OF COMMON STOCK BEING OFFERED, 1,600,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS AND 6,400,000 SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. THE COMPANY'S COMMON STOCK IS LISTED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "NMG." ON SEPTEMBER 13, 1996, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE WAS $35 1/8 PER SHARE. ------------------------ SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ PRICE $ A SHARE ------------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) --------------------------------------------------------------- Per Share....................... $ $ $ Total(3)........................ $ $ $ - ------------ (1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. (2) Before deducting expenses payable by the Company estimated at $ . (3) The Company has granted to the U.S. Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an aggregate of 1,200,000 additional Shares at the price to public less underwriting discounts and commissions for the purpose of covering over-allotments, if any. If the U.S. Underwriters exercise such option in full the total price to public, underwriting discounts and commissions and proceeds to Company will be $ , $ and $ , respectively. See "Underwriters."
------------------------ The Shares are offered, subject to prior sale, when, as and if accepted by the Underwriters named herein and subject to approval of certain legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected that delivery of the Shares will be made on or about , 1996 at the office of Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor in immediately available funds. ------------------------ MORGAN STANLEY & CO. International GOLDMAN SACHS INTERNATIONAL SALOMON BROTHERS INTERNATIONAL LIMITED , 1996 68 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The Registrant's expenses in connection with the Offering described in this registration statement are set forth below. All amounts except the Securities and Exchange Commission registration fee, the NASD filing fee and the NYSE listing fee are estimated. Securities and Exchange Commission registration fee...................... $ 102,707 NASD filing fee.......................................................... 30,285 Printing and engraving expenses.......................................... 210,000 Accounting fees and expenses............................................. 200,000 Legal fees and expenses.................................................. 300,000 NYSE listing fee......................................................... 32,200 Fees and expenses (including legal fees) for qualifications under state securities laws........................................................ 15,000 Advisory fees............................................................ 600,000 Miscellaneous............................................................ 29,808 ---------- Total.......................................................... $1,520,000 ==========
- ------------ * To be completed by amendment ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law ("DGCL") makes provision for the indemnification of officers and directors of corporations in terms sufficiently broad to indemnify the officers and directors of the registrant under certain circumstances from liabilities (including reimbursement of expenses incurred) arising under the Securities Act of 1933, as amended (the "Act"). As permitted by the DGCL, the Registrant's Restated Certificate of Incorporation (the "Charter") provides that, to the fullest extent permitted by the DGCL, no director shall be personally liable to the Registrant or to its stockholders for monetary damages for breach of his or her fiduciary duty as a director. Delaware law does not permit the elimination of liability (i) for any breach of the director's duty of loyalty to the registrant or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) in respect of certain unlawful dividend payments or stock redemptions or repurchases, or (iv) for any transaction from which the director derives an improper personal benefit. The effect of this provision in the Charter is to eliminate the rights of the Registrant and its stockholders (through stockholders' derivative suits on behalf of the Registrant) to recover monetary damages against a director for breach of fiduciary duty as a director thereof (including breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i)-(iv), inclusive, above. These provisions will not alter the liability of directors under federal securities laws. The Registrant's Bylaws (the "Bylaws") provide that the Registrant may 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 Registrant) by reason of the fact that he or she is or was a director, officer, employee or agent of the Registrant or is or was serving at the request of the Registrant as a director, officer employee or agent of another corporation or enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Registrant, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The Bylaws also provide that the Registrant may 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 II-1 69 Registrant to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted under similar standards, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Registrant unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine that despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to be indemnified for such expenses which the Court of Chancery of the State of Delaware or the court in which such action was brought shall deem proper. The Bylaws also provide that to the extent a director or officer of the Registrant has been successful in the defense of any action, suit or proceeding referred to in the previous paragraphs or in the defense of any claim, issue, or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith; that indemnification provided for in the Bylaws shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and that the Registrant may purchase and maintain insurance on behalf of a director or officer of the Registrant against any liability asserted against him or her or incurred by him or her in any such capacity or arising out of his or her status as such whether or not the Registrant would have the power to indemnify him or her against such liabilities under such Bylaws. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The following exhibits are filed as part of this Registration Statement. 1.1 Form of Underwriting Agreement. 5.1 Opinion of Issuer's Counsel. 10.1 Exchange and Repurchase Agreement between the Registrant and Harcourt General. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of Issuer's Counsel (included in Exhibit 5.1). 24.1 Powers of Attorney (contained on the signature page to this Registration Statement).** 27. Financial Data Schedule.** - ------------ * To be filed by amendment. ** Previously filed.
ITEM 17. UNDERTAKINGS. (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and containing in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. II-2 70 (2) For the purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) For purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 71 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Chestnut Hill, Massachusetts on October 9, 1996. THE NEIMAN MARCUS GROUP, INC. By: /s/ ERIC P. GELLER ------------------------------------------ Eric P. Geller Senior Vice President and General Counsel II-4 72 Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 2 to the Registration Statement has been signed by the following persons in the capacity indicated on October 9, 1996.
SIGNATURE TITLE --------- ----- * Chairman of the Board and Director - ----------------------------------------------- Richard A. Smith * Director - ----------------------------------------------- Matina S. Horner * Director - ----------------------------------------------- Walter J. Salmon * Director - ----------------------------------------------- Jean Head Sisco * President, Chief Executive Officer, - ----------------------------------------------- Chief Operating Officer and Director Robert J. Tarr, Jr. (Principal Executive Officer) * Senior Vice President and Chief - ----------------------------------------------- Financial Officer (Principal John R. Cook Financial Officer) * Vice President and Controller - ----------------------------------------------- (Principal Accounting Officer) Stephen C. Richards * By: /s/ ERIC P. GELLER - ----------------------------------------------- Eric P. Geller Attorney-in-Fact
II-5 73 EXHIBIT INDEX 1.1 Form of Underwriting Agreement. 5.1 Opinion of Issuer's Counsel. 10.1 Exchange and Repurchase Agreement between the Registrant and Harcourt General. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of Issuer's Counsel (included in Exhibit 5.1). 24.1 Powers of Attorney (contained on the signature page to this Registration Statement).** 27. Financial Data Schedule.**
- ------------ * To be filed by amendment. ** Previously filed. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 8,000,000 Shares THE NEIMAN MARCUS GROUP, INC. COMMON STOCK, PAR VALUE $.01 PER SHARE UNDERWRITING AGREEMENT October 10, 1996 2 October 10, 1996 Morgan Stanley & Co. Incorporated Goldman, Sachs & Co. Salomon Brothers Inc c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Morgan Stanley & Co. International Limited Goldman Sachs International Salomon Brothers International Limited c/o Morgan Stanley & Co. International Limited 25 Cabot Square Canary Wharf London E14 4QA England Dear Sirs and Mesdames: The Neiman Marcus Group, Inc., a Delaware corporation (the "Company"), proposes to issue and sell to the several Underwriters (as defined below) 8,000,000 shares of its common stock, par value $.01 per share (the "Firm Shares"). It is understood that, subject to the conditions hereinafter stated, 6,400,000 Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S. Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection with the offering and sale of such U.S. Firm Shares in the United States and Canada to United States and Canadian Persons (as such terms are defined in the Agreement Between U.S. and International Underwriters of even date herewith), and 1,600,000 Firm Shares (the "International Shares") will be sold to the several International Underwriters named in Schedule II hereto (the "International Underwriters") in connection with the offering and sale of such International Shares outside the United States and Canada to persons other than United States and Canadian Persons. Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co. and Salomon Brothers Inc shall act as representatives (the "U.S. 3 Representatives") of the several U.S. Underwriters, and Morgan Stanley & Co. International Limited, Goldman Sachs International and Salomon Brothers International Limited shall act as representatives (the "International Representatives") of the several International Underwriters. The U.S. Underwriters and the International Underwriters are hereinafter collectively referred to as the Underwriters. The Company also proposes to issue and sell to the several U.S. Underwriters not more than an additional 1,200,000 shares of its common stock, par value $.01 per share (the "Additional Shares") if and to the extent that the U.S. Representatives shall have determined to exercise, on behalf of the U.S. Underwriters, the right to purchase such shares of common stock granted to the U.S. Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "Shares." The shares of common stock, par value $.01 per share of the Company to be outstanding after giving effect to the sales contemplated hereby and the Stock Payment (as defined in the Prospectus) are hereinafter referred to as the "Common Stock." The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement relating to the Shares. The registration statement contains two prospectuses to be used in connection with the offering and sale of the Shares: the U.S. prospectus, to be used in connection with the offering and sale of Shares in the United States and Canada to United States and Canadian Persons, and the international prospectus, to be used in connection with the offering and sale of Shares outside the United States and Canada to persons other than United States and Canadian Persons. The international prospectus is identical to the U.S. prospectus except for the outside front cover page. The registration statement as amended at the time it becomes effective, including the information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter referred to as the "Registration Statement"; the U.S. prospectus and the international prospectus in the respective forms first used to confirm sales of Shares are hereinafter collectively referred to as the "Prospectus" (including, in the case of all references to the Registration Statement and the Prospectus, documents incorporated therein by reference). If the Company has filed an abbreviated registration statement to register additional shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration Statement"), then any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462 Registration Statement. 2 4 1. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to and agrees with each of the Underwriters that: (a) The Registration Statement has become effective; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purpose are pending before or, to the knowledge of the Company, threatened by the Commission. (b) (i) Each document, if any, filed or to be filed pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act") and incorporated by reference in the Prospectus complied or will comply when so filed in all material respects with the Exchange Act and the applicable rules and regulations of the Commission thereunder, (ii) the Registration Statement, when it became effective, did not contain and, as amended or supplemented, if applicable, when so amended or supplemented will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (iii) the Registration Statement and the Prospectus comply and, as amended or supplemented, if applicable, when so amended or supplemented will comply in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder and (iv) the Prospectus does not contain and, as amended or supplemented, if applicable, when so amended or supplemented will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph 1(b) do not apply to statements or omissions in the Registration Statement or the Prospectus set forth in a letter from the Representatives to the Company dated the Closing Date. (c) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. 3 5 (d) Each Significant Subsidiary of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. (e) The net sales of the Company and Bergdorf Goodman, Inc., Neiman Marcus Funding Corporation and Neiman Marcus Holdings, Inc. (collectively, excluding the Company, the "Significant Subsidiaries"), determined in accordance with generally accepted accounting principles, accounted for not less than [95%] of the net sales of the Company and its subsidiaries, taken as a whole, for the fiscal year ended August 3, 1996. The total assets of the Company and the Significant Subsidiaries, determined in accordance with generally accepted accounting principles, accounted for not less than [95%] of the total assets of the Company and its subsidiaries, taken as a whole, as of August 3, 1996. (f) This Agreement has been duly authorized, executed and delivered by the Company and the Transactions (as defined in the Prospectus) have been duly authorized by the Company. (g) Assuming the consummation of the Transactions, the authorized capital stock of the Company conforms as to legal matters, in all material respects, to the description thereof contained in the Prospectus. (h) The shares of Common Stock outstanding prior to the issuance of the Shares have been duly authorized and are validly issued, fully paid and non-assessable. (i) The Shares and the shares of Common Stock to be issued as the Stock Payment have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement or the terms contained in the Prospectus, as the case may be, will be validly issued, fully paid and non-assessable, and the issuance of such shares of Common Stock will not be subject to any preemptive or similar rights. 4 6 (j) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement and the consummation of the Transactions will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company or any agreement or other instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, taken as a whole, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, except to the extent as would not have a material adverse effect on the Company and its subsidiaries taken as a whole, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement or in connection with the Transactions, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Shares. (k) There has not occurred any material adverse change, or any development which would reasonably be expected to cause a material adverse change, in the financial condition or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement). (l) There are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject that are required to be described in the Registration Statement or the Prospectus and are not so described or any statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required. (m) Each preliminary prospectus filed as part of the registration statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act and the applicable rules and regulations of the Commission thereunder. 5 7 (n) The Company is not and, after giving effect to the Transactions will not be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. (o) The Company and its subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole. (p) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would, singly or in the aggregate, have a material adverse effect on the financial condition or on the earnings, business or operations of the Company and its subsidiaries, taken as a whole. (q) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company or to require the Company to include such securities with the Shares registered pursuant to the Registration Statement. (r) Except as may be otherwise described in the Prospectus, the Company and its subsidiaries have good title to all real property and good title to all personal property owned by them which is material to the business of the Company and its subsidiaries, taken as a whole, in each case free and clear of all liens, encumbrances and claims which would materially interfere with the conduct of the business of the Company and its subsidiaries, taken as a whole. The Company and its subsidiaries hold 6 8 valid enforceable leasehold interests in all items of leased real and personal property which are material to the business of the Company and its subsidiaries taken as a whole, free and clear of all liens, encumbrances and claims which could materially interfere with the conduct of the business of the Company and its subsidiaries, taken as a whole. (s) The Company has complied with all provisions of Section 517.075, Florida Statutes relating to doing business with the Government of Cuba or with any person or affiliate located in Cuba. 2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees to sell to the several Underwriters, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company the respective numbers of Firm Shares set forth in Schedules I and II hereto opposite its names at U.S.$_____ a share ("Purchase Price"). On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Company agrees to sell to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall have a one-time right to purchase, severally and not jointly, up to 1,200,000 Additional Shares at the Purchase Price. If the U.S. Representatives, on behalf of the U.S. Underwriters, elect to exercise such option, the U.S. Representatives shall so notify the Company in writing not later than 30 days after the date of this Agreement, which notice shall specify the number of Additional Shares to be purchased by the U.S. Underwriters and the date on which such shares are to be purchased. Such date may be the same as the Closing Date (as defined below) but not earlier than the Closing Date nor later than ten business days after the date of such notice. Additional Shares may be purchased as provided in Section 4 hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. If any Additional Shares are to be purchased, each U.S. Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments to eliminate fractional shares as the U.S. Representatives may determine) that bears the same proportion to the total number of Additional Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule I hereto opposite the name of such U.S. Underwriter bears to the total number of U.S. Firm Shares. The Company hereby agrees that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during the period ending 90 days after the date of the Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option 7 9 or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Shares to be sold hereunder or (B) the shares of Common Stock issued in connection with the Stock Payment, (C) the grant by the Company of options to purchase shares of Common Stock pursuant to an existing employee benefit plan of the Company or (D) the issuance by the Company of shares of Common Stock upon the exercise of options granted pursuant to an existing employee benefit plan of the Company. 3. TERMS OF PUBLIC OFFERING. The Company is advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable. The Company is further advised by you that the Shares are to be offered to the public initially at U.S.$_____ a share (the "Public Offering Price") and to certain dealers selected by you at a price that represents a concession not in excess of U.S.$____ a share under the Public Offering Price, and that any Underwriter may allow, and such dealers may reallow, a concession, not in excess of U.S.$____ a share, to any Underwriter or to certain other dealers. 4. PAYMENT AND DELIVERY. Payment for the Firm Shares shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Firm Shares for the respective accounts of the several Underwriters at 10:00 A.M., New York City time, on October 16, 1996, or at such other time on the same or such other date, not later than October 23, 1996, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the "Closing Date." Payment for any Additional Shares shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Additional Shares for the respective accounts of the several Underwriters at 10:00 A.M., New York City time, on the date specified in the notice described in Section 2 or at such other time on the same or on such other date, in any event not later than November 22, 1996, as shall be designated in writing by the U.S. Representatives. The time and date of such payment are hereinafter referred to as the "Option Closing Date." 8 10 The Firm Shares and Additional Shares shall be registered in such names and in such denominations as you shall request in writing not later than two full business days prior to the Closing Date or the Option Closing Date, as the case may be. The Firm Shares and Additional Shares shall be delivered on the Closing Date or the Option Closing Date, as the case may be, for the respective accounts of the several Underwriters, with any transfer taxes payable in connection with the transfer of the Shares to the Underwriters duly paid, against payment of the Purchase Price therefor. 5. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of the Company to sell the Shares to the Underwriters and the several obligations of the Underwriters to purchase and pay for the Shares on the Closing Date are subject to the condition that the Registration Statement shall have become effective not later than 3:00 p.m. (New York City time) on the date hereof. The several obligations of the Underwriters are subject to the following further conditions: (a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date, there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Prospectus (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement) that, in your judgment, is material and adverse to the Company and its subsidiaries taken as a whole, and that makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. (b) The Underwriters shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer of the Company, to the effect that the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Date and that the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date. The officer signing and delivering such certificate may rely upon the best of his or her knowledge as to proceedings threatened. 9 11 (c) The Underwriters shall have received on the Closing Date an opinion of Ropes & Gray, outside counsel for the Company, dated the Closing Date, substantially in the form of Exhibit A hereto. (d) the Underwriters shall have received on the Closing Date an opinion of Eric P. Geller, Senior Vice President and General Counsel of the Company, dated the Closing Date, substantially in the form of Exhibit B hereto. (e) The Underwriters shall have received on the Closing Date an opinion of Davis Polk & Wardwell, counsel for the Underwriters, dated the Closing Date, substantially in the form of Exhibit C hereto. The opinion of Ropes & Gray described in paragraph (c) above and the opinion of Eric P. Geller described in paragraph (d) above shall be rendered to the Underwriters at the request of the Company and shall so state therein. (f) The Underwriters shall have received, on each of the date hereof and the Closing Date, a letter dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Underwriters, from Deloitte & Touche LLP, independent public accountants, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained or incorporated by reference in the Registration Statement and the Prospectus; provided that the letter delivered on the Closing Date shall use a "cut-off date" not earlier than the date hereof. (g) The "lock-up" agreements, each substantially in the form of Exhibit D hereto, between you on the one hand and Harcourt General, Inc. and the executive officers and directors of the Company on the other relating to sales and certain other dispositions of shares of Common Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date. (h) The several obligations of the U.S. Underwriters to purchase Additional Shares hereunder are subject to the delivery to the U.S. Representatives on the Option Closing Date of such documents as they may reasonably request with respect to the good standing of the Company, the due authorization and issuance of the Additional Shares and other matters related to the issuance of the Additional Shares. 10 12 (i) The Exchange and Repurchase Agreement between the Company and Harcourt General, Inc. shall be in full force and effect. 6. COVENANTS OF THE COMPANY. In further consideration of the agreements of the Underwriters herein contained, the Company covenants with each Underwriter as follows: (a) To furnish to you, without charge, three signed copies of the Registration Statement (including exhibits thereto and documents incorporated therein by reference) and to each other Underwriter a copy of the Registration Statement (without exhibits thereto but including documents incorporated therein by reference) and, to furnish to you in New York City, without charge, prior to 5:00 P.M. New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in paragraph (c) below, as many copies of the Prospectus, any documents incorporated therein by reference, and any supplements and amendments thereto as you may reasonably request. The terms "supplement" and "amendment" or "amend" as used in this Agreement shall include all documents subsequently filed by the Company with the Commission pursuant to the Exchange Act that are deemed to be incorporated by reference in the Prospectus. (b) Before amending or supplementing the Registration Statement or the Prospectus, to furnish to you a copy of each such proposed amendment or supplement and not to file any such proposed amendment or supplement to which you reasonably object, and to file with the Commission within the applicable period specified in Rule 424(b) under the Securities Act any prospectus required to be filed pursuant to such Rule. (c) If, during such period after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters the Prospectus is required by law to be delivered in connection with sales by an Underwriter or dealer, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Underwriters, it is necessary to amend or supplement the Prospectus to comply with applicable law, forthwith to prepare, file with the Commission and furnish, at its own expense, to the Underwriters and to the dealers (whose names and addresses you will 11 13 furnish to the Company) to which Shares may have been sold by you on behalf of the Underwriters and to any other dealers upon request, either amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with law. (d) To endeavor to qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request; provided, however, that the Company shall not be required to register or qualify as a foreign corporation or to take any action which would subject it to the service of process in any jurisdiction where it is not now so subject. (e) To make generally available to the Company's security holders and to you as soon as practicable an earning statement covering the twelve-month period ending November 2, 1997 that satisfies the provisions of Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder. (f) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company's counsel and the Company's accountants in connection with the registration and delivery of the Shares under the Securities Act and all other fees or expenses in connection with the preparation and filing of the Registration Statement, any preliminary prospectus, the Prospectus and amendments and supplements to any of the foregoing, including all printing costs associated therewith, and the mailing and delivering of copies thereof to the Underwriters and dealers, in the quantities hereinabove specified, (ii) all costs and expenses related to the transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky memorandum in connection with the offer and sale of the Shares under state securities laws and all expenses in connection with the qualification of the Shares for offer and sale under state securities laws as provided in Section 6(d) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky memorandum, (iv) all filing fees and disbursements of counsel to the Underwriters incurred in 12 14 connection with the review and qualification of the offering of the Shares by the National Association of Securities Dealers, Inc., (v) all fees and expenses incident to listing the Shares on the NYSE, (vi) the cost of printing certificates representing the Shares, (vii) the costs and charges of any transfer agent or registrar, (viii) the costs and expenses of the Company relating to investor presentations on any "road show" undertaken in connection with the marketing of the offering of the Shares, including, without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and the cost of any aircraft chartered in connection with the road show, and (ix) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section, Section 7 entitled "Indemnity and Contribution", and the last paragraph of Section 9 below, the Underwriters will pay all of their costs and expenses, including fees and disbursements of their counsel, stock transfer taxes payable on resale of any of the Shares by them and any advertising expenses connected with any offers they may make. 7. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon the information set forth in a letter from the Representatives to the Company dated the Closing Date. (b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the 13 15 Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Underwriter, but only with reference to the information set forth in a letter from the Representatives to the Company dated the Closing Date. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to paragraph (a) or (b) of this Section 7, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel reasonably satisfactory to the indemnifying party, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by Morgan Stanley & Co. Incorporated, in the case of parties indemnified pursuant to paragraph (a) of this Section 7, and by the Company, in the case of parties indemnified pursuant to paragraph (b) of this Section 7. The parties hereto hereby agree that for parties indemnified pursuant to paragraph (a) of this Section 7, Davis Polk & Wardwell, Shearman & Sterling, Sullivan & Cromwell and Paul, Weiss, Rifkind, Wharton & Garrison shall be counsel reasonably satisfactory to the Company as indemnifying party. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have 14 16 been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (d) To the extent the indemnification provided for in paragraph (a) or (b) of this Section 7 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Shares shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Shares (before deducting expenses) received by the Company and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate Public Offering Price of the Shares. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Underwriters' respective obligations to contribute pursuant to this Section 7 are several in proportion to the respective number of Shares they have purchased hereunder, and not joint. (e) The Company and the Underwriters agree that it would not be just or equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) of this Section 7. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to 15 17 include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. (f) The indemnity and contribution provisions contained in this Section 7 and the representations, warranties and other statements of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Shares. 8. TERMINATION. This Agreement shall be subject to termination by notice given by you to the Company, if (a) after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and (b) in the case of any of the events specified in clauses (a)(i) through (iv), such event, singly or together with any other such event, makes it, in your judgment, impracticable to market the Shares on the terms and in the manner contemplated in the Prospectus. 9. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto. 16 18 If, on the Closing Date or the Option Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares that it has or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Firm Shares set forth opposite their respective names in Schedule I or Schedule II bears to the aggregate number of Firm Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as you may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 9 by an amount in excess of one-ninth of such number of Shares without the written consent of such Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares to be purchased, and arrangements satisfactory to you and the Company for the purchase of such Firm Shares are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. If, on the Option Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase Additional Shares and the aggregate number of Additional Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Additional Shares to be purchased, the non-defaulting Underwriters shall have the option to (i) terminate their obligation hereunder to purchase Additional Shares or (ii) purchase not less than the number of Additional Shares that such non-defaulting Underwriters would have been obligated to purchase in the absence of such default. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement, the Company will reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all 17 19 out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by such Underwriters in connection with this Agreement or the offering contemplated hereunder. 10. COUNTERPARTS. This Agreement may be signed in two or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 11. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. 12. HEADINGS. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement. Very truly yours, THE NEIMAN MARCUS GROUP, INC. By ---------------------------- Name: Title: Accepted as of the date hereof MORGAN STANLEY & CO. INCORPORATED GOLDMAN, SACHS & CO. SALOMON BROTHERS INC Acting severally on behalf of themselves and the several U.S. Underwriters named in Schedule I hereto. By Morgan Stanley & Co. Incorporated 18 20 By ------------------------- Name: Title: MORGAN STANLEY & CO. INTERNATIONAL LIMITED GOLDMAN SACHS INTERNATIONAL SALOMON BROTHERS INTERNATIONAL LIMITED Acting severally on behalf of themselves and the several International Underwriters named in Schedule II hereto. By Morgan Stanley & Co. International Limited By ------------------------- Name: Title: 19 21 SCHEDULE I
U.S. UNDERWRITERS NUMBER OF FIRM SHARES UNDERWRITER TO BE PURCHASED Morgan Stanley & Co. Incorporated Goldman, Sachs & Co. Salomon Brothers Inc [NAMES OF OTHER U.S. UNDERWRITERS] - --------------- --------- Total U.S. Firm Shares............................... 6,400,000 =========
22 SCHEDULE II
INTERNATIONAL UNDERWRITERS NUMBER OF FIRM SHARES UNDERWRITER TO BE PURCHASED Morgan Stanley & Co. International Limited Goldman Sachs International Salomon Brothers International Limited [NAMES OF OTHER INTERNATIONAL CO- MANAGERS] - --------------- --------- Total International Firm Shares......................... 1,600,000 =========
23 EXHIBIT A October __, 1996 Morgan Stanley & Co. Incorporated Goldman, Sachs & Co. Salomon Brother Inc c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Morgan Stanley & Co. International Limited Goldman Sachs International Salomon Brothers International Limited c/o Morgan Stanley & Co. International Limited 25 Cabot Square Canary Wharf London E14 4QA England Re: 8,000,000 Shares of Common Stock, $.01 par value, of The Neiman Marcus Group, Inc. ------------------------------------------------- Ladies and Gentlemen: We have acted as counsel for The Neiman Marcus Group, Inc., a Delaware corporation (the "Company"), in connection with the issue and sale by the Company of [8,000,000] shares of its Common Stock, $.01 par value per share (the "Shares"). This opinion is furnished to you as representatives of the several Underwriters pursuant to Section 5(c) of the underwriting agreement dated October __, 1996 (the "Underwriting Agreement"), among the Company and you as representatives of the several underwriters listed on Schedules I and II thereto relating to the issue and sale of the Shares. Terms defined in the Underwriting Agreement and not otherwise defined herein are used herein as so defined. We have attended the Closing of the sale of the Shares held today. We have examined signed copies of the registration statement of the Company on Form S-3 (No. 333-11721), together with Amendments No. 1 and No. 2 thereto and all exhibits thereto (the "Registration Statement"), all as filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"); copies of the prospectus dated October __, 1996 24 relating to the Shares filed with the Commission pursuant to Rule 424(b) under the Act (the "Prospectus"); the documents filed by the Company under the Securities Exchange Act of 1934, as amended (the "Exchange Act") which are specifically incorporated by reference in the Prospectus and all exhibits to such documents (the "Incorporated Documents"); an executed copy of the Underwriting Agreement; and such other documents as we have deemed necessary. Additionally, we have relied upon oral advice from the staff of the Commission to the effect that the Registration Statement became effective on October __, 1996. We have also examined and relied upon the original or copies of minutes of meetings of the stockholders and the Board of Directors of the Company and the documents delivered at the Closing of the sale of the Shares (other than the certificates representing the Shares, as to which we have relied upon a certificate of the Transfer Agent and Registrar as to the countersignature and registration of such certificates). We have assumed the genuineness of the signatures on all documents examined by us, the authenticity of all documents submitted to us as originals and the conformity to the corresponding originals of all documents submitted to us as copies. We express no opinion as to the laws of any jurisdiction other than those of The Commonwealth of Massachusetts, the General Corporation Law of the State of Delaware (the "DGCL") and the federal laws of the United States of America. Any reference herein to "our knowledge," "known to us" or any variation thereof shall mean the actual knowledge of lawyers in this firm who have participated in our representation of the Company in connection with the preparation of the Registration Statement. Based upon and subject to the foregoing, we are of the opinion that: 1. The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Delaware and has the corporate power and authority to own its properties and conduct its business as described in the Prospectus. Neiman Marcus Funding Corporation (the "Significant Subsidiary") has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. 2. The authorized capital stock of the Company conforms as to legal matters with the description thereof contained in the Prospectus under "Description of Capital Stock. 3. The Shares have been duly authorized and, assuming such Shares have been duly countersigned by the Company's transfer agent and registrar, 2 25 when delivered to you or upon your order against payment of the agreed consideration therefor in accordance with the provisions of the Underwriting Agreement, will be validly issued, fully paid and non-assessable and the issuance of the Shares is not subject to any statutory preemptive or similar rights under the DGCL or any contractual preemptive or similar rights of which we have knowledge. The shares of Common Stock to be issued as the Stock Payment have been duly authorized and, when duly countersigned by the Company's transfer agent and registrar and delivered to Harcourt General, Inc. against payment of the agreed consideration therefor in accordance with the provisions of the Exchange and Repurchase Agreement dated as of October 8, 1996 between the Company and Harcourt General, Inc. (the "Exchange and Repurchase Agreement"), will be validly issued, fully paid and non-assessable and the issuance of the shares of Common Stock to be issued as the Stock Payment is not subject to any statutory preemptive or similar rights under the DGCL or any contractual preemptive or similar rights of which we have knowledge. 4. The Underwriting Agreement has been duly authorized, executed and delivered by the Company and the Exchange and Repurchase Agreement has been authorized, executed and delivered by the Company. 5. The issuance and sale of the Shares by the Company, the execution and delivery of the Underwriting Agreement and the consummation of the Transactions as described in the Prospectus will not contravene any provision of applicable law or the restated certificate of incorporation or by-laws of the Company or any judgment, order or decree, of which we have knowledge, of any governmental body, agency or court having jurisdiction over the Company or any Significant Subsidiary, except that we express no opinion as to state securities or Blue Sky laws or as to compliance with the antifraud provisions of federal and state securities laws. No consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the issue and sale by the Company of the Shares or the consummation by the Company of the Transactions as described in the Prospectus, except such as have been obtained under the Act and except that we express no opinion as to such as may be required under applicable Blue Sky or state securities laws in connection with the purchase and distribution of the Shares by the Underwriters. 6. The statements in (i) the Prospectus under the captions "Description of Transactions; Use of Proceeds" and, as of the consummation of the Transactions, "Description of Capital Stock" and (ii) in the Registration 3 26 Statement in Item 15, in each case insofar as such statements constitute summaries of legal matters or documents referred to therein, fairly present, in all material respects, the information called for with respect to such legal matters and documents and fairly summarize the legal matters and documents referred to therein. 7. After due inquiry, we do not know of any contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration that are not described or filed as required. 8. The Company is not, and after giving effect to the consummation of the Transactions as described in the Prospectus will not be, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. We have not independently verified the accuracy, completeness or fairness of the statements made or the information contained in the Registration Statement, the Prospectus or the Incorporated Documents, and, except with respect to the descriptions referred to in paragraphs 2 and 6 above, we are not passing upon and do not assume any responsibility therefor. In the course of the preparation by the Company of the Registration Statement, the Prospectus and the Incorporated Documents, we have participated in discussions with representatives of the Company and its independent accountants, in many of which your representatives and counsel also participated, in which the business and affairs of the Company and the contents of the Registration Statement, the Prospectus and the Incorporated Documents were discussed. We have also made inquiries of representatives of the Company and its accountants as to whether there have been any material changes in the affairs of the Company since the Registration Statement became effective. There is no assurance that all material facts as to the Company and its affairs were disclosed to us or that our familiarity with the Company is such that we have necessarily recognized the materiality of such facts as were disclosed to us, and we have to a large extent relied upon statements of representatives of the Company as to materiality of the facts disclosed to us. Based upon our participation in the foregoing discussions, the foregoing inquiries and our examination of the documents referred to above and such other documents as came to our attention as a result of such discussions and inquiries, (i) we are of the opinion that the Incorporated Documents (except for financial statements and schedules, including the notes thereto, and other financial and statistical data included therein, as to which we express no opinion) filed pursuant to the Exchange Act complied when so filed as to form in all material respects with the Exchange Act and the rules and regulations of the Commission thereunder, (ii) 4 27 we are of the opinion that the Registration Statement and Prospectus (except for financial statements and schedules, including the notes thereto, and other financial and statistical data included therein, as to which we express no opinion) comply as to form in all material respects with the Act and the applicable rules and regulations of the Commission thereunder, (iii) we have no reason to believe that (except for financial statements and schedules, including the notes thereto, and other financial and statistical data as to which we express no belief) the Registration Statement, taken together with the Incorporated Documents, when it became effective contained, and as of today contains, any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iv) we have no reason to believe that (except for financial statements and schedules, including the notes thereto, and other financial and statistical data as to which we express no belief) the Prospectus and the Incorporated Documents taken together as of today contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which there were made, not misleading. This opinion is furnished by us to you as the Representatives of the several Underwriters and is solely for the benefit of the several Underwriters. Very truly yours Ropes & Gray 5 28 EXHIBIT B October __, 1996 Morgan Stanley & Co. Incorporated Goldman, Sachs & Co. Salomon Brother Inc c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Morgan Stanley & Co. International Limited Goldman Sachs International Salomon Brothers International Limited c/o Morgan Stanley & Co. International Limited 25 Cabot Square Canary Wharf London E14 4QA England Re: 8,000,000 Shares of Common Stock, $.01 par value, of The Neiman Marcus Group, Inc. ------------------------------------------------- Ladies and Gentlemen: This opinion is furnished to you as representatives of the several Underwriters pursuant to Section 5(d) of the underwriting agreement dated October __, 1996 (the "Underwriting Agreement"), among The Neiman Marcus Group, Inc., a Delaware corporation (the "Company") and you as representatives of the several underwriters listed on Schedules I and II thereto relating to the issue and sale by the Company of 8,000,000 shares of its Common Stock, $.01 par value per share (the "Shares"). Terms defined in the Underwriting Agreement and not otherwise defined herein are used herein as so defined. I have attended the Closing of the sale of the Shares held today. I have examined signed copies of the registration statement of the Company on Form S-3 (No. 333-11721), together with Amendments No. 1 and No. 2 thereto and all exhibits thereto (the "Registration Statement"), all as filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"); copies of the prospectus dated October __, 1996 relating to the Shares filed with the Commission pursuant to Rule 424(b) under the Act (the 29 "Prospectus"); the documents filed by the Company under the Securities Exchange Act of 1934, as amended (the "Exchange Act") which are specifically incorporated by reference in the Prospectus and all exhibits to such documents (the "Incorporated Documents"); an executed copy of the Underwriting Agreement; and such other documents as I have deemed necessary. Additionally, I have relied upon oral advice from the staff of the Commission to the effect that the Registration Statement became effective on October __, 1996. I have also examined and relied upon the original or copies of minutes of meetings of the stockholders and the Board of Directors of the Company and of each Significant Subsidiary and the documents delivered at the Closing of the sale of the Shares (other than the certificates representing the Shares, as to which I have relied upon a certificate of the Transfer Agent and Registrar as to the countersignature and registration of such certificates). I have assumed the genuineness of the signatures on all documents examined by me, the authenticity of all documents submitted to me as originals and the conformity to the corresponding originals of all documents submitted to me as copies. I express no opinion as to the laws of any jurisdiction other than those of The Commonwealth of Massachusetts, the General Corporation Law of the State of Delaware (the "DGCL") and the federal laws of the United States of America. In rendering my opinions in paragraph 2 below, I have relied on certificates of the Secretary of States of the relevant jurisdictions with respect to the qualification of the Company and the Significant Subsidiaries as foreign corporations. Based upon and subject to the foregoing, I am of the opinion that: 1. Each Significant Subsidiary of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to own its properties and conduct its business as described in the Prospectus (including the Incorporated Documents). 2. The Company and each Significant Subsidiary is duly qualified to transact business in and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole. 3. The shares of Common Stock outstanding prior to the issuance of the Shares have been duly authorized and are validly issued, fully paid and non- assessable. The issuance of the Shares and the shares of Common Stock to B-2 30 be issued as the Stock Payment is not subject to any contractual preemptive or similar rights of which I have knowledge. 4. The issuance and sale of the Shares by the Company, the execution and delivery of the Underwriting Agreement and the consummation of the Transactions as described in the Prospectus (including the Incorporated Documents) will not contravene any agreement or other instrument, of which I have knowledge, binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, taken as a whole, or any judgment, order or decree, of which I have knowledge, of any governmental body, agency or court having jurisdiction over the Company or any Significant Subsidiary, except that I express no opinion as to state securities or Blue Sky laws or as to compliance with the antifraud provisions of federal and state securities laws. 5. After due inquiry of officers of the Company and representatives of outside counsel to the Company, I do not know of any legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the company or any of its Subsidiaries is subject that are required to be described in the Registration Statement, the Prospectus or the Incorporated Documents and are not so described or of any statutes or regulations, that are required to be described in the Registration Statement or the Incorporated Documents that are not described as required. 6. I do not know of (i) any pending or threatened legal proceedings alleging that any real property or building held under lease by the Company or any of its subsidiaries is not held under a valid, subsisting and enforceable lease, or (ii) any lien, encumbrance or claim with respect to any real or personal property owned or leased by the Company which could materially interfere with the conduct of the business of the Company and its subsidiaries, taken as a whole. I have not independently verified the accuracy, completeness or fairness of the statements made or the information contained in the Registration Statement, the Prospectus or the Incorporated Documents, and I am not passing upon and do not assume any responsibility therefor. In the course of the preparation by the Company of the Registration Statement, the Prospectus and the Incorporated Documents, I have participated in discussions with representatives of the Company and its independent accountants, in many of which your representatives and counsel also participated, in which the business and affairs of the Company and the contents of the Registration Statement, the Prospectus and the Incorporated Documents were discussed. I have also made inquiries of representatives of the B-3 31 Company and its accountants as to whether there have been any material changes in the affairs of the Company since the Registration Statement became effective. There is no assurance that all material facts as to the Company and its affairs were disclosed to me. Based upon my participation in the foregoing discussions, the foregoing inquiries and my examination of the documents referred to above and such other documents as came to my attention as a result of such discussions and inquiries, (i) I am of the opinion that the Registration Statement and Prospectus (except for financial statements and schedules, including the notes thereto, and other financial and statistical data included therein, as to which I express no opinion) comply as to form in all material respects with the Act and the applicable rules and regulations of the Commission thereunder, and (ii) I have no reason to believe that (except for financial statements and schedules, including the notes thereto, and other financial and statistical data as to which I express no belief) the Registration Statement when it became effective taken together with the Incorporated Documents contained, and as of today contains, any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) I have no reason to believe that (except for financial statements and schedules, including the notes thereto, and other financial and statistical data as to which I express no belief) the Prospectus and the Incorporated Documents taken together as of today contain any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. This opinion is furnished by us to me as the Representatives of the several Underwriters and is solely for the benefit of the several Underwriters Very truly yours Eric P. Geller Senior Vice President and General Counsel B-4 32 EXHIBIT C October __, 1996 Morgan Stanley & Co. Incorporated Goldman, Sachs & Co. Salomon Brothers Inc as Representatives of the several U.S. Underwriters named in Schedule I to the Underwriting Agreement referred to below c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Morgan Stanley & Co. International Limited Goldman Sachs International Salomon Brothers International Limited as Representatives of the several International Underwriters named in Schedule II to the Underwriting Agreement referred to below c/o Morgan Stanley & Co. International Limited 25 Cabot Street Canary Wharf London E14 4QA England Dear Sirs and Mesdames: We have acted as counsel for you and the other several Underwriters (the "Underwriters") named in Schedules I and II to the Underwriting Agreement dated October __, 1996 (the "Underwriting Agreement") between The Neiman Marcus Group, Inc., a Delaware corporation (the "Company"), and yourselves, as representatives of the several Underwriters, under which you and such other Underwriters severally agreed to purchase from the Company 8,000,000 shares of its common stock, par value $0.01 per share (the "Firm Shares"). [The Firm Shares and the 1,200,000 shares (the "Additional Shares") of common stock ($0.01 par value) to be purchased from the Company pursuant to the 33 overallotment option provided for by the Underwriting Agreement are hereinafter collectively referred to as the Shares.] We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments as we have deemed necessary or advisable for the purpose of rendering this opinion. We have participated in the preparation of the Company's registration statement on Form S-3 (File No. 333-11721) and Amendments Nos. 1 and 2 thereto, relating to the offering of the Shares (other than the documents incorporated by reference therein (the "Incorporated Documents")) filed with the Securities and Exchange Commission (the "Commission") pursuant to the provisions of the Securities Act of 1933, as amended (the "Act"). In addition, we have received oral confirmation from the Staff of the Commission that the registration statement, as then amended, was declared effective under the Act on October __, 1996. The registration statement, as amended at the time it became effective, including the Incorporated Documents, is hereinafter referred to as the "Registration Statement", and the related U.S. and International prospectuses, including the Incorporated Documents, in the respective forms first used to confirm sales of the Shares are hereinafter referred to as the "Prospectus". Based upon the foregoing, we are of the opinion that: (i) The Shares have been duly authorized and, when issued and delivered in accordance with the terms of the Underwriting Agreement, will be validly issued, fully paid and non-assessable, and the issuance of the Shares will not be subject to any preemptive or similar rights; and (ii) The Underwriting Agreement has been duly authorized, executed and delivered by the Company. We have considered the matters required to be included in the Registration Statement and Prospectus and the information contained therein. We are of the opinion that the statements set forth in the Prospectus under the caption "Underwriters", insofar as such statements constitute a summary of the documents referred to therein, fairly present in all material respects the information called for with respect to such documents and fairly summarize in all material respects the matters referred to therein. C-2 34 We have not ourselves checked the accuracy or completeness of, or otherwise verified, the information furnished with respect to other matters in the Registration Statement or the Prospectus. We have generally reviewed and discussed with certain officers and employees of the Company, counsel for the Company, special counsel for the Company, independent public accountants for the Company and your representatives, the information furnished, whether or not subject to our check and verification. On the basis of such consideration, review and discussion, but without independent check or verification except as stated, (i) we are of the opinion that the Registration Statement and the Prospectus (except for financial statements and schedules and other financial and statistical data included or incorporated by reference therein, as to which we express no opinion) comply as to form in all material respects with the Act and the applicable rules and regulations of the Commission thereunder, (ii) we have no reason to believe that (except for financial statements and schedules and other financial and statistical data included or incorporated by reference therein, as to which we are not called upon to express a belief) the Registration Statement and the prospectus included therein at the time the Registration Statement became effective contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) we have no reason to believe that (except for financial statements and schedules and financial and statistical data included or incorporated by reference therein, as to which we express no opinion), the Prospectus contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. We have examined the opinions dated the date hereof of Ropes & Gray, outside counsel to the Company, and Eric P. Geller, counsel to the Company, delivered to you pursuant to paragraphs (c) and (d) of Section 5 of the Underwriting Agreement, and we believe that on their face such opinions are substantially responsive to the requirements of the Underwriting Agreement. We have also examined the letters of Deloitte & Touche LLP, independent public accountants for the Company, dated October __, 1996 and the date hereof, relating to the financial statements and other financial information included in the Registration Statement and the Prospectus and the other matters referred to therein, delivered to you pursuant to paragraph (f) of Section 5 of the Underwriting Agreement. We participated in discussions with representatives of Deloitte & Touche LLP and with your representatives relating to the forms of such letters, and we believe that such letters are substantially in the forms agreed to. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York, the federal laws of the C-3 35 United States of America and the General Corporation Law of the State of Delaware. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by or furnished to any other person without our prior written consent. Very truly yours, C-4 36 EXHIBIT D [FORM OF LOCK-UP LETTER] ____________, 1996 Morgan Stanley & Co. Incorporated Goldman, Sachs & Co. Salomon Brothers Inc c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, NY 10036 Morgan Stanley & Co. International Limited Goldman Sachs International Salomon Brothers International Limited c/o Morgan Stanley & Co. International Limited 25 Cabot Square Canary Wharf London E14 4QA England Dear Sirs and Mesdames: The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan Stanley") and Morgan Stanley & Co. International Limited ("MSIL") propose to enter into an Underwriting Agreement (the "Underwriting Agreement") with The Neiman Marcus Group, Inc., a Delaware corporation (the "Company") providing for the public offering (the "Public Offering") by the several Underwriters, including Morgan Stanley and MSIL (the "Underwriters") of shares (the "Shares") of the common stock, par value $.01 per share of the Company (the "Common Stock"). To induce the Underwriters that may participate in the Public Offering to continue their efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of Morgan Stanley on behalf of the Underwriters, it will not, during the period commencing on the date hereof and ending 90 days after the date of the final prospectus relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or D-1 37 indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (whether such shares or any such securities are now owned by the undersigned or are hereafter acquired), or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, other than the surrendering of an option to purchase Common Stock in exchange for a cash payment equal to the value of the option. In addition, the undersigned agrees that, without the prior written consent of Morgan Stanley on behalf of the Underwriters, it will not, during the period commencing on the date hereof and ending 90 days after the date of the Prospectus, make any demand for or exercise any right with respect to, the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock. Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Underwriters. Very truly yours, -------------------------------- (Name) -------------------------------- (Address) D-2 EX-5.1 3 OPINION OF ROPES & GRAY 1 EXHIBIT 5.1 [ROPES & GRAY LETTERHEAD] October 9, 1996 The Neiman Marcus Group, Inc. 27 Boylston Street Chesnut Hill, Massachusetts 02167 Ladies and Gentlemen: This opinion is furnished to you in connection with a registration statement on Form S-3 (the "Registration Statement"), filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended, for the registration of up to 9,200,000 shares of Common Stock, $0.01 par value (the "Shares"), of The Neiman Marcus Group, Inc., a Delaware corporation (the "Company"). The shares are to be sold pursuant to an underwriting agreement (the "Underwriting Agreement") to be entered into among the Company and Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co., Salomon Brothers, Inc., as representatives of the U.S. Underwriters named in Schedule I to the Underwriting Agreement, and Morgan Stanley & Co. International, Goldman Sachs International and Salomon Brothers International Limited, as representatives of the International Underwriters named in Schedule II to the Underwriting Agreement. We have acted as counsel for the Company in connection with the issue and sale by the Company of the Shares. For purposes of our opinion, we have examined and relied upon such documents, records, certificates and other instruments as we have deemed necessary. We express no opinion as to the applicability of, compliance with or effect of federal law or the law of any jurisdiction other than The Commonwealth of Massachusetts and the General Corporation Law of the State of Delaware. Based upon the foregoing, we are of the opinion that, the Shares have been duly authorized and, when issued and sold by the Company in accordance with the terms of the Underwriting Agreement, will be validly issued, fully paid and nonassessable. 2 The Neiman Marcus Group, Inc. -2- October 9, 1996 We hereby consent to the filing of this opinion as part of the Registration Statement and to the use of our name therein and in the related prospectus under the caption "Legal Matters." This opinion is to be used only in connection with the offer and sale of the Shares while the Registration Statement is in effect. Very truly yours, Ropes & Gray EX-10.1 4 EXCHANGE AND REPURCHASE AGREEMENT 1 EXHIBIT 10.1 EXCHANGE AND REPURCHASE AGREEMENT This Agreement is entered into as of October 8, 1996 between Harcourt General, Inc. ("Harcourt General") and The Neiman Marcus Group, Inc. ("NMG"). WHEREAS, Harcourt General owns all of NMG's outstanding preferred stock consisting of 500,000 shares of 9 1/4% Cumulative Redeemable Preferred Stock which has an aggregate stated value of $50,000,000 (the "9 1/4% Preferred Stock") and 1,000,000 shares of 6% Cumulative Convertible Preferred Stock which has an aggregate stated value of $374,922,867 (the "6% Preferred Stock and, together with the 9 1/4% Preferred Stock, the "Preferred Stock"); WHEREAS, Harcourt General and NMG desire to engage in a transaction (the "Exchange and Repurchase") pursuant to which NMG will repurchase from Harcourt General all of the Preferred Stock at an aggregate price (the "Total Purchase Price") of $416,424,410, representing 98% of the aggregate stated value of the Preferred Stock; WHEREAS, to partially fund the Total Purchase Price, NMG intends to sell 8,000,000 to 9,200,000 shares of its Common Stock, $.01 par value per share (the "Common Stock"), to the public in an offering (the "Offering") registered with the Securities and Exchange Commission (the "SEC") on an appropriate Registration Statement form (the "Registration Statement"). WHEREAS, the Total Purchase Price will be paid with $281,424,410 in cash (the "Cash Payment") and the remainder with that number of shares of Common Stock (the "Exchange Shares") equal to (a) $135,000,000 divided by (b) the per share offering price to the public (the "Offering Price") in the Offering. NOW THEREFORE, in consideration of the foregoing and the other mutual covenants contained herein, the adequacy of which consideration the parties hereby acknowledge, the parties agree as follows: 1. TERMS OF TRANSACTION -------------------- 1.1. EXCHANGE AND REPURCHASE. Subject to the terms and conditions herein set forth, NMG shall purchase from Harcourt General, and Harcourt General will transfer to NMG, all of the Preferred Stock in exchange for the Total Purchase Price. On the Offering Date (as defined in Section 1.2 below) NMG shall pay to Harcourt General the lesser of the net proceeds to the Company of the Offering and $260,000,000 (the "Advance Payment") by wire transfer as an advance payment against the Cash Payment. At the Closing (as defined in 2 Section 1.2 below), NMG shall also pay Harcourt General in cash an amount equal to the sum of (a) the accrued and unpaid dividends on the Preferred Stock through the Offering Date (the "Dividend Payment"), (b) the difference between the Cash Payment and the Advance Payment (the "Closing Cash Payment"), and (c) interest on the Dividend Payment and the Closing Cash Payment from the Offering Date through the Closing at a rate of 5% per annum calculated on the basis of a 365 day year for the actual number of days elapsed (the "Interest Payment"). 1.2. CLOSING. A closing (the "Closing") of the Exchange and Repurchase shall take place at the offices of NMG at 27 Boylston Street, Chestnut Hill, Massachusetts on the later of November 12, 1996 and the date of the closing of the sale by NMG to the underwriters of shares of Common Stock in connection with the Offering (the "Offering Date") or at such other place and time as the parties shall mutually agree. At the Closing, NMG shall deliver to Harcourt General (a) the Dividend Payment, the Closing Cash Payment and the Interest Payment by wire transfer and (b) certificates issued in the name of Harcourt General representing the Exchange Shares, provided that in lieu of any fractional share that would otherwise be issuable by NMG as part of the Total Purchase Price, NMG shall increase the Closing Cash Payment by the product of such fraction multiplied by the Offering Price. At the Closing, Harcourt General shall deliver to NMG certificates representing all of the Preferred Stock duly endorsed for transfer to NMG. At the Closing, the parties will deliver such other documents or instruments that may be required by this Agreement to be delivered at the Closing. 2. REPRESENTATIONS OF NMG. ---------------------- 2.1. ORGANIZATION AND AUTHORIZATION. NMG is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. This Agreement is the valid and binding obligation of NMG, enforceable against NMG in accordance with its terms. The execution, delivery and performance of this Agreement by NMG and the issuance of the Exchange Shares have been duly authorized by all necessary corporate action. 2.2. EFFECT OF TRANSACTIONS. The execution, delivery and performance of this Agreement by NMG and compliance with the provisions hereof by NMG, do not and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under any of NMG's charter documents or any instrument, document or agreement to which NMG is party. 2.3. GOVERNMENTAL CONSENTS. No consent, approval or authorization of, or designation, declaration or filing with, any federal or state governmental authority (except for any of the same required under federal or state securities laws in connection with the Offering) is required on the part of NMG in connection with the repurchase of the Preferred Stock or the issuance of the Exchange Shares or the consummation of any other transaction contemplated hereby, and no other consent of any third party (except for consents which will be obtained by NMG prior to Closing) is required for the consummation by NMG of any of the transactions -2- 3 contemplated hereby. 2.4. EXCHANGE SHARES. As of the Closing, the Exchange Shares will be duly and validly authorized, and when delivered in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable. 3. REPRESENTATIONS OF HARCOURT GENERAL. ----------------------------------- 3.1. ORGANIZATION AND AUTHORIZATION. Harcourt General is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. This Agreement is the valid and binding obligation of Harcourt General, enforceable against Harcourt General in accordance with its terms. The execution, delivery and performance of this Agreement by Harcourt General have been duly authorized by all necessary corporate action. 3.2. EFFECT OF TRANSACTIONS. The execution, delivery and performance of this Agreement by Harcourt General and the compliance with the provisions hereof by Harcourt General, do not and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under any of Harcourt General's charter documents or any instrument, document or agreement to which Harcourt General is a party. 3.3. GOOD TITLE. Harcourt General has, and immediately prior to the Closing will have, good and marketable title to the Preferred Stock and authority to transfer and deliver such Preferred Stock free and clear of all voting trust arrangements, liens, encumbrances, equities, security interests, restrictions and claims whatsoever, (collectively, "Adverse Claims") and upon delivery to NMG of the Preferred Stock and payment by NMG to Harcourt General of the Total Purchase Price, NMG will acquire good and marketable title thereto, free and clear of all Adverse Claims, other than restrictions imposed on the Preferred Stock through action of NMG. 3.4. GOVERNMENTAL CONSENTS. No consent, approval or authorization of, or designation, declaration or filing with, any federal or state governmental authority is required on the part of Harcourt General in connection with the valid sale to NMG of the Preferred Stock or the performance by Harcourt General of any other transaction contemplated hereby, and no other consent of any third party (except for consents which will be obtained by Harcourt General prior to Closing) is required for the consummation by Harcourt General of any of the transactions contemplated hereby. 4. NMG COVENANT. Subject to NMG's rights to terminate this Agreement pursuant to Section 6.1 hereof, NMG covenants to use its best efforts to consummate the Offering, including without limitation, the effectuation of the registration under the Securities Act of 1933, as amended, of an underwritten public offering of not less than 8,000,000 shares of Common Stock. -3- 4 5. CONDITIONS TO CLOSING. --------------------- 5.1. CONDITION TO NMG'S OBLIGATIONS. NMG's obligation to purchase the Preferred Stock at the Closing for the Total Purchase Price in accordance with the terms of this Agreement is subject to fulfillment of the following conditions on or prior to the Closing, any of which conditions may be waived by NMG: (a) The representations and warranties made by Harcourt General in Section 3 hereof shall be true and correct in all material respects when made and as of the Closing and all agreements and conditions contained in this agreement to be performed by Harcourt General on or prior to the Closing shall have been performed or complied with in all material respects. (b) All material matters of a legal nature which pertain to this Agreement and the transactions contemplated hereby shall have been reasonably approved by NMG. (c) NMG shall have consummated the Offering. (d) On the date of the Closing, NMG shall have sufficient funds available to pay the Closing Cash Payment, the Dividend Payment and the Interest Payment. 5.2. CONDITIONS TO HARCOURT GENERAL'S OBLIGATIONS. Harcourt General's obligations to sell and convey the Preferred Stock at the Closing is subject to the fulfillment of the following conditions on or prior to the Closing, any of which conditions may be waived by Harcourt General: (a) The representations and warranties made by NMG in Section 2 hereof shall be true and correct in all material respects when made and as of the Closing, and all agreements and conditions contained in this Agreement to be performed by NMG on or prior to the Closing shall have been performed or complied with in all material respects. (b) All material matters of a legal nature which pertain to this Agreement and the transactions contemplated hereby shall have been reasonably approved by Harcourt General. 6. MISCELLANEOUS. ------------- 6.1. TERMINATION. This Agreement may be terminated by either party if the Closing has not occurred prior to March 31, 1997. This Agreement may be terminated prior to the time a registration statement relating to the Offering has been declared effective by the SEC: -4- 5 (a) by Harcourt General, if the reported last sale price of the Common Stock on the New York Stock Exchange ("NYSE") is equal to or greater than the "Conversion Price" (as such term is defined in the Certificate of Designation relating to the 6% Preferred Stock on file with the Secretary of State of the State of Delaware) for five consecutive NYSE business days; (b) by NMG, if the reported last sale price of the Common Stock on the NYSE is less than $28 for five consecutive NYSE business days; and (c) by NMG, if Bear Stearns & Co. Inc. withdraws its opinion given to a special committee of NMG's Board of Directors that the transaction is fair from a financial point of view to the public shareholders of NMG. If this Agreement is terminated pursuant to this Section 6.1 after the payment to Harcourt General of the Advance Payment, Harcourt General shall return the Advance Payment with interest from the date of the payment of the Advanced Payment to Harcourt General through the date repaid at a rate of 5% per annum calculated on the basis of a 365 day year for the actual number of days elapsed. 6.2. EXPENSES. Each party shall bear all expenses that such party incurs in connection with this Agreement and the transactions contemplated hereby. 6.3. NOTICES. All notices, requests, demands and other communications hereunder must be in writing and given by prepaid certified mail, return receipt requested or delivered personally to the receiving party's principal executive office. 6.4. GENERAL. This Agreement sets forth the entire understanding of the parties with respect to the transactions contemplated hereby, supersedes all prior oral or written communications, and may not be changed or terminated orally. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors, assigns and legal representatives of the parties hereto. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. This Agreement shall be construed and enforced as a contract under seal in accordance with, and the rights of the parties shall be governed by, the domestic substantive laws of The Commonwealth of Massachusetts. [The rest of this page has been intentionally left blank] -5- 6 IN WITNESS WHEREOF, each of the parties hereto have caused the execution of this Agreement by its duly authorized officers. THE NEIMAN MARCUS GROUP, INC. By: ------------------------------------- Title: ---------------------------------- Date: ---------------------------------- HARCOURT GENERAL, INC. By: ------------------------------------- Title: ---------------------------------- Date: ---------------------------------- -6- EX-23.1 5 CONSENT OF DELOITTE & TOUCHE 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of The Neiman Marcus Group, Inc. on Form S-3 of our reports dated August 29, 1996, (September 10, 1996 as to Note 13), appearing in, and incorporated by reference into, the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the headings "Experts" in such Prospectus. Deloitte & Touche LLP Boston, Massachusetts October 9, 1996 -----END PRIVACY-ENHANCED MESSAGE-----